Gender Budgeting—A New Handbook for Practitioners

Posted by Davina Jacobs

Gender budgeting has in recent years moved from just being “fashionable” to having a “normative” impact on budget practices. In an earlier entry on this blog, I gave a short introduction to what gender budgeting means in practice. Recently, the Gender Responsive Budgeting website, which is a collaborative effort between the United Nations Development Fund for Women (UNIFEM), the Commonwealth Secretariat and Canada's International Development Research Centre (IDRC), has published a very interesting new book, Gender Budgeting: Practical Implementation Handbook, prepared by Sheila Quinn (pdf copy available below.)

Maintain Fiscal Support, but Devise Credible Exit Strategies, Says the IMF's Fiscal Monitor

Posted by Michel Lazare.

On November 3, 2009, the IMF published the second issue of its Cross-Country Fiscal Monitor.

This Fiscal Monitor stresses that while, fiscal policy will continue to provide substantial support to aggregate demand in most countries this year, and is projected to remain supportive of economic activity in advanced countries in 2010, government debt in advanced G-20 economies is projected to reach 118 percent of GDP in 2014.

To get debt below 60 percent by 2030 will require raising the average structural primary balance by 8 percentage points of GDP over 2010-20 and then keeping it there for a further decade.

This is not a trivial amount of fiscal consolidation to say the least. The FIscal Monitor, however, considers that this could be achieved by a combination of non-renewal of stimulus measures; a freeze in real per capita spending excluding pensions and health; reforms to keep the growth of pension and health spending in line with that of GDP; and tax increases averaging about 3 percentage points of GDP for advanced G-20 countries.

Most PFM experts would probably agree that such a sizable fiscal consolidation over such a long period also requires a sound PFM system and pretty solid fiscal institutions.

Legislative Oversight and Budgeting – A World Perspective

Posted by Ian Lienert

The legislature has three core functions—representation, lawmaking, and oversight. The oversight function is perhaps the least studied and practiced. This is perhaps because oversight is bolstered somewhat less by external institutions. Oversight involves assessing implementation processes. It comes toward the end of the policy process, during the implementation of laws. In many countries, even those with a formal separation of legislative policy making and executive administrative powers, oversight provides the opportunity for legislators to participate in implementation. When it comes to budgeting, evaluation is needed to assess how well policies have been implemented. Legislative oversight includes examining fidelity to budget laws, probity in spending, efficiency in choices, and the effectiveness of the budget in producing the desired outcomes. Since it is the legislature that examines executive behavior, oversight is also a tool for checking the behavior of the budget system’s single most powerful political actor.

Although policy making and lawmaking are central tasks of the legislature, concern with the implementation of law is the realm of legislative oversight. A World Bank Institute book, published in 2007, examines the different facets of how executives implement budget laws. This book, edited by Rick Stapenhurst, Riccardo Pelizzo, David Olson, and Lisa von Trapp, and originated in large part with the concern of practitioners about increasing and improving the part played by legislative oversight in governing developing democracies. As part of its governance program, the World Bank Institute seeks to strengthen parliamentary oversight and to promote enhanced government accountability and transparency. The book is an eclectic compilation that samples the worlds of practice and scholarship.

Performance-Based Budgeting in France: An Evaluation by Parliament

Posted by Franck Bessette.

 
  
  
In France, the parliament was the initiator and driver of performance-based budgeting, introduced by the organic by-law of  August 1, 2001 (the so-called Loi Organique sur les Finances Publiques -- LOLF) [for more details, see in particular this previous blogpost by Bill Dorotinsky  and its embedded PowerPoint presentation by Phillipe Debrose] and fully applied from January 1, 2006. This was a managerial “big bang” which reorganized completely the budget structure and public accounting (accrual based accounting was introduced), defined new players (program managers), new chains of decision, and for every program a series of objectives and indicators.

After three years of complete implementation, the Economic and Finance Committee of the National Assembly (Assemblée Nationale) has evaluated this performance-driven budgetary reform and made recommendations to further improve implementation. A general report followed by annexes for individual programs was recently published [click here for a copy of the report ]

The Challenge of Reforming Budgetary Institutions in Developing Countries

Attached is a presentation by Richard Allen on "The Challenge of Reforming Budgetary Institutions in Developing Countries". The presentation was made to the African Department of the IMF on October 22.  It is based on Mr. Allen's Working Paper (WP/09/96) on this topic, published in May 2009.

Commitment Appropriations: An Underestimated Tool?

Posted by Guilhem Blondy

Commitment appropriations can de defined as ceilings embedded in the budget law over the resources that a public entity may pledge to specifically defined third parties in a legal instrument (a contract or a unilateral instrument like a decision allowing a subsidy).

Commitment appropriations should be distinguished from cash appropriations on one side, and from accrual appropriations on the other. Cash appropriations are ceilings over the disbursements of a public entity. Accrual appropriations are ceilings over its new unconditioned obligations (or debts). In the case of a contract for the delivery of goods, a commitment appropriation authorizes the signature of the contract, an accrual appropriation authorizes the receipt of the goods, and a cash appropriation authorizes the payment of the contractor.   

UNICEF Visits FAD to Discuss Collaboration and Best Practices in PFM and Expenditure Management

Posted by Mario Pessoa and Duncan Last.

A team from UNICEF spent a day with the Fiscal Affairs Department (FAD) of the IMF on October 8, 2009 to learn about FAD’s work in expenditure policy and public financial management and to discuss possible forms of collaboration.

