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.

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.

IMF's Fiscal Affairs Department Publishes September 2009 e-newsletter

Posted by Michel Lazare

A few days ago, in preparation for the on-going IMF-World Bank's Annual Meetings in Istanbul, the IMF's Fiscal Affairs Department published the second issue of its "FAD e-newsletter."  The full text of the FAD e-newsletter can be accessed by clicking here.

Among many others, this September 2009 issue focuses on the following key fiscal issues:

• The State of Public Finances -- Outlook and Medium-term Policies after the 2008 crisis;
• Fiscal Policy and the Crisis.

This issue also mentions the May 2009 meeting of the International Public Sector Accounting Standards Board (IPSASB) and the June 2009 meeting of the Steering Committee of the Public Expenditure Accountability (PEFA) both hosted by the IMF's Fiscal Affairs Department.

To subscribe to the FAD e-newsletter, please contact: FADsubscribe@imf.org.

IMF Job Offer: Public Financial Management Deputy Division Chief Based in Washington D.C. (Job Number: 0900810)

Reading the PFM blog regularly? You could be working here!

Posted by Marco Cangiano

The International Monetary Fund (IMF) is seeking a senior public financial management expert to fill a Deputy Division Chief position in one of the two Public Financial Management divisions of the Fiscal Affairs Department at the IMF Headquarters in Washington, DC.

Welcome to iMF direct, the New IMF Blog

Posted by Michel Lazare.

 

Earlier this month, the IMF launched a new blog: iMF direct. This new blog discusses issues related to the global economy and economic policy making, with currently a heavy focus on policy responses to the 2008-09 recession. Its authors are IMF senior officials: the IMF's First Deputy Managing Director (John Lipsky) and a number of directors or deputy directors of IMF departments, including our Fiscal Affairs Department director (Carlo Cottarelli.)

This is how iMF direct pictures itself:

iMF direct is a weblog covering the global economy and policy issues, posted by the International Monetary Fund (IMF) headquartered in Washington D.C., United States. iMF direct posts content related to the IMF’s work in economics and finance at global or national level, and posts currently highlight the debate over policy responses to the biggest global recession since the Great Depression.

iMF direct welcomes readers' comments (it sees itself as a "forum").

So far, iMF direct has published posts by Caroline Atkinson, the IMF's External Relations Department (see in particular her August 3 post launching the blog) and by Ajay Chopra, Deputy Director of the European department (see in particular his recent post comparing the recent crisis with the Asia Crisis of the 1990s, as well as his earlier post on Sweden's approach to bank resolution).

iMF direct can be accessed by clicking on this link; for convenience to our readers, we have also added a link to iMF direct on top of our blog's left column.

PFM Blog wishes long life and full success to its new IMF sibling.

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."

 

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.

First Issue of the IMF Fiscal Affairs Department's e-Newsletter

Posted by Michel Lazare

In April 2009, the IMF's Fiscal Affairs Department (FAD) published the first issue of its e-newsletter. As explained in the presentation letter (full text below) of FAD's Director, Carlo Cottarelli (see picture above), the aim of FAD's e-newsletter is to "reach out to a broad and diverse group of people who may be interested in FAD's activities.

This first issue focuses on FAD's activities on key fiscal topics:

• Fiscal policy and the global financial crisis;
• Fiscal policy in low-income countries;
• Fiscal risks; and
• Fiscal structural reforms.

In addition, the e-newsletter includes links to three categories of publications on fiscal issues:

1. IMF publications;
2. IMF working papers; and
3. External publications

And guess what? Surprise, surprise ! The e-newsletter includes a link to PFM blog!

The e-newletter is accessible on the www. imf.org website.

Long live the FAD's e-newsletter!

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.

Job Offer: The IMF Fiscal Affairs Department Looks for a Public Financial Management Advisor for CAPTAC-DR in Guatemala City, Guatemala

Posted by Michel Lazare

 

Description

The Fiscal Affairs Department (FAD) of the IMF is looking for a well-qualified expert to fill a Public Financial Management (PFM) Advisor position at the Central America, Panama, and the Dominican Republic Technical Assistance Center (CAPTAC-DR), which the IMF will open in May 2009 in Guatemala City, Guatemala. The Advisor's appointment term would be for a period of one year, on a renewable basis.

