Public Investment

March 20, 2015

DAMS AND DIKES FOR PUBLIC FINANCES

1421 - St Elizabeth Flod

Posted By Vitor Gaspar, Richard Hughes, and Laura Jaramillo

Fortune, wrote Machiavelli five hundred years ago in The Prince, is like a violent river. She “shows her power where virtue has not been put in order to resist her and therefore turns her impetus where she knows that dams and dikes have not been made to contain her.” Managing the ebb and flow of government’s fiscal fortunes poses similar challenges today. We need a risk-based approach to fiscal policymaking that applies a systematic analysis of potential sources of fiscal vulnerabilities. This method would help countries detect potential problems early, and would allow for institutional changes to build resilience.

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July 01, 2010

A Proposal for Sustainable Management of Hydroelectric Revenues in Paraguay

Prepared by Teresa Dabán 

Paraguay’s budget highly depends on the revenues derived from the hydroelectric, bi-national power plant, Itaipú. The management of these revenues poses important macroeconomic, intergenerational, and political economy challenges. Addressing these challenges is especially important given the temporary nature of the forthcoming windfall related to the recent agreement with Brazil and the projected decline of Itaipú revenues over time. This post draws on the IMF Country Report No.10/170 on Paraguay.

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March 05, 2008

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

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

Posted by Teresa Dabán

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

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

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February 19, 2008

Governor Arnold Schwarzenegger and California's Budget

Posted by Michel Lazare

To further illustrate our February 1, 2008 post on the difficult fiscal outlook in a number of US states and the harsh measures that states are considering to adjust their fiscal position, here is a YouTube video on the bugetary measures proposed by the Governor of California, Arnold Schwarzenegger.

This video is not dated, but was posted on YouTube on January 26, 2008.

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February 01, 2008

Fiscal Double Whammy: Combination of Balanced-Budget Rule and Economic Slowdown Forcing U.S. States to Make Tough Fiscal Decisions

Posted by Michel Lazare

A majority of US states are facing a difficult fiscal situation according to the survey made by the Center on Budget and Policy Priorities (CBPP).

In a January 28, 2008 revision of a survey of states fiscal outlook (prepared by Elizabeth C. McNichol and Iris J. Lav ), CBPP indicates that "19 states face a total budget shortfall of at least $32 billion in fiscal year 2009; 9 others expect budget problems." These dire projections were made by the states themselves and were aggregated by CBPP.

Because they have passed a fiscal rule, which forces the state legislators to adopt a balanced budget, "the vast majority of states cannot simply run a deficit or borrow to cover their operating expenditures."  They have to resort to fiscal retrenchment--not a very pleasant perspective at times when the US economy is noticeably slowing down--, which could in turn negatively affect economic growth prospects (procyclical effects).

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December 05, 2007

Germany: Ministry of Finance's Task Force Recommends Introduction of Performance Budgeting and Accrual Accounting

Posted by Michel Lazare

A few days ago, our FAD colleague and PFM Blog author Marc Robinson published a short article in IMFSurvey Magazine titled "Major Reforms for German Budget System." Here is a summary of the key points; the full text of the article is accessible by clicking here.

The German Ministry of Finance's Budget and Accounting Reform Task Force, who was assisted by staff of FAD, recently recommended "the introduction of product budgets--often known elsewhere as programs. The intention is to focus greater attention in the budget formulation stage on choices about how much money is allocated to" various outputs.

"Under the task force's proposals, the product budgets would not in the first instance be used for parliamentary budget appropriations. The idea is that they would initially be used [...] in formulating the budget. The logical next step would, however, be to shift the annual budget law also onto programmatic basis."

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November 30, 2007

7th IMF Debt Management Forum

Posted by Brian Olden

Debt The 7th IMF Debt Managers Forum, hosted by the IMF’s Monetary and Capital Markets Department, was held in the IMF’s HQ building in Washington D.C. between November 5th and 6th. This two day event was attended by leading public debt managers from advanced and emerging market economies, participants from the financial markets, including leading investment banks and hedge funds and other international financial institutions. 

Many interesting topics were discussed including the effects of the recent credit crunch on sovereign debt management and issuance strategies, trends in the composition of public debt portfolios, use of derivatives to assist in the implementation of debt management strategies, asset and liability management strategies and the issue of sub-national and public enterprise debt management.

The involvement of private sector financial market participants was useful as they were able to provide some commentary on the credit crises and their take on how this would affect , issuance spreads for sovereign issuers over the short to medium-term. Most of the participants were relatively optimistic about the prospects for emerging markets but perhaps less so about the more advanced economies. The most interesting message from the Forum was the view that, for once, this was a crisis that had originated in the advanced economies and that the affect on emerging markets was proving much less severe than has been the case in other international financial crises of recent years.  Lack of exposure of domestic financial institutions to the sub-prime mortgage market and the improvement in the fiscal management of emerging markets has insulated these economies from the worst effects and this has been reflected in the relatively mild reaction of investors to EM sovereign debt as evidenced by the relatively mild widening of spreads in binds issued by these countries. 

The attached note highlights the main areas of discussion in more detail. [Download highlight_7th_imf_debt_forum_2007.DOC]

November 21, 2007

From Line-item to Program Budgeting - Opening the 'black-box' of spending

Posted by Bill Dorotinsky

Lineitem2_3 A perennial question of annual public budgeting for Ministries of Finance and legislatures, and the general public, is "What are we getting for the money?" It is the proverbial "black box" of annual spending, where funds are allocated by traditional line-item budgets to agencies, but there is no sense of what the money actually achieves. While under line-item budgeting, budget offices know what inputs are being purchased, there is no clear indication of what activities, purposes, or objectives -- or ultimately outputs or outcomes -- are being purchased, or how government policies translate into spending. A common first step for many countries towards opening the black box of spending is to adopt a program classification of spending, and introduce program budgeting. A program classification is often thought of as a first step in introducing a performance orientation into the budget process.

While sounding like a very dry, technical exercise, the reality of successful introduction of program budgeting is more complex, involving elements of change management across government. Various governments across the globe have been introducing program budgets over many decades, including within the past decade in Russia, Brazil, and more recently, the Republic of Korea (RoK). A recent book by the Korean Institute of Public Finance and the World Bank, From Line-item to Program Budgeting (John Kim, Editor; Seoul, 2007), summarizes some key lessons from the global experience, and offers practical advice to countries embarking on this journey.

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October 11, 2007

Public Investment: Good Project Management is an Issue of ...Capital Importance

"Unexpected changes to payment schedules related to capital projects can create significant difficulties for finance officers responsible for cash management" remarks Steven R. Kreklow (*) in his short article ("Capital Project Cash Flow Management") of the August 2007 issue of the Government Finance Review, the membership magazine of the US-based Government Finance Officers Association.

This adverse impact on cash management and more generally budget execution can be mitigated by good budget and project management techniques described in Steven R. Krelow's article.

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