The Colombian budget process

The rules that govern the budget process are important determinants of fiscal outcomes, with potentially important macroeconomic implications. This paper starts with a review of the theoretical underpinnings of the effects of budget processes and the main empirical evidence. After a brief institutional description of the Colombian budget process, an assessment and proposals for reform are made. The main issues analyzed here are the degree of centralization of the budget process, transparency, rules, and intertemporal links. Serious flaws have been detected: decentralization during the preparation of the budget, proliferation of budget documents, heterodox accounting standards and reporting for deficits and investment, insufficient coverage, biased forecasts and macro assumptions, unduly restrictive rules that promote creative accounting, or seemingly innocuous rules, and weak management of intertemporal links. It is recognized that better rules and institutions can be circumvented, but they can be important in realizing three conditions: allow the public a good understanding of fiscal policy and position, increase the incentives for fiscal discipline, and create an environment where a fiscally sound government can do its job more effectively, and a fiscally undisciplined government will be subject to a more informed scrutiny. These conditions can greatly enhance the scope for a more effective fiscal policy in Colombia.