Enhancing Fiscal Stabilizers -- an IMF Staff Position Note

Posted by Michel Lazare

 

The global financial crisis has, inter alia, resulted in renewed discussions on the merits of fiscal policy, be discretionary fiscal policy or automatic stabilizers. While fiscal policy can be useful, especially when the financial crisis hinders effectiveness of monetary policy, discretionary fiscal policy can present some shortcomings; it can presents implementation lags and is not automatically reversed when the economic cycle improves. In this context, letting automatic fiscal stabilizers play is tempting, but these stabilizers will only make a useful contribution to stabilizing demand, if they are sizable.

However as noted by our colleagues from the IMF's Fiscal Affairs Department, Thomas Baunsgaard and Steven A. Symansky, "stabilizers are by-products of choices regarding fiscal policy and institutions that are not focused on macroeconomic stabilization. The automatic stabilizers depend on the size of government and the cyclical responsiveness of the tax system—a rule of thumb is that the size of the stabilizers approximately equals the share of government in the economy times the output gap. In turn, the size of government and the design of the tax system reflect societal, philosophical, and political views on the role of the state, equity, and social safety nets. Increases in government size beyond a certain level may also weaken economic efficiency. An important policy question is, therefore, how the automatic stabilizers can be increased without raising the size of government."

The IMF has just published the result of their work in a new Staff Position Note (SPN) on Automatic Fiscal Stabilizers: How Can They Be Enhanced Without Increasing the Size of Government?. In this work, Baunsgaard and Symansky argue that automatic stabilizers can indeed be increased without raising the size of the government.

Incorporating Budget Programs in the Government Accounting System - The case of Namibia

Posted by Dimitar Radev [1].

Many countries do not fully benefit from all the possibilities of program budgeting in terms of budget credibility, expenditure control and public resource allocations. One common reason is that while they prepare the budget based on programs, they do not organize their accounting and expenditure control systems on a program basis. There is little value for these countries in further developing program budgeting if spending cannot be accounted for, reported, and controlled according to programs.

Namibia presents a good example of how such an issue can be successfully addressed.

Do We Have Budget Credibility in Eastern Africa? Perhaps.

Posted by Davina Jacobs

 

Given the sheer number of PFM technical assistance providers in the East-African Countries (and the magnitude of related PFM reform projects), one can not help to ponder the success rate of these TA interventions—are the improvements in the PFM systems noticeable? In this short blog, I will aim to focus on an important question: “Is budget credibility (as measured by the PEFA assessment tool) improving in Uganda, Kenya and Tanzania? The short answer is mostly “YES”, but with some areas of remaining concern.

A quick comparison of recent assessments of budget credibility in Uganda, Kenya and Tanzania, based on the PEFA Performance Measurement Framework, points to largely satisfactory performance for Kenya and Tanzania, but somewhat less so in the case of Uganda.[1] The table below gives a summary of the findings of the credibility of the budget in these countries.

Program Budgeting Without Institutional Reform – Why It Doesn’t Work

Posted by Holger van Eden

In comparing PFM reforms to Revenue Administration reforms, one of the striking features is that reforms of the budget process are often attempted without much consideration of the institutional changes that are required. MTEF and program budgeting reforms are often implemented with only limited changes to capacities and institutional structure of ministries of finance (or line ministries). The changes to the budget process that these reforms imply are quite fundamental however, and do require changes in staffing level, professional capacities and organizational structure.

In contrast, the reform action plans of our revenue administration colleagues here in the Fiscal Affairs Department sometimes read more like the textbooks of management consultancy gurus. Reforms are intimately connected to restructuring of the tax administration organization, retraining of staff, and changing of organizational culture. For example, tax-based collection agencies are transformed into client-based structures, not only affecting work processes, but fundamentally changing the institutional delineation and hierarchy. Much attention in the reforms is focused on changing management styles, organizational culture and retraining of staff.

Budget Gimmicks in the US

Posted by Franck Bessette

I have not been to the beach this summer but did nevertheless do some beach reading. A particularly interesting book drew my attention: Fiscal Challenges: An interdisciplinary Approach to Budget Policy, edited by Elizabeth Garrett, Elizabeth A. Graddy and Howell E. Jackson at CUP, Cambridge, USA, 2008. The book deals with budget processes in the US, both at the federal and state level. Many contributions are very enlightening for someone who would like to understand US budget processes better, and grasp, say, the present California budget crisis. I would like to focus, however, on one article in particular: “Budget Gimmicks” by Cheryl D. Block, who recently became professor of Law at Washington University in St Louis, after many years on the faculty at the George Washington University Law School in Washington D.C.

Budget Gimmicks is about presenting budget information and (hopefully) not getting caught. Despite increasingly sophisticated modeling techniques, budget forecasters are of course always subject to sometimes getting the numbers for future years wrong, just because the future is inherently uncertain. Forecasters will get it wrong even without deliberate attempts to manipulate or deceive. In some cases though, and surely not only in the US, deliberate manipulation of numbers or other budget tricks are used in pursuit of a particular political agenda. In the US the reason is perhaps that taxpayers and the politicians who represent them suffer from the same budget pathology, namely they want to increase spending for favored government programs, decrease tax burdens, and also achieve a budget surplus. That trinity of objectives is hard to attain, even in the most favorable economic circumstances. Budget gimmicks can help us convince ourselves that “one can have one’s cake and eat it”.

