Turkey’s Successful Modernization of Treasury Operations

 Posted by Yasemin Hurcan[1]

In ten years that followed the 2001 economic crisis in the country, Turkey managed to halve its debt to GDP ratio. As a result, Turkey was selected as a benchmark country for debt reduction in the World Bank’s 2012 report “Golden Growth: Restoring the Lustre of the European Economic Model”. A recently published book[2] entitled “Treasury Operations in Turkey and Contemporary Sovereign Treasury Management” discusses how the Turkish Treasury managed to decrease its debt by, amongst other things, restructuring the Treasury’s operations and management. The publication is available as an e-book.

New FAD Technical Note and Manual: Cash Management and the Relationship Between Treasury and Central Bank

Posted by Renaud Duplay

Cash management is one of the main issues when reforming PFM systems in developing countries. Bad cash management is costly because it hampers budget execution, causes arrears and increases funding costs. For this reason the Fiscal Affairs Department (FAD) has already released two Technical Notes and Manuals (TNMs) on this subject and is now releasing further guidance material. A new TNM, prepared by Mario Pessoa and Mike Williams, expands the review of cash management issues by specifically addressing the relationship between the treasury and the central bank.  

The note was prepared at the request of the Latin American Treasurers' Forum (FOTEGAL) and addresses both institutional and technical issues and is particularly relevant to developing countries. Based on international experience, the TNM describes the modern framework of a formalized relationship between both institutions standing on two key principles:

Recent Meetings of the PEMPAL Network in Europe and Central Asia

Posted by Deanna Aubrey, PEMPAL PFM Adviser

The three ‘communities of practice’ of budget, treasury, and internal audit of the Public Expenditure Management Peer Assisted Learning (PEMPAL) network had a series of meetings in the first six months of 2012. PEMPAL covers up to 22 governments in the Europe and Central Asia region and brings practitioners together regularly to discuss common priority issues in PFM reform. PEMPAL is supported by the World Bank, Switzerland’s State Secretariat for Economic Affairs (SECO), the Russian Federation, and OECD SIGMA.

Members of Treasury Community of Practice (TCoP) gathered in Tbilisi, Georgia from February 27-29. Treasury experts from 10 countries met to learn more about Georgia’s PFM reforms implemented by the State Treasury Service, who co-hosted the meeting. The workshop was an opportunity to exchange experiences in modernizing national treasury systems particularly related to issues of integration of external financing. Participants also had the opportunity to visit the customs clearance zone of the Ministry of Finance in Lilo district in Tbilisi as an example of modernization public services through information technology. More information can be found at http://www.pempal.org/event/read/55 and in IMF’s PFM blog at http://blog-pfm.imf.org/pfmblog/2012/04/georgian-state-treasury-hosts-workshop-on-treasury-and-external-financing-reforms.html

Fifty-seven participants from Ministries of Finance from 18 ECA countries from Budget Community of Practice (BCOP) met in Bohinj, Slovenia on March 27-29 to exchange experiences in program budgeting as part of the Budget Community of Practice (BCOP) work program. Country cases of France, Australia, Poland, and Slovenia were showcased and reform progress shared by Kazakhstan, Russian Federation, Armenia, Croatia, and Bosnia and Herzegovina. Most PEMPAL member countries have implemented elements of program budgeting including defining and identifying programs, formulating program objectives, and selecting performance information. However, the quality of performance information remains generally poor, is in many cases not systematically monitored, and has limited influence on budget decision making. Countries acknowledge that the reform process is long and ongoing and are planning on exchanging information and meeting more on this topic in the future. More information can be found at http://www.pempal.org/event/read/58 and in IMF’s PFM blog at http://blog-pfm.imf.org/pfmblog/2012/05/program-budgeting-is-on-the-reform-agenda-across-europe-and-central-asia.html

New Zealand to Legislate an Expenditure Rule

Posted by Ian Lienert

Euro-zone countries are being admonished by the EU to strengthen their fiscal frameworks, including by introducing a legislated budget balance rule in national legislation. On the other side of the globe, the New Zealand Government has announced that its fiscal framework will be strengthened, by introducing a spending fiscal rule in amended legislation. The similarity of the EU and New Zealand actions is striking, given the large differences in fiscal consolidation needs. For example, Euro area gross general government debt was nearly 90 percent of GDP in 2011, in contrast to New Zealand’s relatively low ratio of 44 percent. [1]

The New Zealand Government’s announcement was preceded by considerable analysis and strong criticism by some commentators. The Government’s advisor, the Treasury (New Zealand’s “ministry of finance”), while supporting self-imposed limits on new spending as a means of controlling growth in expenses, does not support a legislatively embedded formula-based spending limit.[2] However, because of the Government’s agreement with a minor political party there is a proposal to amend the Public Finance Act, which, if enacted, would make the new fiscal rule permanent, unless a future government initiates its repeal.

