July 21, 2014

Philippines: A Competency Model for PFM Professionals

PHL

Posted by Gordon Ferrier1

Human resource aspects of public financial management (PFM) reform strategies are given less than their due in the literature. Yet they are fundamental to the success of such strategies, as a recent initiative by the Government of the Philippines (GOP) to develop a Competency Framework for some 60,000 government employees exemplifies.

In March 2013, the GOP embarked on an ambitious new strategy for reforming PFM systems. Its PFM Reform Roadmap aimed to “clarify, simplify, improve and harmonize the financial management processes and information systems of the entire government machinery for improved public service delivery”.

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July 18, 2014

Fiscal Transparency and Accountability – Why Did so Many Countries Meet in Moscow Recently to Discuss it?

PEMPAL Logo

POSTED BY: Elena Nikulina, PEMPAL Team Leader and Deanna Aubrey, PEMPAL Strategic Adviser (World Bank).   

On 27-29 May 2014, 179 people met in Moscow, Russia to discuss fiscal transparency and accountability. The meeting was held by the PEMPAL network[1] and was hosted by the Ministry of Finance of the Russian Federation and other key donors to PEMPAL including the World Bank, and the Swiss Government’s State Secretariat for Economic Affairs, SECO. 

The key objective of this meeting was to share information about the concepts and tools of fiscal transparency and accountability and how these can be applied from a central government finance agency perspective. The topic was chosen due to its relevance to central finance agencies and its potential to improve governance. The empirical evidence on the beneficial effects of fiscal transparency range from improved budgetary outcomes to lower sovereign borrowing costs and decreased corruption.[2]

Overview of Meeting

Official welcome statements were provided by the Minister of Finance of the Russian Federation, Anton Siluanov; the Minister of Open Government of the Russian Federation, Mihail Abyzov; and the World Bank Country Director for Russia, Michal Rutkowski. 

PEMPAL 1

Different international organizations gave presentations including the IMF, the OECD, the International Budget Partnership (IBP), and the Global Initiative for Fiscal Transparency (GIFT). The IMF presented its new fiscal transparency code and the OECD presented its draft principles for budgetary governance. In addition the IBP examined global performance of PEMPAL countries and GIFT presented its 10 high level principles on fiscal transparency, participation, and accountability.  Good practices from countries within and outside the PEMPAL region were showcased, including the Russian Federation, Turkey, Mexico and South Africa. A panel of Secretary-Generals from Albania, Kyrgyz Republic, and Bulgaria discussed the important roles played by financial reporting and internal and external audit in their countries. 

Group discussions were held on using budget and treasury portals, applying transparency frameworks, and country based plans to strengthen reforms. Most PEMPAL countries plan to ensure higher accessibility and transparency of budget information in the future. Some improvements have already been achieved through: IT and FMIS reforms; aligning information to international standards; and implementing program budgeting reforms to report on performance and results. Most countries had undergone some form of diagnostic assessments such as PEFA and OBI. Countries acknowledged their value in identifying improvements and good practices, although they also noted the limitations of these tools.

Detailed Discussions

The presentations by international organizations and experts highlighted a number of interesting findings and issues from recent research on transparency in the region. According to the 2012 Open Budget Index and available PEFA diagnostic assessments, the average performance of the region in transparency has slowed or declined when compared to 2010 (see Graph 1). The Index highlighted areas in need of strengthening specifically in the publication of citizens budgets[3], the provision of Mid-Year Review documents and the comprehensiveness of the Executive’s Budget proposals (see Table 1). It also stressed that the lack of sufficient coverage of institutions in the budget such as SOEs and off-budget funds continues to present serious fiscal risks. Citizen engagement in the budget process is also weak. (Global average for participation is very low at 19% with no country scoring above 50% in the PEMPAL region).  IBP recommends that countries adopt good participation practices such as: providing multiple mechanisms throughout the budget process; involving all parts of government (Executive, Legislature, Supreme Audit Institution and Ombudsmen); providing a legal basis for participation; publicizing purposes in advance and providing feedback.   (Source: Warren Krafchik, IBP).

