Transparency and Participation in Public Financial Management: What Do Budget Laws Say?

Posted by Paolo de Renzio, International Budget Partnership, and Verena Kroth, London School of Economics

An increasing number of governments, as well as international and civil society organizations, are promoting the public disclosure of budgetary information, and calling for greater citizen involvement in budget processes. Most agree that fiscal transparency generates significant benefits, as it is an important precondition for better governance, improved economic performance and prudent fiscal policy, resulting in lower deficits and debt accumulation. Moreover, transparency functions as a political expression of democratic governance, giving citizens and taxpayers information that they are entitled to, and that they can use to hold their governments accountable.

Given its increasing importance, how can transparency and participation in public financial management be promoted or improved? As a possible avenue, it is interesting to look at the role of legislation in promoting both disclosure of budgetary information and opportunities for citizen engagement in the budget process. Key questions then are: (a) to what extent does budget legislation in different countries cover issues related to budget transparency and participation, and in what level of detail? and (b) does the degree to which legislation covers issues related to public disclosure of budget information seem to affect the actual level of budget transparency in different countries?

Forward Estimates: Rocking or Rolling?

 

Posted by Kris Kauffmann

In my view, it is now well established that using rolling forward estimates is a central element to the successful implementation of any Medium Term Expenditure Framework approach. By establishing the future costs of existing policies, for say 2-3 years after the budget, this provides a foundation for future budget planning processes, where the focus shifts to the costs verses benefits of changing those existing policies and their established costs. Multi-year estimates also support longer term macro fiscal as well as managerial planning. In recalling Australia’s MTEF reforms and describing the impact of rolling forward estimates, a senior official is quoted as telling the World Bank that “If you had to pick out the one thing that we have done above all others, this reform would be the most dramatic change.”

Yet we often see in developing and emerging market countries that while government may have adopted what appears to be forward estimates in their budget processes, they have not been able to achieve the dramatic changes in budgeting described above. It is a characteristic of these countries that the forward estimates, while published in the previous budget, are not accepted as being highly relevant for future budget processes.

Reforming Budget System Laws

Posted by Ian Lienert

A new Technical Note and Manual (TNM) entitled Reforming Budget System Laws has been issued. TNM/10/01 is mostly unchanged from the Guidance Note on this issue, authored by Israel Fainboim and myself and published on the PFM blog on October 22, 2007. The TNM explores the variations and provides principles to guide countries seeking to draft new budget laws or to amend existing laws.

The TNM points to the opposite positions that OECD countries have regarding the need to adopt a law – or laws – for providing a framework or rules for government budget processes. At the one extreme, Denmark and Norway have never adopted a formal law to govern the budget system. At the other extreme, the United States has adopted many laws relating to the federal budget system (not to mention State level laws). Most countries lie between the extremes of these two countries.

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.

BUDGET ANNUALITY AND THE COMPLEMENTARY PERIOD in the French public finance law environment

Posted by Dominique Bouley

In budget law there is an original instrument for executing the budget by working around the annual framework while observing the principle of budget annuality. It takes various forms with different name¹: complementary day, complementary period, complementary lag. This instrument may or may not have repercussions on cash flow. While this regulation in France dates back almost 200 years, and was clear and precise, it has been observed that its usage in those countries that use the public finance rules of French-speaking countries derived from French legislation has become less controlled and that the concept of complementary period has changed in scope and importance in the context of budget execution.

Debt Brake for Germany--Could it be too Strict?

Posted by Christian Schiller

When the Federalism Reform Commission II presented its report to the general public on June 23, 2008, it was clear that a debt brake for the federal government and the governments of the Länder (the federal states) would come, but how tight remained open (see my posting Germany: Fiscal Reform Commission II presents report of June 30, 2008). Now, on February 12, 2009, the federal government and the governments of the Länder have agreed on the specifics. It is expected that the new debt brake will be incorporated into Germany’s basic law in June 2009 and become effective on January 2011.

