Taking Stock: What do PEFA Assessments Tell Us About PFM Systems Across Countries?

Posted by Paolo de Renzio

Assessments based on the Public Financial Management (PFM) Performance Measurement Framework, developed by the Public Expenditure and Financial Accountability (PEFA) initiative, provide detailed accounts of the performance of PFM systems along various dimensions. A recent working paper published by the Overseas Development Institute (http://www.odi.org.uk/resources/download/3333.pdf) brings together the results of 57 PEFA assessments completed until August 2007. It looks at comparative cross-country PFM performance, overall and across the different budget dimensions defined by the PEFA methodology (out-turns, cross-cutting features, budget cycle), and analyses differences linked to certain country characteristics which might have an influence over PFM system performance, using both bivariate and multivariate analysis. It is based on a numerical conversion of the letter-scores used in the assessments, a methodology which can be considered controversial but which nevertheless yields some interesting results.

The Challenge of Reforming Budgetary Institutions in Developing Countries

Richard Allen was recently interviewed by the PFM Blog about his recent IMF Working Paper―”The Challenge of Reforming Budgetary Institutions in Developing Countries,” WP/09/96. The full text of Richard Allen's working paper is available by clicking on the following link: Download Wp0996[1]

Question:  What are the main conclusions of your analysis?

RA:  First, reforming public financial management is a frustratingly slow business. In developing countries, the progress of modernizing budgetary institutions needs to be measured in small steps. Major reforms such as introducing a new treasury system or a medium-term budget framework can take a decade or longer. Second, governments, donors and multilateral institutions―including the IMF, I would admit―almost always underestimate the difficulties and challenges, and overestimate the capacity of government to deliver reforms. They fail to learn from the lessons of the past.  Third, countries that are now advanced went through similar experiences when they were in the developing phase.  Some PFM reforms in these countries have taken up to two centuries to evolve from where many developing countries find themselves today, to where the developed countries are today.

www.campusgestionpublique.gouv.fr : New French Website on PFM Reforms and Related Documents

Posted by Guilhem Blondy.

A new website to inform and train French civil servants in charge of implementing  PFM reforms : www.campusgestionpublique.finances.gouv.fr

Since the constitutionnal bylaw of 2001 on budget acts, France is experiencing a comprehensive PFM reform including the introduction of performance budgeting and accrual accounting or, more recently, the implementation of a new integrated financial management information system called CHORUS.

In order to support public managers facing radical changes in their practices and improve ownership of the reform, the Ministry of Budget, Public Accounts and Civil Service launched on June 11, 2009 a new website : www.campusgestionpublique.finances.gouv.fr.

Ongoing PFM Reforms in Italy

Posted by Justin Tyson

Italy continues to progress on budget process reforms, some of which were outlined in an earlier blog entry. The reforms are geared towards correcting some of the long-standing problems in the budget process, which has been characterized as fragmented, time-consuming, and legalistic, while lacking transparency and result-orientation. The bulk of budget spending is mandatory/incremental, and governed by a plethora of laws and administrative regulations.

Moving Towards Outcome-Oriented Performance Measurement Systems

Posted by Tej Prakash.

 A recent research study on outcome-oriented performance measurement systems[1] points out that while it is easy to measure outputs, it is far more difficult to measure outcomes, especially as many public services are delivered a complex network of contracts, outsourcing, collaboration between private sector and NGOs.

The authors focus on community driven evaluation of programs that directly impact the communities. These are community indicator projects (CIP) which are housed by independent organization (NGO, etc.) and focus on high level community conditions that contribute to the quality of life rather than program specific functions. These are also unlike government performance measurement indicators which are data and indicator driven. The emphasis of CIP is on information sharing and establishing cross program links so as to get the broader picture. It recognizes that specific program may not control broader outcomes but can influence them.

Presentation of the paper entitled “Strengthening public expenditure management in developing countries: sequencing issues”

Posted by Daniel Tommasi.

In a paper entitled “Strengthening public expenditure management in developing countries: sequencing issues”, which supports a course delivered to EC officials, I reviewed the issues related to the approach to PEM reform in developing countries, focusing on sequencing issues (This paper will be available in May 2009 at http://www.capacity4dev.eu.) The aim of this course is to provide the EC officials involved in the support of PEM reform programs with elements to assess the PEM reform priorities.

