Where and Why do PFM Reform Efforts Succeed?

Posted by Joanne Asquith

Over the last decade or so, donor support for activities in public sector financial management (PFM) has grown more than ten fold, from US$85.1 million in 1995 to US$930.6 million in 2007.  Nevertheless, surprisingly little evidence and analysis exists on the comparative performance of PFM systems across countries and over time, on the factors that underpin successful PFM reforms, and the role that donor agencies play in the reform process.

To help to fill this gap, an analytical study of quantitative cross-country evidence on public finance management in developing countries was undertaken by a team of researchers at the Overseas Development Institute. The study is part of a broader evaluation of PFM reforms in developing countries initiated by the evaluation departments of DANIDA, SIDA, DFID and the AFDB.

Timor Leste in Full View

Posted by Eliko Pedastsaar

The IMF recently published two PFM assessments carried out for the Democratic Republic of Timor-Leste (TLS), available here and here: http://www.imf.org/external/pubs/cat/longres.cfm?sk=24376.0 and http://www.imf.org/external/pubs/cat/longres.cfm?sk=24377.0. The first report is an assessment of fiscal transparency performed on the basis of the IMF’s fiscal module of the Report on the Observance of Standards and Codes (ROSC), an exercise usually referred to as the fiscal ROSC. The second one is an evaluation based on the PEFA (Public Expenditure and Financial Accountability) Framework. The PEFA analysis was a collaborative effort between the country authorities, an IMF technical team and the donor community. The publication of these two assessments is important milestone for TLS and represents a commitment by the country to make improvements in fiscal transparency and functioning of its PFM systems an integral part of the country’s development strategy.

For the authorities the two reports will provide an overview of the strengths and weaknesses of the PFM system. The diagnostics will be an important input in the review of the PFM development strategy that the World Bank and authorities are planning to undertake given the pending renewal of the large PFM support project funded by a multi-donor, Bank-managed TA project. For the IMF’s Fiscal Affairs Department the use of both diagnostics allowed assessment of synergies and complementarity between both instruments. 

Should Advanced Countries Adopt a Fiscal Responsibility Law?

Posted by Ian Lienert

Fiscal Responsibility Laws (FRLs) have become fashionable, especially in middle-income countries. In contrast, only a few advanced countries have adopted an FRL. Is this because the existing legal framework for the budget system is already adequate? Or are advanced countries reluctant to bind themselves to the goals of an FRL? Or do they believe that a law to regulate fiscal transparency, accountability and macro-fiscal stabilization is not needed?

After first defining what is meant by “fiscal responsibility”, a new IMF working paper examines the experience of FRLs in a wide number of countries. It is shown that laws that embody quantitative fiscal rules have generally not been successful in reaching fiscal consolidation goals. Although FRLs are most useful for promoting greater transparency of fiscal information, especially intended medium-term fiscal strategies, without government and parliamentary consensus to fiscal discipline, the macro-fiscal stability aims of a FRL may not be attained.

Un modelo básico de presupuestación por resultados

Juan Ramón Ruiz

 
¿Cuáles son las características de un modelo básico de presupuesto por resultados? ¿Cómo deben enfocar los países de bajos ingresos la presupuestación por resultados? ¿Cuáles son las condiciones previas para iniciar el proceso? ¿Qué tipos de presupuestación por resultados existen y cuales tipos deben evitar los países de bajos ingresos?

Estas son las preguntas que responde la Nota Técnica (NTM 1) elaborada por Marc Robinson y Duncan Last. Esta Nota describe la formulación de un modelo básico de presupuestación por resultados que sea apto para aquellos países interesados en adoptar un sistema con un mínimo de complejidad y costos, y con recursos humanos y capacidad técnica limitados, particularmente países de bajos ingresos.

Public Expenditure Management and Public Policy Implementation in Developing Countries

Posted by Jean-François Almanza, Agence Française de Développement (AfD)

A book on the subject of public expenditure management (PEM) in the developing countries, available in French through the following link under the title La Gestion des Dépénses Publiques dans les Pays en Développement, was published by the Agence Française de Développement in September 2010. Its author, Daniel Tommasi, is well known to the international community of public financial management (PFM) experts.

