Ministry urges budget cuts and efficiency without sacrificing performance

• The Ministry of Finance outlined the benefits of switching from cash-based to accrual-based accounting, including a comprehensive inventory of the state’s assets, liabilities, and property rights for better resource and liability management.

• The ministry advocates for enhanced decision-making in the areas of asset acquisition, maintenance, and disposal.

Dr. Anwar Al-Mudhaf, the Minister of Finance and Minister of State for Economic Affairs and Investment, issued a circular concerning the preparation of budget estimates for ministries, government departments, and affiliated bodies. The circular outlines the bases and rules to be followed according to the ‘cash basis’ budget classification for the fiscal year 2025-2026, as reported by Al Rai newspaper.

The Ministry of Finance emphasized its commitment to annually preparing and issuing a circular that clarifies the key directions of financial and economic policy, along with the rules and principles that must be followed when preparing budget estimates.

The ministry urged all government agencies to draft their budgets within the limits set for each agency’s expenditure ceiling and in accordance with the controls and instructions issued by the Ministry of Finance, while emphasizing the importance of reducing expenditures, rationalizing spending, and developing revenues without compromising performance.

The circular called on various government agencies to prepare budget estimates in accordance with the Government Financial Management Systems (GFMIS), adhere to the instructions and rules, and complete the tables and forms included in the circular when preparing their budget proposals for the fiscal year 2025/2026. All government agencies must submit their budget proposals to the ministry within the specified deadlines, fulfilling all requirements, rules, and required data.

The circular stated that, in order to reform the public finance sector and improve financial performance, the Ministry of Finance has restructured the budget. The process of gradual transformation to accrual accounting has begun, involving classification and tabulation in accordance with Circular No. 5 of 1998, which pertains to the unified standard guide for government agencies.

This includes preparing a new tabulation for the state’s general budget based on internationally applied and agreed-upon concepts and definitions, as outlined in the Government Finance Statistics Manual, the United Nations government job classifications, and international accounting standards, following the issuance of Circular No. 4 of 2015 regarding the Budget Codes and Classifications Guide (cash basis).

According to this guide, the economic classification of expenditures in the budgets of ministries, government departments, and affiliated bodies has been reclassified into current expenditures and capital expenditures, distributed as follows: (direction/chapter/group/category/item/type).

The aim is to enhance the accuracy of budget appropriations and provide more detailed information, which aids financial oversight bodies in monitoring activities and facilitates easier financial analysis of general budget items.

The Ministry of Finance explained that, under the new classification, all government units performing similar activities are grouped under the same function, with the criterion being the type of activity conducted by the unit.

Advantages of transformation on a merit basis

The ministry’s circular identified the advantages of switching from cash-based accounting to accrual-based accounting as follows:

• A comprehensive inventory of the state’s assets, liabilities, and property rights, leading to better management of resources and liabilities.
• More accurate and consistent accounting records.
• Improved visibility of financial data, allowing for more accurate comparison and analysis.
• Enhanced effectiveness of management and decision-making processes, and a better assessment of the country’s financial position.
• A comprehensive database of fixed assets.
• Improved decision-making in asset purchase, maintenance, and disposal.
• Better evaluation of government performance based on the cost and effectiveness of services provided.
• Greater understanding of the government’s resource management process.
• Reduced issues seen with the state budget, such as resource waste and difficulty linking resources to specific goals of various state agencies.

The Ministry of Finance highlighted that this circular was prepared to advance the reform of public sector financial management more comprehensively, develop the state’s general budget data, and activate structural reforms to improve financial performance. It aligns with cash-based accounting as outlined in the Budget Codes and Classifications Guide (cash basis), serving as a key step towards a gradual transition to accrual-based accounting.

The circular includes eight chapters as follows: general rules, revenues, current expenses, capital expenditures, instructions for inventory measurements for the fiscal year 2025/2026, instructions for the technical and financial study of information systems and technology, financial requirements for implementing the annual plan 2025/2026 from the state development plan, and preparing the budget based on a continuous three-year period.