PAD 410: PUBLIC FINANCE ADMINISTRATION

MMABATHO MADUO MOELETSI

201803187

QUESTION:

Distinguish between recurrent and development budgeting. Include a summary of the

prevalence of development budgeting across the levels of Botswana government (central and

local) in your answer. Why is debt finance potentially appropriate for development budgeting
but not for recurrent budgets?

INTRODUCTION

Budgeting is a key tool that helps governments in efficiently making use of their resources.
This paper will distinguish between recurrent and development budgeting. It will further
include the prevalence of development budgeting across central and local government.
Finally it will discuss why debt finance is potentially appropriate for development budgeting
instead of recurrent budgeting.

According to Muriaas & Rod (2020), recurrent budgeting refers to the allocation of funds for
activities that are ongoing and repetitive, such as salaries, utilities, and maintenance. On the
other hand, development budgeting refers to the allocation of funds for projects and activities
that are intended to bring about change or improvement, such as infrastructure development,
education programs, or social welfare initiatives

BACKGROUND INFORMATION

The history of budgeting can be traced back to the ancient civilizations of Egypt, Greece, and
Rome. In these societies, budgeting was used to manage resources for military campaigns,
construction projects and other government activities ( Spengler,1942). During the Middle
Ages, budgeting evolved to include taxation, which was used to fund the church and other
institutions. In the 17th century, the concept of public finance emerged, which laid the
foundations for modern budgeting (Hollifield, 1988). The first modern budget was introduced
by the British government in the 19th century, and since then, budgeting has become a key
part of government operations.

By the 20th century, budgeting became more sophisticated with the introduction of new
concepts such as national income and macroeconomics. In the 1930s, John Maynard Keynes
proposed the idea of fiscal policy, which suggested that government spending could be used
to influence the economy (Hollifield,1988). In the post-World War II era, governments began
to use budgeting as a tool for economic planning and social welfare. Today, budgeting is an
essential part of government operations in every country, and it continues to evolve and adapt
to new challenges and opportunities (Meyers,1995).

RECURRENT BUDGETING
In Botswana, the recurrent budget is allocated on a line-item basis. This means that each item
of spending, such as salaries, office supplies, or maintenance, is given a specific budget
allocation (Muriaas & Rod, 2020). This approach allows for a high degree of transparency
and accountability, as each item of spending can be tracked and accounted for. In addition,
the recurrent budget is prepared on an incremental basis (Mokgosi, 2013). This means that
the previous year's budget is used as a starting point, and then adjustments are made based on
inflation, population growth, and other factors.

For example, in the 2020/2021 budget, recurrent spending accounted for approximately 76%
of total government spending. The largest share of this spending went to salaries and wages,
which accounted for 33% of the total recurrent budget (Ministry of finance, 2020) This
indicates that the government is prioritizing the payment of salaries and wages, which is
essential for the smooth functioning of the government. Other major areas of recurrent
spending include supplies and services, and interest payments on debt.

DEVELOPMENT BUDGETING

In Botswana, the development budget is controlled by the Ministry of Finance and Economic
Development, and is allocated through a process called the National Development Plan
(NDP). The National Development Plan is a multi-year plan that identifies priority areas for
development and sets out the budget for each year. According to Mokgosi (2013), it is usually
prepared in consultation with various stakeholders, including the private sector and civil
society. At the local level, the district and village councils also have development budgets,
although these are usually much smaller in size.

Development budgeting is typically carried out through a process called project-based

budgeting. This means that projects are identified and then funds are allocated to those
projects based on their priority and cost-effectiveness (Serie & Subacchi, 2016). The projects
are usually selected based on their potential to improve the lives of the people and to promote
economic development. For example, a project to build a new school or clinic would be
evaluated based on its cost and its potential impact on the community. The budget for each
project is then allocated based on its priority within the overall development plan(Mokgosi,
2013).

A good example of development budgeting in Botswana is the allocation of funds for

infrastructure projects. In the 2020/2021 budget, around 18% of total government spending
was allocated to infrastructure projects. These projects included the construction of new
roads, dams, and water supply systems. In addition, a significant amount of money was
allocated to rural development projects, such as rural water supply and sanitation, as well as
agricultural support services (Ministry od finance, 2020). These examples demonstrate how
the government is using the development budget to improve the lives of its citizens,
especially those in rural areas.

Mokgosi (2013) gave another example of development budgeting in Botswana as the funding
of social programs. The government has allocated funds for programs such as the Ipelegeng
program, which provides temporary employment opportunities for unemployed people. In
addition, the government has allocated funds for the Orphans and Vulnerable Children
program, which provides financial support for vulnerable children (Muriaas & Rod, 2020).
These examples show how the government is using the development budget to address social
issues and improve the well-being of its citizens.

