Legislative Oversight and Budgeting – A World Perspective

Posted by Ian Lienert

The legislature has three core functions—representation, lawmaking, and oversight. The oversight function is perhaps the least studied and practiced. This is perhaps because oversight is bolstered somewhat less by external institutions. Oversight involves assessing implementation processes. It comes toward the end of the policy process, during the implementation of laws. In many countries, even those with a formal separation of legislative policy making and executive administrative powers, oversight provides the opportunity for legislators to participate in implementation. When it comes to budgeting, evaluation is needed to assess how well policies have been implemented. Legislative oversight includes examining fidelity to budget laws, probity in spending, efficiency in choices, and the effectiveness of the budget in producing the desired outcomes. Since it is the legislature that examines executive behavior, oversight is also a tool for checking the behavior of the budget system’s single most powerful political actor.

Although policy making and lawmaking are central tasks of the legislature, concern with the implementation of law is the realm of legislative oversight. A World Bank Institute book, published in 2007, examines the different facets of how executives implement budget laws. This book, edited by Rick Stapenhurst, Riccardo Pelizzo, David Olson, and Lisa von Trapp, and originated in large part with the concern of practitioners about increasing and improving the part played by legislative oversight in governing developing democracies. As part of its governance program, the World Bank Institute seeks to strengthen parliamentary oversight and to promote enhanced government accountability and transparency. The book is an eclectic compilation that samples the worlds of practice and scholarship.

Invitation to Participate in WB Public Sector Pay Survey

Posted by Bill Dorotinsky

The World Bank's Latin America and Caribbean (LAC) Region public sector group is inviting interested parties to participate in a brief on-line survey on public sector pay. The small and purely indicative survey is on the implicit principles behind pay setting in the public sector - and the implications for those private sector institutions that are now receiving significant public sector funding because of the crisis.

The background is that since the last quarter of 2008, governments across the OECD have responded dramatically to the financial crisis: some $500 billion was invested in the financial systems of developed countries by the end of 2008. The Emergency Economic Stabilization Act in the USA, the UK Government’s credit guarantee scheme, and similar developments elsewhere have turned governments into the effective owner of a number of banks, brokerages, and even insurance firms.

There are some signs that public sector pay-setting principles are beginning to apply to subsidized private sector entities.  In the US, on February 4 new compensation rules were issued to cap the pay of senior executives at firms that receive significant rescue funds through the Troubled Asset Relief Program (TARP). (See www.worldbank.org/lacpublicsector for further details in English, or http://go.worldbank.org/A3XRERDLV0 for details in Spanish.)

The World Bank LAC region may be issuing a longer working paper on this topic - if these indicative survey results do provide a justification for asserting that there are indeed some principles at work here.

Interested participants should complete the brief survey by April 17, 2009.

The English language on-line survey is at: https://www.surveymonkey.com/s.aspx?sm=xS20H_2fC9_2bVkbspoOz3yYDg_3d_3d.

The Spanish language version is at:  https://www.surveymonkey.com/s.aspx?sm=v_2bCTjgKu5JByJybmQjY8Wg_3d_3d

For further details, contact Nick Manning, Sector Manager, LAC public sector, The World Bank at nmanning@worldbank.org

Strengthening Political Economy Analysis to Address the Resource Curse

Posted by Teresa Dabán

photo by Ellie Sandercock (CC)

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

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.

Strengthening Ministries of Finance

By Bill Dorotinsky

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

The IMF Hosts the Second Annual Seminar and Annual General Assembly of the AIST

Posted by Jean-Luc Hélis

On October 14 and 15, 2008, on the heels of its Annual Meetings, the IMF hosted the second annual seminar and Annual General Assembly of AIST. The International Association of Public Treasury (AIST--its French acronym) is an international association of treasuries officially created in May 2007. Its objectives are as follows: (1) promoting the sharing of information and experience, and cooperation among public treasury services; (2) organizing conferences and seminars, and publishing reports, studies, and documents relating to treasury issues; and (3) developing partnerships with international organizations. The AIST is currently presided by Morocco (the president is M. Ibrahimi, General Treasurer of the Kingdom of Morocco) with the French Public Finance General Directorate holding the Secretariat. The membership is composed of treasuries from many French speaking countries in Africa, the Middle East, or Asia, but also includes treasuries from many other countries (e.g., Hungary, Ghana, Russia, Ukraine, etc.) Other countries, not yet members of the association, can be invited to participate to the AIST’s activities. The IMF, as well as the World Bank, are members.

