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October 2010

October 29, 2010

IMF Fiscal Affairs Department's Newsletter (October 2010)

Fiscal Affairs : October 2010


IMF Survey Magazine eNews

October 2010

Fiscal Affairs Department (FAD) of the International Monetary Fund

  Publication Updates

   IMF Publications

·         Financial Sector Taxation: The IMF's Report to the G-20 and Background Material


  IMF Working Papers

·         Fiscal Deficits, Public Debt, and Sovereign Bond Yields

·         Restoring Debt Sustainability after Crises: Implications for the Fiscal Mix

·         Public Capital and Growth

·         The Unequal Benefits of Fuel Subsidies: A Review of Evidence for Developing Countries


  IMF Staff Position Notes

·         Long-Term Trends in Public Finances in the G-7 Economies

·         Default in Today's Advanced Economies: Unnecessary, Undesirable, and Unlikely


  External Publications

·         Effect of Development Assistance on Domestic Health Expenditures

·         Sovereign Risk: Are the EU's New Member States Different

·         International Experience with Fiscal Rules

·         The Macroeconomics of Fiscal Consolidation in Area Euro Countries

·         Macroeconomic Effects of Greater Competition in the Service Sector


  Technical Notes
  and Manuals

·         Evaluating Government Employment and Compensation

·         Health Care Spending Issues in Advanced Economies

·         Performance Measurement in Tax Administration

·         Managing the Shadow Economy

·         Autonomy in Tax Administration and the Revenue Authority Model

·         Government Cash Management: Its Interaction with Other Financial Policies



Taxing the Financial Sector: A Report to the G-20 Leaders and Conference in Paris

Taxing the Financial SectorOne controversial issue addressed by the IMF over the past months has been the "fair and substantial contribution" of the financial sector to meet the costs of the crisis. Working with the Monetary and Capital Markets and Research Departments, FAD prepared a report for the G-20 Leaders (the final report), which attracted wide media and public interest.

The report and other European proposals were discussed at a high-level conference on financial sector taxation held in Paris on September 16. It was attended by senior officials from 35 European central banks and ministries of finance. IMF Deputy Managing Director, Mr. Portugal opened the conference.

Fiscal Policies: Effective Strategies for Stability and Growth

Fiscal Policies Panelists at 2010 Annual MeetingsDuring the IMF's 2010 Annual Meetings, FAD organized a panel discussion on the fiscal challenges ahead as the world economy exits the crisis. The panelists were Prof. A. Alesina (Harvard University), Mr. C. Cottarelli (FAD Director), Mr. P. J. Gordhan (Minister of Finance, South Africa), Prof. S. Johnson (MIT), Mr. J. Ligi (Minister of Finance, Estonia), and Mr. P. Solbes (former Minister of Finance, Spain). Ms. Z. Minton-Beddoes (Economic Editor of The Economist) moderated. The discussion focused on the need for fiscal adjustment and credible medium-term plans to reduce debt ratios, the impact of fiscal consolidation on short-term economic growth, the implications of fiscal policy actions of advanced economies on emerging markets, and the need to foster a coordinated policy response at the G-20 level.

Managing Natural Resource Wealth

FAD, the IMF Strategy, Policy, and Review Department, and the Natural Resource Charter organized a seminar during the IMF's 2010 Annual Meetings on "How Societies Can Best Manage Wealth from Natural Resources." The panel discussion included Timor-Leste Minister of Finance Emilia Pires; Andres Velasco, former finance minister of Chile; and Guillermo Ortiz, former central bank governor of Mexico as moderator. World Bank Iraq Senior Advisor, Yahia Said and FAD Assistant Director, Michael Keen also joined the discussion.

FAD In The News

The Financial Times (August 11, 2010) published an op-ed by Olivier Blanchard and Carlo Cottarelli with the title "The great false choice, stimulus or austerity." In this piece, the authors discuss the issues involved in restoring fiscal sustainability while maintaining support for the recovery.