The Advisor will provide technical assistance (TA) on a range of PFM areas to the 7 countries covered by CAPTAC-DR, namely Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Panama. The Advisor's work program will cover all PFM areas: legal and regulatory environment; budget preparation (including budget classification, medium-term budgetary frameworks, performance-oriented budgeting); budget execution (including expenditure control, treasury operations, cash management, accounting), internal control and internal audit. In addition, the Advisor will assist with the organization of the periodic meetings of the regional Working Group for the Adoption of Medium-Term Expenditure Frameworks by CAPTAC-DR countries.

Strengthening the Medium-term Focus of FAD's Technical Assistance

Posted by Eivind Tandberg.

Traditonally, technical assistance provided by the IMF's Fiscal Affairs Department in the PFM area would often have a fairly short-term focus. The assistance was driven by country requests for individual missions or other short-term activities, and these requests were often a result of immediate public financial management problems or development needs. In many cases, countries asked for assistance to meet requirements under IMF-supported programs.

This type of assistance would often be effective in meeting the immediate needs and requirements of the countries, but did not necessarily lead to sustainable capacity improvements. In several countries, PFM improvements would evaporate after a while, when countries graduated from IMF-supported programs or when they focussed on other priorities. This has been a particular problem for low-capacity countries, including in Africa.

A Day in the Life of a Fiscal Economist

By Gösta Ljungman.

One of the functions of the IMF is to monitor public finances of its member countries. This is particularly the case for countries with which the Fund has a program, but also for Article IV surveillance. The task of fiscal monitoring of a country is often assigned to a fiscal economist in the Fiscal Affairs Department.

The fiscal economist often becomes something of a shadow budget official, following the state of government finances with the same interest as the staff in the ministry of finance. The advantage of the fiscal economist compared to the regular staff in the ministry of finance is not one of superior information, which is naturally vastly more accessible within the ministry. The benefit of the approach taken by the fiscal economist is often that fiscal issues are put into a broader macroeconomic context, something which in the Fund is often referred to as macro-fiscal analysis.

The IMF's Fiscal Affairs Department: How it All Began

Posted by Peter W. Kohnert (1)

In 1964 the International Monetary Fund established the Fiscal Affairs Department (FAD). This post describes the circumstances under which this happened. It reports about the activities in the fiscal area undertaken by the United Nations and the World Bank at that time, and presents the different aspects that were discussed in the Executive Board of the Fund before a decision of establishing FAD was actually taken.

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.

IMF Conference on “Fiscal Risks: Sources, Disclosure, and Management” (Paris, October 28–29, 2008)

Posted by Ricardo Velloso

The IMF’s Fiscal Affairs Department and the Offices in Europe organized a conference on “Fiscal Risks: Sources, Disclosure, and Management,” at the IMF’s Paris Office on October 28 and 29, 2008. The conference was attended by high-level officials from ministries of finance representing twenty European countries as well as representatives from international institutions, rating agencies, think tanks, and academia. The opening address was delivered by Mr. Saleh M. Nsouli, Director of the Offices in Europe, followed by former FAD Director, Mrs. Teresa Ter-Minassian's keynote speech.

World Bank—Sovereign Debt Management Forum (October 27-29, 2008)

Posted by Brian Olden

The World Bank hosted the Fourth Sovereign Debt Management Forum between October 27–29, 2008 in its Washington, D.C. headquarters. Despite the ongoing turmoil in world financial markets, the event was well attended, with representatives from over 55 advanced OECD, emerging, and low-income countries (LICs), as well as representatives from international institutions, including the IMF and the EU.

The forum was very timely, given the current market turmoil, and naturally much of the discussion centered around the impact of the crises on economies, in general, and on debt management operations, in particular.  Much of the focus was on what the role of debt managers will be in helping to mitigate the effects of the crises on economies in the short and medium-term.

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.

