What They Don’t Teach You at University—Public Financial Management, for Example!

Posted by Dimitar Vlahov [1]

It is easy to see that public financial management (PFM) employs many thousands, maybe  even hundreds of thousands of people around the world. All professionals involved in the operation, management, development or review of budgetary processes can be considered PFM practitioners. In all modesty, these professionals could consider themselves pillars of the governance process, be it at the level of multinational administrations, national governments, or even the most humble local government entity. All government organizations need money and need to manage their monies systematically to enable their activities. Add to all these civil servants the  international experts at places such as the World Bank, the IMF, and other multi-lateral organizations, together with private consultants and NGO/non-profit advisors, and you get a very large crowd. Why is it, then, that there is no graduate university degree in PFM,  especially in the United States with its academically diverse offering of curriculums? The big demand for PFM-skills, one might reason, would suggest this is an unlikely outcome.

Accountants to the Rescue! A Whole System Approach to PFM Architecture

Posted by Suzanne Flynn

The UK based Chartered Institute of Public Finance and Accountancy (CIPFA) has issued an ambitious, but also a somewhat theoretic, draft consultation paper, with support from the UK’s Department for International Development (DFID) on what constitutes a PFM system. The paper aims to clarify the scope and characteristics of PFM systems, but also what PFM “architectures” exist to guide measures and aid program development, with the ultimate aim of improving public service delivery. The draft is available at http://www.cipfa.org.uk/international/consultation.cfm. Comments on the draft are welcomed by the Institute by the end of November of this year. If this document is to be useful—and clearly a lot of work and thought has gone into it—comments from a broad range of PFM practitioners would add tremendously to its value. In my view, particularly the views of non-accountants would enrich the present draft.

IMF Updates the Portal on Fiscal Transparency

Posted by Mario Pessoa

Fiscal transparency is one of the most relevant elements of a modern public financial management system. Because of that, starting in the late 1990s, the IMF developed a code of good practices in fiscal transparency and a specific framework to evaluate transparency practices in its member countries. The Fiscal Affairs Department developed a set of guides and manuals to help carry out a standardized evaluation. The Report on the Observance of Standards and Codes (ROSC) of Fiscal Transparency –often called the “Fiscal ROSC” is a voluntary exercise that has been already undertaken by more than 90 countries.

CIPFA Consultation on International Architecture for Public Financial Management

  Posted by Michel Lazare

 

The Chartered Institute of Public Finance and Accountancy (CIPFA) is a UK-based global professional accountancy body that specialises in the public services. We have an active international strategy including PEFA and PFM training, professionalisation and consultancy.

CIPFA is currently undertaking a PFM consultation on a document covering a definition of PFM (from a service delivery perspective) a whole system approach (holistic) process architecture and regional institutional architecture. The link to the CIPFA webpage announcing the consultation is here and the consultation paper can be accessed by clicking on the following link: Download PFM_IA_Whole_System_Approach[1]
 

A New IMF Fiscal Affairs Department's Publication: the Technical Notes and Manuals

Posted by Michel Lazare and Richard Allen.

The IMF has just launched a new series called: Technical Notes and Manuals.The first three issues have been authored by the IMF's Fiscal Affairs Department.

They deal with:

1. A Basic Model of Performance-Based Budgeting by Marc Robinson and Duncan Last  Download FAD Technical Manual 1
2. Transition to Accrual Accounting by by Abdul Khan and Stephen Mayes                     Download FAD Technical Manual 2
3. Modernizing Cash Management by Ian Lienert                                                              Download FAD Technical Manual 3

Earlier versions of these Technical Notes and Manuals were previously issued as part of a series of technical notes on our PFM blog.

Future issues will include topics in revenue administration, tax and expenditure
policy, and public financial management. Other IMF departments may also contribute notes to these series.

These notes and manuals aim at raising awareness among practitioners,
officials and academics of contemporary fiscal topics; and improving the dissemination of
FAD's TA advice. In particular, they will allow us to disseminate to a broader audience the advice now included in our TA reports, or provided through other advisory services.

Who is Ready for Performance. Results. Outcomes.?

