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November 2011

November 30, 2011

A “Second-Generation” of Fiscal Rules for Latin America

Posted by Teresa Dabán

In an effort to break from a long history of fiscal profligacy, during the last decade, Latin American countries have strengthened remarkably their fiscal policy frameworks, including by adopting fiscal rules. The “first generation” of fiscal rules has helped to anchor fiscal policy and strengthen fiscal sustainability in the region. However, because of certain design shortcomings the “first generation” of Latin American fiscal rules was not fully equipped to respond to the challenges posed by the global financial crisis nor to manage the current recovery phase. Against this background, this post argues that Latin American countries could benefit from adopting a “second-generation” of fiscal rules, which aside from addressing sustainability and credibility issues, could help enhance the fiscal policy’s role as a key tool for macroeconomic stabilization over the medium term.[1]

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November 28, 2011

For Legislating for Results: Research on the Legal Foundations of Performance-informed Budgeting Systems in the States

Posted by Yi Lu, Associate Professor, Department of Public Management, John Jay College of Criminal Justice

Legislating for results is a new emerging body of research on performance budgeting. This research places the legal foundations of performance-informed budgeting systems front and center. The legal foundations are important because a key question in this field is how to integrate performance information and budgeting. The answer is not about identifying more individual factors, instead, it lies in organizing and connecting the factors to have a holistic understanding of the integration dynamics. One way to address the holistic understanding is to study how well the legal foundations connect the various factors into a coherent framework.

Our research examined performance budgeting laws in the thirty-nine US states with relevant legislation on the books. The preliminary results indicate that states which scored as having strong performance budgeting systems are more likely to have laws in place that specify a wider array of performance measurement development, protocols, and oversight for application to budgetary decisions. In addition, these states are more likely to have law that dictates responsibilities for establishing a statewide strategic plan and a role or roles for citizens in the budgeting process.

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November 25, 2011

A Usually Neglected But Quite Critical Topic for Modern State Treasuries: Operational Risk Management and Business Continuity Planning

Posted by Israel Fainboim

A new Technical Note and Manual (TNM 11/05) has been published by the Fiscal Affairs Department on a topic that is of utmost importance to treasuries and ministries of finance but usually neglected: operational risk management (ORM) and business continuity (including disaster recovery) planning. The author is Ian Storkey, a well known international expert on treasury and debt management, including ORM.

This TNM should have a profound effect on how treasuries operate. Developing an ORM framework and a BCP/DRP should become a priority for treasuries and ministries of finance (MoFs). Why is this? As Ian Storkey mentions, for the simple but very important reason that they are responsible for managing very substantial government assets and liabilities and handling many large value transactions and as a consequence any risk exposure can have damaging fiscal effects and in addition generate severe reputational and political damage. Operational risks[1] are one category of risks that can produce these effects (as other risks can do as well). Operational risks are usually defined as “the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.”[2]

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November 23, 2011

The Political Economy of Budget Reforms in Aid-Dependent Countries: Domestic and External Factors Shaping Success

Posted by Paolo de Renzio, Senior Research Fellow, International Budget Partnership and Research Associate, Global Economic Governance Programme, University of Oxford

The quality of governance and institutions is increasingly seen as a fundamental factor in shaping the development prospects of poor countries. As a consequence, donor agencies have increasingly allocated resources to providing support for improving governance standards in such countries. Their interventions are based on the assumption that, through a combination of financial and technical assistance, they can provide better incentives for reform and affect the quality of institutions in positive ways. Despite this existing consensus, research on how institutions develop and change over time is still incipient, especially in developing countries. Research on how donors’ influence affects governance trajectories and processes of institutional change in aid-dependent countries is even more scarce.

A paper recently published by the Global Economic Governance Programme at the University of Oxford investigates the domestic and external factors affecting the outcomes of reforms aimed at improving the quality of government budget institutions across a group of 16 aid-dependent countries. Government budgets are a key area of government action, through which policy objectives are chosen and acted upon, and the necessary resources are collected, allocated and spent. They have also become a crucial area being promoted by donors, backed by an increase in funding for technical assistance from US$ 170 million in 1997 to US$ 1.6 billion in 2007), covering a range of initiatives aimed at strengthening the rules and procedures which underpin budget processes. How has such external assistance worked? Were donors able to ‘buy’ better governance? What other factors shaped the outcomes of budget reforms? These are the key questions that the paper seeks to answer.