Budget Practices and Procedures in Africa

Posted by Paolo de Renzio

As already reported in the IMF PFM Blog in October of last year (see post here), in 2008 the OECD extended its Survey on Budget Practices and Procedures to a total of 97 countries, including data for 26 African countries that were collected in collaboration with the Collaborative Africa Budget Reform Initiative (CABRI). In preparation for CABRI’s 5th Annual Seminar, held in April 2009 in Senegal, a team from the London School of Economics analyzed the survey results. The resulting report (available here), compiled with support from the African Development Bank, brings together selected findings from the survey to give an overall picture of the state of budgeting in Africa.

The survey was filled in through an online platform by Ministry of Finance officials in participating countries, and the data gathered on African countries went through a peer review process that involved the CABRI Secretariat, the LSE team and country experts. Each participating country was requested to respond to peer reviewer comments, and a workshop was held in Pretoria in December 2008 to present preliminary results and verify country responses. In some cases the quality of the data can still be improved, and for certain sections the applicability and relevance of the OECD questionnaire to an African context can be questioned (for example in the areas of fiscal rules or performance budgeting). The existence of such a database, however, is an important step forward in understanding how budget systems work across a range of countries.

The French Doctrine on Fiduciary Risk

Posted by Franck Bessette

In light of partners’ commitment under the Paris agenda on aid effectiveness to use country systems for aid delivery and of its strategic decision to increase the share of general and sector budget support in aid modalities, France has developped a system for evaluating and ranking fiduciary risk in aid recipient countries based on the Public Expenditure and Financial Accountability (PEFA) methodology. Other bilateral donors have taken a similar approach (see PFM blog about DFID) but the French approach is somewhat different since DFID as well as other nordic countries integrate “value-for-money” in the definition of fiduciary risk. The approach in that sense is more similar to the one developped by the European Commission.

Carlo Cottarelli, Director of the IMF's Fiscal Affairs Department (FAD) on NPR's Program "Will Overstimulating Economy Bring Inflation?"

Posted by Michel Lazare.

On June 26, 2009, Carlo Cottarelli, Director of the IMF's Fiscal Affairs Department (FAD) was interviewed by David Kestenbaum on National Public Radio's (NPR) program "Morning Edition." The general theme of this NPR segment was on the impact of fiscal stimulus and government spending on inflation and hyperinflation. Carlo Cottarelli made the point that while fiscal stimulus may be necessary at this juncture, central banks and governments should have an exit strategy and "start thinking now about how to exit when the moment comes."

Here is an excerpt from the NPR webpage summarizing this story, which also contains a shortcut to the audio:

"So are we at risk of catching a nasty case of inflation down the road? I took our U.S. economy in for a kind of doctor's office visit to a place that gives this advice out to countries all the time — the International Monetary Fund.

"What we have been telling ... not this country, but all our members, is that there is a need in the short run for macroeconomic policies to support economic activity. But there is a need for every central bank, for every government to have a strategy, to start thinking now about how to exit when the moment comes," says Carlo Cottarelli, the IMF's director of fiscal affairs.

There could be difficulties, he says.

Raising interest rates and pulling money back out of the economy is often unpopular. It's been said the role of a central bank is to "pull away the punch bowl, just as the party gets going." That time is arguably still in the future. As we all know, it's still a pretty lousy party."

 

Successful Fiscal Retrenchment - A View from the Top

Posted by Bill Dorotinsky

In the early 1990's, Sweden faced serious budget and economic woes, with deficits reaching 10 percent of GDP in 1993. After a substantial retrenchment program, Sweden had balanced its budget within about four years. A recent McKinsey Quarterly article (2009 Number 3), entitled "Reforming the Public Sector in a Crisis," by Alastair Levy and Nick Lovegrove interviews Sweden's former prime minister (and former finance minister) Göran Persson about the lessons from the retrenchment exercise. As countries look ahead towards fiscal retrenchment, the lessons from Sweden come at an opportune time.

Seminar on Program Budgeting in Mali - May 2009

Posted by Jean Luc Helis, Roger Scott-Douglas, Gérard Séguin and Benoît Taiclet.

An FAD mission to Mali in March 2009 made a presentation on the French and Canadian experiences in developing program budgeting(*). The purpose of the presentation was to familiarize the authorities with international practices related to this topic, and to provide inputs to their future discussions. The presentation focused on general developments across the two countries and provide some specific assessments or proposals related to Mali.

The presentation outlined some of the key drivers for developing program budgeting, and discussed how these drivers could influence the situation in a country like Mali, which is at a different level of development. In particular, it concentrated on : (1) informing the authorities on the best practices in developing program budgeting; (2) defining the prerequisites for the feasibility of budget execution by programs; (3) identifying the main challenges in implementing program budgeting; and (3) providing some advice on how to make program budgeting fully operational in the medium term.

Budget Consolidation – Maximizing the Chance of Success

Posted by Bill Dorotinsky

In the current economic climate, many countries are not focused on budget consolidation, but on spending to stimulate economic growth.  But many countries are also engaged in budget consolidation exercises to find fiscal space for new investment. As the global economy recovers, all countries will be focusing on budget consolidation.  Both the current crisis and likely future pressure for fiscal retrenchment present opportunities for tackling inefficient public spending and pursuing reforms which calmer economic circumstances would not permit. So it is timely to consider lessons of successful fiscal consolidation, to maximize the potential for countries to make the most of their efforts.