Posted by David Nummy[1]

The International Consortium on Governmental Financial Management (ICGFM) has issued a call for speakers, panel members, and presentations to be made at its winter conference, which will be held this year at the offices of the Inter-American Development Bank in Washington, DC, from December 2-4.   The theme of the conference will be: Performance. Results. Outcomes. Understanding Impact in Managing Public Finance.

An expert panel will review all proposals and select the most pertinent and thought-provoking of them for inclusion in the conference program. A stipend will be provided toward travel expenses of the selected presenters. PFM professionals wishing to submit proposals can seek more information at proposals@icgfm.org.

This year’s conference theme was selected in light of the significant changes in public sector spending occurring around the globe as a result of the international financial crisis. Some countries are dramatically increasing budgets for stimulus purposes, while others are facing severe reductions due to depressed revenues. Information on the impact of spending changes can result both in better allocation of new resources, or in better targeting of spending cutbacks.

Fiscal Implications of the Crisis for the EU: The European Commission’s Latest Analysis

Posted by Andrea Schaechter

On June 23, 2009, the European Commission published its annual report on Public Finances in EMU. Now in its tenth year the report focuses on the challenges that the financial and economic crisis has brought about for EU member states’ public finances as well as the EU’s fiscal surveillance process (notably the Stability and Growth Pact). In particular, budgetary prospects are assessed as well as policy needs identified to contain the fiscal costs of the crisis.

Public Financial Management (PFM): A ‘Discipline’ in Search of a Home

Posted by Tej Prakash.

Of which academic discipline is PFM a part of?  Is it economics, public administration/policy, accounting, management, or law? Or, none or all of the above.

PFM, as the name indicates, should deal with the management of both revenues and expenditures. But it does not. It deals only with public expenditures. Thus to begin with, the name itself is a bit of a misnomer.

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.

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.

Government Actions in Response to the Financial Crisis: An Emphasis on Transparency and Accountability

Posted by Abdul Khan

“Politicians will not be forgiven by future generations if liabilities and obligations incurred today are hidden from them today, but paid for tomorrow,” cautioned Mike Hathorn, the Chair of the International Public Sector Accounting Standards Board (IPSASB). Speaking at a seminar organized by the Fiscal Affairs Department of the IMF on May 22, 2009, he indicated that the IPSASB believes that transparency and accountability are crucial to explain to citizens the range of actions governments are taking in response to the financial crisis. In a frank assessment of the current state of affairs in public sector financial reporting, he said that, in his opinion, “most governments do not have the financial reports necessary to communicate to citizens in a transparent way….”

FAD Technical Guidance Notes on Public Financial Management

Posted by Richard Allen

Since 2007, FAD has produced a series of technical guidance notes on public financial management (PFM). These notes are intended to fulfill several purposes:

• To provide up-to-date guidance on technical PFM issues, and the sequencing of reform, in areas in which the Fund has relevant expertise, and which are not well covered in existing handbooks or textbooks on the subject.
• To suggest to the extent possible a common approach to reform in areas of PFM where, currently, a variety of approaches and practices prevail.
• To be of use to practioners providing advisory services in the field, and also to decision-makers and policy advisors in governmental organizations, international financial institutions, donor agencies, research institutes, consulting companies, and other organizations.

Good Practices in Planning and Managing PEFA Assessments

By Frans Ronsholt.

In any analytical work, the quality of the final report is essential for the usefulness of work; especially to users of the report, who were not themselves members of the analytical team. This is certainly also the case for PEFA-based PFM assessments which are meant to serve as a common information pool among all stakeholders in a country’s PFM system.

Careful planning and execution of the analytical work will help to ensure final PFM assessment reports are of high quality. The PEFA program has recently issued a good practice note which provides guidance for the process of undertaking a PFM assessment based on the PEFA Framework. It identifies the main principles to be followed for undertaking a PEFA assessment and describes good practices in planning and management of the process and follow-up to the report. The note is aimed at governments, development partners and any other stakeholders that may be considering PEFA assessments and seek guidance on how to go about this.

ANNUALITÉ BUDGÉTAIRE ET PERIODE COMPLÉMENTAIRE dans l’environnement du droit des finances publiques français

Par Dominique Bouley.

