Poverty Reduction Budget Support -- A DFID Policy Paper

Posted by Michel Lazare

Further to our March 17 post: Is Providing Budget Support to Developing Countries Effective? -- Evaluation of DFID's Direct Budget Support by UK's National Audit Office, which discussed NAO's assessment of effectiveness of budget support, it is important to note that the UK's Department for International Development (DFID) has recently published a policy paper on budget support.

This paper updates DFID's previous policy (dating back to 2004). It draws on the conclusions of a May 2006 multi-donor Joint Evaluation of General Budget Support -- which provided new evidence about the effectiveness of general budget support -- and on the implications of the 2005 Paris Declaration on aid effectiveness.

It "reaffirms DFID's commitment's to using budget support -- alongside other aid instruments -- where it is appropriate to deliver aid to partner governments to reduce poverty. "

Sri Lanka: Improving Transparency and Accountability in Budget Processes

Posted by Justin Tyson

A TV report posted on YouTube in September 2007 provides a short, but interesting, introduction to debates about improving the transparency and accountability of budget-making in Sri Lanka. Topics covered by the video include: the move away from incremental annual budgets towards Activity-Based Budgeting; the need to have more in depth review of expenditure purposes and outcomes; and, the role of parliament in scrutinizing the budget process.

Debt Management Stakeholder’s Conference – Oslo, Norway – March 5-6, 2008

Posted by Brian Olden

A Debt Management Stakeholders’ Conference, organized by the World Bank and the Norwegian Ministry of Foreign Affairs, was held in Oslo on March 5-6, 2008. It was attended by over 100 delegates including country authorities, donors, and the main technical assistance service providers in low income countries (LICs). The Norwegian Minister of the Environment and International Development was the keynote speaker at the event.

Civil Society and Public Finance

New International Budget Project Budget Briefs Help Civil Society Understand and Engage on PFM

Posted by Duncan Last

The Center for Budget and Policy Priorities (CBPP) International Budget Project (IBP) has just launched a new publication series – Budget Briefs – which aim to keep readers up-to-date on debates and challenging new thinking relevant to the work of monitoring public budgets. They will not only draw on new work by the IBP and its partners but also on new academic literature and developments in the broader governance, civil society and poverty fields. Briefs will be produced as short, accessible reports or think-pieces and will be published on an occasional basis. The first brief focuses on how civil society can help in monitoring donor budget support.

Fiscal Discipline and Subnational Borrowing: the Case Study of Brazil

Posted by Mario Pessoa

Decentralization of borrowing authority to local government and fiscal sustainability are two issues in permanent tension in public financial management. On the one hand, it is positive to give local authorities room for raising financial resources in order to finance investment and provision of goods and services to local communities. On the other hand, the lack of institutional capacity, history of defaults, and lack of controls pose to the central government an argument to restrict autonomy. In other words, there is a fear that decentralization can weaken fiscal discipline. Therefore, is it possible to built a safe net in order to prevent problems? Can both objectives be met?

A recent article by C.R. Martell entitled "Fiscal Institutions of Brazilian Municipal Borrowing" (Public Administration and Development 28, 30-41; 2008) examines the effectiveness of Brazilian fiscal institutions (constitution, fiscal responsibility law, and borrowing arrangements) in light of 2001 policy recommendations for strengthening efficiency and fiscal discipline in subnational borrowing by means of fiscal policies that encourage efficiency, discipline, and controls.

Cash management -- IMF Technical Guidance Note

Posted by Ian Lienert

Do you manage your own cash well? Can you always pay your bills on time? Do you borrow unnecessarily? Do you have balances in bank accounts that are not receiving the best interest rate? Just as individuals are concerned about managing their cash well, so are governments. In practice, however, not all governments manage cash well. Some countries have unremunerated balances in thousands of bank accounts, yet at the same, they are borrowing from domestic or external creditors at market interest rates. Commercial banks and other purchasers of government bonds are very happy with such arrangements.

A new IMF FAD Technical Guidance Note on Cash Management, prepared by Ian Lienert of the Fiscal Affairs Department, explores how countries can improve their cash management practices and eliminate some of the inefficiencies in current practices. [Download cash_management_guidance_note__lienert_.pdf ]

Is Providing Budget Support to Developing Countries Effective? -- Evaluation of DFID's Direct Budget Support by UK's National Audit Office

Posted by Michel Lazare

One of the main changes in development aid policy over the last decade was the decision made by the international community to move away from project aid in favor of direct budget support. This meant shifting away from aid financing specific projects and disbursed outside of the beneficiary country's public financial management (PFM) system (e.g., money deposited on projects' accounts in the commercial banks) to favor generally unearmarked aid funds directly disbursed using the beneficiary country's  PFM system (e.g., direct budget support deposited on the treasury's account at the central bank).

Evaluation of the efficiency and effectiveness of this new aid policy is a key issue for the international community. Just a few weeks before the upcoming Fourth High Level Forum on Aid Effectivemess to be held in Accra (Ghana), the UK's National Audit Office (NAO) has published, on February 8, 2008, a report evaluating DFID's (the UK's development agency) performance in providing budget support. This report titled: "Department for International Development -- Providing Support to Developing Countries", concludes in a nuanced way:

"Evidence on whether budget support has yielded better value for money than other forms of aid is not conclusive. While budget support has some advantages compared to other forms of aid, it also carries significant risks which need to be better managed."

A Primer on Accrual and Cash Deficits--Understanding Similarities and Differences--the US Case (GAO Report)

Posted by Michel Lazare

In December 2006, the United States Government Accountability Office published a report on "Understanding Similarities and Differences between Accrual and Cash Deficits": Download gao07117sp_accrual_and_cash_deficits.pdf.