South Africa: Restructuring of the Ministry of Finance: A Case Study

Posted by Davina Jacobs.

 

In a recent study of the organizational restructuring of the Ministry of Finance in South Africa since the start of the democratic government in 1994, Davina Jacobs found that four distinct phases in the transformation of the MOF in South Africa could be identified—firstly, the Department of Finance functioned separately from the Department of State Expenditure from 1994 onwards, although coordination was somewhat facilitated by having one Minister, the Minister of Finance overseeing both departments. In 1997 the Ministry of Finance was reorganized with the creation of the new Budget Office. The next phase included the merger of the Department of State Expenditure into the MOF with the creation of the so-called National Treasury and the last phase focused mainly on consolidating of all the major activities of MOF and fine-tuning some of its functions. Download Case study ZAF MOF2

 

PEFA Enters A New Phase

From the PEFA Newsletter - February 2009

By Brandon Lundberg and Frans E. Ronsholt. 

The PEFA Steering Committee met in Brussels on December 17th and 18th for its regular semi-annual meeting, with the European Commission in the rotating chair. This occasion marked the transition into a third phase of the program, which has been under preparation throughout 2008. Phase III is for a duration of three years starting January 1st 2009.

Advanced PFM Reforms in South East Europe

Posted by Eivind Tandberg.

A forthcoming IMF working paper by Eivind Tandberg and Mia Pavesic-Skerlep aims to clarify possible systemic bottlenecks to the introduction of advanced PFM reforms in the South East European (SEE) countries and propose measures to overcome these obstacles. The draft paper is available at (http://www.cef-see.org/index.php?location=1142).

Public Management Reform: should Latin America learn from the OECD?

Posted by Humberto Laudares

In a recent paper presented at a CLAD conference, Manning, Shepherd, Jurgen and Laudares explored the track of public management reforms in the OECD and Latin America countries in the last 20 years (Download OECD-LAC Public Management Reforms - 2008 - final).

The Challenge of Reforming Budgetary Institutions in Developing Countries

Posted by Richard Allen

Recently, in a paper published in the OECD Journal on Budgeting, vol. 2008/3, entitled “Reforming Fiscal Institutions: The Elusive Art of the Budget Advisor”, and in a yet unpublished paper presented to a World Bank seminar on December 19 (“The Challenge of Reforming Budgetary Institutions in Developing Countries”), I set out some views concerning the complex process of reforming budgetary institutions and public financial management (PFM) systems in developing countries.

The core idea of these papers is that the reform of budgetary institutions is an extremely slow and challenging process that has taken more than 200 years in advanced countries such as France, the United Kingdom and the United States—in a series of slow moving waves somewhat like Kondratieff cycles—and is still not completed. The reasons for this are linked to the familiar doctrine, developed by Douglass North and others, of emerging states, and the gradual transition of countries from rent-seeking states dominated by elites, to open democratic societies. Budgetary institutions and processes are a central rent-seeking and rent-providing mechanism in developing countries, and thus play an important role in this transitional process.   

Strengthening Ministries of Finance

By Bill Dorotinsky

In recent years, the World Bank and IMF have undertaken reviews of ministry of finance (MoF) organizational structure, with an eye to strengthening the operation of the ministry and putting public financial management (PFM) on a sound footing. Creating strong ministries of finance able to manage national finances can better position countries for achieving their national policies and weathering weak economic conditions. Relatively less attention has been paid to building strong ministries of finance compared to strong central banks or even strong supreme auditing institutions. However, building strong MoFs has been an area of increasing requests for international assistance, and a coherent approach is needed for the task. Leaving recommendations to individual professions, or the absence of a framework for review, often means fragmented advice and ministries.

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

By Lubin Doe

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

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

Poland Pushes Ahead With Performance Budgeting

By Marc Robinson

Poland is on the path towards performance budgeting (PB). This was the key message to emerge from a conference on Performance Budgeting—Prospects for Poland which was held by the Polish Ministry of Finance in Krakow on 2-3 October. The conference was attended by hundred of delegates from Polish ministries. They were joined by international guests who outlined developments in France, the USA, Canada and Denmark. I represented the IMF, and made a presentation (Download M.Robinson.pdf) on the relationship between PB, medium-term budgeting and strategic planning.

