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Determinants of Effective Budget Utilization in Ethiopian Public Institutions
Article in Research Journal of Finance and Accounting · February 2022
DOI: 10.7176/RJFA/12-17-02
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Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.12, No.17, 2021
Determinants of Effective Budget Utilization in Ethiopian Public
Institutions
Zewdu Eskezia Gelaye (MSc)1 Birhanu Daba Chali (MSc)2
1.Lecturer, College of Business & Economics, Department of Accounting & Finance, Dembi dollo University,
Dembi dollo, Ethiopia
2.Head, College of Business & Economics, Department of Accounting & Finance, Dembi dollo University,
Dembi dollo, Ethiopia
Abstract
According to many scholars finding Budget utilization is affected with intrinsic and extrinsic factors within the
boundary of in and outside of the organization having the influence on the proper utilization of the budget. The
major objective of this study is to determine the major factors that affect effective budget utilization in Ethiopian
public institutions, which is both institutional intrinsic and outside of the institution external factors. To achieve
this objective a systematic review of meta-analysis method was used. The the major findings of the review
shows that lack of effective monitoring and evaluation, structural problems, employees competency and
centralized budget allocation have a significant critical factors which is found in all institutions as a negative
determinant factor of in effective budget utilization in Ethiopian public institutions. Based on the findings the
researcher recommends that every public institution should give attention regarding with the listed out factors
before approval of annual budgets in order to effectively utilize the approved budgets.
Keywords: Utilization, Budget, Approval, Centralized, Competency
DOI: 10.7176/RJFA/12-17-02
Publication date:September 30th 2021
1. Background of the Study
Effective and efficient budget utilization is determinant of socio-economic development of any given country
including Ethiopia. In Ethiopia, resources like capital and recurrent budgets are major forms of financial
planning in all regions. Most governmental policies that have the potential to make a difference to people’s lives
cannot to do so without a budget, so that a difficult aggregate expenditure control is highly required to assure an
efficient use of resources in accordance with the government priorities(Allen & Tommasi 2001).
Budget has multiple functions such as: control of public resources, planning for the future, allocation of
resources and management of resources. However, the relative strength of each function depends on the current
view of the function of budgeting and budgeting tools and techniques, but also depends on the strength of
particularorganizations and/or institutional arrangements to support these functions (World Bank, 1998)
The public budget planning is a process by which government sets the level of expenditure, collects
revenues and allocates the spending of resources among all sectors to meet national goals (Shah, 2008). Budget
implementation on the other hand is the actual execution of the budget and application of funds to the planned
activities. During the fiscal year, however, not all allocated budgets are used as per the proposed plan. These
could be cases where the approved funds may not be enough to fully accomplish the intended goal. In other
instances, the amount allocated to a project may be more than what the project can consume. The disparities
between the budget allocated and actual expenditure arise due to multiplicity of factors and improper costing of
county functions (Rotich & Ngahu, 2015). The budget cycle needs to be tracked and at every stage the factors
that could be affecting the utilization of the budget analyzed.
In the Ethiopia public sector, the budget implementation period or the financial years run from 1st July to
31st June. During this period, a lay down medium term expenditure framework budget cycle is followed in the
preparation and implementation of the national budget. Budget implementation is the real execution of the
budget and application of funds to the planned activities. During the financial year, however, not all funds are
expended as per the plan. According to many scholars finding Budget utilization is affected with intrinsic and
extrinsic factors within the boundary of in and outside of the organization having the influence on the proper
utilization of the budget. Hence, this review of article attempts to assess factors affecting effective budget
utilization in Ethiopian public sector desired to prove the problems in one study are the same problem for the
other study area and vise verse.
1.2 Objective of the study
1.2.1 Major Objective of the Study
The major objective of this study is to determine the major factors that affect effective budget utilization in
Ethiopian public institutions.
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Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.12, No.17, 2021
1.2.2 Specific objectives
1. To determine the effect of organizational intrinsic factors that determines effective utilization of public
budgets
2. To determine organization external factors that affect effective utilization of public budgets
1.3 Review of Related Literatures
Overview of Budget
A budget is defined as an itemized summary of estimated expenditures for a given period along with proposals
for financing them (Daniel, 2005). In the public service the main sources of finances include taxes levied directly
or indirectly, fines and penalties, revenues from profit making state corporations, charges and fees on services
rendered foreign aid and donations from development partners and internal and external borrowing. The monies
raised are then applied in main government expenditure sectors such as the regional governments and the zonal
sectors which further divide to the zonal offices and Woredas level offices for implementation. These are the
points where budgets are to be utilized finally being affected by different level factors. Generally, budget is a
vital role to improve the coordination among the various units of the organization. So the organization overall
performance depends on the budget with respect to financial plan for implementing the
various decision.
