Post-conflict PFM -- IMF Lessons of Experience

Summary of lessons from FAD support

Posted by Bill Dorotinsky

The challenges of rebuilding fiscal institutions in post-conflict settings are daunting. An April 23, 2008, post summarized some lessons from USAID experience. The IMF Fiscal Affairs Department (FAD) has been directly involved in rebuilding fiscal institutions. Work done in 2004 summarized FAD's experience and some key lessons --- lessons reinforced by the recent USAID paper.

FAD experience was summarized in a 2005 Occasional Paper 247, Rebuilding Fiscal Institutions in Postconflict Countries, by Messrs. Gupta, Tareq, et. al. The work draws on background papers prepared in 2004, including a December 2004 paper "Rebuilding Fiscal Institutions in Post-Conflict Countries," and October 2004 case study summary Background Paper for "Rebuilding Fiscal Institutions in Post-Conflict Countries" (both available electronically).

DFID's Methodology for Managing Fiduciary Risks

Posted by Michel Lazare

Our March 31, 2008 post presented the recent DFID's Policy Paper on extending development aid through direct budget support. It indicated that provided that some conditions are in place DFID favors direct budget support. DFID like all the other development practitioners do recognize the fiduciary risks involved by the provision of aid through this form. Therefore, DFID has developed a methodology to manage fiduciary risk in its bilateral aid programs.

This methodology is the object of a DFID "How to note" published on January 30, 2008. Its full text can be accessed by clicking on the following link: Download howtonotefiduciaryrisk1.pdf .

This fairly technical note, which is mainly targeted towards DFID's country office staff, is nevertheless of interest for all PFM practitioners.

Practical Advice on Public Management

IBM Center for The Business of Government Web Site

Posted by Bill Dorotinsky

The volume of material on the Internet can be daunting to wade through, and finding quality, reliable information of practical use is nearly impossible. For the public management practitioners, more applied, pragmatic material is sought. One valuable site for practitioners found by PFM Blog is the IBM Center for The Business of Government. The Center, founded in 1998, "connects public management research with practice." The Centers reports cover a range of public management topics to "improve public sector effectiveness," and most are available for free on the site.

Post-conflict PFM -- USAID Paper Summary of Lessons

Posted by Bill Dorotinsky

Public financial management (PFM) has moved onto center-stage in country macroeconomic management, development planning, and international development fora, as has a focus on fragile and post-conflict states. The intersection of these fields has itself become a very current topic, particularly with respect to what specific areas of PFM to address in the short-run and how to sequence reform and capacity-building interventions.

A November 2007, USAID-funded paper, Building Fiscal Infrastructure in Post-Conflict Societies, prepared by Dr. Mark Gallagher, DAI, is worth a read. The paper is a summary of seven country case studies (Afghanistan, Angola, Bosnia and Herzegovina, El Salvador, Guatemala, Kosovo, and Liberia) and some general lessons he draws from them.

Public Expenditure and Financial Accountability (PEFA) Part 1

A complete history (abridged)

Posted by Bill Dorotinsky

The term 'PEFA' is rapidly entering the international public financial management lexicon, but there is still some confusion over the term and its application. This post provides some of the background and origins of the approach.

In a December 10, 2007, blog post, we wrote about the HIPC expenditure tracking initiative, which illustrated that an indicator-based tool could track PFM system performance over time. The result of this work by the IMF and World Bank also clearly illustrated that many country PFM systems were weak, despite many years of technical assistance. The Boards of the two institutions asked staff the right question -- What is wrong with PFM reform and capacity-building? Why has there not been more progress?

This set in motion some work by the IMF, World Bank, and other development partners to try to identify barriers to PFM reform and the lessons of successful reform. The post cited above listed some of the lessons that emerged from the HIPC work. The work on identifying cases and lessons is an on-going process, and focuses on several dimensions: country incentives; development partner and international financial institution (IFI) behavior; and technical approaches to PFM system improvement.