The contrarian views held in the Staff Position Note "Default in Today's Advanced Economies: Unnecessary, Undesirable, and Unlikely" (see comment in this newsletter) sparked attention in the media. See, for example The Wall Street Journal ( "IMF Warns Countries of Debt Risks, Dismisses Idea of Greek Default" by Bob Davis, September 2). Bloomberg radio (Bloomberg surveillance, September 2) featured an interview with Carlo Cottarelli on this topic.

The evidence and recommendations in the note "Long-Term Trends in Public Finances in the G-7 Economies" (see comment in this newsletter) was also extensively covered, including by the Financial Times ("Richer or poorer: Taxing times for debt-laden advanced economies" by Chris Giles, October 7), and The New York Times ("Monetary Fund Warns G-7 on Debt Levels" by Sewell Chan, October 7).

Recent Staff Position Notes

Long Term Trends in Public Finances in the G-7 Economies"Long-Term Trends in Public Finances in the G-7 Economies", by C. Cottarelli and A. Schaechter reviews the generalized rise of public debt levels in the G-7 economies in the decades since the 1970s, when debt became the ultimate shock absorber: rising in bad times and not coming down in good times. It discusses the unsustainability of these trends going forward and offers policy options to address this problem.

"Default in Today's Advanced Economies: Unnecessary, Undesirable, and Unlikely," by C. Cottarelli, L. Forni, J. Gottschalk, and P. Mauro examines the likelihood that worsening public finances lead to a debt default in certain advanced countries. It argues that debt defaults in preceding decades have been triggered primarily by spiraling debt service costs, while the current challenges in some European advanced economies stem from large primary deficits. The paper concludes that default would make little sense for these countries: the problem is not the debt servicing burden, but the primary deficit.

Recent Working Papers

In "Fiscal Deficits, Public Debt, and Sovereign Bond Yields," E. Baldacci and M. S. Kumar explore the impact that fiscal deficits and government debt had on long-term sovereign bond yields during the last 30 years in 31 advanced and emerging market economies. It finds that increases of one percentage point of GDP in deficit and government debt lead to an increase in real interest rates of around 20 bps and 5 bps, respectively.

In "Restoring Debt Sustainability after Crises: Implications for the Fiscal Mix," E. Baldacci, S. Gupta, and C. Mulas-Granados analyze the experience of 99 advanced and developing economies in restoring fiscal sustainability after crises. They confirm earlier findings on the key importance of current expenditure cuts, but they also find that revenue-raising measures play an important role in large fiscal consolidations.

Technical Notes and Manuals

"Evaluating Government Employment and Compensation" by B. Clements, S. Gupta, I. Karpowicz, and S. Tareq discusses criteria for evaluating government employment and compensation, and options for reducing government's wage costs.

"Health Care Spending Issues in Advanced Economies" by E. Jenkner and A. Leive. Both public and total health spending have increased substantially in the past decades—a trend expected to continue, driven by ageing, rising incomes, and technological change. The note offers guidance for analyzing the evolution of public health expenditure and evaluating policy options in advanced and emerging market economies.

"Revenue Administration: Performance Measurement in Tax Administration" by W. Crandall explains performance management and its measurement, how tax administrations apply it, key tasks in implementing a performance management system, and country experiences.

"Revenue Administration: Managing the Shadow Economy" by B. Russell discusses the shadow economy and its measurement, as well as actions which revenue agencies can take to manage it.

"Government Cash Management: Its Interaction with Other Financial Policies" by M. Williams offers guidance on policy, institutional and practical issues for governments looking to develop a cash management function. It discusses the implications of active cash management for other functions such as debt management, monetary policy, and financial market development.

Technical Assistance Activities

During July–September 2010, FAD provided technical assistance to 37 IMF member countries and multi-country organizations through 42 projects.

