Medium-Term Framework

October 15, 2013

A PFM View of the New French “Loi Organique”

Posted by Benoit Chevauchez[1]

France is now equipped with a fiscal rule. The organic budget law adopted last December[2] was the French government’s response to the obligations set out in the European Treaty on Stability, Coordination and Governance (TSCG) signed in March 2012. The Treaty resulted from a process initiated in December 2011 by the European Council, in the wake of the euro crisis. The basic idea of the Treaty is that “Euro zone countries” should adopt national fiscal rules in order to integrate in their own legislation the Maastricht principles of fiscal discipline that are set out in the European treaties.

Before the new treaty was ratified, the French national budget law did not address issues of fiscal sustainability. The French Constitution of 1958 was silent in this regard, even if an amendment adopted in 2008 had introduced the concept of “budget balance over the medium term”, but only as a theoretical principle without any operational impact. Similarly, the 2001 LOLF (loi organique relative aux lois de finances), and its predecessor the 1959 Organic Ordinance, wholly ignored sustainability issues.

In practice, France has had a rather modest record in terms of fiscal sustainability: its EU stability programs have seldom been respected, its macroeconomic assumptions have been frequently optimistic, and its debt level has steadily increased up to 90 percent of GDP. Thus, for France, the adoption of the new organic law (OL) is an important initiative, that might also mark a turning point in its fiscal tradition.

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December 17, 2012

Towards Better Public Expenditure Management: Experience Across Asia

Posted by Suhas Joshi  and Greg Smith

Despite heavy snowfall, government officials from mostly warm countries landed in Seoul for a high-level conference on how to improve public expenditure management (PEM) in the region. The event convened member nations of the Public Expenditure Management Network in Asia (PEMNA). The network, launched in June 2012 in Bangkok, provides opportunities for practitioners across the region to share knowledge and experiences in implementing PEM reforms. PEMNA is modeled on the PEMPAL network that has been operating successfully in central and eastern Europe for several years.

PEMNA comprises two communities of practice (CoPs). The budget CoP is managed by the World Bank, and the Treasury CoP by the IMF. PEMNA’s Steering Committee provides strategic oversight and governance. The Korea Institute of Public Finance (KIPF), a research and training institute associated with the Korean Ministry of Strategy and Finance, provides the secretariat for PEMNA and the two CoPs, and is supported in its work by development partners including the World Bank, AusAID, the IMF, and the OECD.

The demand-driven nature of the network allows members to focus dialogue on solving practical implementation issues.  By sharing common experiences and benchmarking performance with peers, members are able to deepen their understanding of the reform process. Across the budget and treasury areas members recognize that they cannot rely on theory alone and that the cross-fertilization of ideas is essential for the successful design and implementation of reform.

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December 12, 2012

MTEF: Better Than Sliced Bread?

Posted by Richard Allen

Richard Hemming is a co-author of the World Bank’s recently published Beyond the Annual Budget: Global Experience with Medium-Term Expenditure Frameworks. In this conversation with Richard Allen, he talks about the book, the analytical work carried out, and the policy implications.

RA: You are one of the authors of this book. What was your specific role in preparing it?

RH: The team that worked on the book was large. Jim Brumby was the team leader and I was the lead consultant. We were the only people involved in all aspects of the work for the duration of the project. My main roles were to provide guidance on the overall approaches to the book’s analysis, to contribute to some of the analysis, to coordinate the drafting of the book, and to write a significant part of it. The only two areas in which I was not extensively involved were the detailed econometric analysis, for which we put together a really accomplished team, and the assessment of Bank advice on MTEFs. Overall, the book should be viewed very much as a team effort.

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December 14, 2011

Ho, Ho, Ho……..Strategic Budgeting is here!

Posted by Martin Bowen

Straight from the North Pole a new, promising approach to budget planning is discussed by CARTAC advisor Martin Bowen that could help countries with limited resources and capacities get a grip on their public finances using elements of more advanced and complex reforms usually only seen in advanced economies.  

Caribbean countries have been hit particularly hard by the downturn in US economic activity following the global recession. The resulting decline in revenues has seen a dramatic deterioration in the fiscal balances of many of these countries leading to significant increases in borrowing and debt. Countries have recognised that the level of their fiscal deficits and borrowing is not sustainable in the longer term and that correcting fiscal imbalances requires strong measures both on the revenue and expenditure side. In support, the IMF’s regional technical assistance (TA) centre in the Caribbean (CARTAC) has been providing extensive TA to member countries across a range of PFM areas including macroeconomic analysis, revenue forecasting, budget planning and preparation and treasury management.  

