President Bush: "The People's Trust in their Government is Undermined by Congressional Earmarks" (2008 State of the Union Address)

Posted by Michel Lazare and Bill Dorotinsky

Here is a YouTube video on an excerpt from President Bush State of the Union Address (January 28, 2008). In this part of his speech, the President asks Congress to make further efforts at cutting earmarks.

The Dutch Fiscal Framework: Unique, or Transferable to Other Countries?

Posted by Frits Bos, CPB Netherlands Bureau for Economic Policy Analysis

The Netherlands has a well developed and successful  medium term fiscal and budgetary framework that has helped stabilize government finances and has helped constrain the growth of the public sector. The Dutch framework is based on real expenditure ceilings and a sustainable deficit target over the medium term. Expenditure envelopes are fully planned in for the duration of government on the basis of a four-year “Coalition Agreement” between the political parties in government. Expenditure growth paths were based, until recently, on cautious assumption about the structural growth rate of the economy. To what extent is the Dutch framework, which has a number of specific institutional features, transferable to other countries? What are the strengths and weaknesses of the framework. Frits Bos, of the CPB (the Netherlands Bureau for Economic Policy Analysis), discusses below the main features of the Dutch system. A recent paper published by Mr. Bos presents  the historical development, the procedures and the specific rules of the Dutch fiscal and budgetary framework

David Walker (GAO head): The USA is Living beyond its Means -- Difference between Accrual and Cash

Posted by Michel Lazare

The YouTube video below is a presentation on long-term fiscal issues in the US made by David M. Walker, the US Comptroller General and head of the U.S. Government Accountability Office (GAO). 

GAO Study: Germany, Sweden, and the Netherlands Experience with Pension Reform and Reforms of Other Entitlements

Posted by Michel Lazare

On January 18, 2008, the GAO published a report called: "Entitlement Reform Process--Other Countries' Experiences Provide Useful Insights for the United States."

The GAO indicates that it it conducted this study because:

"Looking to the future, our nation faces large and growing structural deficits and escalating federal debt due primarily to rising health care costs and known demographic trends. Slowing the growth of entitlements is an essential part of the solution to these challenges."

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.

Building Fiscal Infrastructure in Post-Conflict Countries

New USAID Study Released

Posted by Justin Tyson

A recent study produced for USAID, Building Fiscal Infrastructure in Post-Conflict Countries, presents seven case studies of building, or rebuilding, fiscal infrastructure in countries that have emerged from periods of conflict.  The countries included are from different regions around the world, including: Afghanistan, Angola, Bosnia and Herzegovina, El Salvador, Guatemala, Kosovo, and Liberia.

Welcome to the Newcomer on the...Blog: CBO Director's Blog

• Posted by Michel Lazare

We are delighted to announce that the Director of the US Congressional Budget Office, Peter Orszag, has created a blog : CBO Director’s Blog

Here is what Peter Orszag has to say about his blog's content:

What are you likely to read on this blog? First, you will learn more about CBO — the types of work we do, how we do it, and more about the outstanding analysts we have. For example, when we come out with a new report or important cost estimate, I may write a bit about the analytical substance and also introduce you to the key staff who took the lead in the analysis. Second, CBO’s research and cost estimates are often discussed extensively in the media and elsewhere — and not surprisingly, from time to time misunderstandings or misinterpretations arise about some analysis we have done. In those kinds of situations, I will use the blog to further explain our work and address possible or potential misunderstanding. Finally, when it seems appropriate, I will use the blog to link our work to relevant outside research from academic or other institutions that may shed additional light on the challenging issues the Congress is working to address.

Introducing Financial Management Information Systems in Developing Countries

–  serious delays and limited success

Posted by Pokar Khemani

In the past decade, developing countries have increasingly embarked on major projects to computerize government budgeting, accounting and payment operations, by introducing a financial management information system (FMIS). An October 2005, IMF FAD Working paper, "Introducing Financial Management Information Systems in Developing Countries," by IMF staff Jack Diamond and Pokar Khemani  investigates the reason for serious delays and frequent failure to implement and sustain FMISs in developing countries.

[Click here to donwload Download introducing_financial_management_information_systems_in_developing_countries.DOC ]

The paper starts with a review of the “received wisdom” in implementing these projects, and then analyzes problems in its application in the developing country context to identify key factors to explain why FMIS projects have been so problematic. Based on the identified negative factors, suggestions for addressing them are offered in the hope of improving success rates.

Public Financial Management Reform in Difficult Environments

ODI Publishes findings of CAPE conference in London

Posted by Ian Lienert

The Overseas Development Institute (ODI) recently published the main findings of its conference on “Tales of the Unexpected: Public Financial Management Reform in Difficult Environments” (see posting of December 3, 2007). The Executive Summary make ten main conclusions on the interface between the technical dimensions of public financial management (PFM) reform, the policy agenda on governance, and the political economy of reform.  Read on to discover these ten conclusions.

