Media Q&A
1. What are the reasons that necessitated the use of ZBB?
Answer: In line with its constant endeavor to bring global best practice to the region, the Ministry of Finance is moving away from its currently used incremental budgeting practice. There are other very good reasons for this shift. Incremental budgeting assumes a stable environment where current activities persist at roughly the same cost in future years. It also assumes that current budget levels are well understood and therefore do not require bottom-up justification making budgeting a routine process. As the pace of change in UAE’s financial and economic environment has accelerated over the years, these assumptions do not hold true anymore.
The practice of Zero-Based Budgeting is most recommended under the circumstances resulting from the pace of our economic development, our rapidly growing GDP and the need for large-scale infrastructure development. It addresses the historic issues of low transparency of budgets, and clear differences between original budget requests from other UAE Ministries and their ultimately approved budgets.
2. When will the implementation start?
Answer: The UAE will implement the concepts of three-year, Zero-Based and Program Budgeting for the budget cycle 2011-2013. This means that all federal ministries and agencies need to prepare and submit their budgets in this format in April 2010.
3. What is Zero Based Budget & what is the benefit of using such concept?
Answer: Zero-Based Budgeting means starting from a blank sheet of paper and building the budget bottom-up. Initially, budgeting teams in various Ministries will be tasked with defining activities that contribute to agreed objectives that will exist over the budgeting time horizon (in our case three years). They will then justify activities and their associated costs providing a detailed cost analysis. Lastly, they will prioritize the activities based on a cost-benefit analysis and rank them relative to their contribution to agreed objectives.
The benefits of this Federal budget reform are significant for all parties. Zero-Based Budgeting is the best tool to deliver our objectives of maximizing social impact of public spending, making better use of our resources and increasing budgetary process transparency. It links in seamlessly to the UAE’s longer-term strategy cycle for 2011-2013. It will also develop our international reputation in budgeting.
The Federal Ministries and Agencies will benefit as they can link long-term objectives seamlessly to budgeting and provide transparent processes and tools for financial management and prioritization of activities.
The Ministry of Finance will be able to have a clear understanding of budget requests from Federal entities and strengthen its partnership with them in achieving strategic, operational and financial objectives.
4. Is there any of GCC country applying the same concept other than UAE?
Answer: No other GCC country except the UAE is applying this concept. The UAE will be the first to implement this in the region. It will be a step change from the current budgeting process. When successfully implemented, it will move the UAE to the group of internationally acknowledged best practice countries in budgeting and financial management of federal resources. The concepts of three-year budgeting, Zero-Based Budgeting, and Program budgeting are widely implemented in other leading OECD countries, e.g., the UK, Singapore, New Zealand as well as in several US states and private companies around the world.
5. What preparation is required by the ministry to implement this concept?
Answer: The preparation for the Federal budget reform has been ongoing since March 2009 with all Ministries and agencies receiving comprehensive training in its concepts, processes and tools. All Federal entities have also conducted an exercise in preparing their own comprehensive draft Zero-Based, three-year program budgets with the assistance of the Boston Consulting Group. Federal agencies need to continue with the preparation for the next few months and will receive significant support from The Ministry of Finance in this exercise. The Ministry of Finance is confident that all Government entities will be well prepared for its actual implementation in the first quarter of 2010.
6. Does ZBB contribute in Government Spending Processes?
Answer: As stated earlier, Zero-Based Budgeting will contribute immensely to maximize the social impact of public spending, making better use of our resources and increasing budgetary process transparency.