Ghana Aims for Firm Fiscal Discipline Before Oil Flows

Posted by Richard Allen and Jacques Bouhga-Hagbe

Today, we published a short article in the IMF Survey Magazine titled “Ghana Aims for Firm Fiscal Discipline Before Oil Flows.” This was based on a recent FAD technical assistance mission to Ghana. Here is a summary of the key points; the full text of the article is accessible by clicking here.

Ghana's authorities are contemplating far-reaching reforms designed to further strengthen fiscal discipline and transparency and make effective use of prospective oil and gas revenues.

Budget Reform in Greece – A Practical, Phased Approach

Posted by Dick Emery

The current government of Greece came into office in 2004, inheriting a budgeting and fiscal reporting system that were among the less reliable, less transparent and less effective in Europe. Greece had over the years received criticism on this by the EU, Eurostat, the IMF and the OECD. The new government accepted the challenge of improving its budget management and reporting system and launched several reforms. During 2005/2006, the IMF reviewed the Greek budget system and developed recommendations for a broad agenda of reform. The IMF prepared a report on transparency issues and one on budget management reform. These reports presented both the “before” and the “after” situation, capturing the challenges facing Greece as it moves toward a modern budget system, as well as a roadmap for implementation.

Since the IMF reports, the government has established two offices to pursue the reform agenda in accounting and budgeting. As a first step, it developed a prototype program budget which was included in the Budget for 2008. The Greek government invited the OECD in 2007 to undertake a peer review of its budget system which was presented to the OECD Working Party of Senior Budget Officials (SBO) this June. Working with the OECD, the government has developed an action plan for reform to serve as its road map for its budget reform efforts. This article reviews the reform agenda and the development of the action plan.   

World Bank Report on Public Sector Reforms - What works and Why?

Posted by Sanjay Vani

On July 17, 2008, the World Bank held a seminar to discuss a recent World Bank  Independent Evaluation Group (IEG) Report on Public Sector Reforms - What works and Why? It attracted about 50 participants, including from Peru, Columbia, and Ghana.

The IEG is an independent unit within the World Bank; it reports directly to the Bank's Board of Executive Directors. IEG assesses what works, and what does not; how a borrower plans to run and maintain a project; and the lasting contribution of the Bank to a country's overall development. The goals of evaluation are to learn from experience, to provide an objective basis for assessing the results of the Bank's work, and to provide accountability in the achievement of its objectives. It also improves Bank work by identifying and disseminating the lessons learned from experience and by framing recommendations drawn from evaluation findings

Exploring Performance-Based Budgeting in Poland

Posted by Bill Dorotinsky

Performance-based budgeting is a reform we see a great deal of interest in across the globe, from low-income through middle and upper-income countries. Approaches differ by country, and it is hard to say the public financial management profession has yet reached a stage of agreeing on 'good practice.' But active lesson-learning is underway. In a July 2, 2008, blog post, we highlighted an international conference in Mexico City (see Performance Budgeting Reforms Gather Pace in Latin America) and in a July 16, 2008, blog post, "Performance Information for Performance Budgeting," we shared a presentation from that conference.

A reader brought to our attention a performance-budgeting conference hosted in Poland last November (2007), and we thought this worth sharing. A summary of the conference can be found at the World Bank's website, including the agenda and links to presentations.

The conference included valuable country case study presentations, including Poland, Slovakia, The Netherlands, Chile, Canada, the United States, New Zealand, France, Latvia, Turkey, and Bulgaria (most presentations are available on the website link above). A valuable wrap-up session by our own Marc Robinson highlighted issues for "Making Program Budgeting Work."

Implicit Contingent Liabilities May Be Costly for the United States—New CBO study

Posted by Ian Lienert

In many countries, the true financial position of the public sector is obscured when there are off-balance sheet items that pose a threat to fiscal sustainability. Although there is increasing awareness of the potential budgetary consequences of contingent liabilities, “hidden deficits” have reared their ugly heads in a number of countries, resulting in unexpected government expenditure. Contingent liabilities can be explicit or implicit. Whereas the former are based on contracts, laws or clear policy commitments, the latter are political or moral obligations that arise from the expectation that the government will step in when the cost of not intervening is considered to be unacceptably high. The evidence suggests that implicit contingent liabilities can be particularly costly for government budgets.

In the United States, the mortgage-related financial crisis has activated the implicit contingent liabilities of the federal government. In particular, the implicit guarantee to bail out Government-Sponsored Enterprises (GSEs) involved in mortgage financing has recently been triggered. Although privately-owned, the U.S. federal government has proposed to provide temporary authority to the Secretary of the Treasury to purchase any amount of obligations and other securities issued by three GSEs, two of which are commonly known as Fanny Mae and Freddie Mac. The Congressional Budget Office (CBO) has estimated that the probability-weighted cost of the bail-out could be $25 billion in the next two years. The uncertainty in the estimates is high: the CBO study indicates that under optimistic assumptions there may be no cost to the federal budget; at the other extreme, there is a 5 percent chance that the cost could exceed $100 billion.

