Germany: Fiscal Reform Commission II presents report

Posted by Christian Schiller

My PFM Blog posting of February 29, 2008 reported on the reform of the intergovernmental system that is currently underway in Germany. It is a two-stage reform process. The first stage was completed in 2006.  Monday, June 23, 2008 was a milestone for the second stage, when the Federalism Reform Commission II presented its report to the public.

The Federalism Reform Commission II was constituted on March 8, 2007 and is co-chaired by Guenther Oettinger, the Minster President of Baden-Wuertemberg, one of the richer Laender, and a leading figure of the CDU, and Peter Struck, the chairman of the SPD group in the Bundestag, the German lower house. CDU and SPD form currently a Grand Coalition in Berlin.

Public Financial Management Reform -- Trends and Challenges

Posted by Bill Dorotinsky

On June 18, 2008, I spoke on Public Financial Management Reform: Trends at the the International Consortium on Government Financial Management (ICGFM) monthly speaker series in Washington, D.C.

I took the opportunity to share my personal views on current trends and challenges in public financial management (PFM) reform, drawing on my experience across the globe and multiple institutions. (As I noted, these are not the views of the IMF, or any other institutions with which I have been associated.)

The presentation covered three broad areas:

1. Common PFM reform recommendations, seen across all donors, consultants, etc.
2. Information on what reforms countries have been implementing in recent years
3. Challenges ahead for improving PFM

The PowerPoint can be downloaded here Download public_financial_reform_trends_icgfm_June_2008.ppt

The ICGFM Blog also posted a summary and video of the presentation on their Blog (CLICK HERE).

International Journal on Governmental Financial Management Available

Posted by Bill Dorotinsky

The latest issue of the International Journal on Governmental Financial Management (Volume VIII, No. 1, 2008) --- formerly known as the Public Funds Digest --- is now available. The Journal, sponsored by the International Consortium on Government Financial Management (ICGFM), is available for download in PDF format from the ICGFM website link above.

This issue has some interesting articles, covering a range of topics from anti-corruption to gap analysis on auditing standards. Specific articles include

• diagnostic tools for auditing and accounting, enabling gap analysis between national and international standards
• the Europe and Central Asian peer-assisted learning initiative in public expenditure management
• measuring and improving supreme audit institutions in developing countries
• two articles related to accrual accounting, one of which explains the 'German' cameral accounting model as an alternative to accrual accounting
• as well as articles on fighting corruption in Nigeria, Nigerian pension reform, and bureaucracy in Bangladesh.

A good collection of articles for public finance aficionados.

Strengthening the MTEF Process in Mongolia

Posted by Mr. Batjargal , Director General of Fiscal Policies and Coordination Department, Mongolian Ministry of Finance

(supported by M. Napodano and S. Erdermchimeg)

In the post below, Mr. Batjargal, head of the Mongolian Budget Office presents his views on the objectives, benefits, and progress to date, of Mongolia’s move towards a performance oriented budget system, framed within medium term sectoral expenditure ceilings.

Mongolia’s Medium Term Expenditure Framework (MTEF) is anchored to the public sector performance framework established in 2003; since 2007 the link between budget and policies is being strengthened. Following New Zealand's best practice, the Government of Mongolia (GoM) introduced a performance management system in 2003 as part of the public administration reform. Portfolio ministries and their dependent agencies prepare rolling three-year Strategic Business Plans. The plans show main output targets and activities by program area for the coming three-year period. A shortcoming of the approach  was that the plans are not consolidated into comprehensive Portfolio MTEF statements, resulting in a weak link between budget and policies objectives at the sector level. The Ministry of Finance (MoF) has in recent years prepared an MTEF under a three-year horizon but it is mainly input based. No hard budget constraints were imposed by issuing MTEF ceilings to portfolio ministries. Since 2007 these shortcomings are being removed through the gradual introduction of new MTEF/budget procedures that promote a more integrated planning and budgeting process. The MoF has issued a revised calendar for the MTEF preparation and launched a training program to support portfolio ministries implement the new procedures. The training program is based on lessons learned during a pilot to introduce performance-based budgeting in three ministries: the Ministry of Education, Culture and Science, the Ministry of Social Welfare and Labor, and the Ministry of Food and Agriculture.

Do Legislatures Matter in Budgetary Reform?

Posted by Ian Lienert

In many countries, the budget powers of the legislature is weak. One exception is the United States, where Congress has particularly strong budgetary powers. This does not necessarily mean that the U.S. Congress will implement budget reforms, even if it adopts a law requiring important changes to be made in the budget system. Performance-oriented budgeting is a prominent example. Implementation of budgetary reforms may fail if the legislature is not sufficiently engaged at the outset. More generally, implementation of budget reforms is affected by differing legislative institutional arrangements, as well as the general political environment.

