Books

November 13, 2013

How Long Does it Take to Achieve Fiscal Transparency?

Posted by Tim Irwin


In many developing and emerging economies today there are demands for more fiscal transparency, to stop the misuse of public funds. How long might it take for these demands to translate into the kind of transparency achieved in countries like France, Sweden, and the United Kingdom? (The Open Budget Survey has information on fiscal transparency in these three countries and many others.) This new working paper on the history of fiscal transparency in Western Europe (see earlier blog) doesn’t aim to answer questions about developing and emerging economies, but it may provoke some thoughts on the subject.

The evidence it presents can be read in two different ways. On the one hand, there were debates about fiscal transparency in Europe two hundred years ago, which suggests that the transition from secrecy to transparency could be a long one. To illustrate, it’s perhaps worth quoting three advocates of transparency who, for reasons of space, didn’t get discussed in the working paper.

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November 06, 2013

Book Review: The International Handbook of Public Financial Management[1]

Posted by Philip Joyce and Juan Pablo Martinez Guzman[2]

PFM handbook
Over the last two decades, public financial management (PFM) has been at the core of many government reforms around the world.  As a subject with many moving parts, the field has become distinctively broad and diverse, with a great array of topics that are strongly linked with each other. For that reason, creating a comprehensive book that covers most, if not all, of the PFM related topics, is a daunting (some might say impossible) task. Richard Allen, Richard Hemming and Barry Potter, three former staff members of the Fiscal Affairs Department of the IMF, however, have managed to accomplish such an objective with the publication of the new International Handbook of Public Financial Management.  The book’s length (more than 900 pages) is itself a testament to the breadth of the field.

In addition to the broad range of topics that make this book almost inarguably the most comprehensive PFM publication to date, it is important to describe two overarching characteristics that make it unique. First, it provides an extraordinary combination of academic knowledge and empirical evidence. Thus, every topic covered is analyzed both through the lens of how ideal PFM systems should be designed and how they are to be implemented given specific country scenarios. Each chapter of the book combines evidence from developed and developing countries; emphasizing institutional arrangements, political economy constraints, and the interrelations between systems. This makes this book an excellent guide for policymakers, practitioners, and academics. Second, this book benefits from the views of the different authors, many of whom are the leading experts on the topics covered by the many chapters. Readers will benefit greatly not just from learning about the topics, but by learning about them from these world-reckoned experts.

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October 29, 2013

History of Fiscal Transparency and Fiscal Secrecy

Posted by Tim Irwin

Working paper logo
What encourages governments to publish information about their finances? A new IMF working paper, “Revealing the Mysteries of State: The Origins of Fiscal Transparency in Western Europe” aims to shed light on this question by examining the history of European fiscal transparency. It was inspired by the Fund’s work on promoting fiscal transparency (see this policy paper and the new draft Fiscal Transparency Code).

The working paper looks back as far as Athens in the fifth-century BC and notes a few of the developments of the last two decades, but it concentrates on the fiscal secrecy of the age of absolutism, in which governments used spies to uncover the accounts of other states, and on the efforts of eighteenth- and nineteenth-century reformers to get the accounts published.

One factor encouraging transparency identified by the paper is the strength of governments’ need to raise money from skeptical lenders and taxpayers. Its influence can be seen at work on many occasions, including medieval Spain and seventeenth-century England, but it was particularly evident during the French Revolution.

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August 03, 2013

PPPs on the Balance Sheet, Please!

Posted by Tim Irwin

Public-private partnerships create a practical problem for public financial management, because their fiscal costs are deferred. Instead of paying for a project during its construction, the government starts to pay only when construction is complete, which may be four or five years after any deal is signed. That means that the main tool of public financial management—budget scrutiny—can’t be used to ensure that PPPs are affordable and a better use of public money than the alternatives. For PPPs with long construction periods, even the analysis of medium-term spending plans doesn’t help.

So what can be done to ensure that the budgetary implications of PPPs are properly considered?

The World Bank Group has just published an Operational Note on managing fiscal commitments from PPPs that helps answer this question. It looks at how these fiscal commitments can be assessed and monitored, whether they are commitments to pay for the availability of a service or to protect a PPP company from certain risks. The Note gives examples of the tasks that can be carried out by different government agencies, such as budget departments, debt-management offices, and PPP units. And it considers the kinds of rules that can be put in legislation to help ensure that the right assessment and monitoring occurs.

However, the Operational Note does not take a position on whether or not PPPs should be put on the government’s balance sheet. Budgeting and Reporting for Public-Private Partnerships by Katja Funke, Isabel Rial, and me argues that they typically should be.

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June 14, 2013

Time to Overhaul PFM in the UK?

Posted by Tom Josephs

Should the public sector aim to follow the approach to financial control used in the private sector?  In 2011 the UK government took a step in this direction by publishing the first Whole of Government Accounts (WGA) which consolidate the financial accounts of over 1,500 organizations across the public sector on a similar basis to commercial accounting.  Two recent papers[1] suggest that the UK government should build on this initiative—following the introduction of accrual-based accounting and budgeting ten years earlier—by developing better financial control structures which mirror those used in the private sector. The ideas put forward provide a useful contribution to this debate.