Il existe dans le droit budgétaire un instrument original pour exécuter le budget, en dépassant le cadre annuel tout en respectant le principe de l’annualité budgétaire. Il se présente sous des formes variées avec des appellations diverses : [1] journée complémentaire, période complémentaire, délai complémentaire. Cet instrument peut avoir des répercussions ou non sur la trésorerie. Si cette réglementation en France remontant à presque 200 ans, était claire et précise, il est constaté que son usage dans les pays utilisant les règles de finances publiques francophones issues de la législation française est devenu plus incertain et la notion de période complémentaire a changé de champ et d’importance dans le cadre de l’exécution budgétaire.

Are countries strengthening public financial management to meet the financial and economic crises?

Posted by Eivind Tandberg.

A recent post by Mario Pessoa (PFM blog March 9) described how the US government is making efforts to strengthen budget management and public financial management in light of the ongoing financial and economic crisis. Key measures include expanded medium-term fiscal projections, a tougher expenditure review process to eliminate programs that are not working well, the inclusion of a contingent fund for emergencies, a more transparent approach regarding earmarks and results, a more result-oriented strategy in relation to the definition of the programs, and a clear commitment to using technology to enhance budget efficiency and transparency.

The GSD RC's Gateway Guide to Public Financial Management and Accountability

 

Posted by Michel Lazare

The Governance and Social Development Resource (GSD RC) Center has created a Public and Financial Management and Accountability gateway guide.

In its own words, the GSD RC gateway guide is "designed to point readers to the most useful, credible and up-to-date resources available on the internet in relation to public financial management and accountability (PFMA) in a development context. It was prepared by Andrew McDevitt in October 2008." The PFMA gateway guide's content is organized along the following categories:

• PFMA guidance
• Academic resources
• Thematic resources
• Selected regional resources
• Blogs
• Journals

In all these categories, the PFMA gateway lists well-known and internationally-recognized documents or sources of information. The gateway should be particularly useful to the newcomers to public financial  management issues, as well as to the practioners who would like to keep him/herself informed of key new developments in this area (see in particular the sections on PFMA guidance, blogs, and journals in that respect).

Among the three blogs quoted by the blog section features our PFM Blog. Needless to say that our team is proud of being mentioned among the most useful, credible and up-to-date resources available on the internet in relation to public financial management and accountability (PFMA) in a development context.

According to its website, the Governance and Social Development Resource Centre (GSDRC) which is funded by the UK Department for International Development (DFID), aims to help reduce poverty by informing policymaking and enhancing professional knowledge in relation to governance, conflict and social development.

Confounded by Language

Posted by Holger van Eden

As in many professions, PFM practitioners consider English their lingua franca. Conceptual thinking, development of methodology, reviews of country experience, they are all predominantly produced in English. One small problem: the majority of the world population does not count English as its mother tongue. While the managers in ministries of finance around the world, with which PFM professionals mostly interact, are highly-educated, and usually proficient in English, language issues do regularly pop up in the IMF’s field missions. To abate these issues – and to be fair, because their PFM systems differ in fundamental ways -, the Fund does send out French, Spanish and Portuguese speaking missions. Obviously the language expertise of PFM experts is much less than the diversity of languages spoken around the world. The only solution perhaps is using interpreters proficient in PFM-speak (who are in short supply), and asking (and being asked) often “what do you mean exactly?”.

PFM Training Facilities in India

By Mr. Udaya Pant

India has some excellent capacity building institutions, both at the national and sub-national levels, in PFM and cross-cutting issues. Some of these are in New Delhi. All of these institutes, except the Financial Management Research and Resource Society (FMMRS) are government supported institutions. The FMMRS has emerged as a leading capacity building institution in the non-profit sector. Below is a brief write up on these institutions:

Public Financial Management Performance Assessment Report for South Africa

Posted by Davina Jacobs

I. Assessment of the PFM strengths and weaknesses in South Africa

In a recent PEFA assessment Report (Download final_sa_pefa_report_2008.pdf,) South Africa scores well when viewed from the perspective of the three main objectives of a sound PFM system, namely aggregate fiscal discipline, strategic allocation of resources and the efficient delivery of services, especially in regard to aggregate fiscal discipline. The PFM systems in South Africa are capable of allocating resources in accordance with priorities. The utilization of a three year macro fiscal framework, with a definite budget calendar that facilitates the meaningful bottom-up participation by Departments, along with the very successful integration of cash management and debt management, and the achievement of predictable budget releases and effective payroll management all point to efficient delivery of services. However these positives are negatively impacted by some procurement and non salary expenditure management challenges.