Agreement has been reached on a zero limit on net borrowing for the Länder and a limit of 0,35 percent of GDP for the federal government budget deficit. These are the general rules. But there will a transition period and there will be exceptions.

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.

Carry-over of budget authority

Posted by Ian Lienert and Gosta Ljungman

When looking at models for managing public expenditure, it quickly becomes obvious that in just about every regard, countries face a trade-off between control and efficiency. From one perspective, the ministry of finance has an interest in guiding the use of public finds with a firm hand. From another perspective, there are arguments for easing centralized control to capture the potential for efficiency gains in the public administration. The right balance between these two perspectives depends on both the preferences of the government, and the country specific circumstances that make up the risk and rewards of different budget models. What works well in one country may be outright inappropriate in another.

It is this dichotomy that lies behind the diversity of country practice with carry-over. A possibility to spend a budget allocation beyond the year for which it was originally appropriated has become the norm in countries where the public sector is stable and well managed, and where the focus is on promoting rationality and efficiency in the use of budget funds. In countries that are in the process of reforming their public sector, and where budget management is constrained by inadequate systems and a lack of capacity, carry-overs are less common, and limited to investment.

In a new Technical Guidance Note Carry Over of Budget Authority (Download Carry-Over -- Technical Guidance Note) we discuss the rationale behind carry-over, the arguments for and against this type of end-year flexibility, and the various options for setting up a regime that can balance the associated gains and risks. We also examine the various preconditions that need to be met before wide-ranging carry-over possibilities should be introduced.

A principal conclusion is that countries should be careful to interpret the popularity of carry-over regimes in advanced countries as a sign that carry-overs will have a positive impact in all situations. Carry-overs demand a level of sophistication of budgeting (especially accuracy of projections of appropriations, and devolution of budgetary authority to spending agencies), accounting, and audit that is only found in relatively few advanced countries. For the vast majority of countries, the potential benefits of carry-over will not outweigh the costs, with one exception—clearly identifiable investment projects whose implementation stretch over a multi-year period.

Keeping a Lid on Spending

Posted by Gosta Ljungman

One of the more intriguing aspects of public policy making is the difficulty of maintaining healthy government finances. Not only is the short sighted temptation to spend now and pay later sometimes too hard to resist, but even with the best of intentions do countries end up with high deficits and a growing debt. It is almost like there is a gravitational force pulling government budgets into red figures. Some institutionalized support appears to be, if not necessary, at least enormously valuable to stay on the straight and narrow path of fiscal sustainability.

Judging from the performance of a handful of countries that have established aggregate expenditure ceilings as a centrepiece of their fiscal framework, this type of arrangement seems to be particularly effective in combating the tendency for spending growing faster than revenue. In a recent IMF Working Paper: Expenditure Ceilings—A Survey, I look more closely at the choices that have to be made when designing an aggregate expenditure ceiling, namely: 1) the comprehensiveness; 2) inflation adjustments; 3) mechanisms to manage expenditure fluctuations; 4) time horizon; 5) numerical definition; and 6) legislative status. I also examine the construction of the expenditure ceiling in three countries: Finland, the Netherlands and Sweden, to see how each of these six aspects have been treated. From this study, some interesting—and for countries considering the introduction of an aggregate expenditure ceiling potentially valuable—patterns emerge.

Budget Amendment Powers Being Reexamined in South Africa

Posted by Ian Lienert

The South African Parliament currently votes on budget appropriations in their entirety. It could, in principle, reject an allocation to a particular department. However, the outright rejection of a departmental allocation would necessarily be interpreted as a vote of no confidence in the government. With a view to changing this situation, in August 2008 the South African Parliament received submissions on the new draft Bill that would provide Parliament with power to amend the executive’s proposed budget.