A December 2008 Journal of Public Policy paper, “Roads to Success: Budget Consolidation in OECD Countries,”  (Jrnl Publ. Pol. 28, 3, 309-339) by Uwe Wagschal and Georg Wenzelburger, provides just such a consideration of lessons from OECD country budget consolidation exercises. The paper looks at 23 OECD countries over the period 1980 to 2005, and looks for periods of budget consolidation, success of the consolidation, and sustainability of consolidation, and tries to tease out common patterns.

Fiscal Implications of the Global Economic and Financial Crisis -- First Elements for an Exit Strategy

Posted by Michel Lazare

In virtually all countries, the global financial crisis has resulted in a significant deterioration of the fiscal position owing in part to a decline in fiscal revenues. How necessary they are to cushion the effect of the crisis and jumpstart recovery, fiscal stimulus packages have also contributed to a further deterioration in fiscal position and an accumulation of public debt. All this points to a possible fiscal solvency issue over time. Fiscal positions needs therefore to be monitored and the further accumulation of public liabilities needs to be carefully considered as the crisis unfolds, through the formulation and implementation of an exit strategy.

Against this background and "amid signs that global economic crisis is stabilizing, the Group of Eight (G-8) advanced economies has asked the International Monetary Fund (IMF) to do the necessary analytical work to help governments prepare “exit strategies” to unwind the huge stimulus packages that have been deployed to combat the crisis."

The IMF published a few days ago, a Staff Position Note on the "Fiscal Implications of the Global Economic and Financial Crisis" (Download Spn0913[1] ) which already contains some first elements of reflection on exit strategies. For instance the introduction and overview of the note (see full text below) indicates that four components are particularly important in formulating the exit strategies:

Therefore, there is an urgent need for governments to clarify their exit strategy to ensure that solvency is not at risk. In formulating such a strategy, four components are particularly important: (1) fiscal stimulus packages, where these are appropriate, should not have permanent effects on deficits; (2) medium-term frameworks, buttressed by clearly identified policies and supportive institutional arrangements, should provide a commitment to fiscal correction, once economic conditions improve; (3) structural reforms should be implemented to enhance growth; and (4) countries facing demographic pressures should firmly commit to clear strategies for health and pension reforms. While these prescriptions are not new, the weaker state of public finances has dramatically raised the cost of inaction.

Fiscal Policy in Sub-Saharan Africa in Response to the Impact of the Global Crisis: One Size does not Fit All !!

Posted by Michel Lazare

The IMF is sometimes accused of systematically making the same old and abrupt recommendations to tighten fiscal policy whatever the circumstances and the country considered. This is an accusation often levied against the IMF policy recommendations regarding low-income countries in Africa.

It is actually an unfair accusation. I already made this point (see comments on Andy Wynne's post of May 6, 2009.) Here is an other illustration: The May 14, 2009 IMF staff position note on "Fiscal Policy in Sub-Saharan Africa in Response to the Impact of the Global Crisis" clearly states that, in Africa, fiscal policy response to the global crisis should vary depending on the national circumstances.

See for instance the full text of the staff position note (Download Spn0910[1]) or the text of the Executive Summary (in italics below):

The global financial crisis poses significant challenges to fiscal policies in Sub-Saharan African countries. Growth will weaken considerably as export prices and volumes,remittances, tourism, and capital flows decline. The fiscal effects of the crisis are likely to be large and to operate mainly via revenue losses, with commodity-related revenues particularly hard hit.

 

 Countries will need to weigh their options for fiscal policy responses. Countries with output gaps and sustainable debt and financing options have scope to implement expansionary policies, by letting automatic stabilizers work, accommodating declines in commodity-related revenues, and in some cases implementing discretionary fiscal stimulus. The main focus of fiscal stimulus should be on the expenditure side, particularly infrastructure and social spending given pressing needs, as reducing tax rates may be inequitable and the scope for doing so is limited given low revenue ratios. Other countries will have to adjust, in a way that will not affect critical spending. Additional donor support would reduce the need for adjustment. In all cases, countries should give priority to expanding social safety nets as needed to cushion the impact of the crisis on the poor.

Gender Budgeting - What is that?

Posted by Davina Jacobs

"Gender budgeting," which refers to the systematic examination of budget programs and policies for their impact on women, has been tried in a range of countries in recent years. Australia was the first country to formally incorporate gender budgeting into its budget process by developing the concept of a “women’s budget” to address inequalities between women and men. Government ministries and departments were required to provide an analysis of the impact of the annual budget on women and girls, focusing mainly but not exclusively on public expenditures. Gender budgeting is sometimes seen as outside mainstream research on budgeting.

However, several studies in recent years point out the benefits of gender budgeting as women are often disadvantaged relative to men, according to key economic, social, and political measures of equality, but in many areas, such as education, differences are narrowing. The concept of externalities underlies the arguments for including gender considerations in budget programs and policies. Other arguments have a weaker economic basis but may be more socially or politically compelling.

Sweden’s Experience on Banking Resolution and Budget Consolidation

Posted by Ian Lienert.

With financial markets in turmoil and with governments intervening on a large scale in a number of countries, there is considerable interest in learning from past experiences. With this in mind, on April 23, 2009, the Nordic-Baltic Office of IMF Executive Directors conducted an internal IMF seminar on the lessons from Sweden’s experience of handling its banking crisis and fiscal consolidation of the early 1990s.

Key lessons include: be transparent and rapid when taking actions to solve the problems facing the financial sector; adopt a predictable approach, yet maintain flexibility; adapt to changing circumstances (including correcting mistakes); obtain political consensus; separate policy decision-making from technical implementation of financial sector crisis resolution; ensure coordination between various public sector agencies; and take measure to restore macroeconomic stability at the same time as financial sector problems are being tackled.