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.

Strengthening Political Economy Analysis to Address the Resource Curse

Posted by Teresa Dabán

photo by Ellie Sandercock (CC)

The chances of resource-rich countries to avoid the resource curse hinge on the existence of sound institutions. While several initiatives have emerged to promote the transparency and sound management of natural resource revenues (NRR)— including IMF’s Resource Revenue Transparency Guide and the EITI, there is still a need to develop an overall framework for the assessment of NRR-related political economy and governance challenges. Against this background, the Bank has launched a project to develop a framework to assess and promote good governance in each of the stages of the “value chain” of NRR, from their extraction to their use, and incorporate political economy issues in the dialogue with resource-rich client countries. To refine such a framework, and concretize the timeframe for its implementation, the Bank held a workshop on October 16, 2008. The workshop revealed that the adoption of the usually proposed mechanisms to mitigate NRR-related governance challenges raises complex issues.

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 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.

IMF/CEF Technical Assistance in South East Europe: End of Assignment of Mr. Eivind Tandberg, Public Financial Management (PFM) Advisor for South East Europe

Posted by Mira Dobovisek, Center of Excellence in Finance (CEF), Slovenia

According to this year’s CEF Supervisory Board conclusions, over the last three years, the South East European (SEE) countries have largely benefited from the presence of the IMF/CEF technical assistance program and more specifically the public financial management advisor, Mr. Eivind Tandberg, based at the Center of Excellence in Finance (CEF) in Ljubljana, Slovenia. The program primarily consisted of providing technical advice to SEE countries, assisting them in defining PFM reform priorities, and carrying out regional and cross-country analytical and research activities. Furthermore, the advisor provided numerous inputs to courses and other CEF’s events, and helped the CEF in formulating training programs, based on findings from his missions. Satisfied with the results in the area of PFM, the CEF Supervisory Board confirmed the appointment of the IMF government finance statistics advisor, Mr. Vincent Marie, who was posted at the CEF in October 2007. Mr. Brian Olden is expected to take over Mr. Tandberg’s previous duties from January 2009.

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:

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.

The Accra High Level Forum – a PEFA Perspective

Posted by Frans E. Ronsholt, Head of the PEFA Secretariat

In the 2005 Paris Declaration, partner countries committed to strengthening their national PFM systems while donors committed, to support partner countries’ efforts to enhance the capacity of such systems, and both parties committed to jointly implement harmonized diagnostic reviews and performance assessment frameworks in PFM. In other words, the Paris Declaration confirmed donors’ and partner countries’ commitment to the three main principles of the Strengthened Approach to Supporting PFM Reform, which constitutes the foundation for the PEFA Program. Donors also committed to using country systems to the extent possible and avoid parallel structures.

The PFM Performance Measurement Framework (PEFA Framework) provides a foundation from which to build reform programs to strengthen a country’s PFM system and to monitor progress towards reform targets. As the PFM system is strengthened, it will create an enabling environment for donors to increasingly use national PFM systems. The PEFA Framework also contributes to the Paris Declaration targets of reduced transaction costs in diagnostic work through harmonized analytical instruments and joint missions.

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.

Progress on the Use of Country PFM Systems: an OECD-DAC Joint Venture Report

Posted by Sanjay Vani, World Bank

A recent OECD-DAC Joint Venture on Public Financial Management commissioned report on the Use of country PFM systems takes stock of the progress made in meeting targets specified in the Paris Declaration.

The Report (Download report_on_use_of_country_systems_in_pfm.pdf )finds that there has been progress:many countries and donors have taken positive action toward strengthening and using country PFM systems, and the Public Expenditure and Financial Accountability (PEFA) partnership has developed a performance measurement framework that can help countries determine where they need to concentrate their efforts. At the same time, the aggregate numbers on donors’ use of country systems have not changed much; it is clear that there is much work to do.

