November 14, 2017

Making Ireland’s Public Investment More Efficient

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Posted by Carolina Renteria and Richard Allen[1]

In July 2007, the Department of Public Expenditure and Reform (DPER) in Ireland invited the IMF’s Fiscal Affairs Department to carry out a review of the country’s public investment management policies and practices. The report—which was welcomed by the Minister of Finance and Public Expenditure and Reform—has now been published by the IMF and released on the DPER’s website. In a press release on November 10, 2017, the Minister noted that the PIMA was specifically tailored to Ireland’s needs, and “will play an important role in identifying how institutions and public governance systems in Ireland who are responsible for planning, allocating and delivering public capital infrastructure might be further strengthened.”

The assessment uses the PIMA framework [2] which has been employed in 30 countries around the world, but Ireland is the first advanced country to have applied it. This framework is based on an IMF policy paper that provides evidence of a positive relationship between public investment, aggregate demand, and potential growth.

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November 08, 2017

Farewell Mario Pessoa

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The PFM community is mourning the sudden passing of Mario Pessoa at the early age of 53, following a courageous struggle with a short illness. Mario was a highly-respected professional who graduated with a master’s degree in economics and social science from the University of Wales, United Kingdom. He had worked since 2006 in the IMF’s Fiscal Affairs Department, most recently as the Deputy Division Chief of the Public Financial Management Division II. Previously, Mario was a senior official in Brazil’s National Treasury Secretariat of the Ministry of Finance and the Federal Internal Control Secretariat.

Mario will be well known to many readers of the blog as well as to colleagues at the Fund, country officials, and anyone with an interest in PFM. He was the author of many papers and articles on topics such as cash management, expenditure arrears, and building fiscal capacity in fragile states. He co-edited the book, Public Financial Management in Latin America: The Key to Efficiency and Transparency, published in 2015. Mario helped to establish the Latin American Treasurers (FOTEGAL) and the General Accountants (FOCAL) fora. He was a leading light in these groups as a speaker and an organizer of seminars and conferences, working closely with colleagues at the IADB and the World Bank. His most recent article in the PFM Blog, published only two months ago, reported on a FOTEGAL meeting in Costa Rica.

Colleagues at the Fund have come forward with many tributes to Mario’s warmth and generosity of spirit, to his brilliance, availability, reliability, and friendliness, to his politeness and gentleness, to his devotion to work and excellence as a team player, and to his unfailingly helpful and courteous mentoring of less-experienced staff and experts. He was a fire-fighter who could always be relied upon to resolve issues in a sensitive and diplomatic way. Mario led many technical assistance missions to countries all over Latin America, but also in Africa and Asia, including most recently in Indonesia and India. He was a realist about what could be achieved, and unstinting in his desire to ensure that all possible avenues were explored in the dialog with counterparts, and that the fullest possible understanding was reached on complex and sometimes politically-sensitive issues.

Mario was a wonderful colleague and a unique person. Our thoughts and sincere condolences go out to his family. We shall miss him dearly.

If readers have a tribute or story and pictures about Mario they would like to share, please send it to pfmblog@imf.org. All contributions will be recorded in a Commemorative Book that is being prepared and will be presented to Mario’s family.

Richard Allen, Teresa Curristine, Manal Fouad, and Michel Lazare

November 01, 2017

Setting the Fiscal Deficit in India[1]

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Posted by Anand P. Gupta[2]

For the current fiscal year, 2017-18, the Government of India has budgeted a fiscal deficit of Rs. 5,46,532 crore, equivalent to 3.2 per cent of GDP.  Is this number written in stone?  Some experts say that the Government should maintain the current deficit, because a fiscal deficit higher than 3.2 per cent of GDP will be inflationary and will damage the Government’s credibility.  Others say that, given the slowdown in the economy, the Government should increase spending and borrowing to stimulate the economy.

In my view, deficit financing is not necessarily a bad thing.  Much depends on how public money is allocated, how efficiently and effectively it is used, what public entities other than the Government of India are planning to spend and borrow, and India’s macro-economic situation. Given the current state of the economy, there is a strong case for relaxing this limit of 3.2 per cent of GDP, perhaps by an additional 1 percent of GDP. At the same time, the Government needs to put in place a credible mechanism to ensure that the money it spends is used only for providing public goods, and is spent efficiently and effectively.

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October 30, 2017

Simplify Program Budgeting: Is There a Place for ‘Activities’ in a Program Classification?

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Posted By Khuram Farooq and Michael Schaeffer [i]

The traditional program budgeting structure is program, sub-program and activity. Can we simplify this structure? Is the ‘activity’ element of this classification really necessary?  Why ‘activity’?  The conventional argument is that ‘activity’ will be used to capture ‘projects’ or capital expenditures under sub-programs. This may be a valid explanation on paper. In practice, however, the concept of ‘activity’ has caused much confusion and difficulties during the implementation of program budgeting in several countries.

In Zambia, there were 3000 ‘activities’ under the Ministry of Health’s budget (FY 2011), with at least 5 subheads under each activity. This constituted around 15000 line-items! In Cambodia, there are 10,000 activities under the newly introduced program classification. This level of detail and complexity in the budget classification system is problematic on several counts, but the most fundamental issue is that it undermines the justification for moving to program budgeting.