This report constitutes a good introduction to the differences about these two notions of fiscal balance. In addition, it explains in a clear way how some of the categories of expenditures are accounted for in cash and in accrual terms. It is also candid about the weaknesses in some of the data reported in accrual terms and the need for a "plug" (i.e., unaccounted for differnces) to fully reconcile the two deficit numbers.

A Hitchiker's Guide to Budget Classification....

... or how to recognize a budget classification from quite a long ways away.

Posted by Jean-Luc Helis and Davina Jacobs

Why should countries care about budget classification? Who cares about budget classification? These questions appear at first glance to be of concern only to economists doing research on public finance and budgets or to officials in the ministry of finance in a country. However, everyone-from members of parliament or congress and yes, also the proverbial "man in the street", should be interested in budget classification. Properly defined revenues and expenditures give us information on the intimate workings of the budget and government. Do you want to now how much was spent last year on education? Or health? How much company income taxes were collected by the government? To get the answers to these questions, the budget has to be appropriately classified.

Warm Welcome to "The Kaufmann Governance Post"

Posted by Michel Lazare

Daniel Kaufmann, a well-known authority on governance and one of the key governance experts at the World Bank, has just launched a personal blog: "The Kaufmann Governance Post.

In his first few posts, he shares his view that governance issues are by and large still misunderstood and indicates his intention to clarify misunderstandings with a series of posts to debunk myths about governance. For instance, the March 3 post is about: Myth #1.  Developing countries, and governments in particular, are all rife with corruption, while corruption is virtually absent in much of the rich industrialized world.  Worth reading.

Beyond the substance, PFM Blog also notes the modesty and human dimension relfected in the presentation pages of The Kaufmann Governance Post. Long life and full success to this new blog.

Extrabudgetary Funds -- Removing the 'Extra' and Minimizing the Risks

Posted by Bill Dorotinsky

Extra-budgetary funds (EBFs) are a large and persistent issue in developed and developing countries. An October 26, 2007, blog post highlighted the magnitude of such funds, offered a taxonomy of EBFs, and suggested some questions for evaluating them. This post offers a similar perspective, drawing on a draft World Bank policy note prepared for the Polish authorities in 2001.

Public finance professionals generally oppose creation or continuation of 'extra-budgetary funds' because they undermine comprehensive budgeting, fragment financial reporting and cash management, and frequently there are transparency, oversight, and accountability concerns for the EBF's directly. But there are principles that, if followed, can minimize the risks from EBF’s, effectively removing their ‘extra-budgetary’ character.

Secrets of Public Accounting in Brazil are Revealed!!!

(unfortunately only in Portuguese)

Posted by Mario Pessoa

If you are interested in understanding how the public accounting system in Brazil works and what are the concepts behind the government financial information system (SIAFI), you have a good guide through the book Public Accounting in Brazilian Central Government (“Contabilidade Publica no Governo Federal” in Portuguese). (Click the link to access the book and the spreadsheet exercises.)

The Pile of Books on the “Resource Curse” Just Keep Growing !!!

So, why we should read “Escaping the Resource Curse”?

Posted by Teresa Dabán

Devising policies and institutions for the prevention of the “resource curse”—a term used to describe the surprisingly negative outcomes of resource-rich countries—has been the object of an extensive literature. One of the most recent contributions is Escaping the Resource Curse, a book edited by Macartan Humphreys, Jeffrey D. Sachs, and Joseph E. Stiglitz under the auspices of the Initiative for Policy Dialogue at the University of Columbia. The book reviews the main challenges posed by the management of resource revenues and proposes some interesting ways to address them.

To strengthen resource revenue management, for instance, the book proposes creating innovative budgetary  bodies and management arrangements that would operate in “parallel” to the existing ones. This post definitely recommends reading Escaping the Resource Curse, but argues that the benefits of creating such additional bodies and arrangements need to be carefully weighed against the risk of undermining and alienating existing budgetary institutions and discouraging reform efforts, especially in low-income countries, weakening governance and fragmenting already weak public finance systems.

The Citizen's Guide to the 2007 Financial Report of the United States Government

Posted by Michel Lazare

On February 14, 2008, the US Treasury Department and the Office of Management and Budget (OMB) released a short report called The Government’s Financial Health:  A Citizen’s Guide to the 2007 Financial Report of the United States Government. The Guide is a short and reader-friendly summary of the key messages contained in the 2007 Financial report of the United States Government, i.e., the annual report on the financial accounts as well as an analysis of fiscal sustainability in the absence of policy changes.

For readers who would not be familiar with the content of the Financial Report, the tone of the Citizen's Guide may be seen as surprisingly candid for an official document. For instance, the title of the reverse of the cover page reads: "The Government Is On An Unsustainable Fiscal Path." the same page indicates that, in the absence of policy changes, by 2080 "total government cost will be more than three times revenue." A good example of fiscal transparency at work.

Similar efforts to enhance transparency and create reader-friendly summary reports of key fiscal messages exist in a number of developed countries. Other undertakings by  Non-Governmental Organizations, like the Open Budget Initiative , also deserve to be noted in this area.

Capital Budgeting and Public Financial Management -- Part II

A primer on systems and issues: Capital Budgeting Process

Posted by Bill Dorotinsky

The previous post of February 20,2008, discussed capital budgeting in the context of the over-all PFM system, and addressed defining capital and measuring some aspects of efficiency and effectiveness. This post focuses on the capital budgeting process itself, again drawing directly from a 2006 World Bank Public Expenditure Review for Ukraine.