PFM Blog Got an Award!

Posted by Michel Lazare

The PFM Blog team is pleased to let you know that our blog received an award!

The Bayesian Heresy blog recently published its "BH Economics Blog Awards 2008" and ranked our PFM Blog second in its "Best Multilateral Agency Blog."

Best Multilateral Agency Blog
1- IMF Research Blog
2- PFM Blog
3- End Poverty in South Asia (from World Bank)

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.

Understanding the Politics of the Budget: What Drives Change in the Budget Process?

Posted by Carlos Santiso, Governance Division, African Development Bank

Understanding the politics of the budget is central to appreciate the institutional factors and governance context that influence the actual functioning of budgetary systems and their reform. A political understanding of fiscal governance and public budgeting is important to encourage and support “good enough” reforms in public financial management and accountability; identify drivers of pro-poor change, strengthen checks and balances and support demand for good financial governance from within and outside government; and improve aid effectiveness by informing donor support and instruments.

In 2007, the United Kingdom Department for International Development (DfID) published a briefing note on Understanding the politics of budgeting: What drives change in the budget process? The note was intended to:

• distill the findings of political analyses of the budget process in developing countries;
• highlight why a good political understanding of the budget process is important to improve aid effectiveness, particularly in the context of direct budget support;
• suggest entry points for donors to engage with the politics of the budget and strengthen domestic demand for accountability in public finances; and,
• provide operational guidance on how to undertake politics of the budget reviews.

Does Performance Budgeting Perform?

Posted by Holger van Eden

“Performance Budgeting in OECD Countries,” a recent publication of the OECD’s Budgeting and Public Expenditures Division, reviews the experiences of eight OECD countries (Australia, Canada, Denmark, Korea, Netherlands, Sweden, United Kingdom, United States) that have introduced performance information in the budget process over the past decade. The book is available in hard-copy and e-book versions at the OECD Online Bookshop (click link above).

The main author of this publication, OECD senior economist Teresa Curristine, discusses extensively the question of whether 'performance budgeting performs,' and not surprisingly, the answer is not that clear. There are many approaches to introducing performance budgeting reforms, and many reasons for doing so. As with many complex public reforms, the results are usually rather nuanced.

The short and cynical answer by the casual reader is perhaps “No, it doesn’t”, or not “Not enough, given the effort”, or “Not yet, even after many, many years of implementation.” The many nuances in this book do clarify that performance-based reforms can work in certain circumstances, but do leave interested governments a bit in the dark on what road to take in their country in further developing performance budgeting.

France improving its medium-term budget framework

Posted by Ian Lienert

Many developed and developing countries are struggling to implement or improve their medium term expenditure frameworks (MTEFs) to elaborate on a government’s sectoral spending objectives. In April 2007, l’Inspection Générale des Finances (IGF), a high-level government body under the Ministers of Economy/Finance and of Budget/Accounts, published a report (in French) analyzing France’s a medium-term budget framework (MTBF), making recommendations for strengthening the framework.

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.

Eyes wide shut? Understanding the politics of government auditing

He who lives outside the budget lives in error.
            Carlos Fuentes, La Silla del Águila, 2003.

Posted by Carlos Santiso (AfDB)

In the second generation PFM reform, strengthening transparency and accountability in public finances is a defining challenge for emerging economies seeking to foster fiscal responsibility and curb corruption. There is thus renewed interest in those oversight agencies tasked with scrutinizing public spending and enforcing horizontal accountability within the state.

Recent research by Carlos Santiso, titled Eyes Wide Shut? The Politics of Autonomous Audit Agencies in Emerging Economies, explores the external oversight of public finances. It models and measures the effectiveness of autonomous audit agencies, developing an index to evaluate their performance, and assesses their reform over time. It examines the institutional trajectory of the AAAs of Argentina, Brazil and Chile, which illustrate the three models for organizing the external audit function in modern states and three distinct trajectories of reform (or lack thereof).

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.

A Principal-Agent Theory Approach to Public Expenditure Management Systems in Developing Countries - IMF Working Paper

Posted by Luc Leruth

A well-functioning public expenditure management (PEM) system is considered a critical pillar of government efficiency by most practitioners, who place it at par with a low-distortion tax system and an efficient tax administration. It is therefore unfortunate that economic research has shown so little interest in the design of PEM systems, especially on the theoretical side. A recent IMF Working Paper entitled "A Principal-Agent Theory Approach to Public Expenditure Management Systems in Developing Countries" by Elisabeth Paul and myself discusses Public Expenditure Management (PEM) systems in developing countries using an analytical framework based on principal-agent theory.