Budget Utilization
Right after the approval of budget prepared by the legislature, the government embarks on the challenging task
of spending funds. Utilizing public funds effectively to meet stated policy objectives while ensuring value for
money is often just as challenging than planning how to spend it. Several reviews of Public Financial
Management performance in developing countries show that countries score significantly better on budget
preparation than on budget utilizing. Budget utilization is the phase where resources are used to implement
policies incorporated in the budget. As they argued, it is possible to utilize badly a well-prepared budget; it is not
possible to utilize well a badly prepared budget.(Schiavo-Campo, 1999)
Concepts Of Under and Over Utilization of Budget
Over utilizations are sometimes caused by non-compliance of budget managers with the spending limits defined
in the budget, when committing expenditures. Since cash allocated to spending units for appropriated
expenditures is generally controlled, these overruns generate spending arrears. Overruns are often the result of
off-budget spending mechanisms (payment from special accounts, etc. In some countries, payments made
through exceptional procedures are not controlled against the appropriations and are therefore an important cause
of overruns; lack of compliance can be addressed through strengthening the audit system, and reporting system,
and ensuring the effectiveness of the basic budget execution controls. Moreover, overruns can be caused by
deficiencies in budget preparation (Allen & Tommasi, 2001).
Sound budget preparation processes and adequate institutional arrangements are a prerequisite for avoid in
govern runs. On the other hand Ketema (2015) expressed that in a number of countries, the official budget is
under spent, particularly its non-wages expenditure items. This does not necessarily mean that there is good
fiscal discipline in these countries. In some countries with poor governance, under spending of the official
budget may coexist with large amounts of budget spending. In most cases, underutilization as well as over
utilization is related to insufficiencies in budget preparation and program preparation.
Reason for Variations between Budgeted and Actual Expenditure
There are a number of factors that can explain why actual expenditure deviates from the levels approved at the
beginning of the financial year in any Sector. The reasons for deviations may vary over time. Some of the more
common causes are: Deviation in aggregate expenditure; reallocation of fund during budget implementation;
policy changes during the year; an inability to implement policies, program and projects; and a lack of financial
discipline contribute for variation in budgeted and actual expenditure (Ketema, M. 2006).
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Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.12, No.17, 2021
Conceptual framework
Figure 1: conceptual framework of the study: developed by the researcher
3. Methodology
The researcher used qualitative research approach. There are three research approaches. The quantitative
approach provides an objective measure of reality, on the other hand, the qualitative approach allows the
researcher to explore and better understand the complexity of a phenomenon. Both quantitative and qualitative
research approaches may have their own strengths and limitations. According to Sale et al, (2012)
3.2 Type and Sources Data
This study used secondary data and the data was obtained from a review of relevant documents and articles.
3.3 Document Review
The documents were reviewed by referring most recent information from authorized documents and different
reports. Annual reports, legislations, directives and other documents related to the adoption and importance of
IFRS were used. The document reviews were used to triangulate the data collected by the questionnaires and
interviews.
3.4. Application of Meta-Analysis
Meta-analysis aims to combine information across separate but similar studies. Most meta analyses are based on
one of two statistical models, the fixed-effect model or the random-effects model. Under the fixed-effect model
it assumes that there is one true effect size that the true effect could vary from study to study.
3.5 Qualitative Meta analysis
Meta-Analyses are used to pool the results of individual studies. Findings from various individual studies are
analyzed statistically by strict procedures. It is an intentional and coherent approach to analyz data across
qualitative studies. It is a process that enables researchers to identify a specific research question and then search
for, select, appraise, summarize, and combine qualitative evidence to address the research question. It is
interpretive analytical technique that uses the qualitative findings reported in previous studies as building blocks
for gaining a deeper understanding of particular phenomena. The following articles were major sources of the
review
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Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.12, No.17, 2021
Summary of reviewed literatures
No Author Title Year Method Major findings
1 hashim tune an assessment of 2019 Descriptive inflation, tax compliance, government
sado factors affecting policy and structural factors.
budget utilization
(case of east
wollegaadministrative
zone)
2 Reddy ch v Factors affecting on 2020 Ordinal Management support, organizational
Krishna & budget utilization logistic work culture, employee’s related factor
shaiku shahida bahirdar city regression and monitoring & evaluation
sahib administration, health significantly affects the budget
department, Ethiopia utilization
3 Dejene Tafa Intrinsic Factors 2016 descriptive lack of proper planning, allocation of
Semeneh Affecting Budget budget, Inadequate timely revision of
Bessie Utilization in initial budget, inadequate knowledge,
Ethiopian Public shortage of
Universities adequate number of human resources
and insufficient involvement of
allconcerned bodies during the budget
plan preparation
Decentralized budget administration
system, absence of result oriented
evaluation of budget performance and
regular revision of plan in accordance
with the available budget, lack of
effective communication, lack of
effective budget monitoring and
evaluation, and
absence of full involvement of the line
managers in planning process were
identified as the most important internal
factors that affected budget utilization in
public universities
4 mesfin factors affecting 2019 descriptive citizen participation, employee
mahtemeselase effective management competency and public finance
alula of public regulations have positive relationship
budget of ethiopia with the
(case of oromia dependent variable.