IMF Fiscal Affairs Department: an Update of Activities for the 2008 Annual Meetings

Posted by Michel Lazare

The attached 4-page flyer (Download FAD-new.pdf ), which has been prepared to provide an update of FAD's activities in 2008 to the participants to the 2008 Annual Meetings of the IMF (to be held in Washington on October 11-13, 2008), contains an overview of FAD's key responsibilities and outputs.

FAD provides services to the IMF's member countries through a number of channels and products:

• Fiscal policy analysis and advice, in connection with Fund surveillance and financial assistance, aimed at fostering stability and sustainable growth.
• Technical assistance and capacity building, through on-site missions from Fund headquarters or regional TA centers (RTACs). FAD undertakes about 500 TA missions and expert visits annually.
• Policy development and research on traditional and emerging fiscal policy issues and trends, and
• Outreach, targeted seminars, and training events.

The 2008 flyer indicates in each of the key fiscal topics (macro-fiscal analysis, tax policy, revenue administration, public financial management, expenditure policy, decentralization, and fiscal transparency) what have been in the recent past the main focus of FAD's activities.

For instance, the flyer indicates in the Public Financial Management area that:

"Strong PFM systems are key to ensuring effective delivery of intended budget policies. FAD provides PFM advice through HQ review, TA missions, and resident and short-term experts. These cover:

• Diagnostic assessment of the efficiency, effectiveness, and transparency of PFM systems.
• Strategic advice on the development, sequencing, and prioritization of PFM reform programs.
• Advice on legal design and drafting, including budget system and fiscal responsibility laws.
• Advice on “first generation” reforms, such as budget preparation, expenditure and revenue classification, ac­counting and fiscal reporting, cash management, treasury systems, and internal control and audit.
• Advice on “second generation” reforms, such as medium-term budgeting, performance budgeting, accrual accounting, and fiscal risk assessments.
• Advice on restructuring ministries of finance, state treasuries, and debt management offices."

This Annual Meetings flyer also lists FAD research activities:

• IMF Board papers: Globalization, Financial Markets and Fiscal Policy; Food and Fuel Prices—Recent Developments, Macroeconomic Impact, and Policy Responses and Update; Fuel and Food Price Subsidies—Issues and Reform Options; Fiscal Implications of Climate Change; Fiscal Risks—Sources, Disclosure and Management. Public enterprises and Fiscal Risks—lessons from the Country Studies.
• Selected Issues Papers (SIPs): SIPs, which are policy-oriented papers elaborated usually in the context of Article IV consultations with member countries, were prepared for a wide range of developing, emerging, and industrial countries. Over the past year, SIPs were prepared for a range of developing, emerging market, and industrial countries and covered a broad spectrum of topics, including: assessments of tax and pension reforms, creating fiscal space, improving fiscal coverage, strengthening fiscal policy frameworks, reforming fiscal regimes for mining, and reviewing options for decentralization, fiscal rules, and prudent levels of fiscal reserves and public debt
• IMF Working Papers: Topics have included the cyclical behavior and interactions of monetary and fiscal policy, government size and output volatility, the contribution of tax administration reforms to fiscal adjustment, tax amnesties, natural resource endowments and the domestic revenue effort, corruption and tax revenues, investment incentives and effective tax rates in Southeast Asia, capital budgeting practices, policy challenges of aging populations, and the effect of early retirement provisions on youth unemployment.
• FAD staff also staff contributed journal articles and conference papers on a range of topics, including revenue mobilization and globalization in sub-Saharan Africa, tax competition, economic integration and the relationship between profit and wage taxes, small business taxation, financing social pensions, the role of budget advisors, independent fiscal agencies, fiscal rules, climate change, the fiscal-financial nexus. Finally, in addition to the books on PPPs and PSIA, a book on performance budgeting was published by FAD, and a handbook on the experience of selected countries in developing medium-term expenditure frameworks is being prepared.

Our PFM Blog's "about" tab on top of this page also contains some general information about FAD's role.

You can also consult our last November post for FAD activities in 2007.

FAD provides services to the IMF's member countries through a number of channels and products:

Quality of Development Aid - Accra Meeting 2008 – What are the Issues and How to Get There.