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

By Lubin Doe

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

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

Are Government Debts Really Irresponsible?

Posted by Andy Wynne

Disclaimer: Andy Wynne, an independent consultant,  is the editor of the International Journal of Governmental Financial Management; the point of view he expresses in the following post is not necessarily shared by either PFM Blog or the IMF.

In recent years it has been assumed that fiscal discipline should be one of the main objectives of public financial management. Thus, for example, the World Bank cites aggregate fiscal discipline as the first of the three much quoted objectives for public expenditure management.1/ The European Union has set targets of 3% for annual fiscal deficit and 60% for government debt. Several countries are adopting fiscal responsibility acts which limit the fiscal deficits which their governments are allowed to apply when setting their annual budgets.

The financial crises in Mexico (1994-95), Southeast Asia (1997) and Russia (1998) brought extensive economic dislocation, fiscal hardships and liquidity problems for the governments of these countries. The debt crisis for the governments of many developing countries over the last two decades had a similar effect and made them dependent on policy advice from the World Bank and IMF. Having suffered these problems it is a question of once bitten, twice shy. Many governments now accept the need to constrain their public expenditure to avoid future debt problems. However, in doing so they may not undertake much needed investment in public infrastructure which could be essential to achieve optimal economic growth in the future.

Public Financial Management and Fiscal Outcomes In Heavily Indebted Sub-Saharan African (SSA) Countries

Posted by Tej Prakash

A substantial amount of donor aid, estimated to be around US$60 billion from bilateral and multilateral sources, is expected to flow to SSA in the coming years to help these countries alleviate poverty and achieve the Millennium Development Goals (MDG). Also, to provide relief from debt burden, the International Monetary Fund (IMF) and the World Bank (WB) decided to forgive debt to these countries. However, the Bank and the Fund wanted to ensure that these countries had the capacity both to spend this money meaningfully, and to track the actual spending at the lowest level. Hence improvements in PFM systems in these countries was an essential part of debt forgiveness initiative.

In this paper on PFM and Fiscal Outcomes In Heavily Indebted sub Saharan African (SSA) Countries, we try to determine the effect of PFM systems on key fiscal outcomes such as budget balance and overall debt. We use data from two PFM assessments by the IMF and the World Bank in 2000 and 2004 as a part of the debt forgiveness exercise for this group of 22 countries in SSA.

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.

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

Posted by Sanjay Vani, World Bank

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

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

Measuring Performance In Public Administration

Latvian 4th International Public Management Summer Institute

Posted by Bill Dorotinsky

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

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

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

The Road Less Travelled to an MTEF

Posted by Ismail Manik, consultant, World Bank Institute*

The case of Tajikistan is illustrative of a not too ambitious yet well-sequenced attempt at introducing a Medium-Term Expenditure Framework (MTEF). The Ministry of Finance started initial work on an MTEF in 2000 but the effort did not have a major impact on improving budget planning. The rating from a recent PEFA assessment for the indicator PI-12, ‘Multi-year perspective in fiscal planning, expenditure policy, and budgeting’, is a D+. Another major problem was the fragmentation of the budget; for example the Ministry of Education and the Ministry of Health controls only around 9 and 10 percent of their sectoral budgets,** respectively.

A PER performed in 2007 provides a realistic assessment;

"The full introduction of the MTEF will take many years, and will need to be accompanied by complementary reforms to public financial management, such as strengthening of treasury systems, auditing, monitoring and evaluation and payroll management. One of the important findings of the World Bank study on the implications of weak PEM capacity for the PRSP approach, is that PEM reform should be undertaken in a holistic manner: improving one link in the PEM system will not generate better budget outcomes if other links in the system are unreformed and remain weak (Andrews and Moon, 2003).*** The Government will need assistance to implement the MTEF, and complementary PFM reforms, from donors; in particular, it will need technical assistance for the MOF and the line ministries in the pilot sectors."