Moving Towards Outcome-Oriented Performance Measurement Systems

Posted by Tej Prakash.

 A recent research study on outcome-oriented performance measurement systems[1] points out that while it is easy to measure outputs, it is far more difficult to measure outcomes, especially as many public services are delivered a complex network of contracts, outsourcing, collaboration between private sector and NGOs.

The authors focus on community driven evaluation of programs that directly impact the communities. These are community indicator projects (CIP) which are housed by independent organization (NGO, etc.) and focus on high level community conditions that contribute to the quality of life rather than program specific functions. These are also unlike government performance measurement indicators which are data and indicator driven. The emphasis of CIP is on information sharing and establishing cross program links so as to get the broader picture. It recognizes that specific program may not control broader outcomes but can influence them.

Are balanced budgets really still essential in the fight against global recession and poverty?

Posted by Andy Wynne, editor of the International Journal of Governmental Financial Management.

[note from the PFM Blog's editor: this post represents the views of its author and not necessarily those of PFM Blog or the IMF]

The IMF appears to be taking contradictory positions with governments who are adopting budget deficits in order to reflate their economies.  This is being welcomed in the case of the industrial world, but still being discouraged in countries which have turned to the IMF for support.

Most OECD countries are now running significant budget deficits in an attempt to ensure a rapid end to the global recession.  The Managing Director of the IMF, Dominique Srauss-Khan, praised the G20 countries for adopting the fiscal stimulus that was needed, whilst warning that more may be required. However, the risks of a prolonged recession or depression remain significant. In March, the Wall Street Journal asked about 50 economic forecasters for their views. Around 55 per cent predicted an L-shape, or a prolonged recession, a further 20 per cent suggested a depression (a reduction in output per person of more than 10 per cent) was the most likely outcome.  In this situation, what is needed is a concerted effort by all counties in the world to push-start the global economy.  Indeed before the recent G20 meeting, the US government criticised some European governments for not spending enough.

Global Crisis -- Using Fiscal Policy to Stimulate Growth (an IMF Podcast)

Posted by Michel Lazare

In a recent podcast, our colleagues Paolo Mauro, Charles F. Kramer, and Steven A. Barnett of the IMF's Fiscal Affairs, Western Hemisphere, and Asia and the Pacific departments respectively, talk about using public money to compensate for declining private demand and how the U.S. and China are doing it. (click here for a link to the podcast.)

This podcast is a rich source of information on how to use fiscal policy in a time of crisis, and more specifically in the current global financial crisis. Paolo Mauro who heads one of the Fiscal Operations Divisions of the Fiscal Affairs Department makes the point that there is now a consensus that fiscal stimulus are in the present circumstances necessary to counteract the fall in private sector demand and the overall contraction in demand. He underscores the need for international dialog and coordination on fiscal policy.

He also stresses, however, that fiscal stimulus should not be used by all countries because different countries are facing different initial fiscal positions and sustainability constraints.

Attention should also be paid to the nature of the spending to include in the package in order to maximize effect on demand: increasing public infrastructure spending looks attractive, while other types of spending (e.g., transfers) should be targeted. Countries, as a matter of fact, have used a wide varieties of modalities.

Listen to the podcast for many other points and a presentation of the U.S. and China fiscal stimulus packages.

Policy Budgeting

By Gösta Ljungman.

Policy Based Budgeting in Sweden

Through ambitious reforms in the mid 1990s, the Swedish budget process was strengthened to ensure that public finances were kept on a sustainable track. Together with the performance-oriented budgeting model that was introduced a few years earlier, this fundamentally changed the dynamics of government budgeting. One of the positive effects that the new budget procedure has been that the government is in a better position than before to ensure that policies are translated into actual budget allocations.

Budget Reform in Russia

Posted by Eivind Tandberg.

One of the most interesting and ambitious budget management reforms in recent years has been taking place in Russia. The reform constitutes a fairly dramatic shift from a very traditional, centralized, control-oriented budget management framework towards a modern, performance-oriented budget system with a strong medium-term focus.

U.S. Federal Government 2010 Budget Proposal: A More Transparent and Result-Oriented Budget

Posted by Mario Pessoa.

The United States federal government has announced its budget proposal for the next fiscal year 2010 with relevant improvements. Some initiatives are in line with best international practices and other are even more demanding such as an expanded medium-term fiscal projection and program costs with a ten-year perspective, a tougher expenditure review process to eliminate programs that are not working well, the inclusion of a contingent fund for emergencies, a more transparent approach regarding earmarks and results, a more result-oriented strategy in relation to the definition of the programs, and a clear commitment to a more intense use of technology as a tool to enhance efficiency and transparency.

Accrual Budgeting and Fiscal Policy—The Swiss Model

Posted by Abdul Khan

The Federal Government adopted the accrual basis for budgeting and financial reporting with effect from the 2007 budget.  Known as the New Accounting Model, this framework emphasizes two main objectives, also referred to as the dual perspectives of NAM: fiscal policy management at the macro level and a focus on performance of government departments and offices. Enhancing transparency of the public finances through the adoption of internationally recognized accounting concepts and standards is also stated to be an objective of the NAM.

The fiscal policy objective is focused on controlling aggregate cash expenditure. It is expressed through the debt brake rule that requires revenue and expenditure to be balanced over the business cycle. This is essentially a cash concept and the financing and cash flow statement of the budgetary central government, derived from the income statement and balance sheet in accordance with internationally accepted accounting practice, is the reporting tool used to monitor compliance with the debt brake rule.