Responding to the need to improve PFM systems as a critical element for economic growth and development, several institutions came together in 2001 to form the Public Expenditure and Financial Accountability (PEFA) initiative -- a multi-donor effort composed of the European Commission, the UK's Department for International Development, the Swiss State Secretariat for Economic Affairs, the French Ministry of Foreign Affairs, the Royal Norwegian Ministry of Foreign Affairs, the World Bank, the International Monetary Fund and the Strategic Partnership with Africa.

Talking about Taxes....the International Tax Dialogue

Posted by Bill Dorotinsky

You cannot spend what you do not have. Any good PFM system must start with revenue collection. Preferably, sound revenue policies that do not inhibit or distort economic growth. For those eager to keep abreast of the latest developments in tax policy and administration, a very useful reference is the International Tax Dialogue.

The International Tax Dialogue (ITD) was launched in 2002 by the IDB, IMF, OECD, UN and World Bank Group to "encourage and facilitate discussion of tax matters among national tax officials, international organisations, and a range of other key stakeholders."

The site has a library of over 2,700 documents, links to other useful sites, the ability to register as a member and receive newsletters and post tax policy questions, and a searchable database of technical assistance activities. And, the site is available in English, Spanish, French, German, Dutch, Norwegian, Chinese, and Russian.

A sampling of some recent documents posted to the site:

• a report by the U.K.'s Comptroller and Auditor General on "Tackling the Hidden Economy"
• an IMF report on "The Fiscal Implications of Climate Change"
• an OECD paper on "Tackling Cross-Border Tax Evasion"

(despite the many references to 'tackling,' this is not all about American football)

Visit the site and book-mark the page -- you'll want to visit regularly.

Fragile States, PFM and Whole-of-Government Approaches

..... there's a mouthful....

Posted by Bill Dorotinsky

On March 17-18, AusAID and the French Cooperation Agency, under the auspices of the OECD DAC, hosted a Conference on Whole-of-Government Approaches to Public Financial Management in Fragile States in Paris. The conference was a working session to explore the linkages between these three concepts. The IMF Fiscal Affairs Division attended, and spoke on PFM reform lessons for fragile states.

What is a Whole-of-Government Approach?

The whole-of-government approach concept is not well understood. Most attendees understood the concept to mean whole-of-recipient country’s government (a holistic approach to reform), when the concept as advanced is whole-of-bilateral donor government. 

The basic idea is simple -- a bilateral donor brings together expertise from across it's government to provide advisory support in fragile states, spanning issues of security, health, education, etc.  At an extreme, a bilateral donor might provide in-kind support (e.g. civil servants from their government) to prevent state failure. Bilateral donor civil servants from health, education, treasury, and perhaps even police and defense, are sent to work in the respective host country ministry. In this context, whole-of-government means literally assistance from all parts of the bilateral government, ‘embedded’ in the recipient country administrative apparatus, either in an actual operations role or an advisory or capacity-building role.

Developing Debt Management Capacity

IMF/World Bank Debt management initiatives for Low Income Countries

Posted by Brian Olden

In May 2007, a  Joint IMF/World Bank Board paper on strengthening debt management practices was approved by the Boards of the two institutions.  This paper attempted to identified the key lessons learned by country authorities government in trying to develop their debt management capacity following the financial crises of the 1990’s. More importantly, the paper attempted to identify how these lessons could be leveraged to assist lower income countries (LIC’s) to develop their debt management capacity.

Bangladesh Finance Division Web Site

Improving Budget Transparency

Posted by Bill Dorotinsky

Sometimes in searching the internet, you find PFM web sites that are hollow, and sometimes you find very rich sites indeed. And having just been on mission to Bangladesh, it is even nicer to find a Finance Ministry working hard at the reforms mirrored on their web site. The Bangladeshi Finance Division web site is definitely worth a visit.

