IMF Executive Board Concludes Review of Standards and Codes Initiative

On March 9, 2011 the Executive Board of the International Monetary Fund (IMF) considered a joint IMF/World Bank staff paper on the Standards and Codes Initiative, in line with the Initiative’s requirement of periodic (5-yearly) reviews.

Background

In the aftermath of the Asian financial crisis of the late 1990s, the Standards and Codes Initiative (hereafter ―Initiative) was launched in 1999 as part of the international community’s efforts to strengthen the international financial architecture. Specifically, it was designed to promote greater financial stability both within and across countries through the development, dissemination, adoption, and implementation of international standards and codes. The Initiative’s three main intermediate objectives are to: strengthen member countries’ economic institutions by improving transparency and promoting good governance, inform Fund surveillance and the Bank’s Country Assistance Strategies, and inform market participants to discriminate better among investment opportunities.

2nd Annual Regional Seminar of the Latin American Treasurers Held in Mexico City (March 16-18, 2011)

Posted by Israel Fainboim

An initiative launched by the Fiscal Affairs Department (FAD) of the IMF two years ago and supported by the Inter American Development Bank and the World Bank, to create a forum for the Latin American Treasurers to discuss treasury management issues on a regular basis, organize an annual seminar, and create a web page for exchanging ideas and materials, has been a success.

In April 2010 the Peruvian Treasury, under the direction of Mr. Carlos Diaz, did an excellent job in hosting the first seminar on treasury management. The 2010 seminar discussed cash planning, cash balance targeting, the adoption of a treasury single account (TSA), and the use of information systems for treasury and cash management. During that seminar the treasurers agreed to get organized, to propose an action plan, and to develop a web page. These and other objectives were included in a document signed by all of them, which was called the “Lima Declaration.”

Ireland Publishes Independent Review of Its Finance Ministry

Posted by Richard Hughes

In the lacuna between the general election in late February and the formulation of the new government earlier this month, Ireland’s Department of Finance (DoF) published the conclusions of an independent review of its performance over the decade leading up to and including the global economic crisis. The review was conducted by three person panel chaired by Rob Wright, former Deputy Ministry of Finance in Canada. 

While the report, entitled Strengthening the Capacity of the Department of Finance, complimented the DoF’s management of crisis itself, its account of the DoF’s performance in the run-up serves as a timely reminder of challenges that all finance ministries face in trying to chart a prudent course through the good times. Looking at the DoF’s advice to its ministers, the Cabinet, and Parliament (the Dáil) over the last ten years, the report found that the DoF did provide early and clear warnings about the pro-cyclicality of fiscal policy in Ireland. However, these admonishments went largely unheeded and, from the late 1990s onward, the fiscal stance of the final budget approved by Cabinet in November and the Dáil in December were consistently looser that that recommended by the DoF in June.

Korea’s Experience with Medium-Term Expenditure Frameworks

Posted by Yang-Hyun Jin, IMF Fiscal Affairs Department

In the mid-2000s, the Korean authorities launched a comprehensive fiscal reform package aimed at fostering fiscal sustainability through strengthening the public financial management (PFM) system. This package contained four fiscal reform pillars: (1) the national fiscal management plan (NFMP); (2) top-down budgeting; (3) performance-based budgeting; and (4) digital budgeting and accounting system. Korea’s medium-term expenditure framework (MTEF) is covered by the first two pillars.

The budget process was one of the key aspects of the PFM system that needed to be strengthened. Focused on a single budget year, the previous budget process relied heavily on a bottom-up approach. This approach made it difficult to cope with upcoming fiscal challenges, such as trend increases in spending on pension and health care resulting from a rapidly aging population. In addition, the previous process was also characterized by a relatively weak linkage between budgeting and policy making, as well as by limited autonomy of the line ministries. All these weaknesses negatively raised risks in terms of fiscal sustainability.