Posted by Mario Pessoa

The Facts

The Accra Agenda for Action

The Third High-Level Forum on Aid Effectiveness has just concluded its works in Accra, Ghana. More than 1,500 delegates from 85 countries reached an agreement denominated the "Accra Agenda for Action" (Download AAA.pdf ) on how to make foreign aid to developing countries more effective. The key elements agreed in the Agenda are:

Predictability – donors will provide 3-5 year forward information on their planned aid to partner countries;

Country systems – partner country systems will be used to deliver aid as the first option, rather than donor systems;

Conditionality – donors will switch from reliance on prescriptive conditions about how and when aid money is spent to conditions based on the developing country’s own development objectives; and

Untying – donors will relax restrictions that prevent developing countries from buying the goods and services they need from whomever and wherever they can get the best quality at the lowest price.

Public Financial Management and Fiscal Outcomes In Heavily Indebted Sub-Saharan African (SSA) Countries

Posted by Tej Prakash

A substantial amount of donor aid, estimated to be around US$60 billion from bilateral and multilateral sources, is expected to flow to SSA in the coming years to help these countries alleviate poverty and achieve the Millennium Development Goals (MDG). Also, to provide relief from debt burden, the International Monetary Fund (IMF) and the World Bank (WB) decided to forgive debt to these countries. However, the Bank and the Fund wanted to ensure that these countries had the capacity both to spend this money meaningfully, and to track the actual spending at the lowest level. Hence improvements in PFM systems in these countries was an essential part of debt forgiveness initiative.

In this paper on PFM and Fiscal Outcomes In Heavily Indebted sub Saharan African (SSA) Countries, we try to determine the effect of PFM systems on key fiscal outcomes such as budget balance and overall debt. We use data from two PFM assessments by the IMF and the World Bank in 2000 and 2004 as a part of the debt forgiveness exercise for this group of 22 countries in SSA.

PEFA Training in Perspective

Posted by Franck Bessette, PEFA Secretariat

The PEFA Monitoring Report 2007 extensively documented a substantial increase in the overall quality of the PEFA performance reports. This trend has continued, contributing to a wide recognition of the PEFA Framework as the core assessment tool adopted in more than 90 countries for PFM performance measurement and reform monitoring.

The partners of the program were convinced from the start that only high quality assessments of PFM performance could lay the basis for a pool of information on PFM reform that would be shared by the donor community and the partner governments. Training has been considered, since the launch of the PEFA Framework in June 2005, as one of the main pillars of this quest for quality, along with a solid mechanism for report reviews, involving all stakeholders and the PEFA Secretariat. For this reason, a training strategy was prepared by the program and approved by the PEFA Steering Committee. This post would like to give a short overview of this PEFA training activity and some insight into its near future.

IMF’s 8th Debt Managers Forum--Warsaw--July 14-15, 2008

Posted by Brian Olden

The IMF’s Debt Managers Forum, sponsored by the Fund’s Monetary and Capital Markets Department took place in Warsaw on July 14- 15 2008. The National Bank of Poland and the Polish Ministry of Finance acted as co-hosts of the conference (and did an excellent job by the way). The Deputy Managing Director of the Fund, Mr. Murilo Portugal, also attended and chaired the opening session. The conference was well attended by participants from 30 emerging and mature market economies as well as some private sector representatives.

The opening session focused on the global economic and financial market outlook. Consensus opinion from both private and public sector representatives was that claims advanced by some commentators that Emerging Market Countries (EMCs) were decoupling from advanced economies were, greatly exaggerated and that problems in advanced economy financial markets, coupled with the rising trend in inflation, posed considerable risks to the stability of most EMCs.

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.

Public Expenditure and Financial Accountability (PEFA) -- Part 2

Posted by Bill Dorotinsky

In an April 21, 2008, post, we described the origins of the PEFA framework, with a promise to blog about the framework itself. This post provides a brief overview of the assessment framework and indicator set.

The authoritative reference for the PEFA indicators is the PEFA Public Financial Management Performance Measurement Framework handbook, available in English, French, Spanish, Portuguese (Brazilian and Continental), Russian, Ukrainian, and Arabic.

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.