Georgian State Treasury Hosts Workshop on Treasury and External Financing Reforms

Posted by Ion Chicu, World Bank, and David Tsekvava, Deputy Head of State Treasury, Ministry of Finance, Georgia 

A three-day PEMPAL [1] Treasury Community of Practice (TCOP) workshop was held in Tbilisi, Georgia on February 27-29, 2012 on public finance reform progress related to Treasury systems and external financing.  Fifty participants from ten countries attended (Albania, Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan and Ukraine).  Experts from the World Bank provided information on regional and international developments and technical support to the discussions.  The meeting was hosted by the State Treasury of the Ministry of Finance of Georgia who proved to be warm and wonderful hosts.

The meeting followed from an earlier meeting in Astana, Kazakhstan on September 27-29, 2011 whereby more than 80 participants from 17 countries from the Bank’s Europe and Central Asia (ECA) region met to discuss progress in implementing integrated financial management information systems across the region. Many TCOP member countries are the recipients of external financing in various forms and a need was identified for a smaller group meeting to address the issues associated with the effective management of external financing.  The practical problems faced in the process of integrating external financing into national budget systems are widely known. In many cases the challenges are related to the fiduciary requirements of the donor organizations. National systems do not always fully fit those requirements, which leads to the use of parallel mechanisms, such as those often established to implement donor-funded investment projects.  Within the framework of public financial management (PFM) reforms, and consistent with the principles espoused by the Paris Declaration of Aid Effectiveness, PEMPAL member countries have been pursuing the objective of integrating external financing into all stages of the budget process. 

La Cuenta Única de Tesorería es una herramienta esencial para la gestión de tesorería del gobierno: Nueva nota técnica del Departamento de Finanzas Públicas

Publicado por Sailendra Pattanayak

La cuenta única de tesorería (CUT) es un prerrequisito esencial para una gestión de caja eficaz y es una herramienta clave que permite al ministerio de hacienda o de finanzas establecer la supervisión y el control centralizado de los recursos  de tesorería del gobierno. También proporciona otros beneficios y, por ende, mejora la eficacia global del sistema de gestión financiera pública (GFP). En particular, la CUT facilita una mejor coordinación fiscal, de la gestión de la deuda y de la política monetaria, así como una mejor conciliación de los datos fiscales y bancarios, lo que a su vez mejora la calidad de la información fiscal. El establecimiento de la CUT reduce considerablemente los costos del servicio de la deuda pública, las necesidades de reservas líquidas, y ayuda a maximizar el rendimiento de las inversiones del excedente de efectivo.

El Departamento de Finanzas Públicas del FMI ha publicado recientemente una nueva nota técnica de la serie Notas Técnicas y Manuales  titulada La Cuenta Única de Tesorería: Una herramienta esencial para la gestión de tesorería del gobierno. Esta nota se basa en gran medida en el anterior documento de trabajo del FMI “Treasury Single Account: Concept, Design and Implementation Issues”, preparado por Israel Fainboim y por mí,[1] y publicado en el blog PFM el 12 de julio de 2010. En la nota se examinan las principales características de la CUT, posibles estructuras alternativas de la CUT y los sistemas de procesamiento de transacciones correspondientes, así como varias cuestiones relativas al diseño y a las condiciones previas que deberían abordarse para establecer un sistema de CUT. Además, se explican los principales pasos que deberían seguirse para implementar la CUT y se proporcionan directrices prácticas sobre la contabilidad y la presentación de informes en un régimen de CUT, conciliación bancaria y acuerdos con los bancos sobre los servicios para la gestión de la CUT.

Treasury Single Account is an Essential Tool for Government Cash Management – A New FAD Technical Note & Manual

Posted by Sailendra Pattanayak

A treasury single account (TSA) is a prerequisite for effective cash management and is a key tool for the ministry of finance/treasury to establish oversight and centralized control over government’s cash resources. It also provides a number of other benefits and thereby enhances the overall effectiveness of a public financial management (PFM) system. In particular, a TSA facilitates better fiscal, debt management, and monetary policy coordination as well as better reconciliation of fiscal and banking data, which in turn improves the quality of fiscal information. The establishment of a TSA significantly reduces the government debt servicing costs, lowers liquidity reserve needs, and helps maximize the return on investments of surplus cash.