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.

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.

Does Public Sector Efficiency Matter to Growth? Some New Evidence

Posted by Francois Michel

In a recent paper published in Public Choice, Konstantinos Angelopoulos, Apostolis Philippopoulos and Efthymios Tsionas provide a welcome addition to the empirical growth literature by enlarging the traditional focus on fiscal size to introduce measures of public sector efficiency. Two such measures of public sector efficiency are used.

The first one follows the “output-to-input” (or, as it might be more appropriately denominated, outcome-to-input) approach used by Afonso, Schuknecht, and Tanzi in two famous papers ("Public sector efficiency: an international comparison," Public Choice Volume 123, Number 3-4, June 2005; and "Public Sector Efficiency: evidence from new EU members states and emerging markets," ECB Working Papers number 581, January 2006) governements’ socio-economic outcomes are related to resources used, proxied by public sector spending, for major functions—limited by data availability, in the article’s case, to four basic roles of administration, education, infrastructures, and economic stabilization. The sample consists of 64 developed and non developed countries during four five-year periods between 1980 and 2000.

The second measure of government efficiency to which the model is applied is obtained by applying a stochastic production frontier approach as discussed in Lovell and Kumbhakar’s book (2000). The sample consists here of yearly data between 1995 and 2000 for 52 countries.

Extending Research on Corruption to Specific Features of PFM Systems

Posted by Francois Michel

If one wanted to summarize briefly how research on corruption has evolved in recent years, one could say that it has made progress in four different areas:

• The search for determinants of corruption and its transmission mechanism to growth and the exploration of linkages between corruption and other economic—GDP per capita, capital flows, aid, income distribution, inflation, etc.—or political variables. This is often achieved through panel data analyses;
• The improvement of transparency indexes—see Daniel Kaufmann and Aart Kraay’s recent article on "Governance Indicators: Where Are We, Where Should We Be Going?";
• Efforts to leverage insights from the corruption literature into sectoral, country-specific reform plans, and that have formed the core of the World Bank’s strategy in recent years. As the Bank’s recent flagship publication on corruption makes clear, public financial management reform are instrumental in tackling corruption;
• New microeconomic models explaining how corruption can originate in auctions of procurement contracts—e.g. on allowing ex-post collusion opportunities between the bureaucrat and one bidder.

An Apparent Paradox? What the Political Economy Literature on Fiscal Institutions Could Say about Second Generation PFM Reforms

Posted by Francois Michel

Research on the political economy of fiscal institutions has made considerable progress in the past two decades, with numerous contributions from major economists including, among others, Douglas North, Alberto Alesina, Allan Drazen, Andres Velasco, Mark Hallerberg, Gian Milesi-Ferreti, Roberto Perroti, Torsten Persson, James Poterba, Guido Tabellini, and Jürgen von Hagen.

The political economy of fiscal institutions

This progress is related to the more general, progressive emergence of comparative political economy, which in turn benefited from advances in econometric techniques, as a major field of economics. A good example is Persson and Tabellini's classic book on The Economic Effects of Constitutions, in which the authors seek to establish some causality between two constitutional choices (majoritarian or proportional representation; presidential or parliamentary form of government) and economic outcomes.

Another example is Mark Hallerberg and Guntram Wolff's recent article on Fiscal institutions, fiscal policy and sovereign risk premia in EMU (Public Choice, Volume 136, Numbers 3-4 / September, 2008). These authors attempt to take stock of Daron Acemoglu's remarks that endogeneity issues make the assessment of causal effects of institutions and constitution particularly difficult by showing that budget institutions influence the perception of countries' default risks by financial markets (less subject to endogeneity problems).

Canada Strengthening Strategic Reviews of Spending

Posted by Bill Dorotinsky, World Bank

In a July 21, 2008, post, Ian Lienert blogged about Canada's recent establishment of a Parliamentary Budget Office. We'll, there are broader reforms of Canadian public financial management (PFM) underway. PFM Blog has run across a February 2008 presentation by Ivan Blake, Executive Director of Management Accountability with the Canadian Treasury Board Secretariat, on Management Reform in the Canadian Public Service. The presentation was delivered at the Tenth Annual Government Performance Summit 2008, held in Arlington, Virginia. PFM Blog has asked the Treasury Board Secretariat to itself prepare a blog on the reform, but pending more detail, we thought it useful to bring this interesting development to our readers attention.