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November 21, 2011

Parliamentary Powers and Capacities

Posted by Mohamed Moindze, international consultant

The budget is the instrument used to implement the most important public policies. It affects the lives of all citizens. However, the budgetary process has for many years been under the exclusive control of government. Yet there is no way to achieve good governance of public finances (needed to implement public policies) without effective external control of public finances. In the past, the public’s involvement in the budgetary process (as well as the involvement of parliaments) was not considered useful. Some suggested that such participation could be dangerous since it might undermine a country’s budgetary stability by sacrificing the macroeconomic equilibria.

Increasingly over the last twenty years or so, the developing countries have been undertaking courageous reforms to allow national parliaments to play the eminent role that constitutions grant them in the management of public affairs. This transition is occurring in the context of a general trend toward democratization and good governance. This increased role of parliaments consists of debating the broad outlines of the course that countries wish to take, thus helping to define them, to enact laws, to allocate resources to government for implementing policies, and to control their application.

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Note de présentation du document sur le contrôle parlementaire

Affiché par Mohamed Moindze, consultant international

Le budget est l’instrument de mise en œuvre des politiques publiques le plus important. Il affecte la vie de tous les citoyens. Pourtant, le processus budgétaire a été, pendant très longtemps, sous le contrôle exclusif du gouvernement. Or, il ne saurait y avoir de bonne gouvernance des finances publiques (qui est nécessaire pour la mise en œuvre des politiques publiques) sans contrôle externe efficace des finances publiques. L’implication du public dans le processus budgétaire (et même des parlements) n’était, dans le passé, pas considérée comme utile. Certains avançaient qu’une telle participation pouvait être dangereuse puisqu’elle pouvait saper la stabilité budgétaire d’un pays en sacrifiant les équilibres macroéconomiques.

Depuis près de vingt ans, et de façon croissante, les pays en voie de développement engagent des réformes courageuses pour permettre aux parlements nationaux de jouer le rôle éminent que les constitutions leur accordent dans la gestion des affaires publiques. Ce mouvement se place dans le cadre d’une tendance générale à la démocratisation et à la bonne gouvernance. Ce rôle accrû des parlements consiste à débattre des grandes orientations des pays et à contribuer ainsi à les définir, à adopter les lois, à allouer des ressources aux gouvernements pour la mise en œuvre des politiques, et en contrôler l’application.

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November 16, 2011

Burkina Faso and Mali: Developing Program Budgeting While Getting the Basics Right

Posted by Benoit Taiclet and Lewis Murara

Program-based budgeting (PBB) is considered an important tool for developing countries to channel more efficiently their resources to achieving their development goals. However, PBB is also a rather sophisticated PFM reform, especially when certain public finance management (PFM) basics still need to be improved. Burkina Faso and Mali offer interesting examples of low-income countries whose reforms started at different stages, but finally made good progress both in program budgeting and more general improvement of their respective PFM systems. This success –although it must be stressed that PPB is not yet fully functional - mostly relies on the countries’ own determined pursuit of reform. However it has been facilitated by the synergy built between several stakeholders, the IMF and its Regional Center AFRITAC West, the UNDP and its regional pole in Dakar, as well as bilateral partners such as the Belgian, German and Japanese governments.

Gradual reform or a more risky Big Bang approach?

Both countries chose at an early stage a similar, cautious multi-step scheme for reform. The first step was to ensure a strong state commitment and civil society backing, then to develop costing of policy expenditures and medium term expenditures frameworks. In this scheme PBB was planned to be developed alongside the usual input budget prior to its full implementation. So far Mali has - and Burkina Faso intends to - set up a comprehensive PBB budget as an appendix of the draft budget bill. But still this appendix remains an information tool and to some extent a planning tool only, for the Executive, Parliament and the donor community; it has, however, not yet been considered an appropriate tool to actually manage government financial resources and to monitor the performance of the services.

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November 14, 2011

Reforming PFM Country Systems: The Benefits from a Governance Perspective

Posted by Dr. Stephan Klingebiel, Director, and Timo Mahn, of the KfW Bank office in Rwanda

The road to the 4th High Level Forum on Aid Effectiveness in Busan later this month is paved with many reports, declarations and surveys. One of the key inputs for Busan is the OECD-DAC survey on monitoring the implementation of the 2005 Paris Declaration. Alas, the results of this third and final survey round, which were published a few weeks ago, show that overall progress has been dismal since 2005. While this does not come entirely unexpected, there has been a vibrant debate about the reasons for this outcome. Since the publication of the survey, several contributors suggested that, going forward, one key element that is required to make progress on the aid effectiveness agenda is to pay more attention to the governance dimensions of aid reforms.