A new Technical Note and Manual (TNM) entitled “Treasury Single Account: An Essential Tool for Government Cash Management” has recently been published by the IMF Fiscal Affairs Department (FAD). This TNM is largely based on the previous IMF working paper “Treasury Single Account: Concept, Design and Implementation Issues,” authored by Israel Fainboim and myself,[1] and published on the PFM blog on July 12, 2010. The TNM discusses the main features of a TSA, alternative TSA structures and associated transaction processing systems, and various design issues and preconditions that need to be addressed for setting up a TSA system. In addition, it explains the key sequential steps for implementing a TSA and provides practical tips on accounting and reporting under a TSA regime, bank reconciliation, and service level agreements with banks for TSA operation.

PEMPAL Treasury Community of Practice Workshop on Use of Information Technologies in Treasury Systems

Posted by Deanna Aubrey, PEMPAL Community Facilitator

On September 27-29, 2011, PEMPAL[1] Treasury Community of Practice (TCOP) held a workshop in Astana, Kazakhstan. Astana provided a spectacular backdrop for the meeting with the modern capital, only established some 14 years ago, preparing for events to celebrate Kazakhstan’s 20 years of independence.

Most countries participating in the TCOP from the Europe and Central Asia (ECA) region are in the process of modernizing or developing their Treasury information systems and many of them are either considering or already moving towards expanding system functionality and creating integrated Financial Management Information Systems (FMIS).  Given the importance of this theme to TCOP PEMPAL members, PEMPAL already organized previous meetings, including on the use of digital signatures in treasury operations, and more are planned for the future. The Astana meeting focused on the development and application of FMIS solutions, as well as the effective utilization of such web-based platforms for the public financial management needs of decentralized budget institutions and their spending units, in support of various reforms such as improvements in accounting and reporting and strengthening internal control frameworks.

Cash Management: More Than Just Public Financial Management

 
Posted by Greg Horman

The overriding objective of cash management is to ensure that the government is able to fund its expenditure in a timely manner and meet its obligations as they fall due. Cost-effectiveness, risk reduction, and operational efficiency are also important. Cash management is a critical, albeit not so visible, dimension of effective public financial management, with important linkages to monetary policy implementation. More precisely, cash management encompasses two distinct but related activities: cash flow forecasting and cash balance management. The former is concerned with these questions: (i) Over a given time period (daily, weekly, monthly, and so on), what is the volume of the government’s aggregate cash inflows and outflows? (ii) At the end of each time period, what is the balance of cash at hand? The latter is concerned with this question: (iii) What actions does the government take to ensure that it has the “correct” amount of cash at hand at any point? This posting highlights some of the issues related to managing cash balances, which is not very well covered in the public financial management literature.

Changes in the daily cash balance of the treasury single account (TSA), domiciled at the central bank, are mirrored by changes in banking sector liquidity. Indeed, they may be the most significant autonomous influence on liquidity. The central bank takes these changes into account in its monetary policy operations. Effective cash management is characterized by agreement between the ministry of finance and the central bank on the flow of information from the ministry of finance to the central bank on the likely future size of the TSA. Ideally, this should be provided in real time, or at least before the start of each day. Insofar as the ministry of finance can manage its cash flows reasonably tightly around a target balance for the TSA, the government’s cash balance becomes largely neutral for monetary policy purposes.

Discussions of PEM PAL Treasury Community of Practice on Public Sector Accounting and Reporting Reforms

Posted by Anila Çili (Director, Central Harmonization Department on Financial Management & Control
Ministry of Finance, Albania) and Deanna Aubrey (Budget, Treasury and Internal Audit Community Facilitator, PEM PAL CEF Secretariat, Center of Excellence in Finance, Slovenia)

 
From 18-22 April 2011, 41 participants from Ministries of Finance and Treasuries from 15 European and Central Asian countries[1] met in Ljubljana, Slovenia to discuss public sector accounting and reporting reforms as part of the ongoing network activities under the Public Expenditure Management Peer Assisted Learning Program (PEM PAL) program.[2]  This program has 21 member countries from across the Europe and Central Asia (ECA) region who regularly meet in ‘communities of practice' to discuss reform issues in the areas of budget, treasury and internal audit (www.pempal.org). The event was also linked to a conference on international trends in public sector accounting reforms organized by the Center of Excellence in Finance, Ljubljana Slovenia held on 20-22 April.[3] The conference involved discussions on the increased role of accounting in the public sector, especially in the post financial crisis era, its evolution in the recent years and the lessons learned.

