In costing strategies and action plans, much of the attention goes to identifying activities, estimating costs and distributing them across implementation years. This is necessary work. However, from a PFM perspective, an equally important question is what happens when the completed action plan enters the budget process. How much of the proposed expenditure is already covered, what requires additional resources, and which activities can realistically proceed?
A strategy may be approved with a detailed costing table while decisions about financing remain open. Approval of policy and authorisation of expenditure are separate decisions.
One practical difficulty is establishing what is already included in the budget. An institution may identify its own budget as the funding source for a new activity because that activity falls within its mandate. Yet its expenditure ceiling may already be largely committed to salaries, exiting services and ongoing projects. The fact that the institution has a budget does not establish that it has room to finance the proposed activity. There needs to be connected within the relevant budget programme, the resources available within it, and any reprioritisation required.
The costing itself should help clarify this. Some activities may be delivered by the existing staff using the available resources, other activity require additional purchases, recruitment or investment. Distinguishing these requirements helps avoid both overstating the additional financing needed and assuming that existing institutions can absorb new responsibilities without resource implications.
Lets consider an action plan proposing establishment of a research laboratory. Equipment and refurbishment may be relatively straightforward to identify and cost. But what about technicians, consumables, equipment servicing and eventual replacement? If a development partner finances the equipment, the initial investment may appear fully funded while the institution’s future budget carries the operating costs. These costs need to enter the financing discussions early enough to influence the decision to establish the laboratory and its intended scale.
The timing of financing also matters. An allocation in the current annual budget, an indicative amount in the medium-term expenditure framework and an expectation of future donor support provide different degree of certainty. A financing table should make these distinctions visible. It should also allow us to see whether the resources are expected to become available when the activity needs to take place. Where a funding gap remains, the action plan should provide a basis for discussing choices. If a programme is intended to reach ten municipalities but financing is available for only four, should implementation be phased, should the approach be redesigned, or should other expenditure be reprioritised? Keeping the original coverage, timetable and targets while reducing the financing leaves implementing institutions with commitments they may be unable to meet.
For me, this is an important part of value of costing: making the resource implications of policy choices sufficiently clear to support budget decisions. It also requires the action plan to be revisited when those decisions change.
These questions are also reflected in the PEFA framework. Dimension 16.3, on the alignment of strategic plans and medium-term budgets (
https://www.pefa.org/node/4837), examines the connection between costed strategies and approved expenditure policy proposals. Its guidance explicitly addresses funding gaps, financing sources and the future recurrent costs of investment commitments. This gives the discussion a practical assessment perspective: having a costed strategy is one part of the picture but how it relates to the budget is another.
Two publications provide useful perspectives on these issues.
And finally, I would like to close this post with two questions for the fellow members of the Board:
- In your experience, how are costed strategies or policies taken into account when expenditure ceilings and annual budget allocations are set?
- When financing falls short, how is the funding gap managed in practice? Are activities, implementation schedules and targets reconsidered as part of the budget process?