In particular, over the last two years, CARTAC has assisted a number of countries to develop and implement revised budget planning processes that support both strengthened fiscal discipline and better value for money from the increasingly scarce budget resources available. The approach to reform has focused on getting the basics right first. Traditional approaches to budget reform – multiyear budgeting, output based and accrual budgeting – have been particularly difficult to implement in developing countries and the development landscape is littered with failed reform strategies. This post suggests that a major reason for this failure is that, too often, development partners have attempted to transplant developed countries’ sophisticated budget management processes and systems into countries with very limited resources and within unrealistic timeframes.  

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October 03, 2011

Budget Institutions Supporting Fiscal Consolidation

Posted by David Nummy

Countries around the world are struggling to devise the policies that will best address the challenges resulting from the financial crisis. In a book to be issued by the Fiscal Affairs Department of the International Monetary Fund, the case is made that key budget institutions will be necessary to both devise and execute those policies.

Previewing the book that will be issued later this year, Marco Cangiano kicked off the International Consortium on Governmental Financial Management (ICGFM) fall season by presenting on Budget Institutions for the 21st Century at the monthly DC Forum held at the Carnegie Endowment for Peace in Washington, DC on September 7, 2011. Mr. Cangiano, an Assistant Director of the IMF Fiscal Affairs Department, outlined ten budget institutions that will be key to countries around the world in addressing the challenges of dealing with the post-financial crisis environment in the three typical phases of a fiscal consolidation (but the same would apply in designing a stimulus package): understanding the fiscal challenge; developing a strategy; and implementation of the strategy though the budget process.

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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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July 11, 2011

Kazakhstan Hosts a Regional Workshop on Macro-Fiscal Forecasting and Medium-Term Budgeting

Posted by John Zohrab, FAD regional PFM advisor for Central Asia

The IMF’s Fiscal Affairs Department (FAD) and the Kazakhstan Ministry of Economic Development and Trade (MEDT) recently jointly hosted a regional workshop on macro-fiscal forecasting and medium-term budgeting issues. It was co-financed by the Government of Japan, through its technical assistance program Safeguarding Financial Resources in Central Asian Countries (JSA Program), and the MEDT.

The workshop took place in Almaty May 26-27, 2011. Representatives from Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Russia, Tajikistan, Turkmenistan and Uzbekistan participated in the workshop. They were mainly department and division chiefs from ministries of finance, ministries of economy, and economic research institutes under the ministries.

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May 31, 2011

Conference on Fiscal Consolidation and Budget Institutions in South Asian Countries

Posted by Tej Prakash

The IMF’s Fiscal Affairs Department (FAD) and the Indian National Institute of Public Finance and Policy (NIPFP) recently hosted a joint conference on fiscal consolidation and strengthening of budget institutions in South Asian countries. The main “institutions” discussed were fiscal responsibility frameworks, fiscal councils, and medium term budget frameworks.

The conference took place in New Delhi from April 21-22, 2011. Apart from senior budget officials and policy makers from the central and state governments of India, representatives from Bangladesh, Sri Lanka, Nepal, Bhutan, Afghanistan and Maldives participated in the conference.

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December 28, 2010

Earmarking in Central American Countries

Posted by Juan-Ramon Ruiz

Earmarking is a very common PFM practice in Latin American countries. In Central America it has caused extensive problems for the management of public resources. Earmarking is the practice of assigning revenue, generally through statute or constitutional clauses, from specific taxes or general revenue, to specific government activities or areas. Earmarks are often defined as fixed percentages of general revenues or GDP. In Central America earmarks are used to finance areas like education, road maintenance and sports, but also to assign resources to autonomous entities, such as the judiciary, universities and local governments. The base used to determine earmarks in these countries is usually linked to internal revenues, or the amount collected from certain taxes, as the Value Added Tax,  taxes derived from petroleum, sin taxes (on alcohol and tobacco), or gaming taxes. The table below presents an overview of important earmarks in a number of Central American countries, including the share of the budget which is determined by earmarks.   

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September 15, 2010

Now that’s Fiscal Policy, Mate!