Another Warm Welcome to Daniel Kaufmann Who Does It Again

Posted by Michel Lazare

In a March 11, 2008 post titled "Warm Welcome to the Kaufmann Governance Post", we announced the launch of Daniel Kaufmann's personal blog on governance issue.

Although this personal blog is still active, Dani Kaufmann has now created a World Bank blog on governance : "Governance Matters" which defines itself as "A Blog about Governance and Development for All."

The key difference between the two is that, while the Kaufmann Governance Post (KGP) was, initially at least, a one man show, Governance Matters is more an institutional and team approach. A number of Bank's experts on governance issues have already posted at least one article on this post. This difference should however not be overestimated as the KGP blog has now welcomed a number of guest bloggers and as Dani Kaufmann appears to be the key writer of the new Governance Matters.  Actually, convergence between the two blogs is such that most of Dani Kaufmann's latest posts have been posted on both blogs.

PFM blog likes the new Governance Matters as much as it liked the initial KGP. We wish long life and full success to both.

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.

The Good, the Bad and the Ugly of MTEFs?

Posted by Ismail Manik, consultant, World Bank Institute

An interesting recent working paper by Clay G. Wescott, of the Asia Pacific Governance Institute, has a good review of country experiences with MTEF implementations. The working paper is a background paper to the World Bank’s Independent Evaluation Group’s report ‘Public Sector Reform: What Works and Why?’ 

Public Expenditure and Financial Accountability (PEFA) -- Part 2

Posted by Bill Dorotinsky

In an April 21, 2008, post, we described the origins of the PEFA framework, with a promise to blog about the framework itself. This post provides a brief overview of the assessment framework and indicator set.

The authoritative reference for the PEFA indicators is the PEFA Public Financial Management Performance Measurement Framework handbook, available in English, French, Spanish, Portuguese (Brazilian and Continental), Russian, Ukrainian, and Arabic.

Keeping-Up with Governance Issues -- World Bank Institute Governance Newsletter

Posted by Bill Dorotinsky

Stepping-back from core public financial management issues, there are frequently other public administration or 'governance' issues that emerge when trying to implement public financial management reforms. Civil service, parliamentary roles and responsibilities, and administrative reforms fit together to either enable or in some cases prevent PFM reforms.

For those interested in the broader context of governance, a useful resource is the World Bank Institutes monthly Governance and Anti-Corruption Newsletter, featuring recent, ongoing and upcoming events, publications and research, data and capacity-building issues, links, etc.

For example

• the recent May 2008 newsletter noted an upcoming Parliamentary Indicators and Benchmarks - International Seminar and Workshop at Griffith University, Brisbane, Australia (September 21 - 23, 2008). The workshop "will bring together key organizations working to develop parliamentary indicators and benchmarks with the aim of developing a generally accepted framework to measure parliamentary performance." This is an exciting development, building on the other indicator work we've blogged about (see the April 21, 2008 PEFA post).
• the June 2008 newsletter noted a recent event on Building Transparency and Reducing Corruption Related to Defense Establishments, Geneva, Switzerland (May 5-7, 2008). The workshop is part of a new, developing body of knowledge and practice that seeks to promote best practice and address the negative problems caused by corruption in defense establishments. This event was hosted by Geneva Centre for Security Policy (GCSP), the Geneva Centre for Democratic Control of Armed Forces (DCAF) and Transparency International UK (TI-UK).

Events include training for civil society and the media in budget monitoring, support to establish parliamentary budget offices, training for parliamentarians in the financial oversight roles, and many other relevant topics.

Interested readers can subscribe to the newsletter at the web site link above.

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

Posted by Sanjay Vani

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

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

Exploring Performance-Based Budgeting in Poland

Posted by Bill Dorotinsky

Performance-based budgeting is a reform we see a great deal of interest in across the globe, from low-income through middle and upper-income countries. Approaches differ by country, and it is hard to say the public financial management profession has yet reached a stage of agreeing on 'good practice.' But active lesson-learning is underway. In a July 2, 2008, blog post, we highlighted an international conference in Mexico City (see Performance Budgeting Reforms Gather Pace in Latin America) and in a July 16, 2008, blog post, "Performance Information for Performance Budgeting," we shared a presentation from that conference.

