The identification of extra budgetary units and financial management implications

Abstract

Purpose: The purpose of this study is to explain how and why Extra Budgetary Units are identified and included in the General Government Sector of Malta, and to analyse the way such units are financed. Indeed, it involves an examination of how the European System of Accounts 1995 (ESA95) definition of the General Government is applied in Malta and the process in which a government entity would be classified as an Extra Budgetary Unit. The study also, scrutinises how Extra Budgetary Units dependence on allocated funds affects their financial management. Design: The objectives of the study were achieved through twenty-one in depth interviews with officials of Extra Budgetary Units, Government Finance Statistics Committee and a Public Accounts Committee member. The interviews were based on open-ended questions relating to the reasons of existence of such units, the delimitation exercise of Extra Budgetary Units and implications for the planning, budgeting and funding of such units. Findings: It has emerged that the definition and determination of Extra Budgetary Units in Malta is in line with that of the ESA95. It suggests that Extra Budgetary Units are improving transparency and accountability in government operations even though they are not free from political pressures and do have an effect on the government debt and deficit. Also, such units should operate in a businesslike manner but they are still dependent on the public budget for their financing. Conclusion: The study concludes that the government's aim to ensure that such units operate in a businesslike manner is being achieved as such units are being quite effective, although improvements need to be made. Value: In the political sphere, the term Extra Budgetary Unit is used continuously but it appears that there is a lack of awareness of the type of government entity that is being referred to. Hopefully, this study raises public awareness of the existence of Extra Budgetary Units and how these are part of the government deficit. It also encourages improvements in this area. It includes suggestions such as issuing information about Extra Budgetary Units, introducing legislations for unregulated Extra Budgetary Units and borrowing from the government rather than from a commercial bank.