The Effect of Budget Formulation on the Public Sector Effectiveness Moderated by Participative Budgeting in Addis Ababa City Administration

Abstract

Budget formulation, the process of creating and developing a government's budget, plays a crucial role in determining the effectiveness of public sector organizations. The budget serves as a financial plan that allocates resources and guides the implementation of government policies and programs. The effectiveness of budget formulation can be influenced by various factors, including the moderating variable of participative budgeting. The study conducted in the Addis Ababa City Administration aimed to assess the effect of budget formulation on public sector effectiveness, with the moderating variable of participative budgeting. The research employed a pragmatic research paradigm and a mixed research approach, combining qualitative and quantitative data collection methods. Quantitative data were collected through a 7-point Likert scale questionnaire administered to employees working in selected public sectors. The research utilized a combination of probabilistic and non-probabilistic sampling methods. The population size of the study was 4580, and a sample of 368 employees was selected, with 346 questionnaires returned. Once the data was gathered, it was analyzed using SPSS version-26 and AMOS-23. The analysis focused on factors related to budget formulation, including strategic planning, budget preparation, the competence of human resources, and budget approval. The study also examined the influence of participative budgeting as a moderating variable on the effectiveness of public sectors. The findings of the study were presented using descriptive and explanatory research techniques, leading to a discussion of the results. The study revealed a direct and significant positive relationship between the independent variables (strategic planning, budget preparation, budget approval, competence of human resources) and the dependent variable (organizational effectiveness). Additionally, the study found a significant effect of the moderating variable, the participative budget. Based on the results, the study suggests that to achieve effectiveness in the public sector, the city administration's public sectors should consider strategic planning, participative budgeting, and the revision of the existing line-item budget system during budget formulation. These factors contribute to improving organizational effectiveness in the public sectors examined in the study.