Empirical research in this area is limited. However, in a study published in Public Budgeting & Finance (Vol. 26 Issue 1) in March 2006, Carolyn Bourdeaux of Georgia State University shows that higher levels of legislative responsibility for budgeting and more extensive legislative engagement in oversight of performance information are significantly associated with increased use of performance measures in making budgetary decisions, both at the legislative and agency levels. This study was based on a survey of 212 budget officials and legislators in 22 States of the United States.

USAID Seminar: a Practical Guide to Integrated Financial Management Information System (IFMIS)

Posted by Duncan Last

I participated on June 10, 2008 as a panelist in a USAID seminar on IFMIS, aimed at raising the awareness among USAID staff and contractors on IFMIS issues. The main speaker was Edwin Rodin-Brown, who has been involved in IFMIS projects in Slovakia, Kosovo, and Vietnam (where he is currently working).

Edwin has recently completed a practical guide and best practice note on IFMIS systems, for USAID.

The full text of the best practice note :Download ifmis_bpn_web1.pdf

Key issues discussed during the seminar included: what makes IFMIS systems succeed, how to deal with legacy systems, custom built vs. off the shelf packages, importance of chart of accounts and treasury single account to IFMIS; the need to define clear goals for the IFMIS, taking into account the conditions on the ground, ensuring an adequate conceptual design, the place of IFMIS within broader PFM reforms, and how to ensure data quality. There was active participation from the audience who expressed general satisfaction with the event.

Food Price Hikes: Equitable and Efficient Subsidies

Posted by Christian Schiller

On June 3 to 5, 2008, a United Nations sponsored conference on world food security took place in Rome Italy. A large number of world leaders were there, including my boss, the Managing Director of the IMF, Dominique Strauss-Khan. He warned that high food prices are a serious humanitarian concern as well as a source of macroeconomic instability affecting, among others, government budgets everywhere in the world. The MD told delegates that the Fund has already doubled financial assistance to four low-income countries affected by food and fuel price hikes and is discussing additional support with another 11 countries.

Any Problems with Programs?

Posted by François Michel

“Program budgeting as a platform for performance-based budgeting has been approached entirely from the standpoint of strategic planning; however, programs interact with a host of other “structures,” including the structures of control associated with appropriation bills, accounting systems, and organizational structures.” This is the beginning of the conclusion of the illuminating article that Carolyn Bourdeaux, from Georgia State University, dedicates to the State of Georgia’s effort to develop a program-based budget (Public Budgeting and Finance, Summer 2008).

Ms. Bourdeaux leads us to adopt successively the different perspectives of the legislature, agencies, and the executive office of the Governor on how programs should be structured. In the program design process, each body strives to maximize its powers in that principal/agent chain that goes from the legislature (principal), the executive (agent of the legislature, but principal of agencies), to agencies (agents). Ms. Bourdeaux vividly shows that up to the point where they acknowledge that too strict controls discourage entrepreneurialism and may be challenging to manage (e.g. a large budget bill), principals favor disaggregated program structures (or, more generally, budget classifications); in contrast, agents want large, fungible programs. Logically, the analysis then turns to the State’s budget control framework.

Mozambique’s Encouraging Progress on Fiscal Transparency

Posted by Teresa Dabán

In May 2008, the IMF published, on its external web site, a reassessment of Mozambique's fiscal transparency—i.e. a completely updated Report on the Observance of Standards and Codes- Fiscal Transparency Module ("fiscal ROSC"). The overall conclusion of the report is encouraging: although several weaknesses remain, Mozambique’s fiscal transparency has improved significantly since the first fiscal ROSC conducted in 2001. Aside from this positive result, Mozambique’s fiscal ROSC reassessment is of special interest and relevance. Why? Because (i) it has been one of the few fiscal ROSC reassessments conducted since the Fund’s fiscal ROSC was launched; (ii) it shows how the Fund’s technical assistance (TA), in close coordination with donors, contributed to improve fiscal transparency; (iii) it was conducted in close coordination with the PEFA Re-Assessment; and (iv) it provides guidance on how to strengthen transparency of future resource revenues.

Banking on Accountability?

Posted by Carlos Santiso, Sector Manager, Governance (AfDB)

"Banking on Accountability? Strengthening Budget Oversight and Public Sector Auditing in Emerging Economies," by Carlos Santiso in Public Budgeting and Finance, 26(2), pp.66-100, 2006.

In a relatively recent article (“Banking on Accountability? Strengthening Budget Oversight and Public Sector Auditing in Emerging Economies” Public Budgeting and Finance, 26(2), pp.66-100, 2006), Carlos Santiso reviews multilateral development banks’ support to parliaments and external audit agencies in Latin America. The analysis reveals a learning curve in multilateral assistance to budget oversight institutions, including in the choice of strategies and the combination of instruments. It underscores the importance of the underlying political economy context for strengthening checks and balances in the management of public finances.

