Coordinating government policy-making

Coordination may also be lacking between core ministries and spending agencies, whether sectoral ministries, subnational levels of government or state-owned enterprises. If coordination and accountability are to be maintained without losing the benefits of decentralized decisionmaking then, with regard to sectoral ministries, the role of the central ministries (finance or planning) should be to set binding overall expenditure ceilings and to establishing guidelines reflecting national priorities for the allocation of total resources among broad categories of activities. Only the spending agencies have the specialized knowledge to make detailed allocations of resources within a subsector. For this reason, they should not be allowed to submit spending requests in excess of target since this forces central ministries, who are less qualified to judge priorities, to take the responsibility for cutting the sector budget. The Canadian government reinforced this division of responsibilities by introducing the "envelope" system into its budgeting process. Under the system each policy committee in the cabinet is given an expenditure limit ("resource envelope") for which it is responsible and within which it must fit all spending in its policy area. Both intrasectoral allocation authority and fiscal responsibility are thus delegated downward to those in charge of spending. While developing countries may perceive a greater need for central direction of public investment than industrial ones, the insistence on "hard" budget constraints at all levels and the devolution of fiscal responsibility represented by the envelope system can strengthen budget control in all countries.

Coordination can also break down during implementation. In theory, spending sector ministries or state-owned enterprises are responsible for implementing a spending plan once decisions about allocation have been made, while central ministries monitor expenditure to ensure that the amounts allocated are spent (within some range of flexibility) for the assigned purposes and to assess the effect of spending choices on development. However, tight budget constraints, over-programmed budgets or even mistrust of spending agencies may cause central ministries to slow down disbursement of funds or to erect unnecessarily cumbersome procedures in areas such as procurement, land acquisition or contractor eligibility. It is often politically easier to control a budget this way than to refuse funding requests as plans and budgets are formulated. Such indirect forms of control slow the implementation of projects and restrict managerial flexibility in the spending agencies.