January 17, 2018

Is the Open Budget Survey Biased against Francophone Countries?


Posted by Ian Lienert1

In the Open Budget Surveys (OBSs) published prior to 2015, the average overall score of francophone countries were quite a lot lower than those of comparable non-francophone countries. This led some French-speaking observers to remark that the OBS is biased against francophone countries.

Is there any validity in this claim? Are there specific features of francophone countries’ PFM system that are not captured in the OBS, or which lead to bias?

A new study considers these questions, by examining:

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January 12, 2018

Gender Budgeting in Central America


Posted by Virginia Alonso Albarran[1]

The IMF’s Technical Assistance Center for Central American Countries and the Dominican Republic (CAPTAC-DR), and the IMF’s Fiscal Affairs Department (FAD) organized a seminar on Gender Budgeting in Costa Rica in December 2017.

More than 20 representatives from seven countries participated (Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, Panama). The seminar was conducted by FAD together with experts from UN Women, Mexico and Spain. The country participants were mainly technical staff of the budget directorates and, for Costa Rica, also from the Women’s Institute.

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Reorganization of the Budget Directorate in Senegal


Posted by Bruno Imbert[1]

The budget department in Senegal underwent recently a major reorganization, having remained broadly unchanged for several decades. The old structure had outlived its useful life and is being replaced by one that is better able to meet the challenges of technological advances in budget preparation and execution, enhanced requirements for transparency, and the implementation of performance-based budgeting and other PFM reforms.

Since the early 1950s, responsibility for both the preparation and execution[2] of the annual budget has been assigned to the Ministry of Finance (MoF), but it took several decades to progressively shape a department of the ministry to take charge of the budget.

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La réorganisation de la Direction générale du budget (DGB) au Sénégal


Publié par Bruno Imbert[1]

Après plusieurs années d’une relative stabilité la direction en charge du budget a récemment vécu des changements majeurs. L’ancienne organisation a été remplacée par une nouvelle plus à même de faire face aux enjeux liés aux avancées technologiques pour la préparation et l’exécution du budget, aux exigences croissantes en matière de transparence et à la mise en œuvre des réformes de finances publiques telle que la gestion axée sur les résultats.

Au Sénégal, la responsabilité pour la préparation et l’exécution du budget[2] annuel a, de longue date, été confiée au Ministère des Finances mais il faudra attendre plusieurs décennies pour que se dessine progressivement une véritablement direction en charge de ces problématiques.

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January 05, 2018

Top Ten PFM Blog Posts of 2017


Posted by Richard Allen, Teresa Curristine, and Daniel Shrift[1]

2017 was another bumper year for the PFM blog, with nearly 70 articles being published. The blog also celebrated its 10th anniversary! Readership levels maintained their high level of the previous year, as did the rich diversity of our articles, authors and readers. Nearly half of these articles, and a similar proportion of the Top Ten, were written by external contributors from a wide range of organizations in the public sector, academia, and the private sector. Topics ranged widely, from fiscal rules and fiscal councils, to stress-testing the public finances, to the sequencing of PFM reform, to medium-term budget frameworks, to digitization and fiscal policy. Some of these topics are old perennials, others were breaking new ground and stretching the envelope of knowledge.

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January 03, 2018

New Cash Basis IPSAS


Posted by Guohua Huang[1]

Recently, the International Public Sector Accounting Standard Board (IPSASB) published its revised Cash Basis IPSASFinancial Reporting under the Cash Basis of Accounting—thus replacing the standard first published in 2003 and modified in 2006 and 2007. It is not a high-profile accounting standard compared to the other accrual basis standards. But many organizations, including the IMF, have already been assisting some developing countries, especially those with limited PFM capabilities, to implement the Cash Basis IPSAS, as a stepping stone to possible future implementation of the accrual basis standards. A robust government accounting system, which produces timely, accurate, consistent, and comprehensive financial reports on a cash basis, can dramatically improve these countries’ fiscal transparency and accountabilities. This international standard is therefore an important instrument in enhancing the quality of financial reports of low-income countries.

The main purpose of this revision is to remove some significant barriers to the adoption of Cash Basis IPSAS. So far, very few countries have fully adopted the standard. Two main challenges have been experienced: first, in the preparation of consolidated financial statements; and, second, in the disclosure of information about external assistance and third-party payments.

The previous cash basis standard required that the financial statements of all “controlled entities”, such as subsidiary agencies of ministries and state-owned enterprises, should be consolidated by their controlling entity. Many of these enterprises, however, are established as companies, and already report on an accrual basis. It may be burdensome therefore for the government to adjust the financial statements of state-owned enterprises to a cash basis before they can be consolidated. Difficulties in applying the control criteria in a low-capacity environment can also make the consolidation process challenging.

The revised standard does not require countries to carry out this consolidation any more, although it encourages them to do so. The standard also encourages governments to present a consolidated financial statement for the budget sector, the general government sector[2], and other entities that represent core government activities. Such information is highly relevant for fiscal transparency and efficient budget management, and for assessing the impact of the government’s fiscal policies and liquidity position on the rest of the economy.

The second important change is to recast the previous requirement for disclosing information about external assistance and third-party payments[3] as a voluntary disclosure which is nevertheless encouraged. Some governments have complained about the onerousness of acquiring the mandatory information on third party payments, and disclosing details of external assistance, some of which is not even required in accrual IPSAS. Nonetheless, external assistance received in cash still needs to be recognized in the financial statements.  