A reader brought to our attention a performance-budgeting conference hosted in Poland last November (2007), and we thought this worth sharing. A summary of the conference can be found at the World Bank's website, including the agenda and links to presentations.

The conference included valuable country case study presentations, including Poland, Slovakia, The Netherlands, Chile, Canada, the United States, New Zealand, France, Latvia, Turkey, and Bulgaria (most presentations are available on the website link above). A valuable wrap-up session by our own Marc Robinson highlighted issues for "Making Program Budgeting Work."

Empirics of Governance -- World Bank Seminar

Posted by Bill Dorotinsky

On May 1 & 2, 2008, the World Bank hosted a conference on the Empirics of Governance. Governance is a popular topic, and the seminar took stock of the theoretical underpinnings of governance research and measurement, practical experience in measuring aspects of governance, and good practices and lessons in developing and applying indicators.

The conference agenda can be downloaded here [Download Agenda-GovernanceSeminar.doc ].

The IMF FAD (Bill Dorotinsky) presented in Session II on the Public Expenditure and Financial Accountability (PEFA) indicators (see our April 21, 2008 post). The presentation can be downloaded here [Download Dorotinsky.ppt ]

Other sessions of particular note for PFM aficionados were

• Session III on Corruption measures, and
• Session VI on Anti-corruption, Budget and Public Financial Management.

The World Bank recently made videos of the seminar available via its B-Span network.

From Diagnosis to Action: Sequencing and Politics in PFM Reform

World Bank PFM Reform Workshop

Posted by Sanjay Vani

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

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

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

Performance Budgeting Reforms Gather Pace in Latin America

Posted by Marc Robinson

Performance budgeting reforms are being pursued with impressive vigour in Latin America today. This was made very clear to the thousand or so participants from 41 countries who attended an International Conference on Performance Budgeting held Mexico City on June 9-10, 2008. The conference heard in detail about developments in Mexico, Colombia, Brazil, as well as in various OECD countries outside the region.

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

Posted by Michel Lazare

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

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

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

Posted by Michel Lazare

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

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

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

Posted by Michel Lazare

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

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

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).

Banking on Accountability?

Posted by Carlos Santiso, Sector Manager, Governance (AfDB)

"Banking on Accountability? Strengthening Budget Oversight and Public Sector Auditing in Emerging Economies," by Carlos Santiso in Public Budgeting and Finance, 26(2), pp.66-100, 2006.

In a relatively recent article (“Banking on Accountability? Strengthening Budget Oversight and Public Sector Auditing in Emerging Economies” Public Budgeting and Finance, 26(2), pp.66-100, 2006), Carlos Santiso reviews multilateral development banks’ support to parliaments and external audit agencies in Latin America. The analysis reveals a learning curve in multilateral assistance to budget oversight institutions, including in the choice of strategies and the combination of instruments. It underscores the importance of the underlying political economy context for strengthening checks and balances in the management of public finances.

MDBs have traditionally centered their attention on the modernization of financial management within the executive and the bureaucracy (finance ministries, central budget offices, central banks, and tax authorities). They nevertheless realize the limitations of an exclusive focus on the executive and the need to balance executive discretion with external accountability and, as a consequence, are increasingly supporting the infrastructure of accountability within the state - those institutions outside the executive branch of government and tasked with scrutinizing government and overseeing the budget.

Modernizing Public Financial Management in Indonesia

Posted by Bill Dorotinsky

On May 26, 2008, the Indonesian Ministry of Finance hosted an international conference on “Budgeting for Performance – Modernizing Public Financial Management in Indonesia.” The one-day event was sponsored by APIK (the Association of Public Financial Management Professionals Indonesia), the Indonesian Parliament, OECD, European Union, Royal Netherlands Embassy, World Bank, and IMF.

The event featured Indonesian public financial management (PFM) practitioners sharing their experience of and vision for PFM reform in Indonesia, as well as international experts offering broader lessons. The keynote address was delivered by the Indonesian Minister of Finance, H.E. Sri Mulyani Indrawati, presenting her vision for a performance-oriented budget system.