MDBs have traditionally centered their attention on the modernization of financial management within the executive and the bureaucracy (finance ministries, central budget offices, central banks, and tax authorities). They nevertheless realize the limitations of an exclusive focus on the executive and the need to balance executive discretion with external accountability and, as a consequence, are increasingly supporting the infrastructure of accountability within the state - those institutions outside the executive branch of government and tasked with scrutinizing government and overseeing the budget.

Modernizing Public Financial Management in Indonesia

Posted by Bill Dorotinsky

On May 26, 2008, the Indonesian Ministry of Finance hosted an international conference on “Budgeting for Performance – Modernizing Public Financial Management in Indonesia.” The one-day event was sponsored by APIK (the Association of Public Financial Management Professionals Indonesia), the Indonesian Parliament, OECD, European Union, Royal Netherlands Embassy, World Bank, and IMF.

The event featured Indonesian public financial management (PFM) practitioners sharing their experience of and vision for PFM reform in Indonesia, as well as international experts offering broader lessons. The keynote address was delivered by the Indonesian Minister of Finance, H.E. Sri Mulyani Indrawati, presenting her vision for a performance-oriented budget system.

The event highlighted the many PFM reforms underway in Indonesia. Among the major reforms are:

• medium-term expenditure framework, including macrofiscal framework
• program and performance budgeting
• modernizing the treasury system, including a financial management information system

A host of other measures are also underway, to support these larger reforms, including:

• unification of the planning and budgeting processes
• revised chart of accounts and budget classification
• new treasury processes
• improved internal and external auditing

Also addressed were some of the challenges that lay ahead, not least of which are maintaining reform momentum and keeping the various components balanced as the reforms move forward.

A summary of the event, including access to the agenda and presentations, is available on the World Bank's Indonesia country office web site.

e-Government in Africa (Dr. Schuppan's Interview with the GTZ Newsletter)

Posted by Christian Schiller

That information and communication technologies can help enhance the delivery of public services and "make public money count" has by now been widely recognized. Clearly, the industrialized and emerging countries are at the forefront of these developments. But, interestingly, there is also a great potential for e-government in the developing world. The most recent GTZ Newsletter (No. 11/April 2008) contains an interesting interview with Dr. Schuppan on the importance of e-government for development policy in Sub-Saharan Africa.

Dr. Schuppan is co-founder of the Institute for e-Government at the University of Postdam (Germany).

The study has been undertaken for the German Parliament and has unfortunately not yet been published. But the interview in the GTZ newsletter already provides an interesting overview of the study. In short, Dr. Schuppan feels that ";e-government undoubtedly has an enormous potential for Africa south of the Sahara," for revenue administration and expenditure management, but also for other government activities. He warns, however, that in order to fully exploit its potential, e-government solutions need to be introduced hand in hand with reforms of the administrative processes and systems that currently exist in Sub-Saharan countries. While overall important progress has been made with regard to the latter, there is still a long way to go, at least for a considerable number of Sub-Saharan African countries. In addition, Dr. Schuppan points out that education and training is critical, not only of the managers of the e-government solutions but also of the users, including, for example, tax payers. Finally, and this should not come as a surprise, Dr. Schuppan suggests that "e-government projects in African countries call for ...much more time to be implemented than is required in industrial countries." To read the interview and receive the newsletter, send an e-mail to public-finance@gtz.de

Fiscal Reform.net -- Useful USAID Reference Site

Posted by Bill Dorotinsky

Always on the hunt for useful PFM reference material, PFM Blog has run across another useful site -- the USAID Fiscal Reform & Economic Governance Project web site. The site encompasses a wide range of PFM issues, including

• "Tax policy and revenue administration
• Budgeting and expenditure control
• Decentralization and inter-governmental finance
• Fiscal oversight and audit
• Public procurement
• Civil service reform
• Other issues related to government financial systems, e-government,
  and economic governance"

Three Innovative Aspects in the Literature on Public-Private-Partnerships (PPPs)

Posted by Francois Michel

Keeping an eye on the literature on public-private partnerships (PPPs) may be challenging because of the frequency of publication on the topic, but it is highly rewarding. A series of recent articles from major public administration reviews shed new light on three aspects of PPPs that appear particularly useful in the PFM context.

Governance and managerial aspects of PPPs. G. Hodge and C. Greve open their international survey of the performance of PPPs with a particularly comprehensive discussion of the definition of such contracts. While mentioning the crucial notions of long-term engagement and risk sharing on which PFM literature has relied to recommend certain institutional and contractual arrangements, Hodge and Greve point out that PPPs can also refer to “public policy networks in which loose stakeholders relationships are emphasized”, and to “civil and community development in which partnership symbolism is adopted for cultural change.”