In an article recently featured in the International Budget Partnership’s 45, Len Verwey of the Institute for Democracy in South Africa (IDASA) highlights pros and cons of the draft legislation. Submissions by other organizations made similar points to those summarized below. For example, the National Treasury emphasized its desire to support Parliament in this process, as well as the need for a “fiscal responsibility” clause that would establish the parameters for any budget amendments by parliament.

The 2008 World Bank/CABRI/OECD Survey of Budgeting Practices and Procedures in Africa and Asia

By Lubin Doe

The OECD has established a comprehensive database on budget institutions in 97 countries worldwide. This base also contains the results of the 2008 World Bank/ Collaborative Africa Budget Reform Initiative (CABRI)/OECD survey of 26 African and 13 Asian countries.

The survey seeks to gather general information on budget institutions and responses to specific issues on budget preparation, adoption, execution, accounting, and audit. Questions were also fielded on performance budgeting and aid management.

Allen Schick and Paulo Mauro Discuss Budgeting for Fiscal Risks

On September 17, at a well-attended FAD seminar, Professor Allen Schick and FAD Division Chief Paulo Mauro presented their views on "Budgeting for Fiscal Risks". Professor Schick is an acknowledged expert on the subject and, in 2002, wrote a path-breaking book with Hana Polackova Brixi and Sweder van Wijnbergen — "Government at Risk: Contingent Liabilities and Fiscal Risk"—published by the World Bank and Oxford University Press. This seminar was timely, given the fact that FAD has recently produced an IMF Board Paper on the subject "Fiscal Risks—Sources, Disclosure, and Management".

Professor Schick was quite complementary on the recent FAD paper and agrees with many of the recommendations contained in the Paper. Pr. Schick suggested that a clearer distinction between "fiscal risks" and "fiscal uncertainties" could be made:

- In the FAD paper fiscal risk is defined as the "possible deviation of fiscal outcomes from budget estimates or other projections";

- Pr. Schick provides an alternative definition which focuses on the "contingency of future revenues or expenditures on uncertain events";

Are Government Debts Really Irresponsible?

Posted by Andy Wynne

Disclaimer: Andy Wynne, an independent consultant,  is the editor of the International Journal of Governmental Financial Management; the point of view he expresses in the following post is not necessarily shared by either PFM Blog or the IMF.

In recent years it has been assumed that fiscal discipline should be one of the main objectives of public financial management. Thus, for example, the World Bank cites aggregate fiscal discipline as the first of the three much quoted objectives for public expenditure management.1/ The European Union has set targets of 3% for annual fiscal deficit and 60% for government debt. Several countries are adopting fiscal responsibility acts which limit the fiscal deficits which their governments are allowed to apply when setting their annual budgets.

The financial crises in Mexico (1994-95), Southeast Asia (1997) and Russia (1998) brought extensive economic dislocation, fiscal hardships and liquidity problems for the governments of these countries. The debt crisis for the governments of many developing countries over the last two decades had a similar effect and made them dependent on policy advice from the World Bank and IMF. Having suffered these problems it is a question of once bitten, twice shy. Many governments now accept the need to constrain their public expenditure to avoid future debt problems. However, in doing so they may not undertake much needed investment in public infrastructure which could be essential to achieve optimal economic growth in the future.

Ghana Aims for Firm Fiscal Discipline Before Oil Flows

Posted by Richard Allen and Jacques Bouhga-Hagbe

Today, we published a short article in the IMF Survey Magazine titled “Ghana Aims for Firm Fiscal Discipline Before Oil Flows.” This was based on a recent FAD technical assistance mission to Ghana. Here is a summary of the key points; the full text of the article is accessible by clicking here.

Ghana's authorities are contemplating far-reaching reforms designed to further strengthen fiscal discipline and transparency and make effective use of prospective oil and gas revenues.

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.

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.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges (Video 1)

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 first part of this YouTube video; parts 2 and 3 appear in other posts published today.

