New Blood for FAD
Torben Hansen (below left), formerly the Deputy Permanent Secretary responsible for the budget at the Ministry of Finance in Denmark, has recently joined the Fiscal Affairs Department of the IMF as a Deputy Division Chief responsible for public financial management. Torben was interviewed by the PFM Blog about his career and what he expects to bring to the new position.
After working more than 20 years in the Danish finance ministry, the decision to join FAD is a unique opportunity to move my career forward in an international setting. I felt the time was right to seek new challenges, and the new position is a perfect match in terms of both my competencies and professional interests. What I can bring to the new job is first and foremost the practical experience of working with politicians and senior officials in a finance ministry and being at the core of the decision-making processes of government. Setting up the right procedures, institutions and incentives are crucial elements in maintaining a well functioning PFM system. I also hope to bring some knowledge and understanding of change management processes, and not least how difficult these are. At the end of the day, change is about people. And governmental organizations are world champions in avoiding, even opposing, change. Finance ministries have to learn how to work around these obstacles.
Q: What is your experience of working on PFM-related issues, and what explains your interest in the subject? What particular issues and initiatives would you like to develop in your new job?
Over the years I have become somewhat acquainted with most PFM issues. But no doubt my main experience is with the planning and execution of the budget, and how to use the budgetary framework to create and maintain fiscal space. In Denmark, I worked a lot with expenditure policy and medium-term frameworks, not least the recent Danish Fiscal Responsibility Law. This law implements the requirements of the EU Fiscal Compact and introduces, effective from 2014, multiyear binding expenditure ceilings across all levels of government. Perhaps I will also have an opportunity in FAD to revive my interest in fiscal federalism and local government finance issues, which have somehow always raised my heartbeat. This might be due to the fact that Denmark is among the most decentralized countries in the world, with local government accounting for more than 60 per cent of overall public expenditure.
Q: What are your initial impressions of working in FAD and the IMF? How does the culture and working environment differ from that in Denmark? How are you adjusting to the new environment?
My impressions are very positive. I am extremely impressed with the expertise of my new colleagues in FAD. I think, combined, they possess a level of PFM experience that cannot be matched by any other organization, and is way beyond the capability I have experienced in my previous career. I feel it’s a daily privilege for me to work in such a stimulating environment, on many different countries, and with colleagues from all over the world. And I certainly look forward to my first mission to Serbia in December!
Culturally, the differences between the Danish finance ministry and FAD are not that big. I sense the same ‘finance ministerial’ logical framework, based on a rigorous analysis of data, a rational pragmatic approach, and the urge to seek solutions. But certainly the level of bureaucracy in the IMF is more profound (!), and it takes some time for an outsider - at least for me - to adapt to all the different procedures. Another difference is the time spent on project management and project funding. But I actually find it very positive that projects and missions in the IMF have clear ex ante goals that are followed up through ex post evaluation.
Q: Denmark is not normally considered to be a cutting-edge country in terms of PFM reform. Yet it is pursuing some ambitious reforms, including the introduction of accrual budgeting. What led to these reforms? Were you personally involved in designing and implementing them?
The picture of Denmark as a follower rather than a leader in terms of PFM reform is not entirely accurate. In terms of fiscal planning, for example, including long-term planning and sustainability analysis, Denmark is at the forefront of international developments, as indicated in a recent OECD study, and has been so for many years. Also, the Danish institutional arrangements for managing the budget are quite advanced. In some areas, however, fiscal reporting for example, Denmark is clearly lagging behind international best practice. And the existing budgetary framework was basically put in place in the 1980s, so the framework and institutions may need some updating.
In general, the Danish approach to budgeting has been one of successively tweaking incentives within the existing framework to obtain better outcomes. This was also the rationale behind adopting accrual budgeting: to incentivize spending ministries to undertake more efficient economic decisions, rather than changing the overall budget system. The accrual budgeting framework is not comprehensive.
The new Fiscal Responsibility Law has already proved to be somewhat of a game changer in terms of local government and ministerial spending behavior. This reform is certainly cutting-edge, not least in terms of its comprehensiveness. There were a number of reasons for introducing binding multiyear expenditure ceilings, one of which was that the previous main fiscal target aimed at limiting year-to-year spending increases but did not work effectively as overruns in the fiscal year (especially in the local government sector) were not accounted for.
Q: How are reforms of PFM and budget institutions contributing to the fiscal consolidation effort in Denmark? How much progress has been made and what are the remaining challenges?
Again, the Fiscal Responsibility Law, together with extensive reform of specific expenditure programs, has been central to the consolidation effort. Apart from introducing fiscal rules and expenditure ceilings, the Law also assigns new responsibilities to the existing independent Economic Council in terms of the overview of fiscal forecasting and performance.
In the past two years the Ministry of Finance has also put a lot of effort into improving financial control and budget execution procedures in spending ministries. A broad baseline assessment conducted in 2012 was clearly not satisfactory. For example, many agencies did not provide a breakdown of their annual budgets into monthly and quarterly components, and thus were unable to properly assess their financial position during the fiscal year. Some progress has been made, but much work remains to be done.
Q: How does the budget system in Denmark compare with that of its Scandinavian neighbors? Is Denmark part of the Scandinavian or Nordic model of public finance, or does it have more in common with the Westminster or Continental models?
In terms of budget legislation, Denmark and Norway certainly are outliers in that PFM generally is not based on law, but rather on finance ministry regulation. Sweden and Finland have more comprehensive budget system laws. In general, however, Denmark and other Scandinavian countries have much in common with the Westminster model in the sense that detailed budget regulations are usually the prerogative of government, and that government rather than Parliament usually initiate any changes.
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