The Challenge of Reforming Budgetary Institutions in Developing Countries

Richard Allen was recently interviewed by the PFM Blog about his recent IMF Working Paper―”The Challenge of Reforming Budgetary Institutions in Developing Countries,” WP/09/96. The full text of Richard Allen's working paper is available by clicking on the following link: Download Wp0996[1]

Question:  What are the main conclusions of your analysis?

RA:  First, reforming public financial management is a frustratingly slow business. In developing countries, the progress of modernizing budgetary institutions needs to be measured in small steps. Major reforms such as introducing a new treasury system or a medium-term budget framework can take a decade or longer. Second, governments, donors and multilateral institutions―including the IMF, I would admit―almost always underestimate the difficulties and challenges, and overestimate the capacity of government to deliver reforms. They fail to learn from the lessons of the past.  Third, countries that are now advanced went through similar experiences when they were in the developing phase.  Some PFM reforms in these countries have taken up to two centuries to evolve from where many developing countries find themselves today, to where the developed countries are today.

Seminar on Program Budgeting in Mali - May 2009

Posted by Jean Luc Helis, Roger Scott-Douglas, Gérard Séguin and Benoît Taiclet.

An FAD mission to Mali in March 2009 made a presentation on the French and Canadian experiences in developing program budgeting(*). The purpose of the presentation was to familiarize the authorities with international practices related to this topic, and to provide inputs to their future discussions. The presentation focused on general developments across the two countries and provide some specific assessments or proposals related to Mali.

The presentation outlined some of the key drivers for developing program budgeting, and discussed how these drivers could influence the situation in a country like Mali, which is at a different level of development. In particular, it concentrated on : (1) informing the authorities on the best practices in developing program budgeting; (2) defining the prerequisites for the feasibility of budget execution by programs; (3) identifying the main challenges in implementing program budgeting; and (3) providing some advice on how to make program budgeting fully operational in the medium term.

Budget Consolidation – Maximizing the Chance of Success

Posted by Bill Dorotinsky

In the current economic climate, many countries are not focused on budget consolidation, but on spending to stimulate economic growth.  But many countries are also engaged in budget consolidation exercises to find fiscal space for new investment. As the global economy recovers, all countries will be focusing on budget consolidation.  Both the current crisis and likely future pressure for fiscal retrenchment present opportunities for tackling inefficient public spending and pursuing reforms which calmer economic circumstances would not permit. So it is timely to consider lessons of successful fiscal consolidation, to maximize the potential for countries to make the most of their efforts.

A December 2008 Journal of Public Policy paper, “Roads to Success: Budget Consolidation in OECD Countries,”  (Jrnl Publ. Pol. 28, 3, 309-339) by Uwe Wagschal and Georg Wenzelburger, provides just such a consideration of lessons from OECD country budget consolidation exercises. The paper looks at 23 OECD countries over the period 1980 to 2005, and looks for periods of budget consolidation, success of the consolidation, and sustainability of consolidation, and tries to tease out common patterns.

www.campusgestionpublique.gouv.fr : New French Website on PFM Reforms and Related Documents

Posted by Guilhem Blondy.

A new website to inform and train French civil servants in charge of implementing  PFM reforms : www.campusgestionpublique.finances.gouv.fr

Since the constitutionnal bylaw of 2001 on budget acts, France is experiencing a comprehensive PFM reform including the introduction of performance budgeting and accrual accounting or, more recently, the implementation of a new integrated financial management information system called CHORUS.

In order to support public managers facing radical changes in their practices and improve ownership of the reform, the Ministry of Budget, Public Accounts and Civil Service launched on June 11, 2009 a new website : www.campusgestionpublique.finances.gouv.fr.

Ministries of Finance in Small, Developing Economies – Their Role and Structure

Posted by Tej Prakash.

The Ministry of Finance (MOF)[1] has been the keeper of the public purse in nearly all countries almost as long as nation states have existed. Its role and mandate has evolved over time reflecting requirements of political and economic management. This article looks at the core roles of MOFs, specifically in small developing economies, and asks the question how best can they perform this role given the constraints faced by these economies

While there is no standard model for the organizational structure of a MOF, it is generally agreed that there is a set of core tasks that any MOF should fulfill. This includes (1) budget formulation and implementation, (2) collection, custody, management, accounting, control and disbursement of public monies, (3) management of public assets and liabilities, (4) revenue and expenditure policy and management, and (5) design and implementation of macroeconomic and fiscal policies of  government. MOFs have also added many other tasks such as donor coordination, oversight of domestic financial markets (often by establishing regulatory bodies) [2], managing fiscal risks arising from various sources, financial oversight of public enterprises, and relations with international organizations such as the World Bank and the IMF. It also often takes a lead role in designing and implementing the government’s overall economic policies. The global financial crisis will cause governments in many countries to review the roles and responsibilities of the finance ministry, and how these are carried out.