Career Opportunities

The Fiscal Affairs Department (FAD) seeks talented and dedicated professionals with a background in different areas of public finance, to work on macro-fiscal policy issues and to provide technical assistance advice to IMF member countries on public financial management, tax policy reform, revenue administration, and different expenditure policy issues. Vacancies in FAD for staff and long-term expert positions are posted on http://www.imf.org/jobs. FAD also seeks experts who are interested in occasional short-term (2-3 week) assignments; interested candidates may send their CVs to FADexperts@imf.org.



October 27, 2010

Replace or Integrate: FMIS Architectures in France and Germany

Posted by Sebastian Eckardt, World Bank.

Financial Management Information Systems (FMIS) have been a core component—and in some cases driver—of public financial management reforms in developing countries, typically in conjunction with major legislative and process changes. While the experience with such IT-enabled reform strategies in developing countries has been reviewed (most recently in The World Bank's Experience with Treasury and Financial Management Information Systems (1984—2010), forthcoming World Bank Technical Report), much less is known about the implementation of financial management IT systems in OECD countries. Interestingly, both France and Germany have recently begun to plan and implement comprehensive IT modernization programs as levers for modernizing and rationalizing budget and accounting processes. The two cases, while at different stages of implementation, might offer relevant lessons on possible design options for FMIS architectures especially for middle income countries intending to move to second generation reforms and systems.

Continue reading "Replace or Integrate: FMIS Architectures in France and Germany" »

October 25, 2010

AFRITAC Centre (AFC) donne le coup d’envoi du Forum des Hauts Fonctionnaires du Budget

Posté par Abdoulahi Mfombouot, Conseiller Résident en gestion des dépenses publiques à AFRITAC Centre

Première initiative de ce genre dans la sous-région, le Forum des Hauts Fonctionnaires du Budget des pays membres de l’AFRITAC Centre s’est tenu à Brazzaville, capitale de la République du Congo, du 27 au 30 septembre.

Il a réuni deux délégués des plus hautes autorités budgétaires de chaque Etat-membre d’AFC pour des échanges théoriques et pratiques. Au cours de son discours d’ouverture, le représentant du Ministre des finances de la république du Congo a donné le ton en invitant les participants à profiter de cette rencontre pour asseoir une plate forme de coopération budgétaire pérenne, dynamique et mutuellement bénéfique. Il a insisté aussi sur la nécessité de partager avec franchise les réflexions sur les succès engrangés autant que sur les difficultés rencontrées.

Continue reading "AFRITAC Centre (AFC) donne le coup d’envoi du Forum des Hauts Fonctionnaires du Budget" »

Central AFRITAC (AFC) Launches the Senior Budget Officers' Forum

Posted by Abdoulahi Mfombouot, Resident Adviser on Public Expenditure Management, Central AFRITAC

As the first initiative of this type in the subregion, the Forum of Senior Budget Officers of Central AFRITAC member States held its first meeting in Brazzaville, Republic of Congo, on September 27-30, 2010.

The event brought together two delegates from the top-level budgetary authorities in each AFC member country, to exchange theories and practices. The representative of the Minister of Finance of the Republic of Congo set the tone in his opening address, by inviting participants to use the meeting to lay the foundations for ongoing, dynamic, and mutually beneficial budgetary cooperation. He also highlighted the need for a frank exchange on the successes achieved and difficulties encountered.

Continue reading "Central AFRITAC (AFC) Launches the Senior Budget Officers' Forum" »

October 22, 2010

Evaluating Government Employment and Compensation of Employees

Posted by Izabela Karpowicz

Tnm1015[1] 1 
The technical manual TNM/10/15 describes quantitative criteria for evaluating government employment and compensation and offers some options for reform.Various indicators are used for analyzing government employment and compensation. These can be grouped into three categories—compensation of employees (i.e., “the wage bill”), employment, and wage levels.

