Getting Together on PFM – A New Space for Practitioners

By Mauro Napodano and Simon Stone, PFM Board partners 

The PFM Board is an on-line community where practitioners meet to discuss public financial management issues. The idea to create the board was nurtured in the last two years by a group of nine like-minded colleagues involved in PFM work.

Through its open exchange, the board provides access to government officials and consultants responsible for and supporting PFM reform in developing and transition countries, as well as to individuals coming to the PFM area for the first time. In this way it intends to foster a shared understanding of the main issues at stake in reforming public finances.

Going Local Without Going Loco

Posted by David Gentry 

All technical assistance providers in the area of public financial management face a common problem: how to adapt widely accepted principles of good PFM practice to local circumstances? For example, one of the most widely accepted PFM principles is that budgets should be comprehensive, meaning that a single budget should include all revenues, expenditures, and other actions affecting the financial condition of the State. A comprehensive budget makes possible, among other things, presenting accurate and relevant fiscal aggregates and at the same time prioritizing all competing expenditure proposals so that funds are freely allocated to their best use.

There are a number of reasons why budgets are not exactly comprehensive in practice. Governance concerns often lead to social insurance funds being separated from the main budget. Self-financing services of government encourage the matching of revenues and expenditures, and retaining these revenues off-budget. Permanent or standing appropriations for debt payments assure capital markets that debt servicing will be made fully and on time. Legally defined eligibility and benefits give predictability and confidence of fair treatment to recipients of such services as public pensions, income support to the poor, and inter-governmental transfers. All perfectly good reasons, it seems, to avoid guiding principles.

The “Sarkozy Commission” Critiques GDP as a Measure of Well-being

Posted by Dimitar Vlahov

It has become increasingly common over the last decade or so to come across reports of various studies comparing standards of living or satisfaction with life across countries, as in this article or this one. Such rankings come in multiple flavors, depending on the concept to be measured and the methodology employed. Some – such as the Human Development Index, the Quality of Life Index, and the Genuine Progress Indicator – rely solely on the crunching of already existing national statistics and data from academic publications. Others tend to utilize direct surveys or a combination of direct surveys and observed data.  Examples of the latter type include the Happy Planet Index, the Legatum Prosperity Index, or Bhutan’s Gross National Happiness idea (a fascinating story which I encourage you to google further).

Despite the multitude of such initiatives and approaches, however, the academic community, governments and other policy makers continue to use and cite GDP as the main indicator of economic prosperity. Needless to say, we’re all constantly exposed to news reports on the latest GDP figures, coupled with all-important projections for the next quarter or year.

But is GDP good enough as a measure of overall societal well-being? If not, what’s wrong? The president of France, Mr. Sarkozy, has displayed a lot of interest in researching and answering these questions. In February 2008 he asked renowned economists Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi to assemble “The Commission on the Measurement of Economic Performance and Social Progress” (CMEPSP) with a few goals in mind: to point out the limitations of GDP as an indicator of economic performance and social progress; to suggest additional information that could be used to construct better measures of social progress; and to address the feasibility and potential usage of alternative measurement tools. The Commission responded in the fall of 2009 with a publicly-available 291-page report (attached below).

Gender Budgeting and Equity Issues in Fiscal Federalism Arrangements: Some Lessons from India

Posted by Davina F. Jacobs 

Despite the growing recognition of gender factors in budget planning and execution, there have been relatively few attempts to translate them to the intergovernmental sphere. An interesting working paper by Lekha Chakraborty (attached below), drawing on her own analysis and that of an earlier study of the Indian National Institute of Public Finance and Policy (NIPFP), discusses this up to now often neglected area. The question discussed is basically can gender issues be incorporated into financial devolution approaches. She discusses these issues in the context of the policy agenda of the Thirteenth (and latest constituted) Finance Commission of India.

India has and continues to be a pioneer in institutionalizing gender budgeting within its Ministry of Finance. The process of gender budgeting in India gathered momentum with a NIPFP study in 2003. To provide the analytical framework for gender budgeting, this study constructed an econometric model to link spending on public education and health to the Gender Development Index (GDI), showing the positive effect of such spending on this indicator of gender inequality—see the development of the GDI as set out in Box 1, page 8, of Chakraborty’s paper. This approach did not refute the widely explored link between economic growth and (gender-sensitive) human development; rather it confirms this link through higher public expenditure, particularly through healthcare and education.

State Treasurers of the World Unite!

Posted by Holger van Eden 

Last week the Peruvian government hosted a well-attended seminar in Lima on Treasury Management in Latin America (program attached below). The seminar was co-organized and supported by the IMF, the World Bank, and the Inter-American Development Bank. More than 17 countries participated. There were presentations from the international organizations on various aspects of treasury management, and from State Treasurers on ongoing reforms in their countries. The seminar was opened by the Peruvian Finance Minister Mercedes Araoz. At the end of the seminar, the participants decided to set up an international professional association for State Treasurers to enhance exchange of expertise and experiences. For further information interested parties can access the seminar webpage. The international organizations indicated their support for the initiative through a joint statement presented by Fiscal Affairs Department senior advisor, Ms. Adrienne Cheasty (joint statement attached below). A yearly international seminar on aspects of treasury management is foreseen. Mexico volunteered to host next year’s event.[1]

Qu’ils mangent de la brioche ![1]

Comment rendre responsables les gestionnnaires publics? Le rôle des juges specialisés dans les pays francophones et lusophones. 