Budget Reform in Greece – A Practical, Phased Approach

Posted by Dick Emery

The current government of Greece came into office in 2004, inheriting a budgeting and fiscal reporting system that were among the less reliable, less transparent and less effective in Europe. Greece had over the years received criticism on this by the EU, Eurostat, the IMF and the OECD. The new government accepted the challenge of improving its budget management and reporting system and launched several reforms. During 2005/2006, the IMF reviewed the Greek budget system and developed recommendations for a broad agenda of reform. The IMF prepared a report on transparency issues and one on budget management reform. These reports presented both the “before” and the “after” situation, capturing the challenges facing Greece as it moves toward a modern budget system, as well as a roadmap for implementation.

Since the IMF reports, the government has established two offices to pursue the reform agenda in accounting and budgeting. As a first step, it developed a prototype program budget which was included in the Budget for 2008. The Greek government invited the OECD in 2007 to undertake a peer review of its budget system which was presented to the OECD Working Party of Senior Budget Officials (SBO) this June. Working with the OECD, the government has developed an action plan for reform to serve as its road map for its budget reform efforts. This article reviews the reform agenda and the development of the action plan.   

Exploring Performance-Based Budgeting in Poland

Posted by Bill Dorotinsky

Performance-based budgeting is a reform we see a great deal of interest in across the globe, from low-income through middle and upper-income countries. Approaches differ by country, and it is hard to say the public financial management profession has yet reached a stage of agreeing on 'good practice.' But active lesson-learning is underway. In a July 2, 2008, blog post, we highlighted an international conference in Mexico City (see Performance Budgeting Reforms Gather Pace in Latin America) and in a July 16, 2008, blog post, "Performance Information for Performance Budgeting," we shared a presentation from that conference.

A reader brought to our attention a performance-budgeting conference hosted in Poland last November (2007), and we thought this worth sharing. A summary of the conference can be found at the World Bank's website, including the agenda and links to presentations.

The conference included valuable country case study presentations, including Poland, Slovakia, The Netherlands, Chile, Canada, the United States, New Zealand, France, Latvia, Turkey, and Bulgaria (most presentations are available on the website link above). A valuable wrap-up session by our own Marc Robinson highlighted issues for "Making Program Budgeting Work."

Implicit Contingent Liabilities May Be Costly for the United States—New CBO study

Posted by Ian Lienert

In many countries, the true financial position of the public sector is obscured when there are off-balance sheet items that pose a threat to fiscal sustainability. Although there is increasing awareness of the potential budgetary consequences of contingent liabilities, “hidden deficits” have reared their ugly heads in a number of countries, resulting in unexpected government expenditure. Contingent liabilities can be explicit or implicit. Whereas the former are based on contracts, laws or clear policy commitments, the latter are political or moral obligations that arise from the expectation that the government will step in when the cost of not intervening is considered to be unacceptably high. The evidence suggests that implicit contingent liabilities can be particularly costly for government budgets.

In the United States, the mortgage-related financial crisis has activated the implicit contingent liabilities of the federal government. In particular, the implicit guarantee to bail out Government-Sponsored Enterprises (GSEs) involved in mortgage financing has recently been triggered. Although privately-owned, the U.S. federal government has proposed to provide temporary authority to the Secretary of the Treasury to purchase any amount of obligations and other securities issued by three GSEs, two of which are commonly known as Fanny Mae and Freddie Mac. The Congressional Budget Office (CBO) has estimated that the probability-weighted cost of the bail-out could be $25 billion in the next two years. The uncertainty in the estimates is high: the CBO study indicates that under optimistic assumptions there may be no cost to the federal budget; at the other extreme, there is a 5 percent chance that the cost could exceed $100 billion.

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.

Empirics of Governance -- World Bank Seminar

Posted by Bill Dorotinsky

On May 1 & 2, 2008, the World Bank hosted a conference on the Empirics of Governance. Governance is a popular topic, and the seminar took stock of the theoretical underpinnings of governance research and measurement, practical experience in measuring aspects of governance, and good practices and lessons in developing and applying indicators.

The conference agenda can be downloaded here [Download Agenda-GovernanceSeminar.doc ].