Commonly used criteria for evaluating government compensation include: compensation as a share of GDP, of revenues, and of total spending. These ratios vary across regions, countries, different levels of government, and income levels. Another indicator, the ratio of government compensation to non-wage outlays, measures spending efficiency.

Continue reading "Evaluating Government Employment and Compensation of Employees" »

October 20, 2010

Legislatures and the Budget Process – New Book Published

Posted by Ian Lienert

Are legislatures in control of budget processes?  Or is fiscal control a myth?  Professor Joachim Wehner of London School of Economics addresses these and other questions in a new book on the role of the legislature in annual budget decision-making. The book’s recent publication is very timely, given the need for many advanced countries to implement credible fiscal plans, which may be proposed by governments but rejected by parliaments.

There is a dearth of theory-based studies that explain the observed wide variation in the legislature’s role in budget processes in different institutional settings. Most studies focus on the well known polar cases of very strong legislatures (notably the United States) and those where fiscal control is largely a myth (notably the United Kingdom). In contrast, the new book’s empirical work is based on a large sample of countries and provides strong evidence for the importance of legislatures’ budget amendment powers in determining fiscal outcomes.

Continue reading "Legislatures and the Budget Process – New Book Published" »

October 18, 2010

Independent Fiscal Agencies for Developing Countries – A Technocrat’s Dream?

By Richard Allen

On September 27, an important new volume of papers on economic policy in developing countries was launched by the World Bank.1 The book, a “handbook” on the future of economic policy in the developing world, has attracted much attention in the media, not least because of its headline prediction that by 2015 developing countries will take a bigger share of world GDP than advanced countries.

The volume provides a lot of sound policy advice, and is strong on the important idea of strengthening fiscal institutions as a core requirement for improving growth prospects in the developing world.  However, some of the book’s ideas are less good than others. In particular, one suggestion, highlighted at the press launch, is that developing countries should consider establishing independent fiscal agencies as a protection against bad economic policies, and to mitigate the influence of corruption, since many developing countries do a poor job in respecting and enforcing agreed fiscal policy or fiscal rules. 

Continue reading "Independent Fiscal Agencies for Developing Countries – A Technocrat’s Dream?" »

October 15, 2010

Planning for Reform in the Caribbean

Posted by Mark Silins, PFM Advisor at CARTAC[1]

Over the last decade, much progress has been made in Caribbean countries with PFM reforms, particularly in terms of implementation of government financial information systems. However, the fiscal crisis in 2009 exposed some fundamental flaws in the PFM systems in the region. Some of these weaknesses were highlighted through diagnostic assessment tools, such as the PEFA, while others were flushed out by the critical nature of the recession. The situation has certainly crystallized the imperative that countries in the region better manage their financial resources through improved PFM systems.

Reform requires planning, resources, commitment, and monitoring. It is also crucial to success to ensure that reforms are properly sequenced. The key to ensuring all these elements occur is the development of a PFM Reform Action Plan. Effective planning requires analysis, discussion and brainstorming with all participants, agreement on a prioritized and feasible list of actions and interventions, and monitoring of the implementation process once agreement has been reached. While it may seem an onerous process, planning actually clarifies the way forward, breaking down processes into manageable units, thus making implementation of reforms easier to achieve. This post discusses how CARTAC, a regional technical assistance center based in Barbados and managed by the IMF, supports its member countries in developing such plans.

Continue reading "Planning for Reform in the Caribbean" »

October 13, 2010

The Western African Economic and Monetary Union (WAEMU) Publishes the Implementation Guides of the 2009 Public Financial Management Directives

Posted by Guilhem Blondy, Bacari Kone (both from the Fiscal Affairs Department of the IMF), and Benoit Taiclet (Resident Advisor at the IMF's Regional Technical Assistance Center, AFRITAC West)

The Implementation Guides of five out of the six directives on a Harmonized Public Financial Management (PFM) Framework adopted in March and June 2009 were published by the WAEMU Commission on its website on October 5, 2010.