The event highlighted the many PFM reforms underway in Indonesia. Among the major reforms are:

• medium-term expenditure framework, including macrofiscal framework
• program and performance budgeting
• modernizing the treasury system, including a financial management information system

A host of other measures are also underway, to support these larger reforms, including:

• unification of the planning and budgeting processes
• revised chart of accounts and budget classification
• new treasury processes
• improved internal and external auditing

Also addressed were some of the challenges that lay ahead, not least of which are maintaining reform momentum and keeping the various components balanced as the reforms move forward.

A summary of the event, including access to the agenda and presentations, is available on the World Bank's Indonesia country office web site.

Bridging HIPC and PEFA: Progress in PFM Reforms in 15 Countries, 2001-2006

Posted by Paolo de Renzio

In two previous blog posts of December 10, 2007 and April 21, 2008, Bill Dorotinsky explored the background, rationale and results of the joint World Bank-IMF HIPC AAP (Assessment and Action Plan) instrument, and provided a brief history of the origins of the Public Expenditure and Financial Accountability (PEFA) approach.

The two approaches are clearly linked to each other (the PEFA Performance Measurement Framework draws and builds on many of the HIPC AAP indicators), and share the common objective of providing a reference framework for assessing the quality of PFM systems in developing countries. While the PEFA framework has now come to be generally accepted as the overall assessment tool for this purpose, therefore replacing the HIPC AAP instrument, comparing the two and bringing together their complementary information can shed light on progress in PFM reforms across countries while the PEFA framework is still being rolled out.

A recent paper, "Tracking Progress in the Quality of PFM Systems in HIPCs: An update on past assessments using PEFA data", supported by the PEFA Secretariat has attempted to do just that, bridging the two approaches in order to track progress in the quality of PFM systems in poor countries. Using the original HIPC indicators as a basis, information contained in PEFA assessment reports was "retro-fitted" onto 11 of the 16 indicators, for the 15 countries for which both HIPC AAP assessments in 2001 and 2004 were carried out, followed by a PEFA assessment in the period between 2005 and 2007 (Benin, Burkina Faso, Ghana, Guinea, Guyana, Honduras, Madagascar, Malawi, Mali, Mozambique, Nicaragua, Sao Tome and Principe, Tanzania, Uganda and Zambia). The results are provided by country either in terms of benchmarks met or of underlying raw scores, which permit a more detailed analysis.

Exchanging experiences and learning from others: PEM PAL approach

Posted by Urska Zrinski, CEF PEMPAL Secretariat

PEM PAL, the Public Expenditure Management - Peer-Assisted Learning (PEM-PAL) network, is a network of public expenditure management professionals from countries in Central and Eastern Europe (CEE), and Central Asia. The initiative, which was conceptualized in 2005 by the World Bank and the United Kingdom’s Department for International Development, represents an effort to develop capacity and share reform experiences among countries in CEE and Central Asia. At the beginning of 2008, the PEM PAL secretariat has been moved from the World Bank’s headquarters in Washington DC to the Center of Excellence in Finance, Slovenia, thus bringing the network closer to the region. (See a January 25, 2008 blog post for more on the Center.)

Developing Debt Management Capacity

IMF/World Bank Debt management initiatives for Low Income Countries

Posted by Brian Olden

In May 2007, a  Joint IMF/World Bank Board paper on strengthening debt management practices was approved by the Boards of the two institutions.  This paper attempted to identified the key lessons learned by country authorities government in trying to develop their debt management capacity following the financial crises of the 1990’s. More importantly, the paper attempted to identify how these lessons could be leveraged to assist lower income countries (LIC’s) to develop their debt management capacity.

Minding the Gaps: Integrating Poverty Reduction Strategies and Budgets for Domestic Accountability

Posted by Vera Wilhelm, World Bank

Firmly linking a poverty reduction strategy (PRS) to the national budget is no small task.  Integrating planning and budgeting instruments entails technical, institutional and political challenges.  It should be of no surprise, then, that a recent review finds that although many low income countries have made progress in strengthening their PRSs, links to budgeting instruments remain often weak (see Country-Based Scaling Up: Assessment of Progress and Agenda for Action, World Bank, 2007). But while the challenges for linking planning and budgeting are large, the task is crucial: without firm links between the PRS and budget, development strategies may not be translated into actions and outcomes.