Posted by Jason Harris[1]

Australia has one of the strongest fiscal positions in the developed world, with the budget projected to return to surplus in 2012, and net debt projected to peak at 6% of GDP. [2] The relative consensus between the main political parties on the long-standing medium-term fiscal strategy has played a key role in delivering these outcomes. The strong starting position ahead of the global fiscal crisis has given Australia the flexibility to engage in relatively aggressive stimulus policies, without endangering long-term sustainability.

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September 03, 2010

A New PEFA Drill-down Diagnostic Emerges

Posted by Holger van Eden and Duncan Last

The World Bank recently published a diagnostic framework for assessing public investment management systems. The diagnostic can be seen as a “drill-down” exercise building on the PEFA (Public Expenditure and Financial Accountability) framework, which has become the main PFM diagnostic in the developing world. While PEFA gives a general overview of the strengths and weaknesses of the PFM system of countries, it often provides insufficient guidance for the design of concrete TA reform programs. Such limitations are evident, for example, in the procurement area which is covered in the PEFA by just one indicator. It is also true for many other parts of the PFM system such as MTEF, treasury management, and internal audit, where further work is required, post-PEFA, to identify specific shortcomings in the existing sub-system that need to be corrected. Of course, the PEFA was always intended as broad diagnostic. The question is should further in-depth diagnostics be developed on the basis of indicator systems or not. Indicators always give only a partial impression of processes and institutions, and can be quite cost intensive to monitor in a consistent way across countries. As one drills down into institutional architecture differences between countries are usually magnified. Descriptive analysis could perhaps provide a richer basis for reform planning and be more focused on the country in question. On the other hand indicator systems have obvious benefits for cross-country analysis, and identifying good practice approaches.

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September 01, 2010

Budget Reforms in Uganda: From Vision to Reality - A Personal Account

Posted by Florence Kuteesa[1]

When the Ugandan ministries of Finance (MoF) and Planning and Economic Development (MPED) were merged in 1998, a new department, Budget Policy and Evaluation, was created within the Budget Directorate. The department was mandated to coordinate the budget preparation process, and also introduce output-oriented budgeting within a medium-term perspective. I was appointed as the head and charged with the onerous tasks of establishing the new department and coordinating the desired reforms. Coming from the former MPED and with limited knowledge of the operations of the MoF, I was initially skeptical about the assignment. However, I chose to take “the bull by the horns” and enthusiastically took up the assignment.

I started from a humble beginning with a team of eight reform-minded staff, deployed from both ministries. This “dream team” (as it was later called) was comprised of individuals who had extensive technical competence and exposure in budget matters. The team was therefore eager to deal with the numerous challenges, including: inadequate coordination of budget processes within MoF and line ministries, and overly lengthy line-item based budget discussions. More often than not these processes complicated the decision-making process.

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August 04, 2010

Sustainability Reporting: Can the Triple Bottom Line Thrive in the Public Sector?

Posted by Dimitar Vlahov

It’s common knowledge that today’s global economy is facing multiple challenges and imbalances. From the recent financial crisis, to concerns about distribution of wealth, to the ever-more-dangerous clashes between economy and environment, there are many reasons to pause and examine the whole system. Some experts have suggested that a large chunk of this ill condition can be attributed to the same cause – the problem of bad performance measurement. Businesses and governments alike, the argument goes, have been employing short-sighted measures of success that do not account for all medium- and long-term consequences of their organizations’ activities. Therefore, they need to expand their reporting to include social and environmental indicators of performance, and not just financial ones. With a better warning system, many of the present-day issues could be mitigated or avoided altogether. This post serves as a basic introduction to this approach and its main applications to date.

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May 26, 2010

Prioritizing PFM Reforms: A Robust and Functioning Accounting and Reporting System is a Prerequisite

Posted by Sanjay Vani, Lead Financial Management Specialist, World Bank 

Much has been written about prioritizing and sequencing PFM Reforms, including Allen Schick’s often-quoted 1998 article, Why Most Developing Countries Should Not Try New Zealand's Reforms.  While working on the OECD-DAC Report on the Use of Country Systems in PFM a year or two ago, I was struck by how much more we know about what does not work than about what does work. For example, almost all PFM professionals would agree that introducing a medium-term budget formulation or performance budgeting in an environment of poor budget execution is not likely to be effective; and attempting performance audit without agreed performance benchmarks and proper systems to record and track performance is equally unlikely to be effective.

Here I would like to develop a hypothesis that, I am convinced, deserves serious attention from the community of PFM professionals. The hypothesis is this:  NO significant PFM reforms are likely to succeed unless a robust and functioning accounting and reporting system is in place.  In other words, a robust and functioning accounting and reporting system is a prerequisite to other PFM reforms.