The five 2009 directives prepared with the support of the Fiscal Affairs (FAD) and the Statistics (STA) Departments of the IMF concern respectively the budget laws, government accounting, budget classifications, the central government chart of accounts (COA), and the central government operations summary table (TOFE). No implementation guide was required for the sixth directive on transparency in PFM. The directives foresee the progressive implementation of new PFM techniques to be completed by 2019 (for more details, see the blog published by Bacari Kone on September 25, 2009.) The provisions of the directives should be transposed in national law by each member state by December 31, 2011.

Continue reading "The Western African Economic and Monetary Union (WAEMU) Publishes the Implementation Guides of the 2009 Public Financial Management Directives" »

Publication par l’Union Economique et Monétaire d’Afrique de l’Ouest (UEMOA) des Guides d’Application des Directives de 2009 sur la Gestion des Finances Publiques

Posté par Guilhem Blondy, Bacari Kone (tous deux du Département des Finances Publiques du FMI), et Benoit Taiclet (Conseiller Résident au Centre Régional d’Assistance Technique du FMI, AFRITAC Ouest)

La Commission de l’UEMOA a publié le 5 octobre 2010 sur son site les guides d’application de cinq de ses six nouvelles directives, adoptées en mars et juin 2009,  relatives au cadre harmonisé des finances publiques dans l’espace de l’Union.

Les cinq directives de 2009, élaborées avec le concours des Départements des Finances Publiques et de la Statistique du Fonds Monétaire International, concernent respectivement la transparence, les lois de finances, la comptabilité publique, la nomenclature budgétaire, le plan comptable de l’Etat et le tableau des opérations financières de l’Etat (TOFE). La sixième directive relative à la transparence dans la gestion des finances publiques n’a pas fait l’objet de guide d’application. Les directives prévoient une mise en place progressive de techniques nouvelles de gestion des finances publiques d’ici 2019 (pour plus de détails, voir le blog publié par Bacari Kone le 25 septembre 2009. Les dispositions des directives doivent être transposées par chaque Etat en droit national au plus tard le 31 décembre 2011.

Continue reading "Publication par l’Union Economique et Monétaire d’Afrique de l’Ouest (UEMOA) des Guides d’Application des Directives de 2009 sur la Gestion des Finances Publiques" »

October 11, 2010

A Central Fiscal Authority for the Euro Area?

Posted by Eric Mottu (Middle East and Central Asia Department) and Marco Cangiano (Fiscal Affairs Department)

This year’s world developments, but more specifically in Europe, have brought to the front once again the issue of how to monitor, coordinate, and, if needed, support individual states’ fiscal policies within a currency union. The issue is relevant not only for Europe, but also for a number of potential currency unions or economic cooperation efforts under discussion in various parts of the globe, such as in the East Africa Community (EAC) and the Gulf Cooperation Countries (GCC).

Continue reading "A Central Fiscal Authority for the Euro Area?" »

October 08, 2010

Not All Sun and Sand: A New Study on Lessons Learnt from Operating IFMIS Systems in the Pacific

Posted by Suhas Joshi, PFM Resident Advisor at the IMF’s Pacific Financial Technical Assistance Center (PFTAC)

Pacific countries with Integrated Financial Management Information System (IFMIS) systems have recently had a large dose of inputs, including several studies and a “lessons learnt” document. In 2008, following the PIFMA conference, several Pacific countries requested PFTAC’s assistance in assessing their FMIS systems. In addition to assessing their systems, countries sought suggestions regarding options for moving forward, either by improving existing systems or suggesting development of more modern systems. As a result of these requests, PFTAC initiated studies in six Pacific Island Countries (PICs) between November 2008 and December 2009. These studies covered the Cook Islands, Kiribati, Tonga, Tuvalu, Vanuatu and the Republic of Marshall Islands. These reports showed that similarities existed between various systems around the Pacific. The most important discovery was that there was a near identical FMIS technology stack (ie DB, OS, and hardware), and a common database architecture, in 5 of the 6 countries studied by PFTAC. Of course, there were several problems too--the use of inconsistent data networks, irregular reactive meetings between users, lack of a comprehensive plan for e-governance and little integration with Banks--the last not merely because in many Pacific countries like Nauru, Niue, and Tuvalu no real banking services exist.