The IMF FAD (Bill Dorotinsky) presented in Session II on the Public Expenditure and Financial Accountability (PEFA) indicators (see our April 21, 2008 post). The presentation can be downloaded here [Download Dorotinsky.ppt ]

Other sessions of particular note for PFM aficionados were

• Session III on Corruption measures, and
• Session VI on Anti-corruption, Budget and Public Financial Management.

The World Bank recently made videos of the seminar available via its B-Span network.

Increase in Food and Fuel Prices---Macroeconomic Impact and Policy Responses

Posted by Christian Schiller

In my PFM Blog posting of June 18, 2008, I reported that the IMF was working on the impact of higher oil and food prices. Now the IMF has released two comprehensive studies and presented them to the public on July 1, 2008 in Washington D.C. The presentation was introduced by the IMF’s MD, Dominique Strauss-Kahn; five IMF senior staff members summarized the work done by the IMF staff and answered questions.

One study is a broad assessment of the impact of the surge in food and fuel prices on the balance of payments, budgets, prices and poverty in a large sample of  (roughly 150) countries. The other study is a country-by-country assessment of the implications of the price shocks for the balance of payments in sub-Saharan Africa. Both studies are available at the IMF’s web site (click links above).

Performance Budgeting Reforms Gather Pace in Latin America

Posted by Marc Robinson

Performance budgeting reforms are being pursued with impressive vigour in Latin America today. This was made very clear to the thousand or so participants from 41 countries who attended an International Conference on Performance Budgeting held Mexico City on June 9-10, 2008. The conference heard in detail about developments in Mexico, Colombia, Brazil, as well as in various OECD countries outside the region.

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).

Mozambique’s Encouraging Progress on Fiscal Transparency

Posted by Teresa Dabán

In May 2008, the IMF published, on its external web site, a reassessment of Mozambique's fiscal transparency—i.e. a completely updated Report on the Observance of Standards and Codes- Fiscal Transparency Module ("fiscal ROSC"). The overall conclusion of the report is encouraging: although several weaknesses remain, Mozambique’s fiscal transparency has improved significantly since the first fiscal ROSC conducted in 2001. Aside from this positive result, Mozambique’s fiscal ROSC reassessment is of special interest and relevance. Why? Because (i) it has been one of the few fiscal ROSC reassessments conducted since the Fund’s fiscal ROSC was launched; (ii) it shows how the Fund’s technical assistance (TA), in close coordination with donors, contributed to improve fiscal transparency; (iii) it was conducted in close coordination with the PEFA Re-Assessment; and (iv) it provides guidance on how to strengthen transparency of future resource revenues.

Modernizing Public Financial Management in Indonesia

Posted by Bill Dorotinsky

On May 26, 2008, the Indonesian Ministry of Finance hosted an international conference on “Budgeting for Performance – Modernizing Public Financial Management in Indonesia.” The one-day event was sponsored by APIK (the Association of Public Financial Management Professionals Indonesia), the Indonesian Parliament, OECD, European Union, Royal Netherlands Embassy, World Bank, and IMF.

The event featured Indonesian public financial management (PFM) practitioners sharing their experience of and vision for PFM reform in Indonesia, as well as international experts offering broader lessons. The keynote address was delivered by the Indonesian Minister of Finance, H.E. Sri Mulyani Indrawati, presenting her vision for a performance-oriented budget system.

The event highlighted the many PFM reforms underway in Indonesia. Among the major reforms are:

• medium-term expenditure framework, including macrofiscal framework
• program and performance budgeting
• modernizing the treasury system, including a financial management information system

A host of other measures are also underway, to support these larger reforms, including:

• unification of the planning and budgeting processes
• revised chart of accounts and budget classification
• new treasury processes
• improved internal and external auditing

Also addressed were some of the challenges that lay ahead, not least of which are maintaining reform momentum and keeping the various components balanced as the reforms move forward.

A summary of the event, including access to the agenda and presentations, is available on the World Bank's Indonesia country office web site.