How Exceptional Expenditure Procedures Interfere with Good Governance in Francophone Africa

Prepared by Jean Pierre Nguenang

 
In francophone countries, two types of public expenditure execution procedures exist: normal procedures (subject to ordinary law) and waiver (or exceptional) procedures. The second differs from the former in that they are far less stringent. Spending, managed through the normal procedure, involves two major phases: the administrative phase and the accounting phase. The administrative phase comprises three successive expenditure execution stages: commitment, verification, authorization. The accounting phase deals with payments and bookkeeping. There are multiple waiver procedures that can derogate from normal procedures. These are discussed below in some detail. While the original rationale for such exceptional procedures may have been understandable – accelerating emergency expenditure – the practice has long become one of bypassing appropriate checks and balances. The practice undermines budget credibility and fiscal discipline, leads to misreporting of government expenditure, and provides scope for misappropriation and, in the worst case, misuse of government resources.  

2nd Annual Regional Seminar of the Latin American Treasurers Held in Mexico City (March 16-18, 2011)

Posted by Israel Fainboim

 
An initiative launched by the Fiscal Affairs Department (FAD) of the IMF two years ago and supported by the Inter American Development Bank and the World Bank, to create a forum for the Latin American Treasurers to discuss treasury management issues on a regular basis, organize an annual seminar, and create a web page for exchanging ideas and materials, has been a success.

In April 2010 the Peruvian Treasury, under the direction of Mr. Carlos Diaz, did an excellent job in hosting the first seminar on treasury management. The 2010 seminar discussed cash planning, cash balance targeting, the adoption of a treasury single account (TSA), and the use of information systems for treasury and cash management. During that seminar the treasurers agreed to get organized, to propose an action plan, and to develop a web page. These and other objectives were included in a document signed by all of them, which was called the “Lima Declaration.”

Le compte unique du Trésor : une idée révolutionnaire…en 1806!

Billet de Franck Bessette        

 
Si le concept de Trésor public a vu le jour en France au XIII^ème siècle, en ce sens que les fonds publics ont été séparés de la caisse personnelle du roi, la monarchie française a continué à recourir à des comptes distincts pour divers usages. Le concept du Compte unique du Trésor (CUT) a été le produit des difficultés qu’ont éprouvées pendant de longues années les divers gouvernements révolutionnaires qui se sont succédé après 1789 pour satisfaire leurs besoins de liquidités. Pendant l’essentiel de la période révolutionnaire, ce sont des banquiers privés («faiseurs de services»), dont certains se chargeaient de collecter les impôts, qui avançaient à l’État les liquidités nécessaires, mais à un coût très élevé. L’institution du Compte unique du Trésor a été l’aboutissement d’un long processus qui s’est accompli pour l’essentiel au cours de la première moitié du XIX^ème siècle. Il serait difficile de faire ici l’historique détaillé des réformes du système du Trésor en France au cours de cette période, mais on peut distinguer trois grandes étapes.

Treasury Single Account: A Revolutionary Idea…in 1806!

Posted by Franck Bessette        

 
While the concept of a State Treasury (le Trésor in French) was created in France in the XIIIth century in the sense that public monies were at that time separated from the king’s personal cash-box, the French monarchy still used separate bank accounts for various purposes. The concept of the Treasury Single Account (TSA) in France was the result of the long struggle of the various revolutionary governments after 1789 to meet their cash needs. During most of the revolutionary period, private bankers, some of them in charge of collecting taxes, were providing central government with the necessary cash but at a very high cost. The creation of a TSA in France was a gradual process, mostly accomplished during the first half of the XIXth century. It would be difficult here to give a detailed account of the reforms of the Treasury system in France during this period but this post would like to briefly underline the three major steps of this process.

Now that’s Fiscal Policy, Mate!