   PEMPAL 2

Source: Warren Krafchik, International Budget Partnership, presentation to PEMPAL Cross-COP 29 May 2014 (Note: Only 15 of the 22 PEMPAL members participated in the survey)

However, significant improvements have been made by some countries in budget transparency, in particular the Russian Federation with other notable improvements from Kazakhstan, Kyrgyz Republic, and Albania.

PEMPAL 3
 Source: Warren Krafchik, International Budget Partnership, presentation to PEMPAL Cross-COP 29 May 2014 (Note: Only 15 of the 22 PEMPAL members participated in the 2012 survey)

The Russian Federation performed the best in the region in the 2012 OBI (coming 10th worldwide ahead of Germany, Spain and Italy).[4] Russia’s recent budget reforms have also brought most aspects of its fiscal reporting and budgeting into line with good or advanced practices and significantly improved the disclosure and management of fiscal risks, as assessed by IMF while piloting its new code in Russia.[5]   Further recommendations for improvement were also provided (see below).

  PEMPAL 4
Source: Richard Hughes, ‘IMF’s New Fiscal Transparency Code and Evaluation’, presentation made at PEMPAL Moscow Meeting, 27 May 2014

The Russian Federation also rated well in the World Bank’s study on FMIS and Open Budget Data, the results of which were presented at the meeting.[6] However, for most other PEMPAL countries, various FMIS platforms are operational, but there is little evidence on the web of the timely publication of public finance information from reliable FMIS databases.[7] In terms of current PEMPAL members’ good practices, only two countries scored ‘highly visible’, Russian Federation and Turkey. Survey results indicate that only a few countries are focused on publishing open budget data and FMIS platforms are not effectively used by the external audit organizations when monitoring the government’s financial activities or auditing the budget results. Further, there are still only limited opportunities for participatory budgeting. The World Bank recommends that possible improvements could be made through publishing regular updates (monthly/quarterly) on existing websites; promoting the publication of open budget data covering plans verses actuals for budget revenues and expenditures, and providing access to citizens and NGOs to monitor the budget performance (e.g. dissemination of budget performance and feedback on results/services through web sites and mobile applications).

PEMPAL 5

Countries agreed to consider these recommendations and the PEMPAL communities of practice identified a proposed supporting work program. This work program includes a proposed study visit to a high performing country in the OBI and also plans to examine forms and methods of citizen engagement in the budget process within the context of strengthening citizen budgets. There are also plans to continue work on supporting reforms related to IPSAS implementation and IT solutions for treasury systems. In addition, there are plans to establish a financial management control working group and hold a case clinic on internal audit engagement in transparency processes. 

Conclusions

In the closing summations, it was acknowledged that as one of the key stakeholders, central government agencies can play an important role in promoting and facilitating improvements in fiscal transparency and accountability. This has the potential to lead to positive development results for both governments and citizens. Information systems have become the foundation for information transparency and accessibility and the engagement of citizens is essential to promoting trust in government and to improving the quality of decision-making and service delivery. Political will and allies within government and society are needed to champion reforms which are not one-off initiatives but require ongoing focus and efforts.  The quality of information is essential, through aligning information to international standards, and ensuring processes and information are robust through internal and external audit. Usability of the information is also important with open budget data formats allowing reuse and analysis of the data, along with adoption of common reporting standards and easy to understand formats.  

However, there are limitations on systems and capabilities and governments need to develop a strategy for such reforms including identifying and managing the risks and challenges such as lack of internet coverage and the potential low financial literacy of stakeholders. Learning from international good practices and sharing information between countries is a key tool and PEMPAL plans to continue to support this work.

All materials can be downloaded from http://www.pempal.org/event/read/111



[1] The Public Expenditure Management Peer Assisted Learning network (PEMPAL) was established in 2006. Its current membership consists of central finance agencies from 22 of the 30 World Bank classified Europe and Central Asia countries. The network provides learning events, workshops, study tours and resource materials in accordance with member driven action plans in the three distinct thematic areas of budget, treasury, and internal audit.

