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June 19, 2017

Building Fiscal Capacity in the Caribbean

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Posted by Suhas Joshi[1]

PFM capacity in the Caribbean was recently given a boost by the delivery of a regional Seminar on Cash and Debt Management and Commitment Control. The event was held in St. Lucia under the aegis of the IMF’s Financial Management in the Caribbean Program (FMCP). The FMCP is a technical assistance program, funded by Canada, and focuses on some heavily-indebted Caribbean countries. The program supports reforms and capacity building in budget and treasury management through legal and institutional modernization, using a range of advisory and capacity building tools. Its focus is on countries in the ECCU[2] that are supported by IMF programs, such as Grenada, Dominica, St. Vincent & the Grenadines, and St. Kitts & Nevis. But the program also covers other fiscally vulnerable countries in the region, such as Barbados and Belize. In addition to addressing the specific needs of these countries, the FMCP utilizes regional approaches where there is a benefit to be gained from collaboration.

This first FMCP Regional Seminar was held in St. Lucia from 29 May to 2 June 2017, and was inaugurated by the Minister of Finance of St. Lucia. The Minister pointed out the importance of building fiscal capacity in the region, especially given the high level of indebtedness. Sessions were delivered by the FMCP PFM Regional Advisor, the IMFs Regional Debt Advisor, and two other experts. Details of the program can be found here.

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June 16, 2017

Challenges of Modernizing FMIS

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Posted by Nicolas Botton[1]

Under pressure for fiscal consolidation, supranational directives, or merely the need to better allocate resources and manage cash, many governments around the world are trying to extract more information out of their Financial Management Information Systems (FMIS). Governments often use different systems for different purposes – budget execution, payroll management, cash and debt management, revenue collection, public procurement, and so on – using different technologies and processes, in different administrative and geographic locations. But modern financial management puts a premium on the efficient exchange of information, and for systems to communicate with each other – to use an unlovely technical term “interoperability”. Very often, the evolutions are impeded by the fragmentation of the data[2] Getting an across-the-board view and producing up-to-date analytical information on public finances is therefore a considerable challenge. What kind of solutions can be found?

The approach followed by many countries has been to implement an information system such as an Enterprise Resource Planning (ERP), which comprises a broad suite of public financial management (PFM) applications. Solutions like ERP, while comprehensive, can be expensive, often take many years to implement, and are not always successful. A World Bank Study[3] shows that a typical FMIS project takes a minimum of 6–7 years to complete with an average cost of US$ 7.7 million. The overall bill exceeded US$ 1 billion in the case of the French CHORUS program, if account is taken of all the associated training and change management costs. An FMIS project typically requires a substantial input from local IT teams, and a strong effort to formalize the government’s specifications for the new system and to redefine business processes. It also requires a high-level of centralization of financial data which can be a major challenge in many developing countries, where centralized web-based solutions using high-speed networks are often unavailable.

In some countries, tools such as Extract, Transform, Load (ETL), which enable different applications and PFM functions to communicate with each other, have been employed[4]. This approach, however, risks creating a complicated system with a vast number of sometimes outdated technologies, combined with complex interfacing issues.

Some advanced countries have chosen to combine the use of an ERP system and ETL tools. In the case of France, for example, a new ERP solution encompassing the whole expenditure chain (the CHORUS program) replaced the existing IT systems. On the tax side, another solution (COPERNIC) was implemented with the reshaping of 70 different tax management solutions to provide interoperability between the various systems.

In Western Africa, the cases of Mali and Senegal are interesting. In Mali, the implementation of challenging PFM reforms, including program-budgeting and accrual accounting, was based on keeping existing IT systems and adding an ETL tool called “The government’s objective has been to improve its access to financial data, improve interoperability, while limiting the overall cost of the new IT applications. Faced with a similar reform agenda from the West African Economic and Monetary Union (WAEMU), Senegal has chosen to implement a completely new ERP solution while also reshaping its PFM processes.

An important message is that key decisions on the design and implementation of new FMIS solutions cannot only be delegated to countries’ Information and Communication Technology (ICT) teams, nor be outsourced to the vendors. Making the harsh choice to implement a new government-owned financial information system, or to radically improve an existing system, is fundamentally political in nature. Based on solid diagnostic analysis, the minister in charge needs to exert a leadership role in evaluating his country’s existing FMIS, and choosing among the options for enhancing or replacing them. Sadly, such leadership is often lacking in practice.

Some broad guidelines for taking forward the work on implementing a major FMIS reform are as follows:

  • The project must remain in the hand of the national authorities from beginning to end. Many low-capacity governments may feel helpless when it comes to kicking-off a new project, and following up on issues they do not fully comprehend. Governments need to find a means of cutting through technical jargon, and the sometime cryptic specifications used by experts, to maintain ownership and firm control of the projects.
  • Mixed teams work better. Leadership of FMIS project management teams should mingle technicians and government representatives from various levels of the administration.
  • Tradeoffs must be found between what the FMIS can do and what the administrative requirements are. For example, FMIS functionalities should be employed to ensure that unnecessary or overlapping internal controls are removed while meeting the requirements laid down in the financial regulations..
  • In many countries, good governance is ensured through three layers: a steering committee or platform reporting to the finance minister at key stages of implementation; a technical committee monitoring daily businesses with vendors, donors and departments; and a user service unit dealing with the ergonomics of the system(s), and users’ training and support. This structure is often missing in projects undertaken in low-income countries.

