Budget formulation is an important part of the budgeting process. The choice of budget classification is crucial for actual spending as it largely defines how money is received and spent by different budget holders, as well as how the money is controlled and accounted for. Because programme budgets force the allocation and appropriation of public resources by policy goals and outputs, they are one of the most promising PFM mechanisms to help link public resources to priorities and needs for a sector.

The evidence shows that budget formulation reforms can have a significant effect on health budgeting and spending. When reforms are introduced in countries where public spending is driven by rigid input-based allocations, reforms can help improve the alignment of public resources with health priorities and enhance accountability for performance. However, there are more mixed results when it comes to flexibility; reforms do not consistently generate more flexibility in the use of public resources in health.