This project was driven by three observations:

-          There is a lack of French-language publications on PEM in the developing countries;

-          The PEM approach often concentrates on fiscal legislation or the systems and processes without analyzing their contribution to public policy implementation;

-          The focus is on the “Finance Ministry” and its objectives, rather than on the technical ministries that use the systems in place for their public policy implementation.

This book on PEM asks how such methods can best support public policy implementation in the developing countries. It looks mainly at French-inspired PEM systems.

La gestion des dépenses publiques et la mise en œuvre des politiques publiques dans les pays en développement

Posté par Jean-François Almanza, Agence Française de Développement (AFD)

Un ouvrage intitulé La gestion des dépenses publiques dans les pays en développement a été édité, en septembre 2010, par l’Agence Française de Développement. Son auteur, Daniel Tommasi, est bien connu de la communauté internationale des praticiens des finances publiques.

Trois constats sont à l’origine de ce projet :

-          L’insuffisance d’ouvrages francophones en matière de gestion des dépenses publiques dans les pays en développement ;

-          Une approche de la gestion des dépenses publiques souvent restreinte au seul droit budgétaire ou axée sur les systèmes et les processus sans analyser leur contribution à la mise en œuvre des politiques publiques ;

-          Une vision centrée sur le « Ministère des finances » et les objectifs qu’il poursuit et non sur celle des Ministères techniques qui sont les utilisateurs des systèmes en place pour mettre en œuvre leur politique publique.

Cet ouvrage centré sur la gestion des dépenses publiques (GDP) a pour but d’examiner comment elle peut appuyer de façon optimale la mise en œuvre des politiques publiques dans les pays en développement. Il traite principalement des systèmes de GDP dérivés du système français.

Trust is Good, Control is Better

Posted by Xavier Rame

Since May 2007, the French Public Finances General Directorate (DGFiP) has published an annual report on central government accounting internal control which is annexed to the Settlement Act. The report for fiscal year 2009[1] is a summary description of the device of risk control in financial reporting implemented by the French administration. It illustrates the quantum leap governments that are considering implementing accrual accounting must make.

The purpose of this report is to describe the control environment, the risk management actors and the approach applied. The report is confined to the accrual accounting internal control of the central government which is defined as "all arrangements organized, formalized and permanent, selected by management, implemented by all actors to control the operations related to financial activities of the central government and thereby provide a reasonable assurance on financial reporting reliability.” 

La Confiance N'Exclut Pas le Contrôle

Posté par Xavier Rame

Depuis mai 2007, la Direction Générale des Finances Publiques (DGFiP) française publie, à l’appui de la loi de règlement, un rapport annuel sur le contrôle interne comptable de l’Etat. Le rapport relatif à l’exercice 2009[1] constitue une description synthétique du dispositif de maitrise des risques en matière d’information financière mis en œuvre par l’administration française. Il illustre le saut qualitatif que doivent franchir les Etats qui envisagent de mettre en œuvre une comptabilité patrimoniale en droits constatés.

Le rapport considère successivement l’environnement dans lequel se déploie le contrôle interne comptable, les acteurs du dispositif de maîtrise des risques et la démarche appliquée. Son objet est circonscrit au contrôle interne comptable de l’Etat qui est défini comme « l’ensemble des dispositifs organisés, formalisés et permanents, choisis par l’encadrement, mis en œuvre par l’ensemble des acteurs pour maîtriser le fonctionnement des activités financières de l’État et donner ainsi une assurance raisonnable de la qualité des comptes, c’est-à-dire de leur fidélité à la réalité économique, patrimoniale et financière ».

Renewing WAEMU PFM Regulations: New Challenges, Steps Forward

Posted by Renaud Seligmann, Jean-Baptiste Gros et Benoît Taiclet

In the late 1990s, WAEMU ministers of finance adopted a set of common regulations to harmonize public expenditure management systems within the WAEMU region. The objective of the harmonized Public Financial Management (PFM) Framework was to present trustworthy, sincere, and comparable pictures of WAEMU member countries' public finances.

This framework has recently been renewed through the adoption of six new regulations (directives): one regulation assessing public finances transparency in general, five others covering respectively budget laws, government accounting, budget classifications, central government chart of accounts (COA), and central government operations (tableau des opérations financières de l’Etat - TOFE).