[2] Wehner and Renzio, 2011

[3] Citizens Budgets are not common in the region with only Kazakhstan (and more recently the Russian Federation, Tajikistan, and Turkey) producing them although the information is readily available in different forms.

[5] Source IMF  2014 Fiscal Transparency Evaluation for Russia

[6] Defined as being budget related information that is published online which is editable and reusable and is free.

[7] The study reviewed 198 public finance websites and examined good practice in areas such as dynamic query options, visibility of FMIS, reliability of public finance data, presentation quality, and the effective use of open budget data. 

 

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

July 15, 2014

Strengthening Financial Reporting in Central Asia, Kazakhstan and Transcaucasia

Image-05-06-14-11-35 (2) Image-05-06-14-11-43 (2)

Posted by Peter Murphy and John Zohrab1

A seminar on strengthening financial reporting for governments of Central Asia, the Caucuses and Kazakhstan took place in Astana, Kazakhstan in May 2014. The seminar was held as part of the International Economic Forum in Astana; received financial support from the government of Japan; and was jointly hosted by the Fiscal Affairs Department (FAD) of the IMF and the Ministry of Finance of the Republic of Kazakhstan.

Presentations were made by leading international experts from the IMF, followed by interactive discussion between the experts and participants. This allowed seminar participants to become familiar, not only with advanced international experience, but also with the practical results of reforming accounting and financial reporting systems in Azerbaijan, Armenia, Georgia, Turkmenistan, Tajikistan, the Kyrgyz Republic, Uzbekistan and Kazakhstan. Significant progress has been made in these countries, as well as commitments to continue the reform effort.

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July 11, 2014

Prevention and Management of Government Expenditure Arrears

TNM

Posted by Mario Pessoa and Suzanne Flynn

The accumulation of government expenditure arrears is one of the most common problems in public financial management (PFM).A survey of 121 Public Expenditure and Financial Accountability (PEFA) country assessment reports revealed that, in a third of the countries assessed, arrears amounted to more than 2 percent of total central government expenditure. In a further 28 percent of countries, information on payments in arrears was not available, presenting a risk that the real size of the governments’ deficit is concealed and the level of its liabilities is understated. It is not surprising that measures to control arrears feature prominently as benchmarks in many IMF-supported programs.

A new IMF Technical Note and Manual (TNM) on “Prevention and Management of Government Expenditure Arrears” is the first comprehensive guide on this subject. The note provides a common definition of expenditure arrears—for which there is surprisingly no international standard—and of the related concepts of commitments, payables, and liabilities. It discusses the mechanisms through which arrears can lead to reduced economic growth, higher costs of service provision, interruptions in the delivery of public services, increased avenues for rent seeking, rising interest rates and reductions in government tax revenues.

Arrears can be caused by shortcomings at any stage of the PFM cycle, including: unrealistic budgets; lack of controls at the commitment stage of the expenditure cycle; poor cash management systems that focus on cash rationing and controlling expenditures at the payment stage; and inadequate sanctions to enforce compliance with internal control regulations, thus weakening their effectiveness.

The note presents the experience of more than 20 counties in developing strategies to prevent, manage and clear arrears. It suggests that in order to address an arrears problem, countries should analyze the underlying weaknesses in their PFM system that allowed arrears to accumulate, and design suitable remedial measures. Depending on the causes, these measures might include: strengthening the legal framework to include a clear and enforceable definition of when a payment is in arrears; defining appropriate reporting requirements for spending agencies; building the capacity of the finance ministry to detect arrears at an early stage; and strengthening enforcement provisions in the PFM law. One of the most effective preventive measures is a robust commitment control system which, according to PEFA data, is strongly correlated with a reduced level of arrears.

Other preventive measures discussed in the note include: enhancing the credibility of the budget; improving accounting and reporting; enhancing cash and debt management and the links between the two, to ensure that cash is available when needed; and strengthening oversight of both sub-national governments and state-owned enterprises. 

While preventative measures are the key to avoiding the build-up of arrears, when the system fails or technical measures are unsuccessful, and arrears continue to accumulate, a strategy is needed for clearing these obligations. The note discusses an approach that countries might adopt to clear expenditure arrears in a transparent, comprehensive, credible and realistic way. The suggested approach focuses on making a full assessment of the existing stock of arrears, and defining a process for verifying, classifying, prioritizing, and eventually liquidating these arrears.

