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.

Keeping an Eye on the Long term

Posted by Guilhem Blondy

Many OECD counties face both short- and long-term fiscal pressures. While short- and medium-term fiscal projections are usually adequately presented in the budget, this is much less the case for long-term fiscal projections. The IMF and OECD have been advising ministries of finance and/or planning agencies to present long-term fiscal projections in the budget, or attached to it, for quite some time. As long as a decade ago the IMF Manual on Fiscal Transparency described as best practice for budget and fiscal transparency that governments publish a periodic report on long-term public finances. Yet the use of these long-term fiscal projections has remained limited to a relatively small number of industrialized countries.

Barry Anderson and James Sheppard presented a paper at the 30th OECD annual meeting of senior budget officials assessing practices in 12 countries : Australia, Canada, Denmark, South Korea, the Netherlands, New Zealand, Norway, Sweden, Switzerland the United Kingdom, and the United States (Anderson, Barry, and Sheppard, James, Fiscal futures, institutional budget reforms, and their effects : what can be learned?, 30th annual meeting of OECD senior budget officials, Paris, 4-5 June 2009).

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….”

Open Budget Survey 2008

Posted by Eivind Tandberg.

Most of our readers are probably familiar with the Open Budget Survey results for 2008, which were published at the end of last year. For those who have not yet studied the very interesting results of this survey, we recommend that they access the website of the International Budget Partnership (IBP website) and take a look.

The survey includes a comprehensive evaluation of budget transparency in 85 countries. The main finding is that the state of budget transparency around the world is deplorable. According to IBP, this encourages inappropriate, wasteful, and corrupt spending and—because it shuts the public out of decision making—reduces the legitimacy and impact of anti-poverty initiatives. At the same time, the Survey shows that a number of countries have significantly improved their performance over the past two years. It also shows that many more governments could quickly improve budget transparency at low cost by making publicly available the budget information that they already produce for their donors or internal use.

A Window on Budget Transparency

By Jon Shields.

Beware, shy governments. You’re being watched. The less you tell your citizens about your country’s affairs, the more the Open Budget Index (OBI) will reveal to the world just what it is that you are not telling. And the OBI’s list of missing budgetary information (http://www.openbudgetindex.org/.) is detailed and sometimes shaming.

US Government Annual Financial Report

Posted by Eivind Tandberg

Comprehensive, transparent and reliable financial reporting is a cornerstone of good public financial management. The US Government financial report for fiscal year 2008 (October 2007 - September 2008) was released in December 2008. The report provides many examples of good international practices. However, the accompanying audit report from the US Comptroller General, which includes negative opinions for key government sectors, illustrates that it may be difficult to meet all requirements in this area, even for an advanced economy government with significant financial management resources.

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.

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.

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.

PEFA Training in Perspective

Posted by Franck Bessette, PEFA Secretariat

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

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

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.

IMF to prepare Guidelines for Fiscal Risk Disclosure and Management

Posted by Aliona Cebotari

On June 16, 2008, the Executive Board of the International Monetary Fund (IMF) held a seminar on “Fiscal Risks—Sources, Disclosure, and Management”. The topic has gained importance in many IMF member countries, as interest in promoting fiscal sustainability and transparency grows. The staff paper on which the discussion was based reviews the experience with fiscal risks in a wide range of countries and provides practical advice on risk identification, disclosure and management. This includes a set of Guidelines for Fiscal Risk Disclosure and Management, and a possible Statement of Fiscal Risks.

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.

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

Posted by Ian Lienert

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

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

Egypt hosts OECD Budget Law Seminar

Posted by Ian Lienert

On May 28–29, Egypt’s Ministry of Finance hosted an OECD seminar on legal frameworks for budget and financial management in OECD countries. The main objective was to learn more of good international practices in budget law. At present, Egypt’s two main budget-related laws are: a 1973 Budget Law and a 1981 Accounting Law. [Download egypt_budget_law_1973.pdf ]

All aspects of the legal framework for budget and financial management systems were covered in the seminar. Difference in budget laws in OECD countries are very marked, reflecting not only differences in budget systems, but institutional differences in the role of parliaments and governments in budget-making, the extent of delegation of authority for budget management to ministers and senior officials in ministries and government agencies, as well as sharp differences in countries’ attitudes towards using law for reforming budget processes and public financial management.