[1] Nicolas Botton is a Resident Advisor in the PFM M2 Division of the IMF’s Fiscal Affairs Department, based in Mali.

[2] CEMAC-ADETEF Study coordinated by Nicolas Botton. 2014. Modernizing FMIS in the 15 Countries of the Franc Area. http://www.acteurspublics.com/2014/10/15/zone-franc-le-syteme-d-information-financiere-des-etats-en-question

[3] World Bank. 2011. Financial Management Information Systems: 25 Years of World Bank Experience on What Works and What Doesn’t.

[4] More information about new approaches to implement FMIS can be found in “A New Path to Improve FMIS Performance” by Gerardo Uña, PFM Blog, March 15, 2017.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

June 14, 2017

The Stages of PFM Reform in Fragile States


Posted by Mario Pessoa[1]

A recently published policy note by the IMF discusses the challenges of reforming fiscal institutions in fragile states. It identifies several stages through which such reforms typically pass. In broad terms, these stages comprise: (i) an immediate phase following a conflict or natural disaster; (ii) a stage when the fragile state has stabilized but is still vulnerable; and (iii) a stage when the country in no longer fragile. For each of these stages, the paper defines a PFM reform strategy and associated requirements for technical assistance (TA). Initially, the paper recommends that fragile states prioritize actions that allow them to gain immediate control over the budget. Once they have become more stable, the countries can gradually progress to more advanced reforms, such as the development of medium-term expenditure strategies.

Quick wins are important during the first stage as they can help increase the authorities’ confidence and encourage further reforms. The recommended strategy includes:

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June 12, 2017

Sustainable Infrastructure Development in the Pacific Islands


Posted by Lorena Estigarribia, Roland Rajah, and Richard Neves[1]

Infrastructure, whether delivered or owned by the public or private sector is critical for sustainable economic and social development. This is especially so for Pacific island countries, whose remoteness, vulnerability to natural disasters, and highly dispersed population make the need for enhanced connectivity through transport and ICT networks particularly urgent. Making infrastructure development sustainable in the long term remains a perennial challenge throughout the region.

Development partners have been helping Pacific countries build infrastructure for decades. During the 1960s and 1970s, governments in the region constructed many new infrastructure projects such as water treatment plants, sewerage systems, roads, airports, and ports.

Yet most assets were not properly maintained due to weak governance, excessive reliance on donor funds to fill in the gaps, and political economy challenges. Funding for ongoing maintenance was hindered by competing expenditure priorities. The lack of maintenance not only constrained the expansion of existing projects and popular access to even basic infrastructure, but also made the assets extremely vulnerable to climatic threats.

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June 07, 2017

Public Participation in Fiscal Policy


Posted by Murray Petrie[1]

Direct engagement between citizens and governments is increasingly recognized as a critical link in the chain between fiscal transparency, more effective accountability for public financial management, and better fiscal and development outcomes. The importance attached to public participation reflects the acceptance that citizens and civil society organisations are important agents of good governance and sustainable development, alongside markets and the state.

 So, what is public participation in fiscal policy?

 Public participation refers to the variety of ways in which the public – including citizens, civil society organizations, community groups, business organizations, academics, and other non-state actors – interact directly with public authorities on fiscal policy design and implementation. The interactions range from one-off consultation, through face to face deliberation, to ongoing and institutionalized relationships.

Public participation covers both macro-fiscal policy – the main fiscal aggregates, the appropriate size of the deficit and so on – as well as micro-fiscal issues of tax design and administration, and the allocation and effectiveness of spending. It encompasses engagement in four main domains:

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June 01, 2017

Brazil’s Efforts to Improve Fiscal Transparency


Posted by Paulo Medas [1]

An increasing number of countries have done an assessment of their fiscal transparency practices against the principles in the IMF’s Code of Fiscal Transparency. Brazil did so in 2016, amidst ongoing efforts to upgrade transparency. The IMF just published the results.

According to the IMF, Brazil’s practices meet many of the principles of the Fiscal Transparency Code at good or advanced levels. Brazil has made significant progress over recent decades in providing regular information on the budget and its implementation at all levels of government. For example, fiscal statistics encompass the general government sector and recognize most of the government’s assets and liabilities. Fiscal reports are published frequently and annual financial statements are audited. The institutional scope of budget documentation is comprehensive and extensive budgetary information is made available to the general public. Since 2010 a Citizens Budget has been  published which provides core information in a non-technical manner. Brazil is also a leading country in providing citizens with a formal voice in budget deliberations. Elected representatives of National Councils and committees and representatives of civil society can contribute to the planning and budget processes, including through participation in public hearings.

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