Accrual Budgeting: What Does it Mean for Fiscal Discipline?

Posted by Mr. Marc Robinson

 

Is accrual budgeting a good idea? This is an highly controversial question in budgeting circles today. Many budgeting experts agree that accrual accounting for fiscal reporting is a good idea, at least for those countries which can afford the costs of running a more sophisticated accounting system. But on the question of whether the budget itself should be moved onto an accrual basis, there is absolutely no consensus. On one side of the boxing ring, there are those who think that the real benefits of accruals can only be realized by putting the budget on an accrual basis. They believe for example, that unless the full costs of programs and inputs are charged to ministry budgets, decisions about program priorities, the input mix and investment vs. maintenance will always be seriously distorted because under cash budgeting they are always based on the wrong “price signals”. Opponents of accrual budgeting, on the other hand, argue that it is unduly complex, confusing, potentially risky to fiscal discipline. They also argue that the efficiency benefits of accrual budgeting have been greatly exaggerated, and point – for example – to the abandonment by countries like Australia and the UK of the “capital charging” regimes as a recent example of the failure of the much-heralded benefits of accrual budgeting systems to become reality.

Whither the Automatic Stabilizers?

 

Posted by Richard Hughes

Before the current economic crisis rewrote the fiscal rulebook, the conventional wisdom in macroeconomic circles was that fiscal policymakers should focus on ensuring medium-term sustainability and leave ironing out the business cycle to the automatic stabilizers.  The automatic stabilizers are tax or spending items which behave in a countercyclical manner (i.e. they dampen demand when the economy is booming  and they support demand when the economy slows).  Examples include unemployment benefits and other means-tested welfare payments on the spending side and personal and corporate income taxes on the receipts side.

With the world’s major economies currently debating or implementing large discretionary fiscal stimulus packages, one could be forgiven for asking, “Whatever happened to leaving it to the automatic stabilizers?”

Performance Budgeting Seminar in Sao Paulo Discusses Experiences Worldwide

Posted by Mario Pessoa

The government of the State of Sao Paulo, Brazil, promoted a seminar on performance budgeting in partnership with the IMF and the Interamerican Development Bank, from December 1 to 3, 2008. Experiences in Latin America and OECD countries, in the Brazilian States of Sao Paulo and Minas Gerais, and in the City of Curitiba, were discussed. The main conclusion is there is no unique approach and it is essential to consider local circumstances. Additionally, to implement a performance budgeting approach it is necessary to count on high-level political support, clear leadership to implement the methodology selected, good information systems, realism in the targets, define few and very clear performance indicators, have a good communication strategy, and have a long-term perspective. To be more effective, it is also important to establish incentives, such as flexibility to remunerate personnel and manage budgetary resources and eliminate disincentives such as a set of formalistic compliance regulations that used to be present in many parts of developing countries. The presentations (some of them available only in Portuguese or Spanish) can be assessed by cliking on this link.

Counting the fiscal cost of the current crisis: A glimpse from the UK?

Posted by Richard Hughes

The unremmitting flow of bad economic and financial news over the past few weeks and ongoing discussions of fiscal stimulus packages and expanded financial rescue plans suggest that it is too early to start counting the overall cost to the public purse of the latest economic crisis.  However, the UK's latest Pre-Budget Report which was published on 24 November provided an initial glipse of the potential fiscal repercussions of the current financial and economic turmoil.

Are Governments Obliged to Bail Out their Central Banks?

Posted by Ian Lienert

With a worldwide financial crisis in full swing, central banks are being called upon to provide support to an ailing financial sector. In some cases, central bank credit is being provided directly to financial institutions. What are the risks that the central bank itself will not be able to support the financial cost of these operations? Will the government have to step in and bail out its central bank? Is there any chance that the central bank will become bankrupt?

An IMF Working Paper published in February 2008 examines government legal obligations to recapitalize central banks when their balance sheets became seriously impaired. The paper indicates that even in cases where the government is nominally responsible for maintaining the financial strength of the central bank, it may do so only in a cosmetic fashion. In a number of countries, governments have not provided central banks with financial support on a timely basis, leaving them excessively reliant on seignorage to finance their operations and/or forcing them to abandon monetary policy objectives.

Norway’s Government Pension Fund–Global

Posted by Thomas Ekeli

A recent post by Mauricio Villafuerte and Jon Shields described newly established guidelines for sovereign wealth funds (SWFs). One of the best known SWFs is the Norwegian Government Pension Fund–Global, formerly known as the Government Petroleum Fund. The Petroleum Fund was established in 1990 as a fiscal policy tool to support a long-term management of the petroleum revenues. Renaming the Fund the Government Pension Fund–Global in 2006 was part of a broader pension reform, highlighting also the Fund’s role in facilitating government savings necessary to meet the rapid rise in public pension expenditures in the coming years. However, the Fund is not earmarked for pension expenditures.

The IMF Hosts the Second Annual Seminar and Annual General Assembly of the AIST

Posted by Jean-Luc Hélis

On October 14 and 15, 2008, on the heels of its Annual Meetings, the IMF hosted the second annual seminar and Annual General Assembly of AIST. The International Association of Public Treasury (AIST--its French acronym) is an international association of treasuries officially created in May 2007. Its objectives are as follows: (1) promoting the sharing of information and experience, and cooperation among public treasury services; (2) organizing conferences and seminars, and publishing reports, studies, and documents relating to treasury issues; and (3) developing partnerships with international organizations. The AIST is currently presided by Morocco (the president is M. Ibrahimi, General Treasurer of the Kingdom of Morocco) with the French Public Finance General Directorate holding the Secretariat. The membership is composed of treasuries from many French speaking countries in Africa, the Middle East, or Asia, but also includes treasuries from many other countries (e.g., Hungary, Ghana, Russia, Ukraine, etc.) Other countries, not yet members of the association, can be invited to participate to the AIST’s activities. The IMF, as well as the World Bank, are members.