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.

New EU-Supported Financial Information Management System Public Finance in Serbia

Posted by Michel Lazare

Here is a YouTube video presenting the key features of a new financial management information system introduced in Serbia with the support of the EU-European Reconstruction Agency.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges (Video 3)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the third part of this YouTube video; parts 1 and 2 appear in other posts published today.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges ( Video 2)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the second part of this YouTube video; parts 1 and 3 appear in other posts published today.

Bill Dorotinsky on Public Financial Management Reform -- Trends and Challenges (Video 1)

Posted by Michel Lazare

You liked Bill Dorotinsky's post of June 27 "Public Financial Management Reform -- Trends and Challenges"?

Well, you'll then love the video of this presentation delivered at the ICGFM meeting. Here is the first part of this YouTube video; parts 2 and 3 appear in other posts published today.

Public Financial Management Reform -- Trends and Challenges

Posted by Bill Dorotinsky

On June 18, 2008, I spoke on Public Financial Management Reform: Trends at the the International Consortium on Government Financial Management (ICGFM) monthly speaker series in Washington, D.C.

I took the opportunity to share my personal views on current trends and challenges in public financial management (PFM) reform, drawing on my experience across the globe and multiple institutions. (As I noted, these are not the views of the IMF, or any other institutions with which I have been associated.)

The presentation covered three broad areas:

1. Common PFM reform recommendations, seen across all donors, consultants, etc.
2. Information on what reforms countries have been implementing in recent years
3. Challenges ahead for improving PFM

The PowerPoint can be downloaded here Download public_financial_reform_trends_icgfm_June_2008.ppt

The ICGFM Blog also posted a summary and video of the presentation on their Blog (CLICK HERE).

Food Price Hikes: Equitable and Efficient Subsidies

Posted by Christian Schiller

On June 3 to 5, 2008, a United Nations sponsored conference on world food security took place in Rome Italy. A large number of world leaders were there, including my boss, the Managing Director of the IMF, Dominique Strauss-Khan. He warned that high food prices are a serious humanitarian concern as well as a source of macroeconomic instability affecting, among others, government budgets everywhere in the world. The MD told delegates that the Fund has already doubled financial assistance to four low-income countries affected by food and fuel price hikes and is discussing additional support with another 11 countries.

Mozambique’s Encouraging Progress on Fiscal Transparency

Posted by Teresa Dabán

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

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

Posted by Abdul Khan

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

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

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.

The Importance of Transparency and Accountability in Public Management

Posted by Michel Lazare

Fiscal policy makers, academia, and public financial management practitioners in general agree on the positive impact of transparency and accountability on economic performance and on public confidence and trust in government. Proving this positive impact to the general public in a convincing and accessible manner is, however, often a challenge--a challenge that Maurice P. McTigue, Vice President of the Mercatus Center at George Mason University and former Minister in New Zealand in the early 1990s, seems to successfully meet. Two speeches he pronounced in Louisiana over the last few months attest of his success in this area.

Talking about Taxes....the International Tax Dialogue

Posted by Bill Dorotinsky

You cannot spend what you do not have. Any good PFM system must start with revenue collection. Preferably, sound revenue policies that do not inhibit or distort economic growth. For those eager to keep abreast of the latest developments in tax policy and administration, a very useful reference is the International Tax Dialogue.

The International Tax Dialogue (ITD) was launched in 2002 by the IDB, IMF, OECD, UN and World Bank Group to "encourage and facilitate discussion of tax matters among national tax officials, international organisations, and a range of other key stakeholders."

The site has a library of over 2,700 documents, links to other useful sites, the ability to register as a member and receive newsletters and post tax policy questions, and a searchable database of technical assistance activities. And, the site is available in English, Spanish, French, German, Dutch, Norwegian, Chinese, and Russian.

A sampling of some recent documents posted to the site:

• a report by the U.K.'s Comptroller and Auditor General on "Tackling the Hidden Economy"
• an IMF report on "The Fiscal Implications of Climate Change"
• an OECD paper on "Tackling Cross-Border Tax Evasion"

(despite the many references to 'tackling,' this is not all about American football)

Visit the site and book-mark the page -- you'll want to visit regularly.