PFM Reforms in Developing Countries

Lessons from Ghana, Tanzania and Uganda

Posted by Bill Dorotinsky

In trying to learn what public financial management (PFM) reforms work, it is important to challenge conventional wisdom and look afresh at what has been tried, and its relative success. Model reforms need to be compared with actual experience, and lessons learned based on evidence need to be drawn and fed back into the reform processes. A 2005 working paper "Public Financial Management Reforms in Developing Countries: Lessons from Ghana, Tanzania and Uganda" by Andy Wynne does just that, looking at medium-term expenditure framework (MTEF) and integrated financial management information system (IFMIS) reforms in the three African countries cited. The working paper was published in December 2005 by The African Capacity Building Foundation.*

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.

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.   

World Bank Report on Public Sector Reforms - What works and Why?

Posted by Sanjay Vani

On July 17, 2008, the World Bank held a seminar to discuss a recent World Bank  Independent Evaluation Group (IEG) Report on Public Sector Reforms - What works and Why? It attracted about 50 participants, including from Peru, Columbia, and Ghana.

The IEG is an independent unit within the World Bank; it reports directly to the Bank's Board of Executive Directors. IEG assesses what works, and what does not; how a borrower plans to run and maintain a project; and the lasting contribution of the Bank to a country's overall development. The goals of evaluation are to learn from experience, to provide an objective basis for assessing the results of the Bank's work, and to provide accountability in the achievement of its objectives. It also improves Bank work by identifying and disseminating the lessons learned from experience and by framing recommendations drawn from evaluation findings

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.

Canada creates a Parliamentary Budget Office

Posted by Ian Lienert

In countries where the legislature is strongly independent from the executive, a strong case can be made for establishing an independent Budget Office, as it can assist the legislature to scrutinize the draft annual budget proposed by the executive and provide analytical support to the legislature for alternative budget proposals. In countries where parliament’s budgetary powers are limited, there is less incentive for members of parliament to scrutinize the governments’ draft budget proposals, since the “alternative budget” function is less, or possibly non-existent (in a few countries, parliament can make no changes in the draft budget without the authorization of the government). Even in these countries, parliament can still benefit from the existence of an independent office that provides analytical support for clarifying to parliamentarians the complexities embodied in a government’s draft budget.

With this in mind, legislation was recently adopted in Canada to create a Parliamentary Budget Officer, whose main mandates are to provide objective analysis to parliament on the government’s macro-fiscal estimates and analytical support on budget-related issues to members of parliament and certain parliamentary committees. Staffing of the new office is currently taking placing.

Peformance Information for Performance Budgeting

Posted by Marc Robinson

Performance information (PI) is the foundation stone of performance budgeting. But what type of PI is most useful? Putting the question differently, what type of PI is of the greatest potential value for key budget decision-makers? 

This post summarizes some key points from a recent Powerpoint presentation at the June 9-10, 2008, Mexico performance budgeting conference (see my July 2, 2008, blog post).

More is not better. It is certainly not the case that the more information, the better. Experience shows that dumping thousand of performance indicators on the political leadership, parliaments and finance ministries is likely to result in them all being ignored. To be useful, information has to be selective, focused and relevant.

Republic of Korea Merges its Budget and Finance Ministries

Posted by Ian Lienert

There are a variety of ways in which countries organize ministries for performing the planning, budgeting and public financial management functions. Many countries have a single “ministry of finance” covering all functions. The Republic of Korea (RoK) and Brazil were amongst the few countries that had a Ministry of Planning and Budget, separate from the Ministry of Finance. This changed in the Republic of Korea in March 2008 when the new government decided to merge the two ministries into a single Ministry of Strategy and Finance.

