Budget credit – What is it, definition and concept

A budget credit, in the public administration, consists of allocating monetary resources individually for the financing of a budget expenditure that allows the fulfillment of certain objectives.

In other words, the administration budgets an amount of money that can only be used for the intended purposes. For example, we budget the expense to build a bridge between two municipalities separated by a river and we see how we are going to finance it.

In this way, you can only finance a specific expense, although there may be modifications, which must meet certain requirements. Therefore, it is not an arbitrary allocation of financing, but a concrete one, in an expense that has been previously planned.

Levels in budget credit management

In the management of budgetary credit there are levels in which these must meet a series of requirements. Although this case is based on Spanish regulations, they are usually very similar in most countries. In Spain, it is regulated by the General Budgetary Law (LGP).

  • Budget level. It refers to the detail with which they must be presented. The population of the recipient entity is used. In this way, if it is small in size, the level of detail will be less than in entities with larger populations.
  • Level of legal bond. Basically, this level implies that they must be used for what they were approved for. In addition, the amount will be the agreed one and if it is modified, it must be done according to a specific procedure that we will see below.
  • Run level. This is related to monitoring, which must be done in the most detailed way and with the greatest possible breakdown, depending on the budget level. Thus, each phase will be controlled to find out if the legal binding requirements are met.
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Modifications of the budget appropriation

Let us now see how a budget appropriation can be modified. This is very important because it is a very common operation in public administration. Modifications can be of three types.

addictions

It consists of an increase in the initially accepted budget. It must be approved by the competent body, have monetary resources and above all, be motivated. Some forms of addiction are as follows.

  • credit supplement. When an expense runs out of credit and cannot be delayed.
  • extraordinary credit. It occurs when there is a new expense and cannot be delayed either.
  • Credit generation. When it is extended due to extraordinary tax revenues.
  • Incorporation of remainders. Credits left over from the previous year incorporated.

Reduction

We are in the opposite case and there may also be several options.

Transfers

In the latter case there are no changes in the amount, but it is qualitative. It consists of a reduction of a credit in an expense and the addition of a new one of the same amount for another. A series of requirements must be met and a specific regulatory procedure must be followed.

Credit Example, Panama Canal

Let’s see an example of a well-known case, the Panama Canal. As we know, this work was of a more than considerable dimension and not without difficulties. Let’s see some facts of this adventure. The date, May 2017.

  • The cabinet council of Panama approves a supplementary credit and grants it to the canal authority. We are facing a budget addiction.
  • In addition, it reclassifies 39.9 million dollars from the concept of investment to operating expense. We would be facing a transfer of credits.
  • An increase in the income budget was projected, due to the increase in tolls. We are facing an addiction due to unforeseen income.
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We see that in the real world, in relation to the budget credit, it is usual for several options to be given at the same time. Of course, all must be approved and motivated, in addition to having sufficient monetary resources to carry them out.

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