July 14, 2017

Stressing the Public Finances – the UK Raises the Bar

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Posted By Vitor Gaspar and Jason Harris[1]

Of all the major economies hit by the turbulent events of the global financial crisis, few were hit as hard and by as large a range of shocks as the United Kingdom. 

A housing bust, banking failures amid widespread financial market meltdown, and a large and persistent decline in output all played havoc with the public finances. The deficit blew out to 10 percent of GDP, government debt more than doubled to 89 percent of GDP, and the state’s balance sheet ballooned after the bailouts of some of the country’s largest commercial banks. Yet, prior to the crisis, the fiscal risks that became reality with such dire consequences had only been loosely considered.

Taking a big step forward in recognizing and managing future risks, the UK’s Independent Office of Budget Responsibility (OBR) has released its first Fiscal Risks Report. This landmark document identifies, quantifies and provides an estimated likelihood of the risks to which the UK public finances are exposed, including:

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July 11, 2017

The Future of Government Fiscal Reporting

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Post by Delphine Moretti[1]

In March 2017, the Organisation for Economic Cooperation and Development (OECD) organised the 17th Annual Meeting of the OECD network of Senior Financial Management Officials. The meeting was attended by around 120 delegates from OECD member countries, the European Commission, the International Monetary Fund (IMF), the World Bank Group (WBG) and international standards setters, such as the International Public Sector Accounting Standards Board (IPSASB).

The meeting discussed progress with accounting reforms in OECD member countries and the related modernisation of financial management. The participants discussed how “modern” financial management entails not only producing more complete and reliable financial data, but also making these data publicly available in fiscal reports that are transparent, clear, and useful.

The discussion, and recent OECD Surveys, highlight that, in the wake of the financial crisis, there has been a greater emphasis on budget discipline and transparency. This has led to significant changes in fiscal reporting practices in OECD countries, including:

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July 05, 2017

Politics and Budgets

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Post by Vitor Gaspar, Sanjeev Gupta and Carlos Mulas-Granados [1]

Every year, parliaments in democratic countries discuss budget proposals for the following year to set the course for economic policy going forward. But the reality is that politics and budgets are deeply interwoven. This was recognized by Joseph Schumpeter who noted “the spirit of a people, its cultural level, its social structure, the deeds its policy may prepare – all this and more is written in its fiscal history”. The crucial role of politics in economic decision making was also acknowledged by the leading American political scientist Harold Laswell when he said that politics is “the matter of who gets what, when and how”.

We delve deeper into the political economy of fiscal policy in a recent IMF book, “Fiscal Politics”. This book uses a new dataset that combines political and economic variables for over 90 countries—advanced as well as emerging and developing--spanning four decades. We find that proximity of elections and political divisions (for example, as reflected in thin parliamentary majority) are key to influencing policymakers conduct in formulating and implementing fiscal policy. That is, these two considerations determine the size and the composition of public budgets. Political ideology (whether the government has a left or right orientation), while important, is not as decisive, despite rhetorical disputes between political groups on opposite sides of the aisle in almost every country.

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June 27, 2017

Public Participation in Fiscal Policies: Where do we Start?

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Posted by Tania Sánchez Andrade[1]

Public participation in fiscal policy is based on the belief that those who are affected by government decisions have a right to be involved in the decision-making process. The comments or opinions received from the public on fiscal policy issues should be registered, published, and receive a response from the government. In an earlier post in this blog, Murray Petrie discussed what public participation in fiscal policy is, why it is important, and how it has been incorporated in international fiscal transparency standards. More guidance is needed, however, on how governments can meaningfully incorporate public participation in fiscal policy-making. To offer some answers, GIFT has worked systematically during the last five years to generate greater knowledge about country practices and innovations in citizen engagement. It has produced country case studies, the Principles of Public Participation in Fiscal Policy, and a Guide on Public Participation, which is being continuously expanded.

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June 19, 2017

Building Fiscal Capacity in the Caribbean

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Posted by Suhas Joshi[1]

PFM capacity in the Caribbean was recently given a boost by the delivery of a regional Seminar on Cash and Debt Management and Commitment Control. The event was held in St. Lucia under the aegis of the IMF’s Financial Management in the Caribbean Program (FMCP). The FMCP is a technical assistance program, funded by Canada, and focuses on some heavily-indebted Caribbean countries. The program supports reforms and capacity building in budget and treasury management through legal and institutional modernization, using a range of advisory and capacity building tools. Its focus is on countries in the ECCU[2] that are supported by IMF programs, such as Grenada, Dominica, St. Vincent & the Grenadines, and St. Kitts & Nevis. But the program also covers other fiscally vulnerable countries in the region, such as Barbados and Belize. In addition to addressing the specific needs of these countries, the FMCP utilizes regional approaches where there is a benefit to be gained from collaboration.