Posted by Jason Harris[1]

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

UK Public Finances Opened Up to Scrutiny

Posted by Suzanne Flynn

Last week, for the first time, the UK Treasury released the Combined On-line Information System—known as COINS—covering millions of individual lines of public sector expenditure. It is one of a raft of Whitehall databases to be made public as part of the new coalition government's commitment to greater openness (salaries of top civil servants earning over £150,000 is another). Naturally, the British press has leapt on some key data from the database: a headline in at least two broadsheets proclaimed that during the past year the (old) government spent 1.8 billion pounds on consultants alone. Easy to criticize the spending, but the detail does not tell us what those consultancy contracts achieved.
 
The Treasury press notice hailed it as ''the most detailed UK public expenditure data ever released''. However, it also suggested it would be of more interest to ''institutions and experts'' than the ordinary public as the material was ''complex'' and was being released ''in its raw form, requiring technical expertise to process''. My experience confirmed this, I failed to download the main data files (only the adjustment files which then had to be uploaded into MS Access to be meaningful), it seems the main file is too large for my PC to cope with, once downloaded the files are in access of 500Mb. The Treasury has helpfully provided a 31 page guidance note and a promise that more directly useful and accessible datasets that draw on the contents of the COINS databases will be available from August this year. Already software companies have developed solutions to enable easy access and data manipulation.

State Treasurers of the World Unite!

Posted by Holger van Eden

Last week the Peruvian government hosted a well-attended seminar in Lima on Treasury Management in Latin America (program attached below). The seminar was co-organized and supported by the IMF, the World Bank, and the Inter-American Development Bank. More than 17 countries participated. There were presentations from the international organizations on various aspects of treasury management, and from State Treasurers on ongoing reforms in their countries. The seminar was opened by the Peruvian Finance Minister Mercedes Araoz. At the end of the seminar, the participants decided to set up an international professional association for State Treasurers to enhance exchange of expertise and experiences. For further information interested parties can access the seminar webpage. The international organizations indicated their support for the initiative through a joint statement presented by Fiscal Affairs Department senior advisor, Ms. Adrienne Cheasty (joint statement attached below). A yearly international seminar on aspects of treasury management is foreseen. Mexico volunteered to host next year’s event.[1]

Government Payroll Management: Removing the Ghosts in the Databases

Posted by Franck Bessette

The wage bill is usually one of the biggest items of government expenditure and susceptible to weak control, misappropriation, and even corruption. From an expenditure policy perspective, the political economy of wage bill management often creates inflexibility because of pay increases linked to the electoral cycle, political preferences for wage scale compression, political or electoral based hiring, or the role of trade unions which favor seniority based promotions and management through the number of positions. This policy issue nevertheless requires a proper understanding of public financial management perspectives and the use of appropriate tools for budgeting and controlling personnel expenditures.

This post, based on a small sample of countries, looks at some PFM instruments and their linkage to personnel management issues.

Government Cash Management During Financial Market Turmoil

Posted by Ian Lienert and Alexandre Chailloux[1]

Two important objectives of cash management are to minimize idle balances in government bank accounts and to maximize returns on excess balances in the main treasury operational account held at the central bank. Stabilizing the size of treasury balances also has the merit of simplifying central banks’ liquidity management.[2] To that end, modern cash managers avail themselves of safe financial market instruments, especially reverse repos.

But what happens when financial markets are in turmoil and the repo market evaporates? What should modern cash managers do when one of their main instruments for managing daily surpluses or deficits of government cash becomes unavailable? This blog examines what happened in France during 2008–09 and how the cash management agency (Agence France Trésor or AFT) reacted to the unusual circumstances brought on by financial market turmoil.

Are Governments Obliged to Bail Out their Central Banks?

Posted by Ian Lienert

With a worldwide financial crisis in full swing, central banks are being called upon to provide support to an ailing financial sector. In some cases, central bank credit is being provided directly to financial institutions. What are the risks that the central bank itself will not be able to support the financial cost of these operations? Will the government have to step in and bail out its central bank? Is there any chance that the central bank will become bankrupt?

An IMF Working Paper published in February 2008 examines government legal obligations to recapitalize central banks when their balance sheets became seriously impaired. The paper indicates that even in cases where the government is nominally responsible for maintaining the financial strength of the central bank, it may do so only in a cosmetic fashion. In a number of countries, governments have not provided central banks with financial support on a timely basis, leaving them excessively reliant on seignorage to finance their operations and/or forcing them to abandon monetary policy objectives.

World Bank—Sovereign Debt Management Forum (October 27-29, 2008)

Posted by Brian Olden

The World Bank hosted the Fourth Sovereign Debt Management Forum between October 27–29, 2008 in its Washington, D.C. headquarters. Despite the ongoing turmoil in world financial markets, the event was well attended, with representatives from over 55 advanced OECD, emerging, and low-income countries (LICs), as well as representatives from international institutions, including the IMF and the EU.