In addition to addressing these barriers to the adoption of the Cash Basis IPSAS, the IPSASB has also recognized its role in supporting governments in their transition to accrual IPSAS. Indeed, the new standard notes that “the Cash Basis IPSAS has been developed as an intermediate step to assist in the transition to the accrual basis of financial reporting and adoption of accrual IPSAS”. It also strongly encourages countries to collect and disclose information that is not recognized in cash accounting. Such information includes receivables, payables, borrowings, non-cash assets, and accruing revenues and expenses. Some countries implementing the Cash Basis IPSAS may need significant time, resources and technical support to build up their capacities to collect these data on a timely and reliable basis. After that, they should be well prepared to move ahead with the adoption of accrual IPSAS.

[1] Senior Economist, Fiscal Affairs Department, IMF.

[2] Comprising the central government, state or regional governments, local governments, and social security funds.

[3] Third party payments refer to purchases of goods or services on behalf of a government entity, or the settlement of obligations of the entity, when the money is paid directly to the suppliers.

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.

December 18, 2017

Shedding Light on Hidden Government Spending: Tax Expenditures

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By Tom Neubig and Agustin Redonda1

Tax expenditures (TEs) are used by governments around the world to promote public policy objectives. Examples include tax deductions on mortgage interest to encourage home ownership and preferential tax treatment of pension savings.

TEs are offered in many shapes across the entire tax system. They provide subsidies through reduced tax rates, tax exemptions, exclusions, deductions and tax credits. They are applied to income taxes, value added and sales taxes, payroll taxes, property taxes as well as estate taxes. And they target policy goals in areas as diverse as energy, housing, research and development, retirement, health as well as specific business sectors.

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December 06, 2017

Fighting Illicit Fund Flows in Sub-Saharan Africa


Posted by Howard Cooper, Paul Nash, and Oliver Stern[1]

In September 2017, Kroll delivered a seminar to a group of representatives from the Fiscal Network of the IMF’s African Department. The seminar, entitled ‘Fighting Illicit Fund Flows in Sub-Saharan Africa’, covered Kroll’s experience of performing forensic audits in various countries in Africa and other parts of the world, including the recent independent audit of three state-owned enterprises in Mozambique. The presentation also raised the global and growing issue of illicit fund flows, demonstrated how modern data analytics techniques can help to effectively detect and stop these flows, and highlighted the obstacles that currently prevent a coordinated data analytics strategy from working effectively.

Kroll is often asked to carry out discreet investigatory work to identify the origins of bottle-necks in decision making, or transparency issues associated with various transactions in emerging markets.  These markets are often characterized by a combination of weak institutional capacity and highly politicized government spending. Powerful commercial and political patronage networks, and weak public financial management frameworks increase the risk profile for Kroll’s clients. In addition to the macro-economic challenges associated with, for example, off-budget spending, a highly politicized environment can leave investors facing challenges over their security of tenure and a general lack of predictability.

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December 01, 2017

IPSAS on Social Benefits

ThinkstockPhotos-871801570 (002)

Posted by Guohua Huang[1]

Providing social benefits to the public is a critical responsibility of governments. However, concerns have been raised about the financial sustainability of social benefit policies in many countries. One recent IMF study[2] showed that, without further reforms, spending on age-related programs (pensions and health) would increase by 9 percentage points of GDP in advanced countries and 11 percentage points of GDP in less-developed countries, between 2015 and 2100. The fiscal consequences are potentially dire. Such spending increases could lead to unsustainable public debts, require sharp cuts in other spending by governments, or necessitate large tax increases that could stymie economic growth.

Even though the sustainability of social benefits is an important policy issue, there is no an international standard on how to appropriately account for the related liabilities and expenses. The International Public Sector Accounting Standards Board (IPSASB) has been criticized for not issuing any standards on this issue. For example, when assessing the suitability of IPSAS in the EU member states a few years ago, the European Commission stated that the coverage of IPSAS was incomplete, and expressed concerns about its applicability to some important types of government flows, such as taxes and social benefits. IPSASB’s oversight body, the Public Interest Committee, has been recommending IPSASB to focus its resources on social benefits and other key issues of public policy.

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November 28, 2017

Cost-Benefit Analysis of State-Owned Enterprises


Posted by Taz Chaponda[1]

The problems associated with state-owned enterprises (SOEs) are well known. They are very costly to run, few of them make profits, or if they do, they tend not to pay dividends on a consistent basis. This problem is more applicable to developing countries and emerging markets than to advanced economies. In the latter, deregulation has sharply reduced the number of SOEs and improved their performance. But in emerging markets, SOEs are still pervasive and their failure can result in huge economic and fiscal costs. Given these risks, why do governments continue to keep them?

To understand the ubiquitous nature of SOEs, it is necessary to go back in history to when governments set up dedicated entities to provide services that were viewed as having some “public good” characteristics, or where natural monopolies existed. It was argued, that certain essential services could not be left to the private sector as it would not supply these services reliably to everyone that needed access (think of public utilities). Another argument was to promote industrialization by investing in strategic sectors through SOEs. Economies in East Asia led the way in this respect. The chart below shows countries with the highest SOE presence among their top ten firms.

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