Fiscal Implications of the Global Economic and Financial Crisis -- First Elements for an Exit Strategy

Posted by Michel Lazare

In virtually all countries, the global financial crisis has resulted in a significant deterioration of the fiscal position owing in part to a decline in fiscal revenues. How necessary they are to cushion the effect of the crisis and jumpstart recovery, fiscal stimulus packages have also contributed to a further deterioration in fiscal position and an accumulation of public debt. All this points to a possible fiscal solvency issue over time. Fiscal positions needs therefore to be monitored and the further accumulation of public liabilities needs to be carefully considered as the crisis unfolds, through the formulation and implementation of an exit strategy.

Against this background and "amid signs that global economic crisis is stabilizing, the Group of Eight (G-8) advanced economies has asked the International Monetary Fund (IMF) to do the necessary analytical work to help governments prepare “exit strategies” to unwind the huge stimulus packages that have been deployed to combat the crisis."

The IMF published a few days ago, a Staff Position Note on the "Fiscal Implications of the Global Economic and Financial Crisis" (Download Spn0913[1] ) which already contains some first elements of reflection on exit strategies. For instance the introduction and overview of the note (see full text below) indicates that four components are particularly important in formulating the exit strategies:

Therefore, there is an urgent need for governments to clarify their exit strategy to ensure that solvency is not at risk. In formulating such a strategy, four components are particularly important: (1) fiscal stimulus packages, where these are appropriate, should not have permanent effects on deficits; (2) medium-term frameworks, buttressed by clearly identified policies and supportive institutional arrangements, should provide a commitment to fiscal correction, once economic conditions improve; (3) structural reforms should be implemented to enhance growth; and (4) countries facing demographic pressures should firmly commit to clear strategies for health and pension reforms. While these prescriptions are not new, the weaker state of public finances has dramatically raised the cost of inaction.

IMF Hosts IPSASB Meeting - May 2009

Posted by Stephenie R. Fox and Abdul Khan.

The International Public Sector Accounting Standards Board  (IPSASB ) held its 2nd meeting of the year in Washington, DC from May 18-21, 2009 . The meeting was held at the Headquarters of the IMF, reflecting the growing relationship between the two organizations. The International Public Sector Accounting Standards Board (IPSASB) is an independent standard-setting body under the auspices of IFAC that develops high quality accounting standards for use by public sector entities around the world.  The IMF is an official observer to the IPSASB and their participation at meetings has provided a solid understanding of the issues the IMF sees as important.

Certification of the Financial Statements of Central Government: The French Case

Posted by Franck Bessette.

The 25th of May, 2009 the French Cour des comptes (Court of Auditors) certified that, with regard to the applicable accounting rules and principles, the Central Government’s general account as of December 31, 2008 is regular, truthful and gives a fair view of the financial position and assets of the Central Government, subject to 12 qualifications, the first nine being of substantial nature (http://www.ccomptes.fr/fr/CC/Accueil.html). This certification is transmitted to the Parliament “accompanied by the report on the audits conducted” in accordance with the Constitutional Bylaw on Budget Acts (referred to as its French acronym “LOLF”) which took full effect on January 1st, 2006. This is therefore the third such certification ever conducted in France.

Government Actions in Response to the Financial Crisis: An Emphasis on Transparency and Accountability

Posted by Abdul Khan

“Politicians will not be forgiven by future generations if liabilities and obligations incurred today are hidden from them today, but paid for tomorrow,” cautioned Mike Hathorn, the Chair of the International Public Sector Accounting Standards Board (IPSASB). Speaking at a seminar organized by the Fiscal Affairs Department of the IMF on May 22, 2009, he indicated that the IPSASB believes that transparency and accountability are crucial to explain to citizens the range of actions governments are taking in response to the financial crisis. In a frank assessment of the current state of affairs in public sector financial reporting, he said that, in his opinion, “most governments do not have the financial reports necessary to communicate to citizens in a transparent way….”

Ongoing PFM Reforms in Italy

Posted by Justin Tyson

Italy continues to progress on budget process reforms, some of which were outlined in an earlier blog entry. The reforms are geared towards correcting some of the long-standing problems in the budget process, which has been characterized as fragmented, time-consuming, and legalistic, while lacking transparency and result-orientation. The bulk of budget spending is mandatory/incremental, and governed by a plethora of laws and administrative regulations.

Medium-term Expenditure Frameworks for Central America

Posted by Teresa Dabán

Since late 2007, the Council of Ministers of Central America, Panama and Dominican Republic (COSEFIN) is supporting the adoption of Medium-term Expenditure Frameworks (MTEF) in the region. To that end, COSEFIN established in early 2008 a regional Working Group on MTEFs issues. The Working Group is composed of high-ranking officials from the budget and planning areas and has been granted autonomy in developing its strategy and work agenda. Since its inception, and with the assistance of the Fiscal Affairs Department of the IMF, the Working Group has made important progress. The chief achievemens include: (i) identification of the main challenges for the adoption of MTEFs in the region; (ii) delineation of country-specific strategies for implementing an MTEF; and (iii) outlining of a regional strategy to increase awareness of the benefits of MTEF and monitoring their implementation in the region.