Bangladesh Finance Division Web Site

Improving Budget Transparency

Posted by Bill Dorotinsky

Sometimes in searching the internet, you find PFM web sites that are hollow, and sometimes you find very rich sites indeed. And having just been on mission to Bangladesh, it is even nicer to find a Finance Ministry working hard at the reforms mirrored on their web site. The Bangladeshi Finance Division web site is definitely worth a visit.

The site includes a good deal of information about the annual budget, including a budget in brief and the annual budget speech, recent Economic Review, several years of past budgets for reference, and their budget call circular (the latter in Bangla, of course). Of interest to PFM practitioners in particular, the site includes much detail on the Bangladeshi effort to implement a medium-term expenditure framework (MTEF) -- being expanded to 16 of 51 ministries for the FY2008 budget. Through the prior years budgets on the site, one can trace the evolution of the MTEF.

An Official Primer on the US Budget System

Posted by Michel Lazare

The US budget system presents many peculiarities and very few countries around the world share similar features. One striking example is the wide ranging power of the US Congress in shaping the budget. While the UK Parliament, for instance, rarely changes the budget prepared by the UK government, the "Congress considers the President's budget proposals and approves, modifies, or disapproves them, it can change funding levels, eliminate programs, or add programs not requested by the President. It can add or eliminate taxes and other sources of receipts, or make other changes that affect the amount of receipts collected." 1/

There are many excellent (text)books describing the US budget system. One example is the recent book by Allen Schick on The Federal Budget, Third Edition: Politics, Policy, Process.

But there is also an official source: the "Budget System and Concepts"

Download us_budget_system_and_concepts.pdf

The Role of Fiscal Transparency in Sustaining Stability and Growth in Latin America

Posted by Taryn Parry

How can Latin America reduce its vulnerability to financial crises and global slowdowns?

The answer I developed in a recent IMF working paper is for these governments to focus on their full adherence to the IMF Code of Fiscal Transparency. Although there has been a strong rebound in growth in Latin America since the recession early in this decade, the pace of expansion has lagged behind other emerging market countries, and concerns have been raised about their ability to avoid future crises. Fiscal priorities for the region include avoiding procyclical fiscal policies, continuing to reduce public debt, improving the quality of the tax system, and promoting a better business environment. Fiscal transparency can play a critical role in meeting these challenges and remedying weaknesses in fiscal management practices that have been associated with past financial crises.

A Comparative Review of Financial Control in African Countries – an IMF Technical Guidance Note

Posted By Lubin Doe and Sailendra Pattanayak

Is effective control and stewardship exercised in the use of public funds? Are public resources being used for intended purposes and in compliance with respective laws and regulations? Can private sector suppliers of goods and services have reasonable confidence in transacting with the government?

These questions have always been of considerable concern to parliamentarians, government civil servants, the public at large and other stake holders (such as foreign aid providers) in countries with weak public financial management systems. There is a close relationship between the quality of financial control during budget execution and budgetary outcome. Weak financial control in many African countries have led to unbudgeted expenditure, emergence of expenditure arrears, concealment of excess spending, non-compliance with financial regulations, and recourse to exceptional spending procedures. However, the financial control architecture varies across the countries in Africa reflecting the traditions of their former colonial powers and changes introduced over the years.

Poverty Reduction Budget Support -- A DFID Policy Paper

Posted by Michel Lazare

Further to our March 17 post: Is Providing Budget Support to Developing Countries Effective? -- Evaluation of DFID's Direct Budget Support by UK's National Audit Office, which discussed NAO's assessment of effectiveness of budget support, it is important to note that the UK's Department for International Development (DFID) has recently published a policy paper on budget support.

This paper updates DFID's previous policy (dating back to 2004). It draws on the conclusions of a May 2006 multi-donor Joint Evaluation of General Budget Support -- which provided new evidence about the effectiveness of general budget support -- and on the implications of the 2005 Paris Declaration on aid effectiveness.

It "reaffirms DFID's commitment's to using budget support -- alongside other aid instruments -- where it is appropriate to deliver aid to partner governments to reduce poverty. "

Sri Lanka: Improving Transparency and Accountability in Budget Processes

Posted by Justin Tyson

A TV report posted on YouTube in September 2007 provides a short, but interesting, introduction to debates about improving the transparency and accountability of budget-making in Sri Lanka. Topics covered by the video include: the move away from incremental annual budgets towards Activity-Based Budgeting; the need to have more in depth review of expenditure purposes and outcomes; and, the role of parliament in scrutinizing the budget process.