Ian Ball (IFAC CEO) Visits the IMF to Discuss the Role of Accrual Accounting in Government Financial Reporting and Fiscal Management

Posted by Abdul Khan

“Accrual concepts are fundamental to both Economics and Accounting” said Mr. Ian Ball, the Chief Executive Officer (CEO) of the International Federation of Accountants (IFAC), the worldwide organization of the accountancy profession. In a well attended and lively seminar of Fund and World Bank staff on Thursday, May 23, Mr. Ball argued that accrual based accounting provides better information, be it to assess the impact of the public sector on the economy, enhance transparency to citizens or tax payers, or facilitate management decisions on resource allocation.

Mr. Ball explained the organization and role of IFAC, with particular emphasis on its work through one of its Boards, the International Public Sector Accounting Standards Board (IPSASB), which develops standards for use by governments in preparing their financial statements. More than seventy countries have agreed processes or have a project in place to adopt or align with IPSAS. In addition, IPSAS have also been adopted by international bodies such the UN system, OECD, the European Commission, and NATO, Mr. Ball said.

Bridging HIPC and PEFA: Progress in PFM Reforms in 15 Countries, 2001-2006

Posted by Paolo de Renzio

In two previous blog posts of December 10, 2007 and April 21, 2008, Bill Dorotinsky explored the background, rationale and results of the joint World Bank-IMF HIPC AAP (Assessment and Action Plan) instrument, and provided a brief history of the origins of the Public Expenditure and Financial Accountability (PEFA) approach.

The two approaches are clearly linked to each other (the PEFA Performance Measurement Framework draws and builds on many of the HIPC AAP indicators), and share the common objective of providing a reference framework for assessing the quality of PFM systems in developing countries. While the PEFA framework has now come to be generally accepted as the overall assessment tool for this purpose, therefore replacing the HIPC AAP instrument, comparing the two and bringing together their complementary information can shed light on progress in PFM reforms across countries while the PEFA framework is still being rolled out.

A recent paper, "Tracking Progress in the Quality of PFM Systems in HIPCs: An update on past assessments using PEFA data", supported by the PEFA Secretariat has attempted to do just that, bridging the two approaches in order to track progress in the quality of PFM systems in poor countries. Using the original HIPC indicators as a basis, information contained in PEFA assessment reports was "retro-fitted" onto 11 of the 16 indicators, for the 15 countries for which both HIPC AAP assessments in 2001 and 2004 were carried out, followed by a PEFA assessment in the period between 2005 and 2007 (Benin, Burkina Faso, Ghana, Guinea, Guyana, Honduras, Madagascar, Malawi, Mali, Mozambique, Nicaragua, Sao Tome and Principe, Tanzania, Uganda and Zambia). The results are provided by country either in terms of benchmarks met or of underlying raw scores, which permit a more detailed analysis.

Exchanging experiences and learning from others: PEM PAL approach

Posted by Urska Zrinski, CEF PEMPAL Secretariat

PEM PAL, the Public Expenditure Management - Peer-Assisted Learning (PEM-PAL) network, is a network of public expenditure management professionals from countries in Central and Eastern Europe (CEE), and Central Asia. The initiative, which was conceptualized in 2005 by the World Bank and the United Kingdom’s Department for International Development, represents an effort to develop capacity and share reform experiences among countries in CEE and Central Asia. At the beginning of 2008, the PEM PAL secretariat has been moved from the World Bank’s headquarters in Washington DC to the Center of Excellence in Finance, Slovenia, thus bringing the network closer to the region. (See a January 25, 2008 blog post for more on the Center.)

Post-conflict PFM -- IMF Lessons of Experience

Summary of lessons from FAD support

Posted by Bill Dorotinsky

The challenges of rebuilding fiscal institutions in post-conflict settings are daunting. An April 23, 2008, post summarized some lessons from USAID experience. The IMF Fiscal Affairs Department (FAD) has been directly involved in rebuilding fiscal institutions. Work done in 2004 summarized FAD's experience and some key lessons --- lessons reinforced by the recent USAID paper.

FAD experience was summarized in a 2005 Occasional Paper 247, Rebuilding Fiscal Institutions in Postconflict Countries, by Messrs. Gupta, Tareq, et. al. The work draws on background papers prepared in 2004, including a December 2004 paper "Rebuilding Fiscal Institutions in Post-Conflict Countries," and October 2004 case study summary Background Paper for "Rebuilding Fiscal Institutions in Post-Conflict Countries" (both available electronically).