Public Financial Management Reform -- Trends and Challenges

Posted by Bill Dorotinsky

On June 18, 2008, I spoke on Public Financial Management Reform: Trends at the the International Consortium on Government Financial Management (ICGFM) monthly speaker series in Washington, D.C.

I took the opportunity to share my personal views on current trends and challenges in public financial management (PFM) reform, drawing on my experience across the globe and multiple institutions. (As I noted, these are not the views of the IMF, or any other institutions with which I have been associated.)

The presentation covered three broad areas:

1. Common PFM reform recommendations, seen across all donors, consultants, etc.
2. Information on what reforms countries have been implementing in recent years
3. Challenges ahead for improving PFM

The PowerPoint can be downloaded here Download public_financial_reform_trends_icgfm_June_2008.ppt

The ICGFM Blog also posted a summary and video of the presentation on their Blog (CLICK HERE).

United Kingdom Concludes Its Fifth Multi-Annual Spending Round

2007 Comprehensive Spending Review

Posted By Richard Hughes

In October of last year, the UK Treasury published the conclusions of its latest multi-annual expenditure planning exercise.  The 2007 Comprehensive Spending Review (CSR07) set out how the UK Government plans to spend its £600bn (US$1.2 trillion) annual budget over the years 2008-09, 2009-10 and 2010-11 and the key outcomes it is looking to buy with taxpayers’ money over the period. 

While the UK’s fiscal and budgetary architecture has been stable for over a decade and biennial Spending Reviews have become a routine feature of the British political calendar, there were are number of noteworthy developments and innovations in this fifth multi-year spending round.  In particular, CSR07:

• took place within a more challenging macro-fiscal context than previous spending rounds and was a test of the capacity of the UK’s Spending Review process to deliver an expenditure-based fiscal consolidation;
• saw a major expansion in the length, breadth and depth of budgetary certainty that the UK system provides to frontline managers; and
• included a major streamlining of the UK’s performance management regime for public services.

Fiscal Discipline and Subnational Borrowing: the Case Study of Brazil

Posted by Mario Pessoa

Decentralization of borrowing authority to local government and fiscal sustainability are two issues in permanent tension in public financial management. On the one hand, it is positive to give local authorities room for raising financial resources in order to finance investment and provision of goods and services to local communities. On the other hand, the lack of institutional capacity, history of defaults, and lack of controls pose to the central government an argument to restrict autonomy. In other words, there is a fear that decentralization can weaken fiscal discipline. Therefore, is it possible to built a safe net in order to prevent problems? Can both objectives be met?

A recent article by C.R. Martell entitled "Fiscal Institutions of Brazilian Municipal Borrowing" (Public Administration and Development 28, 30-41; 2008) examines the effectiveness of Brazilian fiscal institutions (constitution, fiscal responsibility law, and borrowing arrangements) in light of 2001 policy recommendations for strengthening efficiency and fiscal discipline in subnational borrowing by means of fiscal policies that encourage efficiency, discipline, and controls.

Extrabudgetary Funds -- Removing the 'Extra' and Minimizing the Risks

Posted by Bill Dorotinsky

Extra-budgetary funds (EBFs) are a large and persistent issue in developed and developing countries. An October 26, 2007, blog post highlighted the magnitude of such funds, offered a taxonomy of EBFs, and suggested some questions for evaluating them. This post offers a similar perspective, drawing on a draft World Bank policy note prepared for the Polish authorities in 2001.

Public finance professionals generally oppose creation or continuation of 'extra-budgetary funds' because they undermine comprehensive budgeting, fragment financial reporting and cash management, and frequently there are transparency, oversight, and accountability concerns for the EBF's directly. But there are principles that, if followed, can minimize the risks from EBF’s, effectively removing their ‘extra-budgetary’ character.

Fiscal Rules - Beneficially Binding?