DEVELOPMENT AND RECURRENT BUDGETING AT CENTRAL AND LOCAL

LEVELS OF GOVERNMENT

In Botswana, the central government has a separate development budget that is used to fund
major projects, while local governments often have a more limited scope for development
budgeting. At the central level in Botswana, development budgeting is quite prevalent
(Muriaas & Rod, 2020). The government has set aside a significant portion of the overall
budget for development projects. Muriaas & Rod (2020) further showed that in the
2019/2020 fiscal year, the government allocated nearly P10 billion for development projects.
This represents around 30% of the overall budget. Some of the main areas that are funded
through the development budget include education, health, infrastructure, and social welfare.
This shows that the government is committed to investing in development projects to
improve the lives of the people.

The government has established a number of priority areas, which are identified in the NDP.
These areas include education, health, water and sanitation, and economic development.
Within each of these priority areas, specific projects are identified and given a budget
allocation. For example, under education, the government may allocate funds for the
construction of new schools or the provision of school meals (Muriaas & Rod, 2020).Under
health, the government may allocate funds for the construction of new hospitals or the
provision of medical supplies.
Each year, the government prepares a budget estimate, which is a document that sets out the
planned spending for the upcoming fiscal year. The budget estimate is prepared by the
Ministry of Finance and Economic Development, and is then presented to Parliament for
approval. (Mokgosi, 2013). Once the budget is approved, the money is allocated to the
various ministries and departments, who then allocate it to specific projects. This process
ensures that the money is spent in a transparent and accountable way, and that it is used to
achieve the priorities set out in the NDP.

The allocation of development funds at the local level is a bit different than at the central
level. The recurrent budget is used to fund the day to day operations of the local government,
such as salaries, office supplies, and maintenance (Serie & Subacchi, 2016). The
development budget is used for specific projects, such as the construction of new roads,
clinics, or schools. The development budget at the local level is usually smaller than the
budget at the central level, and it is also allocated differently.

At the local level, there are three types of local governments being the district councils, town
councils, and village councils. Each of these local governments is given a share of the
development budget based on a formula that takes into account factors such as population,
poverty levels, and infrastructure needs (Meyers, 1995). The district council then distributes
the money to the town and village councils, who then decide how to spend it on specific
projects. This allows the local governments to tailor the spending to the specific needs of
their communities.

DEBT FINANCE

Debt finance is a type of financing that involves borrowing money to finance government
spending. This can be an appropriate way to fund development projects, which often have a
long-term horizon and require a large upfront investment. This makes debt financing more
appropriate for development budgeting rather than recurrent budgeting (Agostino & Casadei,
2012). By spreading the cost of the project over time, debt finance allows governments to
take on projects that they otherwise might not be able to afford. . One benefit of debt finance
is that it can provide access to a large amount of capital at once, which can be helpful for
large-scale projects. However, a major disadvantage of debt finance is that it can create a
heavy burden of debt, which can make it difficult to repay the loan (Vedder & Gallaway,
2009).
Debt finance is often used in combination with other forms of financing, such as taxes and
user fees. This is known as a blended finance approach. For example, a government might
borrow money to finance the construction of a new highway, and then charge tolls on the
highway to generate revenue and help repay the loan. According to Vedder & Gallaway
(2009), blended finance approaches are often used to fund development projects, as they can
help to spread the risk and cost across multiple sources. However, they can also be more
complex and difficult to manage.

Debt finance can be less appropriate for recurrent budgets because these budgets are typically
smaller and more predictable. Recurrent budgets are also more susceptible to changes in
economic conditions, so using debt finance to fund them can be riskier. As such development
budgets are more suitable government debts.

CONCLUSION

It is clear that both recurrent and development budgeting play an important role in the
economy of Botswana. Recurrent budgeting is essential for the functioning of government
services and infrastructure, while development budgeting is crucial for the long-term
economic growth and development of the country. Both types of budgeting are important in
ensuring that Botswana continues to progress and improve the lives of its citizens. Overall,
the country has made significant progress in both areas, and there is room for further
improvement.
REFERENCES

1. Spengler. J. J (1942) The history of public finance: From Ancient Times To The
Present.
2. Hollifield J.F (1988) The Evolution Of The Mordern Budget System
3. Meyers M. L (1995) Public Budgeting: A Historical Perspective
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Budgeting.
5. Muriaas G. & Rod L. (2020) Public Budgeting Systems In Africa: Botswana And
Lesotho.
6. Stewart J., Serie D.,& Subbachi G. (2016) Decentralisation and the role of local
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