Fragile States, PFM and Whole-of-Government Approaches

..... there's a mouthful....

Posted by Bill Dorotinsky

On March 17-18, AusAID and the French Cooperation Agency, under the auspices of the OECD DAC, hosted a Conference on Whole-of-Government Approaches to Public Financial Management in Fragile States in Paris. The conference was a working session to explore the linkages between these three concepts. The IMF Fiscal Affairs Division attended, and spoke on PFM reform lessons for fragile states.

What is a Whole-of-Government Approach?

The whole-of-government approach concept is not well understood. Most attendees understood the concept to mean whole-of-recipient country’s government (a holistic approach to reform), when the concept as advanced is whole-of-bilateral donor government. 

The basic idea is simple -- a bilateral donor brings together expertise from across it's government to provide advisory support in fragile states, spanning issues of security, health, education, etc.  At an extreme, a bilateral donor might provide in-kind support (e.g. civil servants from their government) to prevent state failure. Bilateral donor civil servants from health, education, treasury, and perhaps even police and defense, are sent to work in the respective host country ministry. In this context, whole-of-government means literally assistance from all parts of the bilateral government, ‘embedded’ in the recipient country administrative apparatus, either in an actual operations role or an advisory or capacity-building role.

Developing Debt Management Capacity

IMF/World Bank Debt management initiatives for Low Income Countries

Posted by Brian Olden

In May 2007, a  Joint IMF/World Bank Board paper on strengthening debt management practices was approved by the Boards of the two institutions.  This paper attempted to identified the key lessons learned by country authorities government in trying to develop their debt management capacity following the financial crises of the 1990’s. More importantly, the paper attempted to identify how these lessons could be leveraged to assist lower income countries (LIC’s) to develop their debt management capacity.

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.

Debt Management Stakeholder’s Conference – Oslo, Norway – March 5-6, 2008

Posted by Brian Olden

A Debt Management Stakeholders’ Conference, organized by the World Bank and the Norwegian Ministry of Foreign Affairs, was held in Oslo on March 5-6, 2008. It was attended by over 100 delegates including country authorities, donors, and the main technical assistance service providers in low income countries (LICs). The Norwegian Minister of the Environment and International Development was the keynote speaker at the event.

Cash management -- IMF Technical Guidance Note

Posted by Ian Lienert

Do you manage your own cash well? Can you always pay your bills on time? Do you borrow unnecessarily? Do you have balances in bank accounts that are not receiving the best interest rate? Just as individuals are concerned about managing their cash well, so are governments. In practice, however, not all governments manage cash well. Some countries have unremunerated balances in thousands of bank accounts, yet at the same, they are borrowing from domestic or external creditors at market interest rates. Commercial banks and other purchasers of government bonds are very happy with such arrangements.

A new IMF FAD Technical Guidance Note on Cash Management, prepared by Ian Lienert of the Fiscal Affairs Department, explores how countries can improve their cash management practices and eliminate some of the inefficiencies in current practices. [Download cash_management_guidance_note__lienert_.pdf ]

A Hitchiker's Guide to Budget Classification....

... or how to recognize a budget classification from quite a long ways away.

Posted by Jean-Luc Helis and Davina Jacobs

Why should countries care about budget classification? Who cares about budget classification? These questions appear at first glance to be of concern only to economists doing research on public finance and budgets or to officials in the ministry of finance in a country. However, everyone-from members of parliament or congress and yes, also the proverbial "man in the street", should be interested in budget classification. Properly defined revenues and expenditures give us information on the intimate workings of the budget and government. Do you want to now how much was spent last year on education? Or health? How much company income taxes were collected by the government? To get the answers to these questions, the budget has to be appropriately classified.

Capital Budgeting and Public Financial Management -- Part II

A primer on systems and issues: Capital Budgeting Process

Posted by Bill Dorotinsky

The previous post of February 20,2008, discussed capital budgeting in the context of the over-all PFM system, and addressed defining capital and measuring some aspects of efficiency and effectiveness. This post focuses on the capital budgeting process itself, again drawing directly from a 2006 World Bank Public Expenditure Review for Ukraine.