Posted by Gösta Ljungman

Widespread turbulence in public finances over the past decade has rekindled an interest in numerical fiscal rules as a way of addressing the well-known difficulty in ensuring that political assemblies take full consideration of the fiscal impact of their decisions. On top of a creeping increase in public expenditure and deficits in a number of countries, the future challenge posed by an ageing population is receiving more and more attention, and various options for ensuring sustainability are being discussed. Medium- and long-term fiscal policy objectives, and institutionalized restrictions on fiscal policy formulation, are possible ways of addressing these issues.

However, the experience with fiscal rules presents a mixed message. In some cases they have been highly successful in consolidating public finances and promoting a responsible fiscal policy, while in other cases the actual impact has been negligible. The emerging picture seems to be that numerical fiscal rules in themselves are not sufficient to promote fiscal discipline; they have to be supplemented by institutional reforms supporting the rules, and implemented in a political environment, which is conscious and concerned about the long-term health of public finances.

Fiscal Double Whammy: Combination of Balanced-Budget Rule and Economic Slowdown Forcing U.S. States to Make Tough Fiscal Decisions

Posted by Michel Lazare

A majority of US states are facing a difficult fiscal situation according to the survey made by the Center on Budget and Policy Priorities (CBPP).

In a January 28, 2008 revision of a survey of states fiscal outlook (prepared by Elizabeth C. McNichol and Iris J. Lav ), CBPP indicates that "19 states face a total budget shortfall of at least $32 billion in fiscal year 2009; 9 others expect budget problems." These dire projections were made by the states themselves and were aggregated by CBPP.

Because they have passed a fiscal rule, which forces the state legislators to adopt a balanced budget, "the vast majority of states cannot simply run a deficit or borrow to cover their operating expenditures."  They have to resort to fiscal retrenchment--not a very pleasant perspective at times when the US economy is noticeably slowing down--, which could in turn negatively affect economic growth prospects (procyclical effects).

The Dutch Fiscal Framework: Unique, or Transferable to Other Countries?

Posted by Frits Bos, CPB Netherlands Bureau for Economic Policy Analysis

The Netherlands has a well developed and successful  medium term fiscal and budgetary framework that has helped stabilize government finances and has helped constrain the growth of the public sector. The Dutch framework is based on real expenditure ceilings and a sustainable deficit target over the medium term. Expenditure envelopes are fully planned in for the duration of government on the basis of a four-year “Coalition Agreement” between the political parties in government. Expenditure growth paths were based, until recently, on cautious assumption about the structural growth rate of the economy. To what extent is the Dutch framework, which has a number of specific institutional features, transferable to other countries? What are the strengths and weaknesses of the framework. Frits Bos, of the CPB (the Netherlands Bureau for Economic Policy Analysis), discusses below the main features of the Dutch system. A recent paper published by Mr. Bos presents  the historical development, the procedures and the specific rules of the Dutch fiscal and budgetary framework

Does Performance Budgeting Perform?

Posted by Holger van Eden

“Performance Budgeting in OECD Countries,” a recent publication of the OECD’s Budgeting and Public Expenditures Division, reviews the experiences of eight OECD countries (Australia, Canada, Denmark, Korea, Netherlands, Sweden, United Kingdom, United States) that have introduced performance information in the budget process over the past decade. The book is available in hard-copy and e-book versions at the OECD Online Bookshop (click link above).

The main author of this publication, OECD senior economist Teresa Curristine, discusses extensively the question of whether 'performance budgeting performs,' and not surprisingly, the answer is not that clear. There are many approaches to introducing performance budgeting reforms, and many reasons for doing so. As with many complex public reforms, the results are usually rather nuanced.

The short and cynical answer by the casual reader is perhaps “No, it doesn’t”, or not “Not enough, given the effort”, or “Not yet, even after many, many years of implementation.” The many nuances in this book do clarify that performance-based reforms can work in certain circumstances, but do leave interested governments a bit in the dark on what road to take in their country in further developing performance budgeting.