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October 24, 2017

Stocktake of PFM Diagnostic Instruments

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Posted by Lewis Hawke[1]

So, you’ve heard of PEFA, and maybe TADAT, FTE and DeMPA. But what about EITI, EU-FB, GACAP II, HTS or MiGestion? The PEFA program has just released a consultation draft report that provides a stocktake of public financial management (PFM) diagnostic tools[2] under three main categories:

  1. Broad diagnostic or analytical tools covering all aspects of the PFM system;
  2. Tools focusing on individual PFM elements, institutions or sub-systems; and
  • Tools used by development partners to assess fiduciary risk.

The stocktake was limited to tools that were in common usage internationally in 2016 but still managed to identify 46 different products. There were 12 broad, government-wide diagnostic tools, 25 tools covering a wide range of sub-systems and institutions, and 9 tools focusing on fiduciary risks to country financial systems.

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October 20, 2017

How to Strengthen the Management of Government Guarantees

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Posted by Sandeep Saxena[1]

A new paper on “How to Strengthen the Management of Government Guarantees” has been published by the IMF. The paper highlights commonly observed weaknesses in the management of government guarantees, describe good practices, and discuss measures governments could take to strengthen this often-neglected area.

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October 19, 2017

Gabon’s Public Expenditure and Financial Accountability (PEFA) Assessment

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Posted by Gwénaëlle Suc, Anicette Koumba, Danielle Nyamat and Wilfried Nzamba Mangala[1].

The 2016 Gabon Public Expenditure and Financial Accountability (PEFA) report is now available online. This publication concludes a six-month process to assess the performance of the Gabonese public financial management (PFM) system using the 31 indicators which make up the PEFA framework. This is the first PEFA to be undertaken in the Central African Economic and Monetary Community (CEMAC) using the upgraded 2016 methodology.  This revised PEFA framework includes four new indicators, expands and refines existing indicators and recalibrates baseline standards for good performance in many areas.

This assessment was funded by the European Union and led by the IMF’s Fiscal Affairs Department (FAD) in close cooperation with the Gabonese authorities. Since the previous 2013 PEFA assessment, Gabon has implemented major PFM reforms. These include the adoption of a new organic budget law and introducing program budgeting. These reforms had a direct positive impact on the 2016 PEFA scores with a quarter of the indicators showing improvement mainly in the areas of policy-based budgeting and timeliness of fiscal reporting. Nevertheless, performance against several indicators still fell below the basic levels set by PEFA standards. In particular, in the areas of managing arrears, expenditure execution, internal and external control and audit, public procurement, public investment management, oversight of public entities and quality of fiscal reporting.

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October 12, 2017

Public Finance and Development Resource Round-Ups

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Posted by Mark Miller[1]

Followers of the IMF’s PFM blog may be interested in the Overseas Development Institute’s recently introduced monthly resources round-up that provides a commentary on the must-reads in the public finance and development world.

These round-ups have three objectives:

  1. To draw attention to some of the major research papers, articles and blogs relevant to people working on questions of public finance and development. As part of our work at ODI, we sift through many of these materials and so hope to serve the public good by sharing those pieces that interest us.
  2. To illustrate the relevance of public finance to other key issues the development community grapples with. Public finance issues often get described in ways that is difficult for a non-specialist audience to understand, but they matter to a whole range of questions on policy and building effective states. Our previous round-ups have looked at how India’s tax policy reforms have reduced internal trade barriers, commented on the impact of the global financial crisis for how finance ministries operated, and drew lessons from recent UK political debates on public-private partnerships for current development financing debates.
  3. To encourage and enliven debate on public finance issues. The round-ups reflect the views of the authors and not everyone will always agree with everything we write.  We believe this is a good thing as it encourages critical reflection on research being produced in this area. We would encourage people to comment or get in touch when they disagree.

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October 04, 2017

Brazil: Making the Spending Rule Work

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By Fabian Bornhorst and Teresa Curristine1

Brazil is emerging from a deep recession. While the country is expected to register positive growth in 2017, the crisis left deep scars in Brazil’s public finances. From 2013 to 2016, the primary budget balance, which excludes interest payments, tumbled from a surplus of 1.7 percent to a deficit of 2.5 percent of GDP, and public debt increased by almost 20 percentage points. The impact of the downturn was magnified by long-standing structural fiscal problems.

To restore fiscal health and boost the credibility of fiscal policy, the Brazilian government introduced important reforms. The central element is a new spending rule, which was included in the Brazilian Constitution in December 2016. This rule limits the growth of federal spending to the rate of inflation. But successful implementation of this rule will require structural reforms and institutional and procedural changes in the management of public finances.

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September 29, 2017

Building PFM Capabilities in Africa

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Posted by Neil Cole and Adil Ababou[1]

Through the Building PFM Capabilities in Africa programme, teams from seven African countries are participating in CABRI’s first application of the Problem-Driven Iterative Adaptation (PDIA) approach. Ministries of finance and budget teams from Gambia, Ghana, Lesotho, Liberia, Nigeria, Sierra Leone, and South Africa started the programme in April 2017. Over an 8-month period, the teams will tackle complex PFM problems that have plagued their PFM systems for many years. These problems range from spending ministries not adhering to approved budgets, high virements, and weak conceptualisation of infrastructure investments.

Developed by the Building State Capability (BSC) program at Harvard University’s Center for International Development, the PDIA approach helps public organizations develop the capability to solve complex problems while engaged in the actual process of solving these problems. PDIA interventions typically involve creating teams of multiple agents to tackle locally nominated problems. The approach is based on the premise that there are no predetermined solutions to complex problems, and that only experimentation through small steps can lead to solving the problem. A review of PDIA by Richard Allen was published in the PFM Blog on September 22, Reforming PFM Institutions through PDIA.

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