Civil Society and Public Finance

New International Budget Project Budget Briefs Help Civil Society Understand and Engage on PFM

Posted by Duncan Last

The Center for Budget and Policy Priorities (CBPP) International Budget Project (IBP) has just launched a new publication series – Budget Briefs – which aim to keep readers up-to-date on debates and challenging new thinking relevant to the work of monitoring public budgets. They will not only draw on new work by the IBP and its partners but also on new academic literature and developments in the broader governance, civil society and poverty fields. Briefs will be produced as short, accessible reports or think-pieces and will be published on an occasional basis. The first brief focuses on how civil society can help in monitoring donor budget support.

Is Providing Budget Support to Developing Countries Effective? -- Evaluation of DFID's Direct Budget Support by UK's National Audit Office

Posted by Michel Lazare

One of the main changes in development aid policy over the last decade was the decision made by the international community to move away from project aid in favor of direct budget support. This meant shifting away from aid financing specific projects and disbursed outside of the beneficiary country's public financial management (PFM) system (e.g., money deposited on projects' accounts in the commercial banks) to favor generally unearmarked aid funds directly disbursed using the beneficiary country's  PFM system (e.g., direct budget support deposited on the treasury's account at the central bank).

Evaluation of the efficiency and effectiveness of this new aid policy is a key issue for the international community. Just a few weeks before the upcoming Fourth High Level Forum on Aid Effectivemess to be held in Accra (Ghana), the UK's National Audit Office (NAO) has published, on February 8, 2008, a report evaluating DFID's (the UK's development agency) performance in providing budget support. This report titled: "Department for International Development -- Providing Support to Developing Countries", concludes in a nuanced way:

"Evidence on whether budget support has yielded better value for money than other forms of aid is not conclusive. While budget support has some advantages compared to other forms of aid, it also carries significant risks which need to be better managed."

Warm Welcome to "The Kaufmann Governance Post"

Posted by Michel Lazare

Daniel Kaufmann, a well-known authority on governance and one of the key governance experts at the World Bank, has just launched a personal blog: "The Kaufmann Governance Post.

In his first few posts, he shares his view that governance issues are by and large still misunderstood and indicates his intention to clarify misunderstandings with a series of posts to debunk myths about governance. For instance, the March 3 post is about: Myth #1.  Developing countries, and governments in particular, are all rife with corruption, while corruption is virtually absent in much of the rich industrialized world.  Worth reading.

Beyond the substance, PFM Blog also notes the modesty and human dimension relfected in the presentation pages of The Kaufmann Governance Post. Long life and full success to this new blog.

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

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

Posted by Teresa Dabán

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.

The Citizen's Guide to the 2007 Financial Report of the United States Government

Posted by Michel Lazare

On February 14, 2008, the US Treasury Department and the Office of Management and Budget (OMB) released a short report called The Government’s Financial Health:  A Citizen’s Guide to the 2007 Financial Report of the United States Government. The Guide is a short and reader-friendly summary of the key messages contained in the 2007 Financial report of the United States Government, i.e., the annual report on the financial accounts as well as an analysis of fiscal sustainability in the absence of policy changes.

For readers who would not be familiar with the content of the Financial Report, the tone of the Citizen's Guide may be seen as surprisingly candid for an official document. For instance, the title of the reverse of the cover page reads: "The Government Is On An Unsustainable Fiscal Path." the same page indicates that, in the absence of policy changes, by 2080 "total government cost will be more than three times revenue." A good example of fiscal transparency at work.

Similar efforts to enhance transparency and create reader-friendly summary reports of key fiscal messages exist in a number of developed countries. Other undertakings by  Non-Governmental Organizations, like the Open Budget Initiative , also deserve to be noted in this area.

Automating financial management systems -- it's not just the hardware

Posted by Bill Dorotinsky

As donors and governments spend enormous sums of money on automating financial management information systems in countries around the world, a great deal of attention is paid to the hardware and computer software. Debates over off-the-shelf or customized software, getting the right hardware, and setting up the right procurement arrangements, would fill volumes. But some recent cases illus rate the importance of paying attention to the 'soft' systems that surround the automated system -- the human systems that both serve and are served by the FMIS, the rules and controls embedded in and surrounding the systems.