Promoting Fiscal Discipline - Fiscal Responsibility Laws

Posted by Mario Pessoa

Fiscal discipline is essential to improve and sustain economic performance, maintain macroeconomic stability, and reduce vulnerabilities. Discipline is especially important if countries, industrial as well as developing, are to successfully meet the challenges, and reap the benefits, of economic and financial globalization. Lack of fiscal discipline generally stems from the injudicious use of policy discretion. The benefits of discretion are seen in terms of the ability of policymakers to respond to unexpected shocks, and in allowing elected political representatives to fulfill their mandates. But discretion can be misused, resulting in persistent deficits and pro-cyclical policies, rising debt levels, and, over time, a loss in policy credibility.

A recent IMF book entitled "Promoting Fiscal Discipline", edited by by Manmohan Kumar and Teresa Ter-Minassian, addresses some of the key issues involved in promoting fiscal discipline, with particular emphasis on output stabilization and the cyclicality of fiscal policy, and on ways to avoid procyclicality in good times. It examines the role and determinants of fiscal discipline (chapter 1), the extent, consequences, and causes of procyclicality, and “mechanisms that could help reduce procyclicality and strengthen fiscal discipline-targeting cyclically adjusted fiscal balances (chapters 2 to 4), the introduction of fiscal responsibility laws (chapter 5), and the creation of nonpartisan fiscal agencies (chapter 6).

Germany: Ministry of Finance's Task Force Recommends Introduction of Performance Budgeting and Accrual Accounting

Posted by Michel Lazare

A few days ago, our FAD colleague and PFM Blog author Marc Robinson published a short article in IMFSurvey Magazine titled "Major Reforms for German Budget System." Here is a summary of the key points; the full text of the article is accessible by clicking here.

The German Ministry of Finance's Budget and Accounting Reform Task Force, who was assisted by staff of FAD, recently recommended "the introduction of product budgets--often known elsewhere as programs. The intention is to focus greater attention in the budget formulation stage on choices about how much money is allocated to" various outputs.

"Under the task force's proposals, the product budgets would not in the first instance be used for parliamentary budget appropriations. The idea is that they would initially be used [...] in formulating the budget. The logical next step would, however, be to shift the annual budget law also onto programmatic basis."

Comparative Budget Law study released in French

Posted by Ian Lienert

In PFM, there is often a dearth of comparative studies. This was especially the case for the legal framework of budget systems. Given different legal traditions and the varying importance of law across countries, budget-related laws are more different than budget systems themselves. Two years ago, the dearth in this subject was plugged when OECD published an English version of The Legal Framework for Budget Systems: An International Comparison, which includes in-depth studies of 13 OECD countries.

More recently this study has been made available in French [hard copy only at this time]. The original English version is available electronically (PDF format) at the OECD Journal of Budgeting site.

From Line-item to Program Budgeting - Opening the 'black-box' of spending

Posted by Bill Dorotinsky

A perennial question of annual public budgeting for Ministries of Finance and legislatures, and the general public, is "What are we getting for the money?" It is the proverbial "black box" of annual spending, where funds are allocated by traditional line-item budgets to agencies, but there is no sense of what the money actually achieves. While under line-item budgeting, budget offices know what inputs are being purchased, there is no clear indication of what activities, purposes, or objectives -- or ultimately outputs or outcomes -- are being purchased, or how government policies translate into spending. A common first step for many countries towards opening the black box of spending is to adopt a program classification of spending, and introduce program budgeting. A program classification is often thought of as a first step in introducing a performance orientation into the budget process.

While sounding like a very dry, technical exercise, the reality of successful introduction of program budgeting is more complex, involving elements of change management across government. Various governments across the globe have been introducing program budgets over many decades, including within the past decade in Russia, Brazil, and more recently, the Republic of Korea (RoK). A recent book by the Korean Institute of Public Finance and the World Bank, From Line-item to Program Budgeting (John Kim, Editor; Seoul, 2007), summarizes some key lessons from the global experience, and offers practical advice to countries embarking on this journey.