Posté par Guilhem Blondy

“La société a le droit de demander compte à tout agent public de son administration”, déclare l’article 15 de la Declaration des Droits de l’Homme et du Citoyen du 26 aout 1789. Plus de deux cents après, le paysage des regimes de responsabilité et des sanctions encourus par les gestionnaires publics reste toutefois tres varié, selon les pays, bien que celles-ci restent généralement moins rudes que celles infligées par le passé à la famille royale française.La responsabilité politique ne concerne qu’un nombre limité de gestionnaires publics élus ou, comme les ministres, responsables devant des assemblées éelues.

La responsabilité administrative existe sous deux formes nettement differenciées. La responsabilité managériale est basée sur la fixation d’objectifs et des dispositifs souples de remunération du succès ou de sanction de l’échec en termes de reconnaissance symbolique ou materielle (promotion, augmentation de salaire, etc.). Elle devrait constituer le cadre normal d’appréciation de la performance d’un gestionnaire public, mais elle n’est pas toujours adaptée pour sanctionner des fautes graves de gestion ou des violations de la réglementation financière. Les mécanismes de mise en jeu de la responsabilité disciplinaire, qui suivent des règles procédurales plus rigides, reviennent dans ce cas au premier plan, mais ils ne sont pas efficaces lorsque les organes de contrôle et d’audit interne ne sont pas assez forts.

Let them Eat Cake!*

How to hold public managers accountable. The role of specialized judges in francophone and lusophone countries. 

Posted by Guilhem Blondy

« Society has the right to ask a public official to account for his administration », states the article 15 of the Declaration of the Rights of Man and the Citizen of 26 August 1789. More than two hundred years later, the landscape of accountability regimes and types of sanctions incurred by public managers remains very diverse, across countries, although usually less harsh than meted out to French royalty in days past. The political accountability concerns usually only a limited number of public managers – elected or, like ministers, accountable to elected assemblies.

The administrative accountability exists in two very different ways. The managerial accountability is based on the determination of objectives and on soft mechanisms to reward success or sanction failure in symbolic or material terms (promotion, salary increase, etc.). This should be the normal framework to evaluate the performance of a public manager, but it is not always relevant for sanctioning serious management faults or violations of government financial regulations. Disciplinary accountability mechanisms following more rigid procedural rules are in order here, but they will not be effective, if internal control and audit institutions are not strong enough.

Two Newcomers to the Fiscal Blogosphere: Marc Robinson and the Center on Budget and Policy Priorities

Posted by Michel Lazare 

In late March 2010, our former IMF Fiscal Affairs Department's colleague and regular contributor to the PFM Blog, Marc Robinson opened his Marc Robinson PFM Results Blog. Marc's blog  is up to an excellent start. Over the last few weeks, it has published insightful posts on advanced PFM topics, the most recent one published on April 14 discusses the reform of accrual budgeting system in Australia and in particular the move away from fancy capital budgeting methods (e.g., funding depreciation) in favor of a return to more traditional budgeting of capital spending. This reform is also accompanied by increased oversight by the parliament over the amount of capital spending effectively undertaken in a particular fiscal year.

From Soccer to Fiscal Responsibility Laws, Brazil’s Impact on the Maldives

Posted by Ian Lienert 

The Maldives has seen a dramatic deterioration in its public finances, resulting from the impact of the global recession on tourism revenues and from an unsustainable fiscal expansion after the 2004 tsunami in the run-up to the democratic transition in 2008. As a result, the fiscal deficit (excluding grants) exceeded 29 percent of GDP in 2009, and total public debt rose to 88½ percent of GDP. In this context, the new government requested financial assistance from the IMF and, at the same time (about a year ago), requested technical assistance for drafting a Fiscal Responsibility Law (FRL).

Could a FRL help achieve the fiscal consolidation efforts of the government? Should it adopt quantitative fiscal rules, in the way similar to that of its neighbors in India, Pakistan, and Sri Lanka? Can lessons be learnt from the successful Brazilian FRL, which is celebrating its 10th birthday? Or should the FRL include only broad objectives, expressed in qualitative terms and procedural rules? How can parliament become an active partner in achieving the fiscal stability, transparency, and accountability objectives to be embedded in such a law? These were some of the questions considered at a seminar on FRLs held in Malé, the capital of this Indian Ocean country of some 300,000 citizens.

Unit Costs and Performance Budgeting

Posted by Marc Robinson 

It is often suggested that unit costs are the basic tool for performance budgeting. The proposition is that measuring the unit cost of public sector services (outputs) – or, according to some, activities – provides the best instrument for linking the funding provided to ministries to the results they are expected to achieve. In other words, unit costs are supposed to be used in budget preparation to calculate budget requirements as a function of the quantity of services to be delivered to the public. Monitoring budget execution then allegedly becomes as easy as seeing whether the planned quantities of outputs were actually delivered.