On February 17, 2007, the Ugandan Daily Monitor broke a story ("Exposed: money racket in government") on an alleged scam being run from the Ministry of Finance and Ministry of Public Works, where fictitious suppliers where created in the computerized database, and payments were made to these suppliers for fictitious goods and services delivered. The article describes some of the means used to skirt what controls did exist, and but also illustrated that there were other controls missing.

A continent away, in Washington, D.C., a similar story unfolded in the District of Columbia tax office, where sham corporations were recorded in the automated information system, and tax refunds approved for these corporations. In some cases, the properties did not even exist, indicating absence of automated data-matching with property records or tax records to help control for such abuses. (See , for example, the November 14, 2007, Washington Post article, "D.C. Tax Scam Could Total $32 million".)

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.

President Bush: "The People's Trust in their Government is Undermined by Congressional Earmarks" (2008 State of the Union Address)

Posted by Michel Lazare and Bill Dorotinsky

Here is a YouTube video on an excerpt from President Bush State of the Union Address (January 28, 2008). In this part of his speech, the President asks Congress to make further efforts at cutting earmarks.

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

Posted by Michel Lazare

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

Eyes wide shut? Understanding the politics of government auditing

He who lives outside the budget lives in error.
            Carlos Fuentes, La Silla del Águila, 2003.

Posted by Carlos Santiso (AfDB)

In the second generation PFM reform, strengthening transparency and accountability in public finances is a defining challenge for emerging economies seeking to foster fiscal responsibility and curb corruption. There is thus renewed interest in those oversight agencies tasked with scrutinizing public spending and enforcing horizontal accountability within the state.

Recent research by Carlos Santiso, titled Eyes Wide Shut? The Politics of Autonomous Audit Agencies in Emerging Economies, explores the external oversight of public finances. It models and measures the effectiveness of autonomous audit agencies, developing an index to evaluate their performance, and assesses their reform over time. It examines the institutional trajectory of the AAAs of Argentina, Brazil and Chile, which illustrate the three models for organizing the external audit function in modern states and three distinct trajectories of reform (or lack thereof).

IFAC World Accountancy Forum:

Government, the Accountancy Profession and the Public Trust: Current Initiatives and Future Challenges

Posted by Richard Allen

The International Federation of Accountants’ (IFAC) held its 30th Anniversary World Accountancy Forum on December 4, 2007, in New York. The forums theme covered the accountacny prfoessional and the public and private sectors as well as civil socity. Three forum sessions covered Imperatives for Strengthening Government Accountability; Convergence of Accounting and Audit Standards; and Finding the Right Balance between Corporate Governance, Oversight and Business Growth. The second and third topics were primarily focused on private sector accounting and oversight practices; the first, however, tackled issues of enormous importance for public finance.

African Parliamentarians Discuss Ways to Promote Good Governance in the Management of Public Finance

Posted by Lubin Doe

The training center known as the Joint Africa Institute (JAI), created by the World Bank, the IMF and the African Development Bank (ADB), organized a five-day seminar in Tunis on the “Role of Parliamentarians in Promoting Good Public Financial Management (PFM) and Accountability.”

The seminar regrouped 26 legislators and officials from 8 English-speaking African countries (Ethiopia, Ghana, Liberia, Malawi, Mauritius, Rwanda, Sudan, Tanzania and Uganda). The team of presenters included Messrs Mitchell O’Brien (World Bank), Lubin Doe (IMF), Per Eldar Sovik (ADB), Augustine Ruzindana (African Parliamentarians Network Against Corruption), Adams Fusheni (Canada Parliamentary Center) and Niall Johnston (parliamentary consultant).

OECD Celebrates 10th Anniversary of its Anti-Bribery Convention

Posted by Luc Leruth

On November 21, 2007 in Rome, the OECD celebrated the 10th anniversary of its "Convention on Combating Bribery of Foreign Public Officials in International Business Transactions."

The meeting was chaired by Secretary General Angel Gurria and opened by Mr. Romano Prodi, the Italian Prime Minister. It ended with the unanimous adoption by all 37 states party to the convention of a statement reaffirming their commitment to fight bribery of foreign public officials in international business transactions.  Download Statement.pdf

For details on the 10th Anniversary Convention, please click here.

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

Posted by Michel Lazare

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

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

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

Posted by Bill Dorotinsky

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.