Public Finance Reference Reading: Revisiting the Classics -- Schick's Contemporary Approach to PEM (1998)

Posted by Bill Dorotinsky

As public finance professionals, we are frequently asked for useful background reading to better understand public financial mangement systems. Thankfully, there are a number of classic works still highly relevant and 'must reads' for anyone interested in the topic. Occasionally, we will post references to these documents as a service to our readers.

New Danish Accrual Budgeting System

Posted by Marc Robinson

Denmark has this year introduced an accrual budgeting system, and in doing so has joined the ranks of a very small group of countries with such systems (including the UK, Australia, and New Zealand). The core feature of the new Danish system is that government agencies receive a budget appropriation for the expenses – i.e. operating costs as measured using accrual accounting – they will incur in the financial year. No longer do they receive a budget limiting the expenditure (payments) that they may make.

Increasing Fiscal Transparency -- Brazil's Budgetary Fiscal Risk Report

Posted by Mario Pessoa

As public financial management (PFM) systems develop and become more complex, the need to identify, quantify, and manage various public finance risks expands. As the need expands, the capacity and instruments to do so expand as well. Brazil's PFM system advanced considerably with the adoption of its Fiscal Responsibility Law (FRL) in 2000, and it has further advanced transparency by publishing a "Budgetary Fiscal Risk" report (BFR) as one of many annexes to its annual budget.

Budget practices and procedures --- everything you'd want to know about OECD countries

Posted by Bill Dorotinsky

Ever lay sleepless at night, wondering how far in advance of the new fiscal year OECD country legislatures receive the budget from the executive? Or if ministers in OECD countries are allowed to reallocate/vire funds between line items within their responsibility? For PFM specialists and country PFM officials, these can be important guideposts for reform directions.

Well, wonder no more, and sleep peacefully. The OECD just released publicly their Budget Process and Procedures database for 2007, featuring 30 OECD and 8 non-OECD countries. As the OECD web page itself says: "The purpose ... is to provide budget practitioners and academics the opportunity to compare and contrast national budgeting and financial management practices with a view to share experiences and best practices. It is a unique, comprehensive and free resource that covers the entire budget cycle: preparation, approval, execution, accounting and audit, and performance information."

Drafting Budget System Laws -- IMF Technical Guidance Note

Posted by Ian Lienert

Law is a dry subject. Budgeting is as well. Would happiness be attained if the two subjects were to be married? Denmark sees no need for such a marriage: it has never adopted a formal law to govern the budget system. At the other extreme, the United States believes in this marriage: it has adopted many laws relating to the budget system—both a federal and State level. Most countries lie between the extremes of these two countries.

A new IMF FAD Technical Guidance Note on Budget Systems Laws, prepared by Ian Lienert and Israel Fainboim of the Fiscal Affairs Department, explores the variations, and provides principles to guide countries seeking to draft new budget laws or to amend existing laws.

Central American MTEF Workshop

Central American countries, Panama, and the Dominican Republic sponsored a workshop on medium-term expenditure frameworks (MTEFs) for Vice-Ministers, Budget Directors and Treasurers on October 8-9, 2007. The workshop was hosted by the Honduran Ministry of Finance in Tegucigalpa, and was organized and delivered by the IMF Fiscal Affairs and Western Hemisphere Departments, with the support of the World Bank and InterAmerican Development Bank, and participation of speakers from Colombia and Spain.

Dr. Allen Schick on Budget Tools and Rules

Professor Allen Schick led an FAD-seminar on "Analytic  Tools Versus Decision Rules for Fiscal Policy" on September 19, 2007.  Many analytic concepts can  be formulated into rules that guide or constrain decisions on the budget  or fiscal policy. Alternatively, analytic tools can be used  to inform decisions, but not to dictate how governments allocate resources.