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September 2010

September 29, 2010

Fiscal Transparency in Cameroon: a Top Concern for the Government

Posted by Manal Fouad and Edouard Martin (IMF's Fiscal Affairs Department)

Cameroon's dialogue with the Fund on fiscal transparency issues goes far back. Hence, Cameroon was one of the two pilot countries to experiment with the fiscal module of Reports on the Observance of Standards and Codes (ROSC), when the Fund launched the initiative in 1999.

Eleven years later, a ROSC reassessment shows that Cameroon has made important strides to comply with the principles of the IMF Code of Good Practices on Fiscal Transparency. Such progress is the result of an active government engagement towards improving public financial management and transparency, which is now set as one of the objectives of the budgetary process. Consistent with this engagement, numerous reforms have been implemented to improve transparency, some with the help of development partners and with technical assistance from the IMF. For instance, Cameroon joined the Extractive Industries Transparency Initiative (EITI) in March 2005, creating in the process a platform for dialogue on public finance involving representatives of government, donors and lenders, and civil society. Also, a new budget system law, encompassing modern PFM techniques and generally in line with international good practices was promulgated in 2007; its provisions are expected to be fully in place by 2012. During its discussions in Yaoundé, the authors of the report met with the community of NGOs, journalists, and other stakeholders, who were outspoken and keenly interested in transparency issues and in working toward high standards for their country.

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September 27, 2010

PIFMA 5: The Evolution of a Strategic Decision-Making Body

Posted by Suhas Joshi, PFM Resident Advisor at the IMF’s Pacific Financial Technical Assistance Center (PFTAC)

The Pacific Islands Financial Manager’s Association (PIFMA), which has recently held its 5th meeting (PIFMA 5) in Vanuatu, has become a major forum for debating and promoting sound public financial management and fiscal transparency in the Pacific region. PIFMA started in a small way with its first meeting in Suva in 2006. Over the years, meetings have been held in salubrious surroundings: the Cooks Islands (2007), Palau (2008), the Cooks again in 2009, and PIFMA 5 was held last month, at Vanuatu. PIFMA 5 is proof of the progress achieved over the last five years.

Over the last two years in particular, PIFMA’s nature has changed significantly. Where successive PIFMA meetings were held on specific topics in the past, an additional need was felt for a top level institution which would guide the PFM process in the Pacific. The 2007 PIFMA 3 decided that PIFMA should be linked to the Forum Economic Ministers (FEMM) meetings and participation would only be at the level of Finance Secretaries of the various member countries. This now allows PIFMA, which is held a day before the FEMM, to feed into the FEMM deliberations and seek guidance from it.

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September 24, 2010

Default in Today’s Advanced Economies: Unnecessary, Undesirable, and Unlikely

Posted by Jan Gottschalk

This IMF Staff Position Note (SPN/10/12) was prompted by the observation that default prophecies in market commentary did not seem to take into account some important differences between the situation currently faced by some advanced countries and that faced by countries that defaulted in the past. The debate over these countries’ fiscal future is not of mere academic interest but has real consequences: with much of the market commentary portraying default as inevitable, auctions of government paper in Europe are followed with apprehension and—in spite of progress on fiscal adjustment—spreads in some of the European peripherals remain high. In a nutshell, this note argues that markets are significantly overestimating the risk of default.

The key argument is that the fiscal challenge faced today by the advanced economies is not the interest bill, but large primary deficits. In fact, for countries currently experiencing market pressures, marginal rates of interest are high, but—with long maturity structures—average interest rates on the stock of government debt remain relatively low. Indeed, average interest rates and the projected interest–growth differential in today’s advanced economies are lower than for the economies that defaulted over the past two decades. More generally, debt structures in the advanced economies are more resilient to abrupt changes in market perceptions than was the case for emerging economy defaulters of the past. For example, today’s advanced economies have a larger share of long–term, non–indexed, domestic currency debt.

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September 22, 2010

Australia is a Front Runner in Public Sector Internal Auditing

Posted by Stephanie Koehn, Manager, Technical Institute of Internal Auditors-Australia

A recent blog article, Internal Audit in the Public Sector: Underdeveloped and Underused, stated that there continues to be a lack of effectiveness in the internal audit functions of public sector organisations, globally. The author, Sanjay Vani, presents what he believes to be the key factors that have contributed to this situation. 

Notably absent from his commentary are recent Australian based initiatives aimed at increasing the effectiveness of the internal audit function as a whole, and in some instances focus primarily on the public sector. 

