18.08.2022
The Ministry of Finance on Wednesday announced that the state budget for 2023 and the Medium Term Fiscal Program (TFP) for 2023-2025 are being drawn up in a dual format, one in the traditional form and the other in the form of an activity-oriented budget ( ABB).
The reason for this is due to an ongoing project to migrate the legacy government system to a new integrated digital enterprise resource planning (ERP) platform.
As stated in the fiscal policy framework, due to the dynamic nature of the forthcoming ERP implementation and the need for a smooth transition to the new system, it was deemed appropriate to prepare the budget in both formats “to be able to address any unforeseen technical issues.”
Speaking to the Cyprus News Agency, Finance Ministry Budget Director Melina Katsunotou said the ministry needs to ensure that the ERP system needed to execute an activity-based budget is ready for the budget to be submitted to the House of Representatives for approval.
“Given the fact that we cannot risk the budget not being presented to the House of Representatives, the traditional budget is being prepared in conjunction with the new format,” Katsunotou said. “In the coming weeks it will be decided what will be done and what form will be used, but our goal is for the budget to be based on activities, however, if for any technical reason this is not possible, we will be forced to present the budget in its traditional format,” she added, noting that final decisions have not yet been made.
In addition, Katsunotou explained that a notable difference between an activity-based budget and a traditional budget is that it ensures accountability and efficiency. It also provides more flexibility for the respective ministries, allowing them to better control their budget, use money and human resources more efficiently.
“It is considered a mechanism that countries use to achieve better governance outcomes,” she said. “The big difference is that the use of resources is related to the strategic planning of each ministry and, accordingly, the government,” she added.
Accordingly, the Strategic Fiscal Policy Framework of the Ministry of Finance states that the main difference between the activity-based budgeting form and the existing budgeting form is the introduction of a third dimension, which includes goals, activities and projects.
This can be combined with existing organizational structure sizes such as various ministries, deputy ministries, departments and agency units; and economic analysis, including groups of articles, subgroups of articles, and individual articles. It should be noted that within the framework of the new budget format, a new chart of accounts has been prepared, while the coding of the organizational structure is also different.
The basic philosophy of an activity-based budget is that all costs should be allocated to specific goals and activities, as well as to specific projects and tasks.
The budget is expected to be submitted to the Cabinet of Ministers at the end of September.
The state budget must then be approved by the Cabinet of Ministers and submitted to the House of Representatives by September 30, 2022.
