The concept of developmental budgeting has been approached in different ways. For example, O’Sullivan and Sheffrin (2003: p502) argues that developmental budgeting is generally about physical assets with a useful life of more than one year. In an extended argument, Cliche (2012) includes developmental improvements or the rehabilitation of physical assets that enhance or extend the useful life of the asset repair or maintenance, which assures that the asset is functional for its planned life. From the two studies highlighted above, developmental spending is equated with investment, where expenditures have benefits extending years into the future. Governments make physical assets for public use as fundamental part of developmental budgeting. These include, but not limited to, office buildings, roads, railway, water system, even education and research. These physical assets enhance private sector development and initiatives.
In addition, Lynch (2000) posits that developmental budgeting is the process by which a government determines whether projects are worth pursuing. A project is worth pursuing if it increases the value of the government. A project typically adds value to the government if it earns a rate of return that exceeds the cost of capital. The opportunity cost of development is the expected return that is forgone by investing in the project rather than in comparable financial securities, such as shares, with the same risk as the project under consideration. Whereas developmental budgeting is a fairly straightforward process from a conceptual viewpoint, it can be very challenging in practice. Not only is it difficult to determine a country’s appropriate cost of capital, it is often even trickier to accurately forecast the incremental cash flows that result from taking on the project. Nevertheless, if developmental spending receives favored treatment in the annual budgeting, nearly all spending recurrent or capital, ends up as investment.
At this point, recurrent budgeting is introduced. The word recurrent suggests that something occurs, happens, or appears again, especially repeatedly. Varshney and Maheshwari (2010) aver that recurrent expenditures are typically made more than once, and may even be made on a scheduled basis. This are expenses, such as wages and salaries made to employees by government periodically on a forth-nightly, monthly or annual basis. Recurrent expenditures exclude payments for developments such as stock, bonds and property. Savard (2014) argued that current expenditures are purchases of assets to be consumed within one year, regardless of expenditure size. Evidently, expenditures are recurrent, regardless of the fact that it could be consumed over a period longer than one year.
Ranty (2014) maintains that a recurrent budget takes variable revenues into account, as opposed to fixed revenues. For example, a government that uses a recurrent budget includes revenue from taxes in the budget. Government officials know tax revenue will come in, but are unsure of the exact amount until taxes have been paid. A recurrent budget is therefore built upon estimated numbers and usually is created with a healthy cushion in case revenues come in low. In other words, these expenses are guaranteed to occur, but the exact figure cannot be known until after the expense has been filed.
Jacobs (2008: p4) states that, the flip side of this problem is when government assigns too much money into capital budgets because infrastructure improvements are sorely needed. This can leave the government short on expenses it must pay to operate, such as salaries. “Every government establishes some arbitrary cut-off point to distinguish developmental from current budgeting” (Jacobs, 2008: p4). The distinction between developmental and recurrent, or operating expenditures is that; developmental and recurrent budget are considered to be overall expenditure, and account for all fees and net lending that is doled out by governments.