WGA is based on the system of accounts used internationally by the private sector, adapted where appropriate for the public sector, and uses a similar presentation to private sector accounts. It is the first time a consolidated set of accounts has been published for the UK public sector. Because it follows commercial accounting practices it should open up the public sector finances to wider external scrutiny by accounting professionals. While WGA’s contribution to increased transparency has been widely recognized it has yet to find a role in policy-making.  Partly this reflects the fact that it is a relatively new innovation. It is unfamiliar to policy-makers and there is no historical series and few international comparators against which to benchmark the current position.  There are significant differences between the key measures of the public sector deficit and net liability position found in WGA compared to the equivalent National Accounts measures produced by the UK’s national statistical agency which are currently used in fiscal policy-making.

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May 10, 2013

Latest Issue of International Journal of Governmental Financial Management Published

Posted by Andy Wynne

ICGFM1
The latest issue of the International Journal of Governmental Financial Management was recently published and is now available for free download

We begin this issue of our Journal with an examination of key public financial management (PFM) reform measures undertaken in India in the recent past and suggestions to enhance the effectiveness of the PFM systems involved involved. In recent years the role of sound PFM systems in achieving the objectives of fiscal discipline, strategic planning and improved service delivery has been receiving increased public attention in India. PFM reforms undertaken intermittently over the years have, however, not delivered the anticipated results in these areas. Studies and recommendations of government appointed committees and expert bodies have identified gaps that need attention to strengthen the institutional framework and to improve the efficiency of government spending.

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April 18, 2013

Managing Public Finances Is Vital to Economic Prosperity

As posted on IMF Survey Online

PFM_Book_Cover
Across the world many countries are now grappling with restoring sound and sustainable public finances: the way governments manage their budgets today will have profound economic effects in the years ahead. A new book by the IMF looks at reforms introduced by governments over the past two decades to improve management of public finances. These innovative ideas and reforms are changing the landscape of public finances and eventually aim to fundamentally change the way governments manage the public’s money.

The global financial and economic crisis highlighted the importance of sound public financial management in ensuring that well-designed fiscal policies are implemented effectively. Sound management of public finances means maintaining a sustainable fiscal position, allocating resources efficiently, and delivering public goods and services effectively.

The book looks at how reforms to public financial management make use of new information, processes, and rules to change the behavior of politicians and public servants to counter the ongoing challenges of managing government’s money. As identified in the book, too often the tendency for policy makers is to spend rather than save in good times; to focus on the short term; and to ignore the future costs of new policies, underlying fiscal risk, and the true state of public finances.

“The global crisis has highlighted that reforming governments’ management of public finances is no longer an option but a necessity. There is no ‘one-size-fits-all’ solution—reforms need to be tailored to countries’ individual circumstances,” said IMF Deputy Managing Director, Min Zhu, who addressed officials, journalists, and academics gathered at a special seminar to discuss the findings in the book.

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April 05, 2013

Turkey’s Successful Modernization of Treasury Operations

 Posted by Yasemin Hurcan[1]

Turkey book
In ten years that followed the 2001 economic crisis in the country, Turkey managed to halve its debt to GDP ratio. As a result, Turkey was selected as a benchmark country for debt reduction in the World Bank’s 2012 report “Golden Growth: Restoring the Lustre of the European Economic Model”. A recently published book[2] entitled “Treasury Operations in Turkey and Contemporary Sovereign Treasury Management” discusses how the Turkish Treasury managed to decrease its debt by, amongst other things, restructuring the Treasury’s operations and management. The publication is available as an e-book.

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March 22, 2013

Public Financial Management and Its Emerging Architecture

PFM_Book_Cover
Public financial management (PFM)—the fine art of budgeting, spending, and managing public monies—has seen an influx of innovations and reforms over the last two decades.

This book poses critical questions about these reforms, which include fiscal rules, fiscal responsibility legislation, medium-term budget frameworks, fiscal councils, performance budgeting, and accrual accounting. The authors evaluate what these reforms have accomplished and the issues and challenges that have been encountered, including those from the global financial and economic crisis. It draws lessons to help guide reformers in their pursuit of the next generation of PFM reforms. Public Financial Management and Its Emerging Architecture is available in print and e-book formats.

This event is open to the public, and those wishing to attend are asked to RSVP by sending an e-mail to [email protected] with the following details: full name, affiliation or employer name, and daytime phone number. Please RSVP by 3:00 p.m. on April 10. IMF and World Bank personnel are also welcome, and they need only their ID cards to enter.

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February 08, 2013

New FAD Technical Note and Manual: Cash Management and the Relationship Between Treasury and Central Bank

Posted by Renaud Duplay

Cash management is one of the main issues when reforming PFM systems in developing countries. Bad cash management is costly because it hampers budget execution, causes arrears and increases funding costs. For this reason the Fiscal Affairs Department (FAD) has already released two Technical Notes and Manuals (TNMs) on this subject and is now releasing further guidance material. A new TNM, prepared by Mario Pessoa and Mike Williams, expands the review of cash management issues by specifically addressing the relationship between the treasury and the central bank.  

The note was prepared at the request of the Latin American Treasurers' Forum (FOTEGAL) and addresses both institutional and technical issues and is particularly relevant to developing countries. Based on international experience, the TNM describes the modern framework of a formalized relationship between both institutions standing on two key principles:

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