France : Le « central » contre le « local » : un faux débat, un réel enjeu

Michel BOUVIER, Professeur de Finances publiques et Fiscalité à l’Université Paris I Panthéon-Sorbonne ; Directeur de la Revue Française de Finances Publiques ; Président de FONDAFIP. michel.bouvier@fondafip.org

Il faut le rappeler : annonciatrices d’une crise profonde et de longue durée, les difficultés économiques de la seconde moitié des années 1970 avaient conduit à appréhender l’Etat comme un problème et les collectivités locales comme une solution. Celui-ci qui avait été magnifié pendant  « les 30 glorieuses » s’est alors trouvé frappé de discrédit à l’instar de toutes les grandes structures publiques et  privées, le  slogan « Small is beautiful »[1]s’étant répandu dans le monde comme une trainée de poudre. On assista alors à une revanche du local sur le central. Un processus de responsabilisation des acteurs locaux commença à voir le jour en France sur la base d’une mise à disposition de fonds globaux (globalisation des prêts et des subventions) autrement dit d’une autonomie de décision en matière de gestion financière. Ce processus s’est ensuite poursuivi en 1980 par l’autorisation accordée aux assemblées délibérantes des collectivités locales de voter les taux des impôts. C’est ainsi qu’à l’autonomie de gestion est venue s’ajouter une autonomie de décision fiscale, les lois de décentralisation de 1982/1983 ont ensuite couronné ce mouvement d’émancipation des collectivités territoriales.

Asian Regional Seminar: Promoting Fiscal Sustainability through Improving the Efficiency and Effectiveness of Public Spending

Posted by Teresa Curristine

Budgetary institutions can help to promote sustainable public finances and improve the transparency and the performance of the public sector. In light of the economic and financial crisis, achieving these goals has never been as important as it is today. Countries, both in and outside of the Asian region are seeking to develop and implement fiscal exit strategies which will foster economic growth and fiscal sustainability over the medium and longer term. Improving public sector efficiency and effectiveness are important priorities for all countries, not only those facing fiscal consolidation, but also countries in the Asian region that are expanding public spending to achieve key policy objectives such as poverty reduction and enhancing infrastructure.

Earlier this month the Malaysian Ministry of Finance and the Fiscal Affairs Department (FAD) of the IMF jointly organized the Asian Regional Seminar on Promoting Fiscal Sustainability through improving the efficiency and effectiveness of public spending in Kuala Lumpur, Malaysia. More than 60 senior budget officials representing 22 countries attended the conference.

So What is this New EU Semester Anyway?

Posted by Jason Harris[1]

Not this year…

In Sweden, a semester translates into a holiday or vacation. Unfortunately for all those Swedish-speaking Finance ministry officials whose holiday hopes had been raised by the recent announcement of a new EU semester, in this case it means quite the opposite. Indeed, the new EU Semester is likely to mean a busier springtime for anyone working in budget departments across Europe.

Following the endorsement of the European Economic and Financial Affairs Council in September last year, the new EU Semester requires EU Member States to submit their economic and fiscal strategies for the next three years earlier in the year and at the start of their annual budget processes. This is in contrast to previous practices, where euro-zone countries prepared their Stability Programme documents (and aspiring members produced their Convergence Programme documents) after their annual budgets were completed.

Who is “driving” the IFMIS?

Posted by Peter Murphy

An Integrated Financial Management System (or IFMIS) usually comprises a range of PFM functionalities and processes that cut across both organizational boundaries and technical disciplines. The question arises then who within government, or in practice within the Ministry of Finance (MOF), is best placed to take responsibility for the overall management of such a system?

The technical complexity of the information and communications technology involved in such systems may lead some to conclude the answer is the Information Technology directorate or support unit. Others however may take the view that this is equivalent to suggesting the mechanics should manage the car. Given it is usually the driver or the passengers who determine the cars destination, the route it takes and at what speed, they argue, it is the responsible user who should manage the car. This is despite the fact that often, neither the driver nor the passengers have much of a clue about either the mechanics of the vehicle or the maintenance of the road network upon which it operates.

Duke University and the IMF Support PFM Capacity Building in Liberia

Richard Hemming and Roy Kelly

A group of government officials from Liberia have just completed a two-week workshop arranged by the Duke Center for International Development (DCID). The purpose of the workshop, which was requested by the PFM Reforms Coordination Unit of the Ministry of Finance, was to develop capacity of officials from key economic and spending ministries most closely involved with the ongoing PFM reform program. This PFM program in Liberia has attracted broad donor and IFI support and achieved major successes since its inception in 2007, anchored by the passing of a new PFM Act in 2009. The government is now preparing a PFM Reform Strategy and Action Plan for 2011-14, the main objectives of which influenced the design of the workshop program (see below).