The forum was very timely, given the current market turmoil, and naturally much of the discussion centered around the impact of the crises on economies, in general, and on debt management operations, in particular.  Much of the focus was on what the role of debt managers will be in helping to mitigate the effects of the crises on economies in the short and medium-term.

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.

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.

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).

Post-conflict PFM -- IMF Lessons of Experience

Summary of lessons from FAD support

Posted by Bill Dorotinsky

The challenges of rebuilding fiscal institutions in post-conflict settings are daunting. An April 23, 2008, post summarized some lessons from USAID experience. The IMF Fiscal Affairs Department (FAD) has been directly involved in rebuilding fiscal institutions. Work done in 2004 summarized FAD's experience and some key lessons --- lessons reinforced by the recent USAID paper.

FAD experience was summarized in a 2005 Occasional Paper 247, Rebuilding Fiscal Institutions in Postconflict Countries, by Messrs. Gupta, Tareq, et. al. The work draws on background papers prepared in 2004, including a December 2004 paper "Rebuilding Fiscal Institutions in Post-Conflict Countries," and October 2004 case study summary Background Paper for "Rebuilding Fiscal Institutions in Post-Conflict Countries" (both available electronically).

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.

Cash management -- IMF Technical Guidance Note

Posted by Ian Lienert

Do you manage your own cash well? Can you always pay your bills on time? Do you borrow unnecessarily? Do you have balances in bank accounts that are not receiving the best interest rate? Just as individuals are concerned about managing their cash well, so are governments. In practice, however, not all governments manage cash well. Some countries have unremunerated balances in thousands of bank accounts, yet at the same, they are borrowing from domestic or external creditors at market interest rates. Commercial banks and other purchasers of government bonds are very happy with such arrangements.

A new IMF FAD Technical Guidance Note on Cash Management, prepared by Ian Lienert of the Fiscal Affairs Department, explores how countries can improve their cash management practices and eliminate some of the inefficiencies in current practices. [Download cash_management_guidance_note__lienert_.pdf ]

PFM Reform Lessons – Building a Treasury in Indonesia

Posted by Bill Dorotinsky

Public financial management (PFM) is at the center of the development agenda. Sound PFM systems are essential for countries to maintain macrofiscal discipline, achieve national objectives, and use resources efficiently – regardless of the source of financing. Sound PFM systems are an essential component for giving substance to the 2002 Monterrey Consensus (proposal for a new partnership of mutual accountability between countries and development partners), the Paris Declaration on Aid Effectiveness (2005), and for countries to achieve their national objectives and the Millennium Development Goals.

Despite the centrality of PFM, there is still much to learn in terms of improving PFM reform outcomes, building capacity, and strengthening country systems durably. The process of learning what works and how best to support reforms is an on-going effort, with some important lessons emerging (see December 21 post on Mozambique). A recent IMF Survey On-line post on Indonesia cash management reform by FAD staff member Ian Lienert adds to our understanding, providing some useful lessons of PFM reform.

Update on: Public Cash Management and the Subprime Loan Crisis: Be Aware of Financial Investment Risks

Posted by Michel Lazare

Last week, PFM Blog published a post on "Public Cash Management and the Subprime Loan Crisis: Be Aware of Financial Investment Risks."

Since then, PFM Blog learned that limits on cash withdrawals from the Florida investment pool will soon be somewhat relaxed.

The Palm Beach Post reported that "local government officials across Florida were told [on January 3] that by the end of [January] they can expect to freely remove up to 21 percent of their balance from the state-run investment pool that is either frozen or subject to withdrawal penalties."

See the full Palm Beach Post article for further details.

Public Cash Management and the Subprime Loan Crisis: Be Aware of Financial Investment Risks

Posted by Michel Lazare

Effective cash management is one of the basic pillars of sound public financial management. The essence of effective cash management is conservation of cash. This includes minimizing idle cash balances by: (a) keeping on the government's account only the working cash balances needed to face day-to-day routine expenditures and the cash needed to face immediate financial obligations; (b) investing the remaining cash on liquid and interest-earning financial assets.

So far, so good. But, like any other financial investment, investing cash may present risks. A January 1, 2008, article in the New York Times provides a good illustration of the potential risks involved: municipalities in Florida have become victims of the subprime loan crisis.