This first FMCP Regional Seminar was held in St. Lucia from 29 May to 2 June 2017, and was inaugurated by the Minister of Finance of St. Lucia. The Minister pointed out the importance of building fiscal capacity in the region, especially given the high level of indebtedness. Sessions were delivered by the FMCP PFM Regional Advisor, the IMFs Regional Debt Advisor, and two other experts. Details of the program can be found here.

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June 16, 2017

Challenges of Modernizing FMIS

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Posted by Nicolas Botton[1]

Under pressure for fiscal consolidation, supranational directives, or merely the need to better allocate resources and manage cash, many governments around the world are trying to extract more information out of their Financial Management Information Systems (FMIS). Governments often use different systems for different purposes – budget execution, payroll management, cash and debt management, revenue collection, public procurement, and so on – using different technologies and processes, in different administrative and geographic locations. But modern financial management puts a premium on the efficient exchange of information, and for systems to communicate with each other – to use an unlovely technical term “interoperability”. Very often, the evolutions are impeded by the fragmentation of the data[2] Getting an across-the-board view and producing up-to-date analytical information on public finances is therefore a considerable challenge. What kind of solutions can be found?

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June 14, 2017

The Stages of PFM Reform in Fragile States

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Posted by Mario Pessoa[1]

A recently published policy note by the IMF discusses the challenges of reforming fiscal institutions in fragile states. It identifies several stages through which such reforms typically pass. In broad terms, these stages comprise: (i) an immediate phase following a conflict or natural disaster; (ii) a stage when the fragile state has stabilized but is still vulnerable; and (iii) a stage when the country in no longer fragile. For each of these stages, the paper defines a PFM reform strategy and associated requirements for technical assistance (TA). Initially, the paper recommends that fragile states prioritize actions that allow them to gain immediate control over the budget. Once they have become more stable, the countries can gradually progress to more advanced reforms, such as the development of medium-term expenditure strategies.

Quick wins are important during the first stage as they can help increase the authorities’ confidence and encourage further reforms. The recommended strategy includes:

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June 12, 2017

Sustainable Infrastructure Development in the Pacific Islands

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Posted by Lorena Estigarribia, Roland Rajah, and Richard Neves[1]

Infrastructure, whether delivered or owned by the public or private sector is critical for sustainable economic and social development. This is especially so for Pacific island countries, whose remoteness, vulnerability to natural disasters, and highly dispersed population make the need for enhanced connectivity through transport and ICT networks particularly urgent. Making infrastructure development sustainable in the long term remains a perennial challenge throughout the region.

Development partners have been helping Pacific countries build infrastructure for decades. During the 1960s and 1970s, governments in the region constructed many new infrastructure projects such as water treatment plants, sewerage systems, roads, airports, and ports.

Yet most assets were not properly maintained due to weak governance, excessive reliance on donor funds to fill in the gaps, and political economy challenges. Funding for ongoing maintenance was hindered by competing expenditure priorities. The lack of maintenance not only constrained the expansion of existing projects and popular access to even basic infrastructure, but also made the assets extremely vulnerable to climatic threats.

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June 07, 2017

Public Participation in Fiscal Policy

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Posted by Murray Petrie[1]

Direct engagement between citizens and governments is increasingly recognized as a critical link in the chain between fiscal transparency, more effective accountability for public financial management, and better fiscal and development outcomes. The importance attached to public participation reflects the acceptance that citizens and civil society organisations are important agents of good governance and sustainable development, alongside markets and the state.

 So, what is public participation in fiscal policy?

 Public participation refers to the variety of ways in which the public – including citizens, civil society organizations, community groups, business organizations, academics, and other non-state actors – interact directly with public authorities on fiscal policy design and implementation. The interactions range from one-off consultation, through face to face deliberation, to ongoing and institutionalized relationships.

Public participation covers both macro-fiscal policy – the main fiscal aggregates, the appropriate size of the deficit and so on – as well as micro-fiscal issues of tax design and administration, and the allocation and effectiveness of spending. It encompasses engagement in four main domains:

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June 01, 2017

Brazil’s Efforts to Improve Fiscal Transparency

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Posted by Paulo Medas [1]

An increasing number of countries have done an assessment of their fiscal transparency practices against the principles in the IMF’s Code of Fiscal Transparency. Brazil did so in 2016, amidst ongoing efforts to upgrade transparency. The IMF just published the results.

According to the IMF, Brazil’s practices meet many of the principles of the Fiscal Transparency Code at good or advanced levels. Brazil has made significant progress over recent decades in providing regular information on the budget and its implementation at all levels of government. For example, fiscal statistics encompass the general government sector and recognize most of the government’s assets and liabilities. Fiscal reports are published frequently and annual financial statements are audited. The institutional scope of budget documentation is comprehensive and extensive budgetary information is made available to the general public. Since 2010 a Citizens Budget has been  published which provides core information in a non-technical manner. Brazil is also a leading country in providing citizens with a formal voice in budget deliberations. Elected representatives of National Councils and committees and representatives of civil society can contribute to the planning and budget processes, including through participation in public hearings.

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