The IMF’s Fiscal Affairs Department (FAD) has played a lead role in advising Liberia on PFM reform, and DCID was able to team up with two IMF staff closely involved with FAD’s technical assistance program in Liberia. Florence Kuteesa’s early contribution to the workshop set the scene by providing an African perspective on PFM reform and drawing lessons from the Ugandan experience, while Duncan Last brought deliberations to an end by focusing on reform priorities, and especially the importance of putting in place an appropriate PFM legal framework. In between, the workshop addressed a wide range of PFM topics, with contributions from DCID faculty at Duke and from IMF and World Bank staff during a two-day visit to Washington. 

A Proposed Approach to Effective Fiscal Policy Management in the Caribbean

Posted by Michel Marion

The IMF’s regional technical assistance center in the Caribbean, CARTAC, has been assisting the authorities in a number of countries in the preparation of medium-term fiscal projections. During most missions, this begins with the completion of the base case (or no-policy-change) fiscal projections for the next 4 or 5 years. In the last two years, with the world recession which followed the financial melt-down, for most countries this has meant projections of rising deficits, and debt. Where they have been instituted, estimates show that legislated debt targets or other fiscal rules are expected to be breached. This leads to a determination of fiscal targets, deemed to be “sustainable” and “feasible” in terms of garnering public and political support.

The fiscal gap between the base case projections and the “updated” fiscal targets is an important measure. It typically kicks off the next step of the exercise: the preparation of an alternative “Fiscal Policy” scenario, intended to close this fiscal gap. As a first step, the focus is on the primary balance, as the projected revenue and expenditure effects of policy actions which are deemed appropriate and implementable are “layered” onto the base-case values of the corresponding components of revenues and non-interest spending. The induced interest savings are then calculated and added in. This usually involves an incremental, multi-step process. Initially, “rough” estimates of the amounts expected or needed are factored into the fiscal solution. Once direction is provided by the leadership team or Minister of Finance more detailed analysis and more refined estimates are prepared by dedicated teams.  

Budget Reforms After Conflicts: Insight From Southern Sudan

By Gregory Smith and Fiona Davies

The semi-autonomous Government of Southern Sudan (GoSS) was established in 2005 after a Comprehensive Peace Agreement (CPA) ended 22 years of conflict between the Government of Sudan and Sudan People’s Liberation Movement (SPLM).  The recent referendum has paved the way for independence on 9th July 2011 and efforts are being made to build and develop public financial management systems.

Perhaps uniquely for a post-conflict government, GoSS had immediate access to millions of dollars of domestic oil resources with which to fund its budget.  The Ministry of Finance faced the immediate challenge of introducing a budget system capable of managing the resource inflows in a context of limited capacity.  Details of how these systems were built and factors behind the success are provided in a new ODI Briefing Paper.  

Le compte unique du Trésor : une idée révolutionnaire…en 1806!

Billet de Franck Bessette        

Si le concept de Trésor public a vu le jour en France au XIII^ème siècle, en ce sens que les fonds publics ont été séparés de la caisse personnelle du roi, la monarchie française a continué à recourir à des comptes distincts pour divers usages. Le concept du Compte unique du Trésor (CUT) a été le produit des difficultés qu’ont éprouvées pendant de longues années les divers gouvernements révolutionnaires qui se sont succédé après 1789 pour satisfaire leurs besoins de liquidités. Pendant l’essentiel de la période révolutionnaire, ce sont des banquiers privés («faiseurs de services»), dont certains se chargeaient de collecter les impôts, qui avançaient à l’État les liquidités nécessaires, mais à un coût très élevé. L’institution du Compte unique du Trésor a été l’aboutissement d’un long processus qui s’est accompli pour l’essentiel au cours de la première moitié du XIX^ème siècle. Il serait difficile de faire ici l’historique détaillé des réformes du système du Trésor en France au cours de cette période, mais on peut distinguer trois grandes étapes.

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.