Mise en Œuvre du Cadre Harmonisé des Finances Publiques de l’UEMOA : Perspectives et Défis

Posté par Renaud Seligmann, Jean-Baptiste Gros et Benoît Taiclet

Soucieuse d’harmoniser les pratiques de gestion des dépenses publiques et présenter une image fidèle, sincère et comparable des finances des pays de l’Union, l’UEMOA avait, dès la fin des années 90 institué par directives un cadre harmonisé des finances de ses états membres.

Ce cadre vient d’être rénové en 2009 par l’adoption de six directives, l’une faîtière sur la transparence de la gestion, les autres portant sur les lois de finances, les règlements de comptabilité publique et les nomenclatures budgétaire, comptable (PCE) et statistique (TOFE).

Fiscal Policy in the Tropics—Hitting a Moving Target

Posted by Jason Harris[1]

Papua New Guinea is a developing, resource-dependent economy located on the Pacific Rim, east of Indonesia and north of Australia.  While not well known or much visited, it is a reasonably large country, with an incredibly varied population of around 6 million people and 800+ different languages. It has also been home to some interesting fiscal policy innovations over recent years.  In particular, it is one of only a few countries to formally adopt a non-mineral budget balance target to deal with the recent commodity boom.[2]

Since emerging from its recent economic nadir in the early 2000s, the PNG economy has enjoyed a robust turnaround.  Real GDP growth has averaged 4.3 percent since 2002, compared to average growth of less than 1 per cent in the previous 7 years, and growth has been broad based, with non-mining growth outpacing overall GDP growth. While only a small proportion of the population is involved in the formal sector, and poverty is still widespread, employment growth has been strong, averaging 5.1 percent a year since 2002, compared to the previous decade where employment growth had stagnated at 0.6 percent a year. The budget position has improved significantly over this period, with large budget surpluses, a halving of government debt to less than 30 percent of GDP, and a large accumulation of public resources. 

This turnaround has been due to three main factors: an unprecedented terms of trade boom; sound macroeconomic policy settings, which have successfully adjusted to changing circumstances; and some surprisingly effective micro-reforms, which have encouraged growth in the non-mining sector (particularly in the telecom sector). This post looks at how fiscal policy in PNG has adjusted to meet the challenges associated with the terms of trade boom. The strategies that were adopted have been successful in stabilizing public finances and avoiding the boom-bust cycle of past commodity booms in PNG.  However, they have also resulted in a great deal of pressure being applied to an already overstretched public financial management system, creating new challenges and opportunities for leakages.

Conference: Accelerating the Transition out of Fragility—The Role of Finance and Public Financial Management Reform

Paul Ackroyd and Marco Cangiano[1]

With the issuance of the OECD Global Report on the implementation of the “Principles on Good International Engagement in Fragile States and Situations,”[2] it is very timey that the Overseas Development Institute (ODI) and the IMF Fiscal Affairs Department (FAD) have organized a joint conference in London to discuss how to manage the transition out of fragility. This year’s conference, the sixth in a series of annual conferences on development of finance and public financial management reform organized by the Centre for Aid and Public Expenditure (CAPE) at ODI, will investigate the lessons that have been learned supporting transition in fragile states and what this means for how we should work together in the future.

The conference will bring together government policy makers, international agencies, practitioners, and academics. The conference is intended to be participatory and will be focused around a number of panels followed by plenary discussions amongst participants. To encourage fruitful discussion at the actual event, the conference is by invitation only.

A Common Language for a Sound Budget Classification System

Posted by Jean-Luc Helis

From its presentation to the parliament to its reporting on television or in newspapers to its execution by government institutions, the language of the budget should be consistently understood. When citizens become interested in the fiscal affairs of their country, they want to see financial information that is transparent and that they can understand. Moreover, there are occasions for exchanging information and reporting fiscal status to agencies outside the country. Consequently the financial language used within the country must be such as to directly communicate or, at least, be able to be easily “translated” into the language used for international fiscal communication.