Emerging themes in public sector financial reporting

Posted by Abdul Khan

Let us face it. Government accounts are usually pretty boring documents, mainly focused on compliance with budgetary spending limits, and presented in a form designed to discourage all but the most determined readers. Some countries have gone a step further and adopted what are referred to as generally accepted accounting principles and are generating accounts that provide a more complete view of the government finances by providing information about not just cash flows, but also about revenues earned and expenses incurred, and assets and liabilities. Despite these improvements, government accounts have mainly been backward-looking documents – they focus on the past year’s transactions and their impact on the balance sheet. They also mainly provide financial information without relating it to services delivered or objectives achieved.

All this may change. The International Public Sector Accounting Standards Board is considering a major redefinition of the scope of government accounts. The Board is working on a conceptual framework for public sector financial reporting.

A Review of Capital Budgeting Practices

Posted by Davina Jacobs

In general, government capital budgets have multiple roles: as instruments of fiscal policy, to improve the net worth of government, and—particularly in the area of economic infrastructure—as vehicles for economic development. This is usually achieved through greater reliance on debt or external aid than on such conventional sources of financing as taxation. Governments have introduced capital budgets to serve all these objectives, singly or collectively, depending on the context. In some cases, more attention has been paid to capital budgets as a way to reduce deficits caused by an excess of recurrent expenditures versus revenues.

Notwithstanding the seeming virtues of capital budgets, opinions continue to be divided, as they have been during the past seven decades, about their utility in governments. In the present context, in which some more advanced countries have budgetary surpluses and use them to reduce levels of public debt, there is little incentive to revive the debate about the need for capital budgets. In the developing world, however, where many governments operate on the edge of financial instability, the debate about capital budgets and their equivalents continues.

Previous blog postings by Bill Dorotinsky on March, 3, 2008 focused on the capital budgeting process itself, while another post on 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 summarizes the recent IMF Working Paper by Davina Jacobs on “A Review of Capital Budgeting Practices”

Download a_review_of_capital_budgeting_practices1.pdf

The text of the working paper is also available by clicking on this link.

Going hybrid! A practical approach to setting government accounting standards?

Posted by Holger van Eden

In the Netherlands, but also in a number of other OECD countries, the debate on the usefulness of accrual accounting standards, both for financial reporting and budgeting, has led to a hybrid set of accounting standards being used in government. This hybrid approach has been questioned by the Dutch Supreme Audit Office, and is generally not appreciated by accounting purists. However, the hybrid approach, in which part of government works under accrual standards, and part remains under cash, may be a practical way to reap some of the benefits of accrual reporting and budgeting, while not incurring the substantial costs of implementing accrual accounting standards government-wide. Accountability and transparency at the national level may also be better served by a straightforward cash-based approach.

From Diagnosis to Action: Sequencing and Politics in PFM Reform

World Bank PFM Reform Workshop

Posted by Sanjay Vani

On March 21, 2008, the World Bank hosted a workshop on sequencing of PFM reform, focusing on case studies and experiences from practitioners. The workshop was intended to evoke debate among practitioners on sequencing and prioritization in PFM reforms and the importance of political economy in PFM reforms. The topics selected for this workshop did not easily lend themselves to one simple universal approach and divergent views were expected. It was not the intention to provide a “toolkit” or “best practice” learning to the participants but to provide an opportunity to participate and contribute in the evolving debate at the workshop thereby generally enriching the discussion on important topics confronting PFM professionals.

Each session was moderated by an experienced PFM professional comprising three speakers each having a strong personality and a strong views on the subject so as to present two divergent views on the same topic, which led to lively debate amongst the practitioners. The agenda for the workshop can be downloaded here  Download pfm_workshop_march_08_final.doc

Consistent with the unfiltered views of the workshop, the materials are provided here without attempting to summarize the points, letting each presentation speak for itself.

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.

Germany: Fiscal Reform Commission II presents report

Posted by Christian Schiller

My PFM Blog posting of February 29, 2008 reported on the reform of the intergovernmental system that is currently underway in Germany. It is a two-stage reform process. The first stage was completed in 2006.  Monday, June 23, 2008 was a milestone for the second stage, when the Federalism Reform Commission II presented its report to the public.

The Federalism Reform Commission II was constituted on March 8, 2007 and is co-chaired by Guenther Oettinger, the Minster President of Baden-Wuertemberg, one of the richer Laender, and a leading figure of the CDU, and Peter Struck, the chairman of the SPD group in the Bundestag, the German lower house. CDU and SPD form currently a Grand Coalition in Berlin.