regional government-
org)
5 Minilik Wube, Assessment of budget 2009 Descriptive Low budget allocated to
Dereje Ademe, utilisation (Channel & time water compared
Mulatu Takele, One) series discrepancy between the poverty
Ayana Zewdie in the Water Sector reduction policy priorities and annual
A case study of four budget sectoral priorities.
selected woredas underspending of the budget in the
in Benishangul- study woredas.
Gumuz regional state The growth trend of the budget in
individual districts is inconsistent,
lack of coordination and structural
clarity in the water sector, lack of
consistent and well organised data,
delays in financial disbursements, lack
of effective and
systematic monitoring and evaluation,
and prevalence of centralised budget
allocation at woreda
level.
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Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.12, No.17, 2021
4. Conclusions and Recommendations
4.1 Conclusions
The major objective of this study is to identify the determinants of effective budget utilization in Ethiopian
public institutions. After reviewing the previous researchers’ results, the researcher concludes the following.
From all, lack of effective monitoring and evaluation, structural problems, employees competency,
centralized budget allocation have been found critical factors that determine effective budget utilization in
Ethiopian public universities, Oromia regional government administration and Beninshangul Gumuz water
supply.
As we know if there is no systematic and a day today follow up or monitoring everything will be misstated.
For every activity of our lives there is a need of monitoring and follow ups. After doing so, at the end, the
performance should be evaluated against the plans, to ascertain whether the plans are achieved or not. If there is
a negative variance between the budgeted one and the used, then effective measures should be taken and the
causes of variance should be Identified and reduced or if possible eliminated. The other variable which is found
as a determinant factor in more than two public institutions in Ethiopia is employee’s competency. If the
employee responsible for the budget is not competent then the allocated budget for each activity will not be
correct and enough or it will be in a wrong manor. The third variable that is found to be a determinant factor of
Ethiopian public institutions of Beninshangul Gumuz water supply, Ethiopian public universities and Bahir dar
city health department, is structural problem. If there is no a clear hierarchy of budgets administration, smooth
and facilitating structural relationship between different departments in the organization associated with budget
use and continues and transparent information flow among the organizational elements related to budget
utilization there will be ineffective utilization of budgets in Ethiopian public institutions.
Other variables which are found determinants of effective budget utilization in Ethiopian different public
institutions are the following. inflation, tax compliance, government policy, management support, organizational
work culture, employee’s related factor, lack of proper planning, allocation of budget, Inadequate timely revision
of initial budget, inadequate knowledge, shortage of adequate number of human resources and insufficient
involvement of all concerned bodies during the budget plan preparation, absence of result oriented evaluation of
budget performance and regular revision of plan in accordance with the available budget, lack of effective
communication, and absence of full involvement of the line managers in planning process, Low budget allocated
to the institutions relative with the activities, discrepancy between the poverty reduction policy priorities and
annual budget sectoral priorities, underspending of the Channel One water budget in the study woredas,
inconsistent in the growth trend of the budget, problems with a lack of coordination, lack of consistent and well
organised data, delays in financial disbursements.
4.2 Recommendations
Based on the findings the researcher recommends that every public institution should give attention regarding
with specially the monitoring, control and evaluation functions regarding with the budget, organizational
structure, employees competency, employees knowledge and skill, centralized budget allocation and inflation
critically and most importantly all that have been found here on the conclusion determinants of effective budget
utilization should be considered before any budget approval and usage in any public institution of Ethiopia.
References
Allen, R. & Tommasi, D. (eds) (2001) multi-year budgeting and investment programming:
Allen, R. & Tommasi, D., (2001). Multi-Year Budgeting and Investment Programming. Managing Government
Expenditure: A Reference Book for Transition Countries. Paris: OECD SIGMA.
Dejene Tafa & Semeneh Bessie, (2016) Intrinsic Factors Affecting Budget Utilization in Ethiopian Public
Universities: Journal of Economics and Sustainable Development, Vol.7, No.7, 2016
Hashim Tune Sado (2019) An Assessment of Factors Affecting Budget Utilization (Case of East Wollega
Administrative Zone): Research Journal of Finance and Accounting, Vol.10, No.19, 2019
Ketema M, (2015) assessment of budget preparation and utilization: the case of Addis Ababa health bureau
working paper.
Mesfin Mahtemeselase Alula, (2019) Factors Affecting Effective Management Of Public Budget Of Ethiopia
(Case Of Oromia Regional Government-Org: unpublished Masters dissertation
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Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol.12, No.17, 2021
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