In a paper published at the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE), we have argued that reforms of Public Financial Management (PFM) systems should have a key part in this. One of the challenges for development practitioners in the field of PFM is that often times, PFM reforms are still not seen as reform programs in their own right, but rather from the narrow angle of improving technical efficiency of financial management systems, processes and procedures. For PFM reforms to succeed, however, it is vital that their effects on governance are recognized and taken into account.

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November 11, 2011

Budget Oversight: The Challenges of Establishing an Independent Supreme Audit Institution in Developing Countries

Posted by Lewis Kabayiza Murara

What does it take to establish a Supreme Audit Institution (SAI) that is and is seen to be immune from the influence and interference by the executive branch of government that the SAI is supposed to audit? Are great laws and well articulated statements sufficient? What are the practical, day-to-day realities SAIs face in developing countries in exercising their budget oversight role?

The major feature for an independent SAI is to enjoy financial, administrative and operational autonomy (see the 1998 Lima Declaration issued by INTOSAI that has won international acceptance as best practice set of basic principles on SAI independence, powers of examination and enforcement of recommendations). In other words, the SAI’s ability to develop a robust human resource development system to attract and retain good auditors is as vital as its ability to stay away from interference in identifying audit priorities and executing them.

In practice many developing countries have established SAIs and have ensured that the constitution guaranties the SAI’s independence. Most have passed audit laws defining how the SAI’s autonomy would be exercised. In doing so, most developing countries have followed best practices in drafting these pieces of legislation. Despite relatively strong legal frameworks, a number of factors hamper the effective autonomy of SAIs in developing countries. This blog post discusses only four of these key factors: funding, appointing authority, tenure and the “civil servants trap”.

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November 09, 2011

Point of View: GFS out of the 'Bat House'

Posted by Alberto Jimenez de Lucio, Statistics Department, IMF

Inspiration can come in the most unexpected moments, writes STA’s Alberto Jimenez de Lucio, who came up with a do-it-yourself guide to compiling financial statistics for government officials.

My eureka moment occurred two years ago. I had just finished assembling a bat house that actually looked like the picture in the box it came in; a minor accomplishment for any handyman, but a major achievement for someone who has difficulty changing light bulbs. What had made this outcome possible? The answer was a step by step, illustrated, assembly instructions sheet.

Could this approach work for helping member countries compile government accounts in accordance with international standards? Thus began the idea of writing a Government Finance Statistics (GFS) Compilation Guide for Developing Countries.

Next order of business was to find the resources to carry out the idea. The possibility arose a few months later while discussing the next phase of a DFID project for improving macroeconomic statistics in Anglophone Africa. After some negotiations, agreement was reached on drafting a “how to” compile GFS guide tailored to the specific issues faced by developing countries as part of the project (Enhanced Data Dissemination Initiative). Now we had the funding and were committed to writing the guide. 

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November 07, 2011

New IPSAS Likely to Make It Difficult to Hide PPP Liabilities

Posted by Abdul Khan

Public private partnerships (PPPs) can lead to efficiencies and improved value-for-money by bringing in private sector expertise in construction and operation of assets used to provide vital public services. However, the eagerness of governments to embrace these arrangements has not always been motivated by these noble considerations. Often governments have entered into PPPs as a device to keep expenditure and debt off the budget. Hiding behind a mountain of legal and contractual obfuscations, governments have pretended that they did not have any liability for the full cost of the assets—perhaps a highway or a hospital—being built under these arrangements. This allowed them to simply include the annual contractual cash payments in their budgets and ignore all the future streams of payments required under the contract or contingent on specific triggering events. Budgets and annual accounts faithfully depicted this fiscal fiction year after year.

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November 04, 2011

Efficiency-Adjusted Public Capital and Growth

Posted by Sanjeev Gupta and Alvar Kangur

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“... less-accountable poor-country governments are likely to be disproportionately less efficient (relative to the private sector) than rich country ones. Hence, there are good reasons to expect the government to play an especially detrimental role in the productivity of investment in poor countries.” - Francesco Caselli (2005)

Not all public investment spending in developing countries translates into productive capital assets (Pritchett (2000)). This is due in part to weak investment processes, including the lack of transparent and open competition for award of contracts, ineffectiveness of internal audit and the absence of medium-term budget frameworks. A recent study by Gupta and others (2011) takes these weaknesses into account in constructing an “efficiency-adjusted” public capital series for 52 low- and middle-income countries during 1960-2008.