Continue reading "Not All Sun and Sand: A New Study on Lessons Learnt from Operating IFMIS Systems in the Pacific" »

October 06, 2010

Will Fiscal Risk Analysis Cause the Next Global Crisis?

Posted by Timothy Irwin

In the wake of the financial crisis, the models that banks use to estimate their exposure to risk have come in for a lot of criticism. Nassim Taleb has said that one “put the world at risk”, while Felix Salmon described another “as instrumental in causing the unfathomable losses that brought the world financial system to its knees.” [1] Underlying these claims are at least three concerns—first that it’s next to impossible to accurately estimate the probabilities of very unlikely events because, inevitably, there is little data on them; second, that financial models often assume for simplicity that price changes are normally distributed, while their true distribution has fatter tails—making extreme price moves more common than the models imply; and third that people naively assume that the models are more accurate than they are, creating a false sense of security.

What are the implications of this critique for the estimation of fiscal risks? Will fiscal risk analysis cause the next global crisis?

Continue reading "Will Fiscal Risk Analysis Cause the Next Global Crisis?" »

October 05, 2010

Hurrah: PFM Blog is Celebrating its Third Anniversary Today

Posted by Michel Lazare

Hurrah, it is our third anniversary today: PFM Blog was unveiled to the public on October 5, 2007.

More than 500 posts and nearly half a million pages viewed later, our baby is clearly a success and is still growing at a very healthy pace (our traffic at the end of September was one third above last year's level).

Looking back at our initial objectives, as set in the inaugural post by the then Director of the Fiscal Affairs Department, Teresa Ter-Minassian, we are clearly on the road to achieving all of them.

Great many thanks to our numerous readers, to all our regular and occasional authors, and to our blogmasters' team who have made the PFM Blog what it is today: a reference website for all those interested in public financial management.

Long live PFM Blog!

October 04, 2010

Results, Performance Budgeting and Trust in Government: Launch of New Publication

Posted by Pedro Arizti, Jim Brumby, Nick Manning, Theo Thomas and Roby Senderowistch (all World Bank)

We would like to draw your attention to the recent publication by the World Bank of the book Results, Performance Budgeting and Trust in Government that will be officially launched this Monday, October 4, 2010 at the World Bank in Washington, DC.

As the book Results, Performance Budgeting and Trust in Government highlights, there are many ways to consider strengthening results and improving performance in the public sector. This book looks through two lenses. The first is the adoption of budgeting arrangements that promote performance and high quality public services. Performance budgeting brings a focus on the results that are being delivered for resources provided, rather than just how much money is being spent, and aims to strengthen resource allocation, effectiveness, efficiency and accountability. The second lens is the relationship between the government's performance in delivering key services and the trust that citizens and firms have in government.

Continue reading "Results, Performance Budgeting and Trust in Government: Launch of New Publication" »

October 01, 2010

Control de los compromisos

Juan Ramón Ruiz

TNM_09_04 1
¿Cuáles son los objetivos del control de los compromisos? ¿Cuáles son las condiciones previas par un implementación exitosa de los controles sobre los compromisos? ¿Cuáles son las principales formas institucionales y mecanismos operativos del control de los compromisos? ¿Cuáles son las implicaciones para la labor operativa y la asistencia técnica del FMI?

La NTM 4, elaborada por Dimitar Radev y Pokar Khemani, ofrece una definición de los compromisos, diferenciando entre específicos y continuos. El objetivo fundamental de un sistema de control de los compromisos es garantizar el control del gasto y evitar la acumulación de los atrasos en los pagos.

Continue reading "Control de los compromisos" »

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