Designing and Implementing an Administrative Classification

Posted by Jason Harris

A neglected area of PFM reform is the administrative (or organizational) classification, also known as the administrative segment of the budget classification. There appears to be no publicly-available documentation of comprehensive reform of an administrative classification. This despite the apparently unanimous view of PFM experts that a sound administrative classification is fundamental to a sound budget classification and a sound budget classification is fundamental to a sound PFM system.[1] The article on the reform of Tajikistan’s administrative classification posted earlier this week on this PFM Blog by John Zohrab, Robert Brudzynski, and George Gridilian gives a good illustration of why having a sound administrative classification is important and of the challenges met in introducing one.

A possible reason for the lack of publicly-available documentation of comprehensive reform of an administrative classification is that most countries have relatively sound administrative classifications.[2] According to this view, the work involved in reforming an administrative classification is so obvious and straightforward that it should be part of the day-to-day responsibilities of ministries of finance and should not warrant separate reform status.

On the other hand, a common, albeit often privately-held, view of ministry of finance officials in many countries is that their administrative classifications are in many respects incoherent and ad hoc. According to this view, the lack of comprehensive reform of administrative classifications has resulted from the difficulty in accomplishing it, because it causes substantial redistributions of responsibilities.  

This view is supported by the experience of New Zealand which, in the 2009/10 budget year had 69 Votes (appropriations by parliament) and 41 departments.[3] Some departments are responsible for more than one appropriation, a lack of congruence between the budget and administrative structures that creates inefficiency in accountability and control. For example, the chief executive of a department might not control all the Votes it administers, as one of his or her subordinates might be responsible directly to a minister with respect to one of the Votes; alternatively, the chief executive might be responsible to more than one minister. In the late 1980s and early 1990s, New Zealand PFM officials considered that PFM reforms such as full accrual accounting, accrual budgeting, output budgeting and a fiscal responsibility framework were achievable, but that comprehensive reform of the administrative classification was too difficult to attempt.

Readers of the article of John Zohrab, Robert Brudzynski, and George Gridilian can reach their own conclusions by considering the experience of Tajikistan’s reform, which was supported by the European Commission, through its Budget Support Programme, and the Government of Japan, through its JSA technical assistance program with the IMF. One feature of the article is that, with the permission of the Tajikistan authorities, it refers extensively to usually unpublished technical assistance reports. This gives the article additional context, which should assist readers to form their views.

The article concludes that the new administrative classification is largely compliant with fiscal transparency, except that Tajikistan’s general administrative framework may need to be rationalized, which would require future modifications of the classification. It notes the improvement in transparency that has already been experienced as a result of the new classification. Finally, it stresses the importance of aligning the boundary of the classification with that of the general government sector, and the definition of an administrative entity with that of an accounting entity.

[1] For example: International Monetary Fund, Manual on Fiscal Transparency (2007), p. 98; A. Hashim and B. Allan, Treasury Reference Model, pp. 51-52; R. Allen and D. Tommasi, Managing Public Expenditure. A Reference Book for Transition Countries, pp. 125-26; and D. Jacobs, J-L. Helis, and D. Bouley, Budget Classification, pp. 2-3.

[2] Cf. International Monetary Fund, Manual on Fiscal Transparency (2007), p. 98.


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