The new TNM is available in English here. More TNMs are available in English here

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

July 09, 2014

Australia to Enhance its Performance Management Framework

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Posted by Kris Kauffmann

Australia is widely recognized as a pioneer of the medium-term programmatic approach to budgeting but recent self-examination of these reforms indicates a need to strengthen the government’s approach. A strong performance management framework remains critical to the success of the Australian reforms. A range of recommendations to strengthen the framework have now been adopted that should be of interest to other jurisdictions intent on strengthening performance management in the public sector.

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July 01, 2014

Job Offer: Head of PEFA Secretariat – Washington, DC

  PEFA

 The World Bank is hiring on behalf of the PEFA partners (the World Bank, the European Commission, the UK Department for International Development, the Swiss State Secretariat for Economic Affairs, the French Ministry of Foreign Affairs, the Norwegian Ministry of Foreign Affairs, and the International Monetary Fund) a new head for the PEFA Secretariat. PEFA is the most successful globally-used country diagnostic tool in the public financial management space. The PEFA secretariat supports the development and use of the PEFA instrument through training, quality assurance, functioning as the global reference point for interpretation of the PEFA Assessment Framework and implementation of the PEFA Work Program. The Head of the PEFA Secretariat is responsible for the day-to-day management of the PEFA program activities and resources and of the Secretariat, and for being a primary source of knowledge and advice to the PEFA partners about the oversight and management of the PEFA framework. As readers of the PFM blog may know, the PEFA framework is presently being updated. The job advertisement for the position can be found by clicking the link below. 

Apply Here!

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

June 30, 2014

How Expenditure Rules Can Help Get Public Spending Right

FM Blog PIx

Posted by Xavier Debrun

The April 2014 issue of the IMF’s Fiscal Monitor usefully reminded us of a simple truth: getting government spending right entails tough choices, always and everywhere. Since 2008, elevated risks of economic and financial collapse had forced policymakers to think mostly in terms of how much government money should be injected in the economy. Now that the crisis has morphed into an uneven recovery, more attention is being given to ensure that public finances are on a sustainable path, and that the allocation of resources through the budget is efficient and in line with a country’s spending priorities.

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June 27, 2014

Shining a Light on the “Hidden Corners” of Public Finance

  Hidden PFM

By Paolo de Renzio[i]


When the financial crisis broke out in 2008, many governments were caught off guard. In many cases fiscal risks had not been correctly assessed, leaving unexpected and unprecedented gaps in public finances. This in turn led to the adjustment and austerity measures which are still being felt today. According to the IMF’s own calculations, almost a quarter of the unexpected increases in government debt after the crisis were due to “incomplete information about the government’s underlying fiscal position”. In other words, serious gaps in fiscal transparency were at least partly to blame, and these were often related to particular areas of public finances that are kept hidden from public view. This includes activities that are not captured in the regular budget system and the reports generated throughout the annual budget cycle. Quasi-fiscal activities carried out by public corporations and extra-budgetary spending figure prominently among such activities.

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June 23, 2014

In Defense of Forecasting: Its Importance in the Budget Process

Boule de crystal
Posted by Tom Josephs
1

Recent research by IMF economists Hites Ahir and Prakash Loungani shows that forecasters comprehensively failed to predict the recessions that followed the 2008 financial crisis.2 This was the case even for forecasts made in early 2008 — after the collapse of Bear Stearns bank and with the crisis well established. This prompted the economist Tim Harford to write recently in the Financial Times that: “The obvious conclusion is that forecasts should not be taken seriously….It is still a source of constant wonder to me that the demand for forecasts – in economics and elsewhere – remains undiminished.”3

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June 20, 2014

Sovereign Wealth Funds—The Keys to Success

  SWF

Posted by Andrew Bauer1

A sovereign wealth fund (SWF) should serve a purpose; this seems obvious. Yet time and time again, as discussed in my previous blog, funds are established with no clear purpose or do not achieve their stated objectives.

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