Improving Public Budgeting after the Great Fiscal Crisis

Posted by Jordi Baños-Rovira and Daniel Montolio[1]

The global economic and fiscal crisis of 2008 elevated the importance of putting in place robust institutional and budgetary management procedures to deal with elevated levels of public debt, risks of medium-term fiscal sustainability, as well as the fiscal impact of an aging population. A recent report[2] (The Barcelona Institute of Economics (IEB) Report 3/2018) reviews these challenges and how the lessons of the crisis can be translated into more efficient and more transparent budgeting systems.

FAD’s Annual Retreat of PFM Advisors—Echoes from the Field

Posted by Bruno Imbert and Jacques Charaoui[1]

The IMF’s Fiscal Affairs Department (FAD) hosted the fifth annual retreat of its PFM advisors in Washington DC from October 15-19, 2018. The event gathered together more than 40 advisors located either in the IMF’s Regional Technical Assistance Centers (RTACs) around the world, or in country positions, together with Washington-based staff. It provided an opportunity to discuss progress in implementing a wide range of PFM tools and reforms in the field, and to share experiences and good practices.

Institutionalizing Pakistan’s Fiscal Policy Decisions

Posted by Muhammad Afnan Alam[1]

“A dependence on the people is, no doubt, the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions.” (James Madison, 1788)

In a perfect world of fully-informed policymakers solely motivated by social welfare maximization, complete discretion would enable them to optimally respond to changing circumstances at any time. In the real world, however, information asymmetries are pervasive, time-inconsistency looms large, and policy behavior is shaped by considerations other than pure social welfare. Hence, even the best designed democratic systems require institutional constraints on policy discretion to complement democratic controls and prevent undesirable policy outcomes.

Public-Private Partnerships and the Government’s Balance Sheet

 Posted by Tim Irwin[1]

Around the world, public-private partnerships (PPPs) are being used to build and maintain roads, hospitals, power plants, and many other kinds of valuable infrastructure. At the same time, they create problems for public financial management (PFM) because they often involve government guarantees or long-term payment commitments, which aren’t easy to manage using the traditional tools of PFM. Some of the steps that ministries of finance can take to solve these problems are the subject of a recently published IMF “How To” note, which grew out of work commissioned by the late Mario Pessoa.

Strengthening Fiscal Reporting in South Asia

Posted by Sailendra Pattanayak and Udaya Pant [1]

In September 2018, the IMF’s South Asia Regional Training and Technical Assistance Center (SARTTAC) organized two workshops in New Delhi, India on fiscal reporting. The first workshop was targeted at mid- and senior-level officials from the budget and treasury departments of SARTTAC’s six member countries (Bangladesh, Bhutan, India, Maldives, Nepal, and Sri Lanka) and a couple of Indian states. 30 officials, including 7 women participated in the workshop. The second workshop was a training event conducted in association with the Controller General of Accounts of the Indian Ministry of Finance. It involved 21 participants from various central government accounting services and the Office of the Comptroller and Auditor General of India.

The IMF Publishes its Fiscal Transparency Evaluation for Mexico

Posted by Sailendra Pattanayak¹

The IMF has just published a report that assesses Mexico’s fiscal transparency practices against the standards set by the IMF’s Fiscal Transparency Code. The report covers all four pillars: (I) Fiscal Reporting; (II) Fiscal Forecasting and Budgeting; (iii) Fiscal Risk Analysis and Management; and (IV) Resource Revenue Management. This is the first pilot evaluation of Pillar IV for a country with significant resource revenues. While identifying key strengths of Mexico’s fiscal transparency practices, the report also highlights several gaps and includes a sequenced action plan to address those gaps. The report can be accessed here: https://www.imf.org/en/Publications/CR/Issues/2018/10/03/Mexico-Fiscal-Transparency-Evaluation-46282.

The Wealth of Nations: Governments Can Better Manage What They Own and Owe

Posted by Vitor Gaspar, Jason Harris, and Alexander Tieman[1]

What is the state of your personal finances? You probably think first about your debts: your mortgage, your credit card balance, and your student loans. But you probably also think about how much cash is sitting in the bank, the value of your house, and the rest of your nest egg.

Dealing with Corruption in State-Owned Enterprises

Posted by Benoit Wiest and Concha Verdugo Yepes[1]

State-Owned Enterprises (SOEs) account for 22 percent of the world’s largest companies and are often located in sectors of strategic importance, such as oil and gas, telecommunications, ports, and public utilities. SOEs sometimes take the form of “natural monopolies” due to the large upfront fixed costs that are required to conduct business in industries such as electricity generation or railways.  A recently published OECD report on ‘State-Owned Enterprises and Corruption’ [https://doi.org/10.1787/9789264303058-en] concluded that almost half of the SOEs reviewed had experienced at least one case of corruption in the last three years. Average losses from corruption in nearly half of the companies surveyed amounted to 3 percent of annual corporate profits. In preparing the study, the OECD surveyed some 350 SOEs in 34 countries, identifying high-risk areas of corruption and the main impediments to reducing corruption. The report offers helpful practical solutions and policy responses for governments to consider.

Innovative Approaches to Improving Fiscal Risks Management

 
Posted by Esther Palacio[1]

The main objective of the IMF’s capacity building programs is to help countries overcome new challenges in economic and fiscal policy. However, standard two-week technical assistance (TA) missions composed of international experts are not always an effective solution, even when they deliver policy analysis and recommendations that are well-informed by the experiences and practices of other countries. In many cases, a deep understanding of the underlying challenges facing the recipient country, combined with a well-balanced mixture of assistance, can prove to be more effective.

How did Fiscal Rules Hold Up in the Commodity Price Crash?

Posted by David Mihalyi¹

Fiscal rules—permanent quantitative constraints on government finances—are an important tool to help mitigate the macroeconomic challenges associated with managing natural resource revenues. They can act as a commitment mechanism, binding successive governments to a long-term budgetary ceiling and helping politicians fight the urge to overspend during elections. They can also help prevent fiscal crises and encourage governments to save or pay down debt in good times so that they have fiscal space to spend during recessions.

In NRGI’s new study, we reviewed the characteristics of fiscal rules in countries assessed in the Resource Governance Index (RGI). Out of the 79 countries covered by the index, 34 have at least one fiscal rule in place.  The most common types of rule are debt ceilings and various types of budget balance targets. We also analyzed the levels of compliance with these rules in 2015 and 2016, the years directly following the commodity price crash, when oil prices fell by half and mineral prices by one-third. As such, it provides new insight into how these fiscal rules performed during serious economic shocks. We found that in these two years governments adhered fully to the rules in only six countries (Figure 1). In 25 cases, governments suspended, modified or disregarded their rules. Governments breached rules in a wide range of countries, rich and poor.