Un Langage commun pour un système cohérent de classification budgétaire

Posté par Jean-Luc Helis

De sa présentation au Parlement à sa communication à la télévision ou dans les journaux en passant par son exécution par les organismes publics, le budget devrait être formulé dans un langage qui soit compris par tous. Lorsque les citoyens s'intéressent aux affaires budgétaires de leur pays, ils souhaitent en effet avoir une information financière qui soit transparente et qu'ils puissent comprendre. Par ailleurs, il arrive que l'on échange des informations budgétaires avec des organismes et des institutions en dehors du pays. Ces informations devraient pouvoir être communiqués directement ou, du moins, être «traduits» facilement pour être comprises au niveau international.

November 2010 Fiscal Monitor “Fiscal Exit: From Strategy to Implementation”

Posted by Mohan Kumar and Phil Gerson

 
The November issue of the Fiscal Monitor, the Fund’s flagship fiscal publication, is now available on IMF.ORG. In addition to its regular analysis of fiscal developments and trends, this edition of the Monitor—subtitled “Fiscal Exit: From Strategy to Implementation”—has a special focus on countries’ medium-term strategies to put their public finances on a sounder footing.

The Monitor reports that the global fiscal deficit is projected to fall from 6¾ percent of GDP in 2009 to 6 percent this year. However, the decline owes much to improved economic conditions and lower financial sector support in the United States. Without these factors, the overall global fiscal balance would have worsened this year. Deficit declines are widely spread—some 60 percent of countries covered by the Monitor are projected to post smaller deficits in 2010 than last year. In 2011, 90 percent of the countries are projected to record smaller deficits, and the cyclically adjusted balance—the balance after discounting for the impact of the economic cycle—is expected to improve by 1 percentage point of GDP in advanced economies (and close to this in emerging economies). This pace of adjustment is broadly appropriate, as it strikes a balance between addressing market concerns about fiscal fundamentals and avoiding an abrupt withdrawal of support to the nascent recovery. If growth should slow significantly more than expected, countries with fiscal room should give full play to the automatic stabilizers. If necessary to sustain the recovery, some of the adjustment planned for 2011 could also be postponed.

How to Bake a (Cr)edible Medium-term Fiscal Pie

By Olivier Blanchard and Carlo Cottarelli

How can governments have their cake and eat it too? How can fiscal policy provide sufficient support to economic activity, and reassure markets that fiscal solvency is not at risk? The poor state of fiscal accounts of most advanced countries calls for austere fiscal policies, before the confidence crisis that is now hitting a few small advanced economies spreads to the larger ones. But not right now: a frontloaded adjustment—that is a tightening that is not gradual but falls disproportionately early in the adjustment phase—could destabilize the recovery.

But can countries limit frontloading and still achieve credibility? Yes, but baking the right fiscal pie is likely to require a number of ingredients. While the exact recipe depends on country circumstances, here are our suggested ingredients.

Are Governments Up to the Job? Measuring Performance Is Key to Strengthening Government Capacities

Posted by Zsuzsanna Lonti and Natalia Nolan Flecha

Avoiding a global economic depression hasn’t come cheap. Although many people would agree the stimulus measures have been—for the most part—necessary and effective, many governments in OECD countries are now left with hefty bills, and they are now working to balance debt reduction without harming prospects for growth. As a result, many OECD governments are under pressure to demonstrate that they are up to the job of tackling these and other mounting challenges, while at the same time implementing austerity measures. Governments must prove they have learned from the crisis, to show that is has not damaged them but rather made them stronger. They must demonstrate they are capable of strategic foresight and agility, of managing risks, of forging strategic partnerships across government and beyond, and communicating better with citizens. If anything, the crisis has underscored the fact that government performance can make a difference in terms of growth, as well as in the wellbeing of citizens and their trust in government.

Monitoring the Principles of Good International Engagement in Fragile States: What Has Been Learnt So Far on PFM?

Posted by Jean Pierre Nguenang

The OECD recently published a Global Report on the implementation of the “Principles on Good International Engagement in Fragile States and Situations”. These principles, endorsed by ministers of the OECD Development Assistance Committee in 2007, were developed to guide international engagement in fragile states across a wide agenda. This agenda includes issues such as security, diplomacy, development cooperation, peace building, humanitarian action, trade, and investment. The resilience of the PFM systems is a fundamental pre condition for the success of the initiative.