New classification codes
KATHMANDU, JUL 13 -
With fiscal analysis rapidly evolving in response to the growing complexity of formulating and evaluating government fiscal policies, a tendency to change the system of accounting from a cash basis to an accrual basis has been growing in the present world. In this context, the International Monetary Fund (IMF) introduced the government financial statistics manual (GFSM) 2001 replacing the GFS of 1986. The manual has been designed for the compilation of government financial statistics, fiscal analysis and understanding the relations between various sets of statistics.
In Nepal, the existing government system of accounting is the cash basis. With a little effort, economic transactions could be categorised as per the classification codes of the GFSM. The classification codes are used to identify different types of transactions and other economic flows. The government submits its annual budget to Parliament with the details of income and expenditure showing transactions in the particular classification code defined by law. The details of economic flows mentioned in the budget must match the prescribed economic classification code.
The government of Nepal has completed the entire process of shifting in line with the GFSM 2001 and decided to amend the functional and economic codes including the chart of accounts. This will lead to a different presentation structure as compared to the current budget structure. The presentation of the new budget will be basically in three parts, namely Income, Expenditure and Financing instead of Income and Expenditure as used to be done previously. The Financing part will be a totally new heading in the coming budget.
In the Income part, the main heading will be shown as Revenue and Grant instead of Revenue, and it will be followed by subheadings like tax, other revenue and foreign grants. As principal refund is taken as the Financing part in the present classification code, it will be moved from the Revenue and Grant heading. Likewise, principal payment is also not considered as expenditure, and it will be moved from the Expenditure part. Hence, only recurrent and capital will remain in the Expenditure part.
Any type of expenditure that falls under the grants and subsidies heading are considered as recurrent expenditure in the proposed classification. Therefore, grants and subsidies that fall under capital expenditure at present will be moved to recurrent expenditure. As an effect of this provision, recurrent expenditure will swell and capital expenditure will decrease.
In the Financing part, loan investments, capital investments, receipt of foreign loans and receipt of domestic borrowing will be shown after adjusting refund of loan investment and principal payment of foreign and domestic borrowing. Therefore, correcting the mistake of showing as revenue to refund of principal and showing as expenditure to investments is one of the biggest changes from the existing practice.
Based on the GFSM 2001, the functional classification of government expenditure will be exhibited under the following 10 main headings: (i) General public service (ii) Defence (iii) Public order and safety (iv) Economic affairs (v) Environmental protection (vi) Housing and community amenities (vii) Health (viii) Recreation, culture and religion, (ix) Education and (x) Social protection. Thus, it will replace the following seven headings of classification of Constitutional Bodies, General Administration, Defence, Social Services, Economic Services, Loan Payment and Miscellaneous being used at present.
Although the revenue and grant classification coding numbers have been restructured as per the GFSM 2001, there are minor changes in the revenue and grant classification; but the coding numbers have been changed significantly. In order to make things logical and clear, the line items have also been improved in line with the GFSM 2001. Revenue and grants have been classified in 95 instead of 88 subheadings at present. The charts of accounts seem more illustrative and analytical. Expenditure classification coding has also been improved according to it. The main heading of expenditure under principal payment has been moved to the Financing part. There are 67 instead of 33 line items under recurrent and 11 instead of 19 line items under capital expenditure. There are 16 line items under financing part.
The estimates of expenditures, Line Item-wise Estimates of Expenditures (Red Book) and Source book also called White book will be combined and published in a single book instead of three books.
With the changes in the economic and functional classification including the chart of accounts of revenue and expenditure, the next budget presentation will noticeably differ from the usual budget presentations. As the classification and codes are consistent with the GFSM 2001, it facilitates providing the data of economic activities of the government in a harmonised and comparable way even from the international perspective. Moreover, it will facilitate making the government’s financial data simple, manageable, comparable, transparent and trustworthy. It will also provide a base line while converting to the accrual accounting system. Let us believe that it will also lead to maintaining financial discipline and good governance.
(The author is under secretary, Ministry of Finance.)