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January 30, 2008

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

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

Nl 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

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January 29, 2008

David Walker (GAO head): The USA is Living beyond its Means -- Difference between Accrual and Cash

Posted by Michel Lazare

The YouTube video below is a presentation on long-term fiscal issues in the US made by David M. Walker, the US Comptroller General and head of the U.S. Government Accountability Office (GAO)

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January 09, 2008

France improving its medium-term budget framework

Posted by Ian Lienert

FranceMany developed and developing countries are struggling to implement or improve their medium term expenditure frameworks (MTEFs) to elaborate on a government’s sectoral spending objectives. In April 2007, l’Inspection Générale des Finances (IGF), a high-level government body under the Ministers of Economy/Finance and of Budget/Accounts, published a report (in French) analyzing France’s a medium-term budget framework (MTBF), making recommendations for strengthening the framework.

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December 24, 2007

Are we asking the right questions? -- Embedding a Medium-Term Perspective in Budgeting

CABRI annual seminar brings together African Budget Directors

Cabri_logo

Posted by Ian Lienert

During December 13–15, 2007, the 4th annual seminar of the Collaborative African Budget Reform Initiative (CABRI) was held in Accra, Ghana. The conference brought together high-level budget officials from 23 CABRI member countries, including Egypt for the first time. The conference theme was “Are we asking the right questions? -- Embedding a Medium-Term Perspective in Budgeting.”  Read on to review the five sessions of this year’s conference.

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December 12, 2007

Automating Public Financial Management Systems for Results

Posted by Bill Dorotinsky

Over the past few decades, governments and development agencies alike have invested enormous financial and human resources into automating public financial management (PFM) systems, and often the results have been less than hoped. Governments have had difficulty implementing systems, and not achieved desired functionality. And development partners have invested large sums of money, only to find systems delayed in implementation, having limited impact, and often with real challenges to the sustainability of the systems. On December 2-4, 2007, the International Consortium of Governmental Financial Management (ICGFM) held a two-day workshop entitled "Use of Financial Management Information Systems (FMIS) to Improve Financial Management and Accountability in the Public Sector".  While the conference title and topic might cause eyes to glaze over with visions of technical issues, the conference was a useful glimpse into current thinking on PFM system automation, and full of practical advice to those concerned with PFM system automation.

Conference presentations from government authorities, international organizations, and consultants covered topics such as how FMIS fits within the over-all PFM reform agenda, planning for FMIS development, FMIS design components, IT alternatives, project management, procurement, and capacity building. The conference program and all the presentations made are available on-line at the ICGFM website under Winter Conference.

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November 26, 2007

PFM Reforms and Public Expenditure Efficiency: Key PFM Reforms Playing a Role in Effectively Controlling Public Expenditure

Posted by Michel Lazare

There are seven key institutional arrangements for budgeting that play a key role in effectively controlling public expenditures in OECD countries.

This is at least the view presented in 2005 by Jon Blondal (the then Acting Head of the Budgeting and Management Division of the OECD) on the occasion of the 7th Banca d'Italia Workshop on Public Finance. In Jon Blöndal's view, there are three major determinants of the fiscal outcomes of OECD member countries: (1) the general performance of the economy (which is the main driver), (2) the political commitment to fiscal discipline, and (3) the institutional arrangements for budgeting. The presence of the two first factors being insufficient to experience a successful fiscal outcome.

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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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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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October 12, 2007

Sweden’s New Fiscal Council – helping assure credible fiscal policy

Swedenflag_3 A lively debate about the government’s fiscal policies and the state of public finances puts pressure on transparency and the credibility of budget documents. On August 1, 2007, the Swedish Government set up a Fiscal Council (Finanspolitiska rådet) to provide an independent scrutiny of fiscal policy, promote active public debate, and strengthen the credibility of fiscal policy. The case for strengthening independent review of economic forecasts and fiscal policy has received increasing attention in the past years, and the Swedish initiative may with time provide valuable insight to the effectiveness of such institutions.

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September 27, 2007

New Pacific Assistance Center Publication on Medium-Term Public Finance Frameworks

The IMF-managed Pacific Finance Technical Assistance Center  (PFTAC) recently released a publication on Medium-Term Public Finance Frameworks  (MTF). This is the first in a new series of Handbooks with the purpose to help  building capacity in the public sector for Pacific Island States.

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