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September 20, 2010

Long-Term Trends in the Public Finances of the G-7 Economies

Posted by Andrea Schaechter

Today’s record public debt levels in most advanced economies are not only a direct fall-out from the global crisis. Public debt has ratcheted up over many decades. It has been used in most of the G-7 countries as a one-way shock absorber—rising in bad times but not declining much in good times. A recent paper by Cottarelli and Schaechter (2010) looks at the long-term trends in public finances in G-7 economies and reviews policies to address the formidable challenge of reducing debt ratios at a time when age-related spending will put additional pressures on public finances.

Higher public debt and larger public sectors – What are the causes

Following World War II, the public debt burden in the G-7 countries on average declined rapidly during the 1950s and 1960s, as strong growth helped lift its weight in the countries that had won the war (while public debt had already been eroded by inflation in the countries that lost it). In 1974, the trough was reached with an average gross general government debt-to-GDP ratio of 35 percent. Since then public debt has ratcheted up on average for the G-7 economies. By 2007, ahead of the crisis, the average debt ratio had more than doubled to over 80 percent of GDP (Download Figure 1). An exception to the strong upward debt trend among the G-7 countries was Canada, where, as a result of a major fiscal correction in the 1990s, the debt burden was lowered by over 35 percentage points. On average, however, the G-7 countries entered the crisis with historically high levels of public debt. As a result of the crisis, and largely reflecting revenue losses as well as the drop in output—and only in part stimulus measures—public debt is projected to rise to about 110 percent of GDP by end-2010.

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September 17, 2010

Two Very Modest Proposals for Making Technical Assistance More Effective!

Posted by Richard Allen1

Good Government Means Different Things to Different Countries” is the title of a recent article by Matt Andrews, Associate Professor of Public Policy at the Harvard Kennedy School of Government. It is an important paper, for its insightful analysis, but especially because it challenges the conventional wisdom of PFM experts in both the World Bank and the IMF. The central message is that there exists no one-size-fits-all approach to good governance. Effective government means very different things in different countries. Local conditions and institutions are hugely important. Matt tests this proposition through a study of selected PFM practices in a set of OECD and non-OECD countries, such as the development of fiscal rules and internal audit.

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September 15, 2010

Now that’s Fiscal Policy, Mate!

Posted by Jason Harris[1]

Australia has one of the strongest fiscal positions in the developed world, with the budget projected to return to surplus in 2012, and net debt projected to peak at 6% of GDP. [2] The relative consensus between the main political parties on the long-standing medium-term fiscal strategy has played a key role in delivering these outcomes. The strong starting position ahead of the global fiscal crisis has given Australia the flexibility to engage in relatively aggressive stimulus policies, without endangering long-term sustainability.

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September 13, 2010

With 17 “gold medals” Brazil beats Norway on the PEFA assessment!

Posted by Mario Pessoa

Gold medals are the objective reference for success in the world of sports. In PFM, you may measure success by the number of “A”s scored on the PEFA assessment. A recent World Bank PEFA report gives Brazil the lead with 17 A's! Even better than solid, dependable Norway! Is the PEFA representation accurate? Is Brazil world leader on PFM, or is reality a bit more complex?

Brazil has been reforming its public financial management systems since the 1980s. The implementation of the fiscal responsibility law (FRL) in 2000 can be considered the major landmark that put the country in the forefront of PFM good practices. The FRL improved substantially the coverage of the budget and fiscal reports, imposed macrofiscal safeguards on debt management and public expenditure, provided for the preparation of a fiscal risk analysis to support the budget process, and pushed for timely and reliable fiscal reports. The impact of the FRL is clearly perceptible in three of the six pillars of the PEFA assessment (credibility of the budget; comprehensiveness and transparency; and accounting; recording; and reporting). From 14 indicators in theses three dimensions Brazil scored “A” in 11.

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September 10, 2010

Strengthening Strategic Macro-Fiscal Management in the Caribbean

Posted by Michel Marion1

 

There is a strong need in the Caribbean for a more strategic, top-down, multiyear approach to fiscal policy management. That is the main message I want to convey in this post. The recent global financial crisis has made that clearer than ever, both in the Caribbean and elsewhere. What, however, do I mean with terms like strategic, top-down and multiyear? In many countries around the world including in the Caribbean, governments have traditionally employed a single-year, “bottom-up” approach to budget preparation – wherein the ministry of finance (MoF) negotiates with line ministries to bring down their individual and collective budget requests for the coming year to an “irreducible” minimum. This then defines the resource envelope, which must then be financed either by revenues or new debt: revenues are raised to the extent possible politically, with the remainder coming from new debt.