Indonesia’s Fiscal Institutions Are Improving

Posted by Ian Lienert

A recent IMF report examines the improvements in Indonesia’s fiscal institutions over the past few years. Progress includes the establishment of a fiscal policy office; revisions in tax legislation; some improvements in tax administration; and the adoption of legal and administrative measures to improve public sector governance. Moreover, more fiscal information is disclosed to the public, thereby improving fiscal transparency.

Despite these improvements, the report notes that further reforms are needed to improve fiscal institutions and transparency, particularly concerning disclosures related to oil and gas revenue flows.

Forward Estimates: the Most Fundamental Tool of Medium-Term Budgeting

Posted by Marc Robinson

CABRI has just published the proceedings (Download cabri 2007.pdf) of a seminar on medium-term budgeting held in Ghana last December, under the title Are We Asking the Right Questions? Embedding a Medium-Term Perspective in Budgeting (Download cabri_2007_ch1.pdf) . It’s an interesting read.

I was particularly struck by comments in the overview paper—by Alta Fölscher from South Africa—on the fundamental importance of good forward estimates for successful medium-term budgeting. Alta stresses that a fundamental obstacle to the success of MT budgeting in African countries has been that:

the quality of forward estimates is poor. They consist far too frequently of the proposed budget for the first year of a multi-year framework, followed by inflation adjusted projections of cost for the outer year ...they pay little attention to, for example, the likely phasing of policy implementation, changes in demand that will effect spending unevenly or the impact of once-off capital spending on the base-year estimates. ...A key aspect of embedding a medium-term perspective therefore is deciding what the rules are for rolling over and adjusting and determining the forward estimates.

She is spot on – as I’m sure that anyone who has looked at a representative sample of MTEFs from around the world can attest.

Hype and Reality: "The" Medium-term Expenditure Framework in Developing Countries

Posted By Salvatore Schiavo-Campo, LL.D., Ph.D.

A recent paper by Salvatore Schiavo-Campo, presented at the East-West Center and Korea Development Institute Conference on “Sustainability and Efficiency in Managing Public Expenditures”, Download MTEFpaperFinal.doc assesses MTEF implementation in developing countries over the last decade. After tracing the conceptual roots of multiyear expenditure programming to the “High Development Economics” of the 1950s and 1960s and to the more recent antecedents—particularly Australia’s “forward estimates”—the paper notes that very few of the prerequisites for effective MTEF implementation are present in developing countries. The evidence is now conclusive that pushing the MTEF as fashionable “cutting edge”, “state of the art” “best practice”--in disregard of institutional considerations and capacity limits--has produced fiscal Potemkin Villages and mountains of red tape with no improvement in macroeconomic balances, financial control and predictability, or efficiency of allocation and use of public funds.

A scorecard of the last decade does suggest three positive impacts of attempts at MTEF introduction: awareness of the need to look beyond the immediate budget issues; some encouragement of intra-governmental coordination; and greater orientation toward the results of spending rather than solely the process. It also carried three negative impacts: little or no local ownership; damaging distraction from basic PFM problems; and heavy strain on limited budgeting capacity.

However, a suitable medium-term fiscal and expenditure perspective remains essential to frame annual budget preparation. Thus, and related to the disregard of institutional capacity, the core of the problem so far has been the failure to make distinctions between different MTEF variants. Unbundling the MTEF leads the paper to advance operational recommendations on which variant is suitable to different country circumstances, and specifically what gradual steps can be taken to produce, in time, a robust medium-term programmatic frame for sound budgeting.

Addressing Infrastructure Challenges and Managing Fiscal Risks from PPPs

Posted by Gerd Schwartz, Ana Corbacho, and Katja Funke (all IMF staff)

Governments face important challenges to upgrade public infrastructure and improve the delivery of public services. As in other regions of the world, countries in the European Union (EU) and several non-EU economies in Europe have been facing strong demands to strengthen the quality of public infrastructure to accelerate economic development and income convergence. At the same time, tight budget constraints have raised incentives to rely on private sector resources to supply infrastructure. In this context, public-private partnerships (PPPs) are being used more and more as an alternative to traditional public procurement. While this has created new business opportunities for the private sector, it has also given rise to new fiscal, macroeconomic, and reputational risks for governments.

How then should governments address these infrastructure challenges and manage associated risks? Edited by Gerd Schwartz, Ana Corbacho, and Katja Funke Public investment and Public-Private Partnerships: Addressing Infrastructure Challenges and Managing Fiscal Risks brings together the perspectives of academics, practitioners, and members of several international organizations. It is based on the proceedings from a high-level international seminar for government officials, which was organized jointly by the Fiscal Affairs Department of the IMF, the Hungarian Ministry of Finance, and the International Center for Economic Growth, European Center (ICEG-EC), and with some financial support from the European Investment Bank.

Medium-Term Expenditure Ceilings: are they an Essential Part of Medium-Term Budgeting?

