Posted by Dick Emery
The current government of Greece came into office in 2004, inheriting a budgeting and fiscal reporting system that were among the less reliable, less transparent and less effective in Europe. Greece had over the years received criticism on this by the EU, Eurostat, the IMF and the OECD. The new government accepted the challenge of improving its budget management and reporting system and launched several reforms. During 2005/2006, the IMF reviewed the Greek budget system and developed recommendations for a broad agenda of reform. The IMF prepared a report on transparency issues and one on budget management reform. These reports presented both the “before” and the “after” situation, capturing the challenges facing Greece as it moves toward a modern budget system, as well as a roadmap for implementation.
Since the IMF reports, the government has established two offices to pursue the reform agenda in accounting and budgeting. As a first step, it developed a prototype program budget which was included in the Budget for 2008. The Greek government invited the OECD in 2007 to undertake a peer review of its budget system which was presented to the OECD Working Party of Senior Budget Officials (SBO) this June. Working with the OECD, the government has developed an action plan for reform to serve as its road map for its budget reform efforts. This article reviews the reform agenda and the development of the action plan.
IMF Fiscal ROSC Report
In its February 2006 “fiscal ROSC” report “Greece: Report on Observance of Standards and Codes – Fiscal Transparency”, the IMF found that Greece was making progress in meeting requirements of fiscal transparency through increased publications and use of the internet, and at the central government level in improving the integrity of fiscal data through independent audit and strengthened statistical reporting. The ROSC report identified three overriding issues: first, a need to extend progress to the rest of government; second, the tradition of detailed, control-oriented budget management provided little insight into government policies, activities or performance; and third, that Greece had not modernized its fiscal institutions and systems. As a result the report concluded that major reforms were needed to improve the clarity of roles and responsibilities and advancing more open budget preparation, execution and reporting.
The IMF’s major recommendations, captured both in its fiscal ROSC and it budget reform report, were:
Greece responded to the ROSC and budget reform reports by establishing two offices within its General Accounting Office to lead reforms in budgeting and accounting respectively. The Government Budget Reform Unit’s (GBRU) first step was to produce a prototype program budget which was included in the Budget for 2008, Program Budget 2008. The prototype presented the Greek budget in five basic tables: a functional allocation of the budget, a National Plan of Programs by function, functions/programs in each Ministry, Ministries in each function/program, and the major economic classifications for each function/program. The functional classification was based on the Classification of Functions of Government (COFOG) with one function for revenues and 12 for expenditures. Seventy three major programs were identified. The tables presented estimates for both the ordinary budget and the investment budget and total spending. Detailed tables were presented for one function: Culture, Religion and Sport. This function has € 565 million in its ordinary budget, € 238 million in its investment budget, and € 250 million from off-budget accounts for a total budget in 2008 of € 1,053 million. The program budget display for the function was the first consolidated budget presentation for the function presented by the Greek government. Its table of programs and activities within this function was the most comprehensive and understandable presentation of budget activities to date.
The Greek Ministry of Economy and Finance arranged for the OECD to do a peer review of its budget system in 2007 as a further stimulus to reform. The OECD peer reviews are similar in format to the ROSC and strategic budget reviews of the IMF. The reviews begin with approximately a week of meetings with a broadly representative group of officials of the government. The results of the review and any recommendations are then written up in a report, usually about 50 pages in length. The report is sent to the government being reviewed for fact checking and any reactions. Once the draft report is completed, it is presented to the OECD’s SBO by the OECD Secretariat. During the meeting, the report is reviewed by senior budget officials from two countries who raise questions, observations or reactions, followed by a response from the reviewed country. After presentation at the SBO meeting, the report will be published in the OECD’s Journal on Budgeting. The review of Greece should appear in this fall’s Urinal.
In December 2007, a four member OECD team with representatives of Denmark, Sweden, the US and the London School of Economics spent a week in Athens, meeting with participants in the budget process. The OECD team found the Greek budget system to have a number of serious challenges, including: overly detailed input controls; a lack of description of policies, actions and expected results; lack of efficient evaluation of results; weak top down controls; lack of a unitary budget; and capacity limits within spending units. The recommendations included in the report were very similar to the IMF’s recommendations of 2005/2006. The OECD’s major recommendations are:
The report was presented to the annual OECD Senior Budget Official (SBO) meeting held in Vienna, Austria on June 2 and 3 of this year. It was subsequently presented to the Greek government in late June at a conference attended by the Minister of Finance and approximately 150 individuals broadly representative of budget process of Greece.
Development of the Reform Action Plan
In April of this year, the GBRU met with an OECD representative to develop a detailed implementation plan for reform. Over a period of several days, a plan was developed for implementing reforms, through a sequence of steps over the next several years. The goal was to develop a phased approach that recognizes the current capacity limitations, establishes requirements that would build expertise and implement the needed changes. Plans were developed for fourteen different elements of reform:
For example, the plan for addressing special accounts includes the following steps:
For another example, the action plan for implementing a program structure can be downloaded here [Download going_greek.doc ].
Once the plan was developed for each topic, a consolidated schedule was compiled for each year’s efforts. This schedule was then presented to the Budget Director and to the Secretary of State for the Budget. Adjustments were made to the schedule to reflect their comments. The summary schedule of the Action Plan by year, covering 2009-2015, can be downloaded here [Download greek_action_plan_proposal_by_year.doc ].
The Greek government has committed itself to implementing an ambitious agenda of reform. Most of the IMF and OECD recommendations would be implemented, assuming the successful completion of the action plan. The Minister of Economy and Finance announced that the Action Plan and its deadlines will be presented in the 2009 Budget. He has appointed his economic advisor, to be the General Secretary of Fiscal Policy, the senior budget official for Greece. He has also announced that he will elevate the GBRU to be a Directorate to give it equal status with other budget divisions of the Greek government. He has recently requested continued assistance from the OECD in implementing the reforms. The reforms will have to overcome considerable bureaucratic resistance and long traditions of central control to effectively delegate budget accountability. Building capacity step by step should make it more likely that the reforms will be successful.