Measuring Performance In Public Administration

Latvian 4th International Public Management Summer Institute

Posted by Bill Dorotinsky

The Latvian Government held its 4th annual International Public Management Summer Institute from August 25-29, 2008, in Tukums, Latvia. The theme of this year's Institute was "Measuring Performance in Public Administration." The Institute was attended by Latvian Government staff from line ministries and central agencies, as well as staff from various agencies of seven regional governments (Bosnia-Herzegovina, Georgia, Lithuania, Macedonia, Poland, Turkey, and Ukraine). The Institute was supported with financing and experts by the World Bank, OECD, Latvian Ministry of Foreign Affairs, Embassy of The Netherlands, Corporate & Management Consulting Group, The Soros Foundation, and Embassy of Ireland.

There were many lessons of experience and practical guidance arising from the seminar, too numerous to summarize here. The presentations and country cases are available below, and the readers can draw their own conclusions. The Institute program can be downloaded here Download Preliminary_program_2008.doc

Over-all, the Summer Institute was well planned and executed. The Institute was a good opportunity to get an overview of where participant countries are in terms of performance reforms. Some are only just beginning to wrestle with introducing performance measurement/management reforms (Bosnia), while new EU Member States are trying to make the performance reforms meaningful. The new member states are very much in the same position as most OECD countries, where performance measurement systems are in place and generating large amounts of data, but there is very little information of use in decision-making.

State Budget Control at your Fingertips--Financial Management Information Systems Have Modified Public Finance Management in the State of Sao Paulo - Brazil

Posted by Mario Pessoa

The Brazilian State of Sao Paulo has implemented a set of financial information systems in the 1990s and 2000s to enhance transparency and reliability of fiscal data. Two of the most relevant systems are: SIAFEM and SIGEO.

The first one is a typical integrated financial management information system (IFMIS) that encompasses all fiscal transactions from the budget preparation and execution to the preparation of the financial statements. SIAFEM is used by more than 5,000 civil servants of 800 entities. All budgetary transactions have to be done using the system. Additionally, SIAFEM is linked to a treasury single account. The general ledger is the core of the system that uses the same economic classification for both budget and accounting purposes. All reports regarding the fiscal responsibility law and the financial statements are generated by the system.

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).

Welcome to the New "MTEF Blog"

Posted by Michel Lazare

The new "MTEF Blog" has started posting about "Public Expenditure Management, Medium-Term Expenditure Frameworks and All Things Fiscal" on August 1, 2008. Not surprisingly, the first posts published were about what is an MTEF and discussed MTEF implementation in a few countries, including in Laos. From there, the MTEF Blog broadened the scope of its posts to cover many other fiscal issues: accountability, fiscal rules, the Government Fiscal Statistics for Mauritius (and the IMF ROSC data module for Mauritius), a (of course, rather old) video interview with Milton Friedman, etc. This is by and large consistent with the objective set for itself by MTEF Blog in its August 1 post: "This blog is an aggregation point and a discussion forum for latest research on public expenditure management and multi-year budgeting practices. "

PFM blogs particularly likes the rich list of PFM relevant links in th eright column of MTEF Blog.

MTEF Blog is published by "MAI." Regrettably, the MTEF Blog's profile does not provide information on who MAI is.

PFM Blogs welcomes the arrival of MTEF Blog among the still relatively short list of blogs focusing on public financial management and wishes full success to its author.

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.

Norway's public financial management system

-- a PEFA-based assessment

Posted by Bill Dorotinsky, World Bank

In previous posts, we've blogged about the Public Expenditure and Financial Accountability (PEFA) Performance Measurement Framework, launched in 2005 and applied in over 80 developing countries (see our April 21 and August 4, 2008 posts).

Norway has supported the development of this framework to assess the performance of a country’s public financial management system. This PEFA assessment of the Norwegian public financial management is the first time the framework has been applied in a high income OECD country. The aim of the assessment was to get further experience with the framework by using it in another country context. A special section on management of Norwegian petroleum revenue is included in the report.

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.

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.   

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.

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.