Budget Rules

October 12, 2011

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?

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August 05, 2011

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.

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February 19, 2010

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.

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December 05, 2007

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."

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November 26, 2007

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.

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November 21, 2007

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

Posted by Bill Dorotinsky

Lineitem2_3 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.

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November 19, 2007

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.

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November 16, 2007

New Danish Accrual Budgeting System

Posted by Marc Robinsonp>

Denmark 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.

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November 02, 2007

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

Posted by Mario Pessoa

Brazil 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.

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October 23, 2007

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."

October 22, 2007

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.

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October 18, 2007

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.

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