Egypt hosts OECD Budget Law Seminar

Posted by Ian Lienert

On May 28–29, Egypt’s Ministry of Finance hosted an OECD seminar on legal frameworks for budget and financial management in OECD countries. The main objective was to learn more of good international practices in budget law. At present, Egypt’s two main budget-related laws are: a 1973 Budget Law and a 1981 Accounting Law. [Download egypt_budget_law_1973.pdf ]

All aspects of the legal framework for budget and financial management systems were covered in the seminar. Difference in budget laws in OECD countries are very marked, reflecting not only differences in budget systems, but institutional differences in the role of parliaments and governments in budget-making, the extent of delegation of authority for budget management to ministers and senior officials in ministries and government agencies, as well as sharp differences in countries’ attitudes towards using law for reforming budget processes and public financial management.

Canada creates a Parliamentary Budget Office

Posted by Ian Lienert

In countries where the legislature is strongly independent from the executive, a strong case can be made for establishing an independent Budget Office, as it can assist the legislature to scrutinize the draft annual budget proposed by the executive and provide analytical support to the legislature for alternative budget proposals. In countries where parliament’s budgetary powers are limited, there is less incentive for members of parliament to scrutinize the governments’ draft budget proposals, since the “alternative budget” function is less, or possibly non-existent (in a few countries, parliament can make no changes in the draft budget without the authorization of the government). Even in these countries, parliament can still benefit from the existence of an independent office that provides analytical support for clarifying to parliamentarians the complexities embodied in a government’s draft budget.

With this in mind, legislation was recently adopted in Canada to create a Parliamentary Budget Officer, whose main mandates are to provide objective analysis to parliament on the government’s macro-fiscal estimates and analytical support on budget-related issues to members of parliament and certain parliamentary committees. Staffing of the new office is currently taking placing.

Empirics of Governance -- World Bank Seminar

Posted by Bill Dorotinsky

On May 1 & 2, 2008, the World Bank hosted a conference on the Empirics of Governance. Governance is a popular topic, and the seminar took stock of the theoretical underpinnings of governance research and measurement, practical experience in measuring aspects of governance, and good practices and lessons in developing and applying indicators.

The conference agenda can be downloaded here [Download Agenda-GovernanceSeminar.doc ].

The IMF FAD (Bill Dorotinsky) presented in Session II on the Public Expenditure and Financial Accountability (PEFA) indicators (see our April 21, 2008 post). The presentation can be downloaded here [Download Dorotinsky.ppt ]

Other sessions of particular note for PFM aficionados were

• Session III on Corruption measures, and
• Session VI on Anti-corruption, Budget and Public Financial Management.

The World Bank recently made videos of the seminar available via its B-Span network.

Peformance Information for Performance Budgeting

Posted by Marc Robinson

Performance information (PI) is the foundation stone of performance budgeting. But what type of PI is most useful? Putting the question differently, what type of PI is of the greatest potential value for key budget decision-makers? 

This post summarizes some key points from a recent Powerpoint presentation at the June 9-10, 2008, Mexico performance budgeting conference (see my July 2, 2008, blog post).

More is not better. It is certainly not the case that the more information, the better. Experience shows that dumping thousand of performance indicators on the political leadership, parliaments and finance ministries is likely to result in them all being ignored. To be useful, information has to be selective, focused and relevant.

Republic of Korea Merges its Budget and Finance Ministries

Posted by Ian Lienert

There are a variety of ways in which countries organize ministries for performing the planning, budgeting and public financial management functions. Many countries have a single “ministry of finance” covering all functions. The Republic of Korea (RoK) and Brazil were amongst the few countries that had a Ministry of Planning and Budget, separate from the Ministry of Finance. This changed in the Republic of Korea in March 2008 when the new government decided to merge the two ministries into a single Ministry of Strategy and Finance.

Emerging themes in public sector financial reporting

Posted by Abdul Khan

Let us face it. Government accounts are usually pretty boring documents, mainly focused on compliance with budgetary spending limits, and presented in a form designed to discourage all but the most determined readers. Some countries have gone a step further and adopted what are referred to as generally accepted accounting principles and are generating accounts that provide a more complete view of the government finances by providing information about not just cash flows, but also about revenues earned and expenses incurred, and assets and liabilities. Despite these improvements, government accounts have mainly been backward-looking documents – they focus on the past year’s transactions and their impact on the balance sheet. They also mainly provide financial information without relating it to services delivered or objectives achieved.

All this may change. The International Public Sector Accounting Standards Board is considering a major redefinition of the scope of government accounts. The Board is working on a conceptual framework for public sector financial reporting.