A recent publication provides some solace to policymakers and development practitioners.  Minding the Gaps: Integrating Poverty Reduction Strategies and Budgets for Domestic Accountability draws on in-depth research from nine low income and four higher income countries.  Its basic message: domestic constraints are not reasons to shelve reform efforts entirely; rather, weak capacity and contested ownership underscore the importance of gradual programs to strengthen PRS-budget links, tailor-made to country circumstances.

The full text of the report is available for download free-of-charge through the link above.

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.

Debt Management Stakeholder’s Conference – Oslo, Norway – March 5-6, 2008

Posted by Brian Olden

A Debt Management Stakeholders’ Conference, organized by the World Bank and the Norwegian Ministry of Foreign Affairs, was held in Oslo on March 5-6, 2008. It was attended by over 100 delegates including country authorities, donors, and the main technical assistance service providers in low income countries (LICs). The Norwegian Minister of the Environment and International Development was the keynote speaker at the event.

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.

Extrabudgetary Funds -- Removing the 'Extra' and Minimizing the Risks

Posted by Bill Dorotinsky

Extra-budgetary funds (EBFs) are a large and persistent issue in developed and developing countries. An October 26, 2007, blog post highlighted the magnitude of such funds, offered a taxonomy of EBFs, and suggested some questions for evaluating them. This post offers a similar perspective, drawing on a draft World Bank policy note prepared for the Polish authorities in 2001.

Public finance professionals generally oppose creation or continuation of 'extra-budgetary funds' because they undermine comprehensive budgeting, fragment financial reporting and cash management, and frequently there are transparency, oversight, and accountability concerns for the EBF's directly. But there are principles that, if followed, can minimize the risks from EBF’s, effectively removing their ‘extra-budgetary’ character.

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.

Capital Budgeting and Public Financial Management -- Part II

A primer on systems and issues: Capital Budgeting Process

Posted by Bill Dorotinsky

The previous post of February 20,2008, discussed capital budgeting in the context of the over-all PFM system, and addressed defining capital and measuring some aspects of efficiency and effectiveness. This post focuses on the capital budgeting process itself, again drawing directly from a 2006 World Bank Public Expenditure Review for Ukraine.

Capital Budgeting and Public Financial Management -- Part I

Primer on Systems and Issues: Context and Definitions

Posted by Bill Dorotinsky

Public investment is an important potential contributor to economic growth and achievement of social development objectives. In addition to the level of investment and the sectoral allocation, the capital budgeting process is an important determinant of the quality of investment projects and their implementation.

Recent years have seen renewed attention to capital investment for economic growth and development. In particular, much attention has been given to finding fiscal space for increasing capital investment. But, absent good processes for using existing or new funds, the impact of capital investments will not yield the expected results. This post provides an overview of selected issues regarding capital budgeting and capital budgeting systems as an aid in understanding what goes wrong and what might be done about it. The post draws directly from a chapter written by the author for a World Bank Public Expenditure Review entitled Ukraine Creating Fiscal Space for Growth: A Public Finance Review (World Bank, 1996).

New Challenges for Public Finance Reform in China

Posted by Holger van Eden

Last week the World Bank presented here in Washington a new book titled "Public Finance in China - Reform and Growth for a Harmonious Society". The book has been edited by the ex-deputy Finance Minister, Mr. Lou Jiwei -- one of China's most influential reformers and currently chairman of the China Investment Corporation, China's new sovereign wealth fund -- and World Bank senior economist Mr. Wang Shuilin. A panel of experts including Mr. Lou and Fiscal Affairs Department (FAD) Director, Mrs. Teresa Ter-Minassian noted a number of challenges facing China in the public finance field, ranging from intergovernmental fiscal reform, tax policy modernization, further development of public financial management to various sectoral reform agendas. Health, education, and pension reforms stand out according to the book's many prominent authors as the major policy challenges given the aspiration of the Chinese government to limit growing regional and other income disparities and to manage the aging of the population.