Efficiency is proxied by the Public Investment Management Index (PIMI) constructed by Dabla-Norris and others (2011). PIMI—composed of 17 sub-indexes—evaluates countries on the basis of four stages of public investment management process: project appraisal, selection, implementation and evaluation. The results show that there is a significant gap between the adjusted and unadjusted public capital stocks. This holds true for both low- and middle-income countries.

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November 02, 2011

Budget Oversight in the WAEMU Area: A Challenge for Parliaments?

Posted by El Hadji Fall and Rossella Albertini, both from the Pole “Development Strategies and Public Finance” based at the UNDP Regional Center for West and Central Africa (Dakar - Senegal)

Implementation of the 2009 West African Economic and Monetary Union (WAEMU) public financial management (PFM) directives presents new challenges for the Parliaments of the region. Their involvement in terms of budget oversight and the identification of their needs for future technical support where the subject of the three-day regional workshop held in Dakar on September 28-30: “Capacity development for Parliaments in the new harmonized public finance framework of WAEMU”.  

This event, organized by the Pole “Development Strategies and Public Finance” of the UNDP Dakar Regional Centre, gathered representatives from the eight WAEMU countries (Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo) together with participants from neighboring Cape Verde and Guinea, and officials from the French Senate, the WAEMU and UNDP.

The workshop aimed at providing participants with detailed information on the implications of the new harmonized WAEMU framework and at promoting adoption of these reforms by the parliaments of the region. The new guidelines introduce profound changes in the development, implementation, monitoring and scrutiny of the central government budget; they intend to strengthen parliamentary control over public expenditures and to increase the flow of information to national representatives, through the introduction of key innovations and the evolution from a resources-based to a results-based budget. 

Over three days, representatives from ten countries exchanged on the main challenges for WAEMU member countries, highlighting the existing hindrances and analyzing options for a successful implementation of the reform. The workshop represented the onset for a wider discussion on the establishment of a control program in the Parliament and for a multifaceted reflection on the best strategies for an effective ownership of the reform.

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Le contrôle du budget par les parlements dans la région de l'UEMOA

Publié par El Hadji Fall et Rossella Albertini, du Pôle-Stratégies de développement et finances publiques intégré au Centre régional du PNUD pour l'Afrique de l'Ouest et du Centre (Dakar - Sénégal)

La mise en oeuvre des directives de 2009 de l'Union économique et monétaire ouest-africaine (UEMOA) en matière de gestion des finances publiques présente de nouveaux enjeux pour les parlements de la région. Leur participation au contrôle du budget et le recensement de leurs besoins d'assistance technique était le sujet de l'atelier régional qui s'est déroulé à Dakar du 28 au 30 septembre, autour du thème « Le renforcement des compétences du parlement dans le nouveau cadre harmonisé des finances publiques de l'UEMOA ».  

Cet atelier, organisé par le Pôle-Stratégie de développement et finances publiques intégré au Centre régional du PNUD à Dakar, a rassemblé des représentants des huit pays de l'UEMOA (Bénin, Burkina Faso, Côte d’Ivoire, Guinée-Bissau, Mali, Niger, Sénégal et Togo) et des pays voisins du Cap-Vert et de la Guinée, ainsi que du Sénat français, de l'UEMOA et du PNUD.

L'atelier avait pour objectif de fournir aux participants des informations détaillées sur les implications du nouveau cadre harmonisé de l'UEMOA et d'encourager l'adoption de ces réformes par les parlements de la région. Les nouvelles directives introduisent de profonds changements dans l'élaboration, l'exécution, le suivi et le contrôle du budget de l'État ; elles entendent renforcer le contrôle des dépenses publiques par les parlements et l'information des représentations nationales, en introduisant des innovations importantes et en passant de budgets de moyens à des budgets de résultats. 

Au cours des trois journées, les représentants des dix pays ont échangé leurs vues sur les principaux enjeux pour les pays de l'UEMOA, en soulignant les obstacles existants et en analysant les possibilités de mise en oeuvre de la réforme. L'atelier a lancé un débat plus large sur la mise en place d'un programme de contrôle au parlement et d'une réflexion globale sur les meilleures stratégies de prise en charge de la réforme.

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