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September 09, 2010

Job Opportunity: IMF Looking for Public Sector Cost Accounting Expert to be Based in Sao Paolo, Brazil

Posted by Mario Pessoa

The IMF Fiscal Affairs Department (FAD) is looking for candidates to work in a project on public sector cost accounting in the State of Sao Paolo, Brazil. The project aims to improve the budget preparation, budget execution, and cost control at the state level. We are looking for highly-qualified public sector cost accounting experts for two assignments: (i) a long-term assignment (one year, renewable for one more year); and (ii) a short-term peripatetic assignment (a two-week visit every quarter during two years). The assignments are in Sao Paulo, Brazil. It is expected that the short-term expert will be a leader in his field and have a  strategic guidance role in the project, while the long-term expert will work more intensively on the implementation of the project with Brazilian counterparts.

The objectives of the project are to (i) implement the public cost system in phases, starting with four pilot entities (health, education, prisons, and social assistance); (ii) develop a cost methodology adequate to the public services at the state level; (iii) organize seminars, courses, and other training events to educate the state officials on how to prepare and use cost information; (iv) document the cost methodology used in the existing projects; (v) prepare guidelines for external dissemination of cost data; and (vi) prepare progress reports. 

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September 07, 2010

Performance Management in China – A Gradual Evolution

Posted by John P. Burns[1]

From at least the mid-1980s the Chinese government has implemented a performance management regime that has grown in complexity and sophistication. Emerging first at local government level, China’s 'objective responsibility system’ (ORS) involved setting objectives for subordinate government units and holding individual leaders responsible for their fulfillment. Initially voluntary and lacking unified guidelines, by the 1990s the system became increasingly institutionalized. Officials at all levels understood its utility for achieving control of policy implementation.

As it operates today, targets set in China’s five-year plans (we are now in the 11th Five-Year Plan), especially economic growth targets (GDP and GDP per capita) are cascaded down to provincial governments, which add their own targets such as budget revenue, total value of investment in fixed assets, total value of imports and exports, and so forth, which then become targets for larger cities (prefectural level). They then add additional targets such as total value of retail sales, and pass on the targets to the county level. At least initially, the system focused on meeting targets related to the economy.

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September 03, 2010

A New PEFA Drill-down Diagnostic Emerges

Posted by Holger van Eden and Duncan Last

The World Bank recently published a diagnostic framework for assessing public investment management systems. The diagnostic can be seen as a “drill-down” exercise building on the PEFA (Public Expenditure and Financial Accountability) framework, which has become the main PFM diagnostic in the developing world. While PEFA gives a general overview of the strengths and weaknesses of the PFM system of countries, it often provides insufficient guidance for the design of concrete TA reform programs. Such limitations are evident, for example, in the procurement area which is covered in the PEFA by just one indicator. It is also true for many other parts of the PFM system such as MTEF, treasury management, and internal audit, where further work is required, post-PEFA, to identify specific shortcomings in the existing sub-system that need to be corrected. Of course, the PEFA was always intended as broad diagnostic. The question is should further in-depth diagnostics be developed on the basis of indicator systems or not. Indicators always give only a partial impression of processes and institutions, and can be quite cost intensive to monitor in a consistent way across countries. As one drills down into institutional architecture differences between countries are usually magnified. Descriptive analysis could perhaps provide a richer basis for reform planning and be more focused on the country in question. On the other hand indicator systems have obvious benefits for cross-country analysis, and identifying good practice approaches.

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September 01, 2010

Budget Reforms in Uganda: From Vision to Reality - A Personal Account

Posted by Florence Kuteesa[1]

When the Ugandan ministries of Finance (MoF) and Planning and Economic Development (MPED) were merged in 1998, a new department, Budget Policy and Evaluation, was created within the Budget Directorate. The department was mandated to coordinate the budget preparation process, and also introduce output-oriented budgeting within a medium-term perspective. I was appointed as the head and charged with the onerous tasks of establishing the new department and coordinating the desired reforms. Coming from the former MPED and with limited knowledge of the operations of the MoF, I was initially skeptical about the assignment. However, I chose to take “the bull by the horns” and enthusiastically took up the assignment.

I started from a humble beginning with a team of eight reform-minded staff, deployed from both ministries. This “dream team” (as it was later called) was comprised of individuals who had extensive technical competence and exposure in budget matters. The team was therefore eager to deal with the numerous challenges, including: inadequate coordination of budget processes within MoF and line ministries, and overly lengthy line-item based budget discussions. More often than not these processes complicated the decision-making process.

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