The Value of PETS

Public Expenditure Tracking Surveys: Detecting Leakages in Public Service Delivery Chains

Posted by Francois Michel

The major argument of the World Development Report 2004 : Making services work for poor people was that developing public services is fundamental for achieving the eight Millennium Development Goals and, beyond, creating conditions for sustainable growth. In addition, the report convincingly showed that the issue was not only one of funding. In most sectors and developing countries, there is a weak association between spending and outputs—more money does not translate directly into better “front-line” services. Associating inputs with outcomes appears to be an even thornier issue.

Public Expenditure Tracking Surveys (PETS) are one of the tools developed by the World Bank to grapple with the issue, as Doris Voorbraak and Kai Kaiser (respectively Senior Public Sector Specialist and Senior Economist, Poverty Reduction and Economic Management, World Bank) presented at an FAD seminar on December 20, 2007 (Download public_expenditure_tracking_surveys.ppt ).

Efficient delivery of technical assistance and capacity building

Partnership between the IMF and the Center of Excellence in Finance, Slovenia

Posted by Eivind Tandberg

Over the last 2 – 3 years, the IMF has expanded its fruitful partnership with the Center of Excellence in Finance (CEF) in Ljubljana, Slovenia.  An IMF public financial management advisor was posted at the CEF in 2005, and a government finance statistics advisor from late 2007. The IMF advisors greatly benefit from using the CEF’s network of experts and training professionals, facilities, conference and meeting venues. Furthermore, findings from advisors’ missions help identify needs for additional training courses at the CEF. The advisors collaborate closely with the CEF in formulating training programs and contribute as lecturers and coordinators to several CEF courses.

World Bank Launches New Financial Management Web Site

Posted by Bill Dorotinsky

The World Bank recently launched a new website on financial management, spanning both broader public financial management and World Bank/donor financial management issues. The site includes links to the World Bank's work in very topical areas, such as Governance and Anti-corruption and donor Financial Management Harmonization.

Included on the site is a PFM Reform Database, collecting reference material on many public financial management areas from numerous sources. The database includes case studies, guidance material, reference models, and various articles.

The site also has links to products entitled FM notes, which provide some detail on specific World Bank financial management work. For example, a note on the bank's financial management work in post-conflict Afghanistan, or a risk-based audit approach in Kenya.

Well worth visiting and book-marking in your web-browser.

Country PFM Systems --- Monitoring Performance and Lessons for Reform

Lessons from IMF-World Bank work with HIPCs, 2001-2005

Posted by Bill Dorotinsky

One of the many developments in public financial management (PFM) over the past several years, one of the more interesting was in the field of monitoring PFM system performance over time. From 2001-2005, the IMF and World Bank developed and applied a new instrument for assessing country PFM systems and monitoring their development over time. The work was undertaken in the context of Highly-Indebted Poor Country (HIPC) debt relief, and covered 26 countries in Africa and Latin America.

The work is worth highlighting  for many reasons, not least of which are the approach used, the tool itself, and the lessons that emerged for PFM reform. This post summarizes the instrument and results of this work, especially important lessons for PFM reform, and subsequent posts will summarize more recent developments in this field.

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.

Public Finance Reference Reading: Revisiting the Classics -- Schick's Contemporary Approach to PEM (1998)

Posted by Bill Dorotinsky

As public finance professionals, we are frequently asked for useful background reading to better understand public financial mangement systems. Thankfully, there are a number of classic works still highly relevant and 'must reads' for anyone interested in the topic. Occasionally, we will post references to these documents as a service to our readers.

Public Financial Management and Anti-corruption: prevention through stronger PFM systems

Corruption is a hot  topic in international circles these days, and particularly with respect to country public finance systems. The IMF Fiscal Affairs Department has made a contribution to understanding how improvements in  public financial management systems can help fight corruption.

While  not an 'idiots guide to corruption',  a recent FAD staff paper (Dorotinsky,  William and Shilpa Pradhan), published in "The  Many Faces of Corruption: Tracking Vulnerabilities in the Sectors" (World Bank, 2007), explores the conditions of PFM systems that enable corruption to flourish, the ways corruption commonly manifests itself, and  develops a model for assessing the vulnerability of country PFM systems to  corruption.