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).

International Journal on Governmental Financial Management Available

Posted by Bill Dorotinsky

The latest issue of the International Journal on Governmental Financial Management (Volume VIII, No. 1, 2008) --- formerly known as the Public Funds Digest --- is now available. The Journal, sponsored by the International Consortium on Government Financial Management (ICGFM), is available for download in PDF format from the ICGFM website link above.

This issue has some interesting articles, covering a range of topics from anti-corruption to gap analysis on auditing standards. Specific articles include

• diagnostic tools for auditing and accounting, enabling gap analysis between national and international standards
• the Europe and Central Asian peer-assisted learning initiative in public expenditure management
• measuring and improving supreme audit institutions in developing countries
• two articles related to accrual accounting, one of which explains the 'German' cameral accounting model as an alternative to accrual accounting
• as well as articles on fighting corruption in Nigeria, Nigerian pension reform, and bureaucracy in Bangladesh.

A good collection of articles for public finance aficionados.

Do Legislatures Matter in Budgetary Reform?

Posted by Ian Lienert

In many countries, the budget powers of the legislature is weak. One exception is the United States, where Congress has particularly strong budgetary powers. This does not necessarily mean that the U.S. Congress will implement budget reforms, even if it adopts a law requiring important changes to be made in the budget system. Performance-oriented budgeting is a prominent example. Implementation of budgetary reforms may fail if the legislature is not sufficiently engaged at the outset. More generally, implementation of budget reforms is affected by differing legislative institutional arrangements, as well as the general political environment.

Empirical research in this area is limited. However, in a study published in Public Budgeting & Finance (Vol. 26 Issue 1) in March 2006, Carolyn Bourdeaux of Georgia State University shows that higher levels of legislative responsibility for budgeting and more extensive legislative engagement in oversight of performance information are significantly associated with increased use of performance measures in making budgetary decisions, both at the legislative and agency levels. This study was based on a survey of 212 budget officials and legislators in 22 States of the United States.

Any Problems with Programs?

Posted by François Michel

“Program budgeting as a platform for performance-based budgeting has been approached entirely from the standpoint of strategic planning; however, programs interact with a host of other “structures,” including the structures of control associated with appropriation bills, accounting systems, and organizational structures.” This is the beginning of the conclusion of the illuminating article that Carolyn Bourdeaux, from Georgia State University, dedicates to the State of Georgia’s effort to develop a program-based budget (Public Budgeting and Finance, Summer 2008).

Ms. Bourdeaux leads us to adopt successively the different perspectives of the legislature, agencies, and the executive office of the Governor on how programs should be structured. In the program design process, each body strives to maximize its powers in that principal/agent chain that goes from the legislature (principal), the executive (agent of the legislature, but principal of agencies), to agencies (agents). Ms. Bourdeaux vividly shows that up to the point where they acknowledge that too strict controls discourage entrepreneurialism and may be challenging to manage (e.g. a large budget bill), principals favor disaggregated program structures (or, more generally, budget classifications); in contrast, agents want large, fungible programs. Logically, the analysis then turns to the State’s budget control framework.

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.

Fiscal Reform.net -- Useful USAID Reference Site

Posted by Bill Dorotinsky

Always on the hunt for useful PFM reference material, PFM Blog has run across another useful site -- the USAID Fiscal Reform & Economic Governance Project web site. The site encompasses a wide range of PFM issues, including

• "Tax policy and revenue administration
• Budgeting and expenditure control
• Decentralization and inter-governmental finance
• Fiscal oversight and audit
• Public procurement
• Civil service reform
• Other issues related to government financial systems, e-government,
  and economic governance"

Contracts, Budgeting, and Transparency: Lessons from Municipal Budgets in the United States

Posted by François Michel

In a relatively recent survey of how five major US cities handle contracts in their budget (Public Budgeting & Finance Review, March 2006 - Vol. 26 Issue 1), Professor Irene Rubin from Northern Illinois University makes a convincing call for increasing contract reporting standards.