Source: Kantipur
With fiscal analysis rapidly evolving in response to the growing complexity of formulating and evaluating government fiscal policies, a tendency to change the system of accounting from a cash basis to an accrual basis has been growing in the present world. In this context, the International Monetary Fund (IMF) introduced the government financial statistics manual (GFSM) 2001 replacing the GFS of 1986. The manual has been designed for the compilation of government financial statistics, fiscal analysis and understanding the relations between various sets of statistics.
In Nepal, the existing government system of accounting is the cash basis. With a little effort, economic transactions could be categorised as per the classification codes of the GFSM. The classification codes are used to identify different types of transactions and other economic flows. The government submits its annual budget to Parliament with the details of income and expenditure showing transactions in the particular classification code defined by law. The details of economic flows mentioned in the budget must match the prescribed economic classification code.
The government of Nepal has completed the entire process of shifting in line with the GFSM 2001 and decided to amend the functional and economic codes including the chart of accounts. This will lead to a different presentation structure as compared to the current budget structure. The presentation of the new budget will be basically in three parts, namely Income, Expenditure and Financing instead of Income and Expenditure as used to be done previously. The Financing part will be a totally new heading in the coming budget.
In the Income part, the main heading will be shown as Revenue and Grant instead of Revenue, and it will be followed by subheadings like tax, other revenue and foreign grants. As principal refund is taken as the Financing part in the present classification code, it will be moved from the Revenue and Grant heading. Likewise, principal payment is also not considered as expenditure, and it will be moved from the Expenditure part. Hence, only recurrent and capital will remain in the Expenditure part.
Any type of expenditure that falls under the grants and subsidies heading are considered as recurrent expenditure in the proposed classification. Therefore, grants and subsidies that fall under capital expenditure at present will be moved to recurrent expenditure. As an effect of this provision, recurrent expenditure will swell and capital expenditure will decrease.
In the Financing part, loan investments, capital investments, receipt of foreign loans and receipt of domestic borrowing will be shown after adjusting refund of loan investment and principal payment of foreign and domestic borrowing. Therefore, correcting the mistake of showing as revenue to refund of principal and showing as expenditure to investments is one of the biggest changes from the existing practice.
Based on the GFSM 2001, the functional classification of government expenditure will be exhibited under the following 10 main headings: (i) General public service (ii) Defence (iii) Public order and safety (iv) Economic affairs (v) Environmental protection (vi) Housing and community amenities (vii) Health (viii) Recreation, culture and religion, (ix) Education and (x) Social protection. Thus, it will replace the following seven headings of classification of Constitutional Bodies, General Administration, Defence, Social Services, Economic Services, Loan Payment and Miscellaneous being used at present.
Although the revenue and grant classification coding numbers have been restructured as per the GFSM 2001, there are minor changes in the revenue and grant classification; but the coding numbers have been changed significantly. In order to make things logical and clear, the line items have also been improved in line with the GFSM 2001. Revenue and grants have been classified in 95 instead of 88 subheadings at present. The charts of accounts seem more illustrative and analytical. Expenditure classification coding has also been improved according to it. The main heading of expenditure under principal payment has been moved to the Financing part. There are 67 instead of 33 line items under recurrent and 11 instead of 19 line items under capital expenditure. There are 16 line items under financing part.
The estimates of expenditures, Line Item-wise Estimates of Expenditures (Red Book) and Source book also called White book will be combined and published in a single book instead of three books.
With the changes in the economic and functional classification including the chart of accounts of revenue and expenditure, the next budget presentation will noticeably differ from the usual budget presentations. As the classification and codes are consistent with the GFSM 2001, it facilitates providing the data of economic activities of the government in a harmonised and comparable way even from the international perspective. Moreover, it will facilitate making the government’s financial data simple, manageable, comparable, transparent and trustworthy. It will also provide a base line while converting to the accrual accounting system. Let us believe that it will also lead to maintaining financial discipline and good governance.
(The author is under secretary, Ministry of Finance.)
Source: Kantipur