This exaggerated notion of the role of unit costs as the link between funding and performance is surprisingly widespread. I have in recent times visited two low-income countries which are attempting to base entire performance budgeting systems on unit cost calculations. We’ve seen this before, and not only in developing countries. Australia and New Zealand made exactly this mistake, on a spectacular scale, in the nineties.[1]

Accrual Accounting: Is it “all or nothing”?

Posted by Julie Cooper and Holger van Eden 

Government accounting reform might not seem the most eye-catching item on developing countries’ agendas. Nevertheless it is important. To achieve economic growth and social development, good governance and the capacity to implement policy is essential. For that well-functioning PFM systems are necessary, and accounting systems are an integral part of those PFM systems — although some of our colleagues here at the IMF might not all agree on the prominence of government accounting in well-functioning PFM systems.

The link between government accounting reform and national development is one of a long and perhaps tentative causal chain, and is rarely addressed in academic or practitioner literature. James Chan in a paper published sometime ago, however, provides a convincing case for the importance of government accounting reforms, but also criticizes the lack of support provided by the accounting profession for the needs of developing countries. Concretely, Chan makes a rather strong case for intermediate accounting standards between cash and accrual basis accounting standards.¹ [Download Chan2006IPSASGAFDC]

Role of the Legislature in Budget Processes

Posted by Ian Lienert

Would parliaments be willing to move towards “best” international practice in budget processes? Is this a long-shot dream, given that parliamentarians have more-urgent constituency matters that fill their daily agendas? Even if they were willing to consider improvements in legislative budget procedures, is it possible to draw up a widely acceptable set of “best” practices for the role of the legislature in budget processes? After all, given that the powers, organization, and functioning of parliaments vary so much across countries (see my blog of January 20, 2010) can only country-specific guidelines be drawn up?

Despite the challenges, in a new Technical Note and Manual, I provide guidance for good practice for parliaments in five main areas of budget processes. Clearly it is not possible to provide definitive one-size-fits-all guidance on all budget issues for all countries. Nonetheless, this note identifies universally good rules for some areas of budget practice (e.g., the adoption of the annual budget law by the legislature before the beginning of a new fiscal year). In other areas, especially budget execution, it is more difficult to provide firm guidelines.

New Index Measures Strength of Budget Institutions

Posted by Era Dabla-Norris, Tej Prakash, and Richard Allen[1] 

A recently published IMF Working Paper constructs a new index that measures the quality of budget institutions in low-income countries. The quality of budget institutions—defined as the structures, formal and informal rules and procedures that govern budget planning, approval and implementation— is assessed against a list of wide-ranging criteria that measure key characteristics of the budget process in low-income countries.

A sizeable literature has attempted to measure the quality of budget institutions in advanced and middle-income countries by defining quantitative indices and examining their effect on fiscal performance. The present study is the first, however, to focus attention primarily on low-income countries. It develops a composite index of the quality of budget institutions for 72 low- and middle-income countries drawing upon empirical studies, budget survey databases and assessment reports such as the Public Expenditure and Financial Accountability (PEFA) framework, supplemented by data from the IMF, the World Bank, and donors engaged in capacity building in low-income countries.

To Cheque or Not to Cheque

Posted by Mark Silins

The following text was previously published in CARTAC’s newsletter. Click here to access the full text of the newsletter and CARTAC’s website. 

Cheque it Out

It’s been 12 months since I arrived in the Caribbean after almost a decade of working in between different countries. I thought it might be useful for me to relate one of my first impressions of doing business here verses what I had experienced in other countries in the world. As always when you arrive in a new place to live (my wife and I have relocated ourselves nine times in the last 20 years) you must buy certain household and other items. During our earliest shopping expeditions to buy these, what struck me was the continued, extensive acceptance of cheques here in the Caribbean, especially given the risks and costs involved with this form of payment. I am aware that this practice is not restricted to the Caribbean but is also true for North America. I have not owned a personal cheque book for 25 years and was, therefore, not in a position to make payments in this way. Fortunately, as we all know, most larger businesses do accept debit and credit cards as an alternative payment option.

Job Announcement: International Budget Partnership, Open Budget Initiative

The International Budget Partnership (IBP) is seeking a highly qualified and experienced Senior Analyst for its Open Budget Initiative (OBI), a global research and advocacy program that works with civil society partners in nearly 100 countries to improve public access to government budget information and to expand accountable and inclusive budgeting practices.  The Senior Analyst will be responsible for leading the OBI’s efforts to measure, analyze, and understand the factors that affect budget transparency and participation performance in countries around the world.   The successful applicant will play a leadership role in designing and analyzing OBI research on budget transparency and representing the organization in global forums where these issues are debated.  The position requires an individual who has substantial comparative knowledge of applied public finance in developing countries and practical experience working on these issues previously within civil society, government, or with an international donor.