A Review of Capital Budgeting Practices

Posted by Davina Jacobs

In general, government capital budgets have multiple roles: as instruments of fiscal policy, to improve the net worth of government, and—particularly in the area of economic infrastructure—as vehicles for economic development. This is usually achieved through greater reliance on debt or external aid than on such conventional sources of financing as taxation. Governments have introduced capital budgets to serve all these objectives, singly or collectively, depending on the context. In some cases, more attention has been paid to capital budgets as a way to reduce deficits caused by an excess of recurrent expenditures versus revenues.

Notwithstanding the seeming virtues of capital budgets, opinions continue to be divided, as they have been during the past seven decades, about their utility in governments. In the present context, in which some more advanced countries have budgetary surpluses and use them to reduce levels of public debt, there is little incentive to revive the debate about the need for capital budgets. In the developing world, however, where many governments operate on the edge of financial instability, the debate about capital budgets and their equivalents continues.

Previous blog postings by Bill Dorotinsky on March, 3, 2008 focused on the capital budgeting process itself, while another post on 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 summarizes the recent IMF Working Paper by Davina Jacobs on “A Review of Capital Budgeting Practices”

Download a_review_of_capital_budgeting_practices1.pdf

The text of the working paper is also available by clicking on this link.

New EU-Supported Financial Information Management System Public Finance in Serbia

Posted by Michel Lazare

Here is a YouTube video presenting the key features of a new financial management information system introduced in Serbia with the support of the EU-European Reconstruction Agency.

Going hybrid! A practical approach to setting government accounting standards?

Posted by Holger van Eden

In the Netherlands, but also in a number of other OECD countries, the debate on the usefulness of accrual accounting standards, both for financial reporting and budgeting, has led to a hybrid set of accounting standards being used in government. This hybrid approach has been questioned by the Dutch Supreme Audit Office, and is generally not appreciated by accounting purists. However, the hybrid approach, in which part of government works under accrual standards, and part remains under cash, may be a practical way to reap some of the benefits of accrual reporting and budgeting, while not incurring the substantial costs of implementing accrual accounting standards government-wide. Accountability and transparency at the national level may also be better served by a straightforward cash-based approach.

From Diagnosis to Action: Sequencing and Politics in PFM Reform

World Bank PFM Reform Workshop

Posted by Sanjay Vani

On March 21, 2008, the World Bank hosted a workshop on sequencing of PFM reform, focusing on case studies and experiences from practitioners. The workshop was intended to evoke debate among practitioners on sequencing and prioritization in PFM reforms and the importance of political economy in PFM reforms. The topics selected for this workshop did not easily lend themselves to one simple universal approach and divergent views were expected. It was not the intention to provide a “toolkit” or “best practice” learning to the participants but to provide an opportunity to participate and contribute in the evolving debate at the workshop thereby generally enriching the discussion on important topics confronting PFM professionals.

Each session was moderated by an experienced PFM professional comprising three speakers each having a strong personality and a strong views on the subject so as to present two divergent views on the same topic, which led to lively debate amongst the practitioners. The agenda for the workshop can be downloaded here  Download pfm_workshop_march_08_final.doc

Consistent with the unfiltered views of the workshop, the materials are provided here without attempting to summarize the points, letting each presentation speak for itself.

Increase in Food and Fuel Prices---Macroeconomic Impact and Policy Responses

Posted by Christian Schiller

In my PFM Blog posting of June 18, 2008, I reported that the IMF was working on the impact of higher oil and food prices. Now the IMF has released two comprehensive studies and presented them to the public on July 1, 2008 in Washington D.C. The presentation was introduced by the IMF’s MD, Dominique Strauss-Kahn; five IMF senior staff members summarized the work done by the IMF staff and answered questions.

One study is a broad assessment of the impact of the surge in food and fuel prices on the balance of payments, budgets, prices and poverty in a large sample of  (roughly 150) countries. The other study is a country-by-country assessment of the implications of the price shocks for the balance of payments in sub-Saharan Africa. Both studies are available at the IMF’s web site (click links above).

Performance Budgeting Reforms Gather Pace in Latin America

Posted by Marc Robinson

Performance budgeting reforms are being pursued with impressive vigour in Latin America today. This was made very clear to the thousand or so participants from 41 countries who attended an International Conference on Performance Budgeting held Mexico City on June 9-10, 2008. The conference heard in detail about developments in Mexico, Colombia, Brazil, as well as in various OECD countries outside the region.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges (Video 3)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the third part of this YouTube video; parts 1 and 2 appear in other posts published today.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges ( Video 2)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the second part of this YouTube video; parts 1 and 3 appear in other posts published today.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges (Video 1)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the first part of this YouTube video; parts 2 and 3 appear in other posts published today.