The site includes a good deal of information about the annual budget, including a budget in brief and the annual budget speech, recent Economic Review, several years of past budgets for reference, and their budget call circular (the latter in Bangla, of course). Of interest to PFM practitioners in particular, the site includes much detail on the Bangladeshi effort to implement a medium-term expenditure framework (MTEF) -- being expanded to 16 of 51 ministries for the FY2008 budget. Through the prior years budgets on the site, one can trace the evolution of the MTEF.

Minding the Gaps: Integrating Poverty Reduction Strategies and Budgets for Domestic Accountability

Posted by Vera Wilhelm, World Bank

Firmly linking a poverty reduction strategy (PRS) to the national budget is no small task.  Integrating planning and budgeting instruments entails technical, institutional and political challenges.  It should be of no surprise, then, that a recent review finds that although many low income countries have made progress in strengthening their PRSs, links to budgeting instruments remain often weak (see Country-Based Scaling Up: Assessment of Progress and Agenda for Action, World Bank, 2007). But while the challenges for linking planning and budgeting are large, the task is crucial: without firm links between the PRS and budget, development strategies may not be translated into actions and outcomes.

A recent publication provides some solace to policymakers and development practitioners.  Minding the Gaps: Integrating Poverty Reduction Strategies and Budgets for Domestic Accountability draws on in-depth research from nine low income and four higher income countries.  Its basic message: domestic constraints are not reasons to shelve reform efforts entirely; rather, weak capacity and contested ownership underscore the importance of gradual programs to strengthen PRS-budget links, tailor-made to country circumstances.

The full text of the report is available for download free-of-charge through the link above.

An Official Primer on the US Budget System

Posted by Michel Lazare

The US budget system presents many peculiarities and very few countries around the world share similar features. One striking example is the wide ranging power of the US Congress in shaping the budget. While the UK Parliament, for instance, rarely changes the budget prepared by the UK government, the "Congress considers the President's budget proposals and approves, modifies, or disapproves them, it can change funding levels, eliminate programs, or add programs not requested by the President. It can add or eliminate taxes and other sources of receipts, or make other changes that affect the amount of receipts collected." 1/

There are many excellent (text)books describing the US budget system. One example is the recent book by Allen Schick on The Federal Budget, Third Edition: Politics, Policy, Process.

But there is also an official source: the "Budget System and Concepts"

Download us_budget_system_and_concepts.pdf

The Role of Fiscal Transparency in Sustaining Stability and Growth in Latin America

Posted by Taryn Parry

How can Latin America reduce its vulnerability to financial crises and global slowdowns?

The answer I developed in a recent IMF working paper is for these governments to focus on their full adherence to the IMF Code of Fiscal Transparency. Although there has been a strong rebound in growth in Latin America since the recession early in this decade, the pace of expansion has lagged behind other emerging market countries, and concerns have been raised about their ability to avoid future crises. Fiscal priorities for the region include avoiding procyclical fiscal policies, continuing to reduce public debt, improving the quality of the tax system, and promoting a better business environment. Fiscal transparency can play a critical role in meeting these challenges and remedying weaknesses in fiscal management practices that have been associated with past financial crises.

A Comparative Review of Financial Control in African Countries – an IMF Technical Guidance Note

Posted By Lubin Doe and Sailendra Pattanayak

Is effective control and stewardship exercised in the use of public funds? Are public resources being used for intended purposes and in compliance with respective laws and regulations? Can private sector suppliers of goods and services have reasonable confidence in transacting with the government?

These questions have always been of considerable concern to parliamentarians, government civil servants, the public at large and other stake holders (such as foreign aid providers) in countries with weak public financial management systems. There is a close relationship between the quality of financial control during budget execution and budgetary outcome. Weak financial control in many African countries have led to unbudgeted expenditure, emergence of expenditure arrears, concealment of excess spending, non-compliance with financial regulations, and recourse to exceptional spending procedures. However, the financial control architecture varies across the countries in Africa reflecting the traditions of their former colonial powers and changes introduced over the years.