Posted by Marc Robinson

We often hear it said that medium-term expenditure ceilings for ministries or sectors are an essential part of good medium-term budgeting. Spending ministries, it is said, know what budget funding they will receive not only this year, but next year and the year after. The funding certainty this will give them will improve their planning and management, thereby boosting service delivery. Such increased funding certainty, the line runs, is the #1 objective of medium-term budgeting.

This is, with respect, wrong. Multi-year funding certainty for spending ministries is something which only the most advanced countries can aspire to. And while reduced funding uncertainty is a goal of medium-term budgeting, it is not the most fundamental goal.

France’s Announces Details of its First Multi-Year Budget

Posted by Richard Hughes

Last month saw French Budget Minister Eric Woerth confirm his government’s plan to press ahead with the biggest reform to French fiscal policy-making since the adoption of the LOLF (Loi Organique Relative aux Lois de Finances) in 2001 - the introduction of the country’s first multi-year budget (budget pluriannuel).

Speaking at the opening of the National Assembly’s Budget Orientation Debate on the 15th of July, Woerth announced that the government will be introducing a new “expenditure planning law” (loi de programmation) that will set out in detail the French government’s spending plans for the year 2009, 2010 and 2011. Following some initial questions about its constitutionality, the legal path for this multi-year expenditure planning law was subsequently cleared as part of a series of revisions to France’s 1958 Constitution ratified by both houses of Parliament on 23 July. The stage is therefore set for the publication of France’s first multi-year budget in the autumn.

An Apparent Paradox? What the Political Economy Literature on Fiscal Institutions Could Say about Second Generation PFM Reforms

Posted by Francois Michel

Research on the political economy of fiscal institutions has made considerable progress in the past two decades, with numerous contributions from major economists including, among others, Douglas North, Alberto Alesina, Allan Drazen, Andres Velasco, Mark Hallerberg, Gian Milesi-Ferreti, Roberto Perroti, Torsten Persson, James Poterba, Guido Tabellini, and Jürgen von Hagen.

The political economy of fiscal institutions

This progress is related to the more general, progressive emergence of comparative political economy, which in turn benefited from advances in econometric techniques, as a major field of economics. A good example is Persson and Tabellini's classic book on The Economic Effects of Constitutions, in which the authors seek to establish some causality between two constitutional choices (majoritarian or proportional representation; presidential or parliamentary form of government) and economic outcomes.

Another example is Mark Hallerberg and Guntram Wolff's recent article on Fiscal institutions, fiscal policy and sovereign risk premia in EMU (Public Choice, Volume 136, Numbers 3-4 / September, 2008). These authors attempt to take stock of Daron Acemoglu's remarks that endogeneity issues make the assessment of causal effects of institutions and constitution particularly difficult by showing that budget institutions influence the perception of countries' default risks by financial markets (less subject to endogeneity problems).

The Good, the Bad and the Ugly of MTEFs?

Posted by Ismail Manik, consultant, World Bank Institute

An interesting recent working paper by Clay G. Wescott, of the Asia Pacific Governance Institute, has a good review of country experiences with MTEF implementations. The working paper is a background paper to the World Bank’s Independent Evaluation Group’s report ‘Public Sector Reform: What Works and Why?’ 

Egypt hosts OECD Budget Law Seminar

Posted by Ian Lienert

On May 28–29, Egypt’s Ministry of Finance hosted an OECD seminar on legal frameworks for budget and financial management in OECD countries. The main objective was to learn more of good international practices in budget law. At present, Egypt’s two main budget-related laws are: a 1973 Budget Law and a 1981 Accounting Law. [Download egypt_budget_law_1973.pdf ]

All aspects of the legal framework for budget and financial management systems were covered in the seminar. Difference in budget laws in OECD countries are very marked, reflecting not only differences in budget systems, but institutional differences in the role of parliaments and governments in budget-making, the extent of delegation of authority for budget management to ministers and senior officials in ministries and government agencies, as well as sharp differences in countries’ attitudes towards using law for reforming budget processes and public financial management.

Republic of Korea Merges its Budget and Finance Ministries

Posted by Ian Lienert

There are a variety of ways in which countries organize ministries for performing the planning, budgeting and public financial management functions. Many countries have a single “ministry of finance” covering all functions. The Republic of Korea (RoK) and Brazil were amongst the few countries that had a Ministry of Planning and Budget, separate from the Ministry of Finance. This changed in the Republic of Korea in March 2008 when the new government decided to merge the two ministries into a single Ministry of Strategy and Finance.

New EU-Supported Financial Information Management System Public Finance in Serbia

Posted by Michel Lazare

Here is a YouTube video presenting the key features of a new financial management information system introduced in Serbia with the support of the EU-European Reconstruction Agency.

Going hybrid! A practical approach to setting government accounting standards?

Posted by Holger van Eden

In the Netherlands, but also in a number of other OECD countries, the debate on the usefulness of accrual accounting standards, both for financial reporting and budgeting, has led to a hybrid set of accounting standards being used in government. This hybrid approach has been questioned by the Dutch Supreme Audit Office, and is generally not appreciated by accounting purists. However, the hybrid approach, in which part of government works under accrual standards, and part remains under cash, may be a practical way to reap some of the benefits of accrual reporting and budgeting, while not incurring the substantial costs of implementing accrual accounting standards government-wide. Accountability and transparency at the national level may also be better served by a straightforward cash-based approach.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges (Video 3)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the third part of this YouTube video; parts 1 and 2 appear in other posts published today.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges ( Video 2)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the second part of this YouTube video; parts 1 and 3 appear in other posts published today.