The survey’s results are a hard pill to swallow for budget savvy citizens or other interested taxpayers: even in municipalities with the most developed and transparent budgets, complex contracts remain practically unreadable in budget documents and are thus barely subject to any external scrutiny. This lack of transparency prevents any credible assessments of contract performance or comparison between in-house and external provision of public services. It also allows easy—and potentially manipulated—claims of costs savings by government officials. In response, Dr. Rubin recommends that each individual contract be systematically reported on an individual basis, with its scope, duration, cost, and performance requirements. Contract theory adepts would add that performance specifications should cover quantity, quality, cost and timeliness.

Managing Post-Natural Disaster Reconstruction Finance

-- World Bank Working Paper

Posted by Bill Dorotinsky

Recent PFM blog posts have focused on post-conflict public financial management (PFM) issues. The World Bank East Asia Region recently published a working paper on a somewhat similar topic, Managing post-disaster reconstruction finance, in January 2008. The paper examines eight post-disaster cases (Aceh-Indonesia, Yogyakarta-Indonesia, Sri Lanka, Maldives, Pakistan, Colombia, Grenada, and Honduras) and draws some general lessons for future events. Though the title indicates an emphasis on post-disaster reconstruction, a case studies annex includes post-conflict efforts as well.

Welcome to the new ICGFM Blog

Posted by Bill Dorotinsky

This week, the International Consortium on Government Financial Management holds their  22nd conference in Miami, Florida. (See our December 12, 2007, blog post on the ICGFM fall Washington, D.C. Conference on IFMIS.) The focus of this year's Miami Conference is on accountability, and is entitled “Joining Forces for Responsible Leadership to Enhance Good Governance:  Citizens, Public Officials, Private Sector and the Press”.

As part of this years event, ICGFM has introduced a blog spot, with daily coverage of presentations, including access to the presentation material and YouTube video's. Well worth a visit!

Public Finance: Why Do Countries Decentralize?

Posted by Mario Pessoa and Bill Dorotinsky

Decentralization is a popular reform, with implications for public financial management, fiscal policy, as well as governance and political economy. Recent events in Bolivia are an example of the continuation of the trend. Despite all of the rhetoric, how far is decentralization proceeding? And what can we say about the reasons countries pursue decentralization?

In a 2005 article entitled "Public Financing in Developing and Transition Countries" (Public Budgeting & Finance, Silver Anniversary Edition 2005, pages 83-98), Roy Bahl and Sally Wallace, explore the reasons why countries decentralize, including data on the share of subnational public spending.

Keeping up-to-date with civil society budget work

The International Budget Project Newsletter

Posted by Bill Dorotinsky

In a March 24, 2008, post by Duncan Last, we blogged about the International Budget Project's (IBP)new budget briefs series, as well as their numerous other initiatives and information resources.

Last week, the IBP released its most recent bimonthly newsletter -- a good way of keeping-up with some of the developments in the public financial management field. The recent issue, for example, includes articles on

• district-level budget information service in India
• social auditing in Rajasthan, and
• civil society efforts to improve education funding transparency in Argentina.

The current and previous issues of the newsletter (and e-subscription arrangements) are available at:

http://www.internationalbudget.org/resources/newsletter.htm

France’s Révision Générale des Politiques Publiques (RGPP)

Posted by François Michel

President Sarkozy’s Révision Générale des Politiques Publiques (RGPP) (General Review of Public Policies) undoubtedly marks France’s most comprehensive, structured and spelled out effort to modernize its public management and deliver the structural reforms needed for a long-lasting fiscal adjustment. The objective of the year-old initiative is not so much to yield short-term budgetary savings than it is to review underlying government policies, coverage of activities by the public sector, and delivery modes of public services.

Improving Government Financial Management Systems -- Lessons from a U.S. GAO Report

Posted by Bill Dorotinsky

Countries around the world are working to improve their public financial management (PFM) systems, and the U.S. is no exception. While for many countries the U.S. example may seem remote --- too unique in the authority of the Congress or too economically developed --- the similarities and lessons are more relevant than might appear at first glance. A recent GAO report, Highlights of a Forum: Improving The Federal Government's Financial Management Systems (GAO-08-447SP, April 2008), provides some fascinating insights into the state of PFM in the U.S.