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.

Where does the Public Sector Boundary End? New Publication in French

Posted by Ian Lienert

The terms “government” and “public sector”, when used in relation to fiscal deficits or debt, are sometimes used rather loosely. What is the coverage of “government”? Does it differ from the “public sector”? With the private sector increasingly participating in “government” activities, including via public-private partnerships (PPPs), has the boundary between the public and private sector become more blurred?

A recently published study in La Revue du Trésor presents the definition and components of the “public sector,” as defined in the IMF’s Government Financial Statistics (GFS) Manual 2001. The “public sector” is broader than the consolidated general government, as it includes public enterprises. The GFS framework, which discusses the notion of government “control” (important for identifying whether an enterprise or a PPP should be attributed to the private or public sector), provides a conceptual basis for a clear delineation of the public and private sectors. It is acknowledged that not all accounting issues – including those relating to PPPs and other “borderline” institutional arrangements -- have yet been settled.

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";

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.

IMF to prepare Guidelines for Fiscal Risk Disclosure and Management

Posted by Aliona Cebotari

On June 16, 2008, the Executive Board of the International Monetary Fund (IMF) held a seminar on “Fiscal Risks—Sources, Disclosure, and Management”. The topic has gained importance in many IMF member countries, as interest in promoting fiscal sustainability and transparency grows. The staff paper on which the discussion was based reviews the experience with fiscal risks in a wide range of countries and provides practical advice on risk identification, disclosure and management. This includes a set of Guidelines for Fiscal Risk Disclosure and Management, and a possible Statement of Fiscal Risks.

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).

An Official Primer on the US Budget System

Posted by Michel Lazare

The US budget system presents many peculiarities and very few countries around the world share similar features. One striking example is the wide ranging power of the US Congress in shaping the budget. While the UK Parliament, for instance, rarely changes the budget prepared by the UK government, the "Congress considers the President's budget proposals and approves, modifies, or disapproves them, it can change funding levels, eliminate programs, or add programs not requested by the President. It can add or eliminate taxes and other sources of receipts, or make other changes that affect the amount of receipts collected." 1/

There are many excellent (text)books describing the US budget system. One example is the recent book by Allen Schick on The Federal Budget, Third Edition: Politics, Policy, Process.

But there is also an official source: the "Budget System and Concepts"

Download us_budget_system_and_concepts.pdf

The Role of Fiscal Transparency in Sustaining Stability and Growth in Latin America

Posted by Taryn Parry

How can Latin America reduce its vulnerability to financial crises and global slowdowns?

The answer I developed in a recent IMF working paper is for these governments to focus on their full adherence to the IMF Code of Fiscal Transparency. Although there has been a strong rebound in growth in Latin America since the recession early in this decade, the pace of expansion has lagged behind other emerging market countries, and concerns have been raised about their ability to avoid future crises. Fiscal priorities for the region include avoiding procyclical fiscal policies, continuing to reduce public debt, improving the quality of the tax system, and promoting a better business environment. Fiscal transparency can play a critical role in meeting these challenges and remedying weaknesses in fiscal management practices that have been associated with past financial crises.

Is Providing Budget Support to Developing Countries Effective? -- Evaluation of DFID's Direct Budget Support by UK's National Audit Office

Posted by Michel Lazare

One of the main changes in development aid policy over the last decade was the decision made by the international community to move away from project aid in favor of direct budget support. This meant shifting away from aid financing specific projects and disbursed outside of the beneficiary country's public financial management (PFM) system (e.g., money deposited on projects' accounts in the commercial banks) to favor generally unearmarked aid funds directly disbursed using the beneficiary country's  PFM system (e.g., direct budget support deposited on the treasury's account at the central bank).

Evaluation of the efficiency and effectiveness of this new aid policy is a key issue for the international community. Just a few weeks before the upcoming Fourth High Level Forum on Aid Effectivemess to be held in Accra (Ghana), the UK's National Audit Office (NAO) has published, on February 8, 2008, a report evaluating DFID's (the UK's development agency) performance in providing budget support. This report titled: "Department for International Development -- Providing Support to Developing Countries", concludes in a nuanced way:

"Evidence on whether budget support has yielded better value for money than other forms of aid is not conclusive. While budget support has some advantages compared to other forms of aid, it also carries significant risks which need to be better managed."

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.

The Pile of Books on the “Resource Curse” Just Keep Growing !!!

So, why we should read “Escaping the Resource Curse”?

Posted by Teresa Dabán

Devising policies and institutions for the prevention of the “resource curse”—a term used to describe the surprisingly negative outcomes of resource-rich countries—has been the object of an extensive literature. One of the most recent contributions is Escaping the Resource Curse, a book edited by Macartan Humphreys, Jeffrey D. Sachs, and Joseph E. Stiglitz under the auspices of the Initiative for Policy Dialogue at the University of Columbia. The book reviews the main challenges posed by the management of resource revenues and proposes some interesting ways to address them.

To strengthen resource revenue management, for instance, the book proposes creating innovative budgetary  bodies and management arrangements that would operate in “parallel” to the existing ones. This post definitely recommends reading Escaping the Resource Curse, but argues that the benefits of creating such additional bodies and arrangements need to be carefully weighed against the risk of undermining and alienating existing budgetary institutions and discouraging reform efforts, especially in low-income countries, weakening governance and fragmenting already weak public finance systems.

A primer on Public-Private Partnerships

Posted by Francois Michel

If experts still argue about the proper definition of Public-Private Partnerships (PPPs), their microeconomic foundations, or their possible role as an antidote to the worldwide downturn in infrastructure investment, there is one fact that garners universal agreement: PPPs are one of the most popular reforms of the last decade in public financial management. A growing number of countries show interest in following the most advanced administrations on the topic, including Australia (Partnership Victoria) and the U.K. (Private Finance Initiative). Developing countries, in particular, try to develop PPPs to address economic infrastructure bottlenecks. However, the trend is universal: a recent study of PPPs in Europe found that between 1990 and 2005, more than a thousand partnerships had been signed in the European Union alone, representing an investment of almost 200 billion euros.

These developments have triggered intense (and remarkably fruitful) academic research. Thus, although much remains to be done, the major opportunities and challenges posed by PPPs, especially the fiscal risks induced by the absence of an effective accounting framework and the crucial notion of risk sharing, were identified with enough precision by the end of 2003 to allow the IMF to issue a series of reference publications on the subject.

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."