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July 2012

July 30, 2012

Tackling The Jobs Crisis: What’s To Be Done?

by Gerd Schwartz and Ruud de Mooij and previously published on iMFdirect

Faced with a jobs crisis, policymakers the world over are digging deep into their policy toolkits to generate more employment. A recent study by the IMF’s Fiscal Affairs Department argues that reforms of tax and expenditure policies offer great promise in helping countries confront the jobs crisis, including in the short term.

The study argues that improving employment outcomes, over and above what could be achieved through policies aimed at supporting the demand for goods and services by consumers and investors, requires actively supporting labor demand, strengthening incentives (or reducing disincentives) to work, and expanding training and job assistance, while preserving equity objectives.

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July 27, 2012

Basics First is Best Practice!

Posted by Allen Schick

This note compares two strategies for modernizing public sector management (PSM) in countries that have large technical deficits in policymaking, allocating public resources, delivering public services, and monitoring results. One strategy, often favored by development specialists, is to attempt to rapidly  modernize public management by introducing the advanced practices of highly-developed countries. The argument for this "leapfrogging" strategy rests on the expectation that low-income countries  can avoid the trial and error process that advanced countries have experienced and accelerate straight to adopting best practices.

The counter argument is that countries which lack basic managerial capacity cannot make effective use of best practices. It behooves them, therefore, to forego, state-of-the art reforms and concentrate instead on capacity-building measures, such as developing basic accounting and budgeting systems. Rather than retard development, a "basics first" strategy prepares the ground for more sophisticated PSM systems. For example, it will likely be premature to introduce the accrual basis in a county that lacks reliable cash-based financial reports, or to extend the time horizon of budgeting to the medium-term in a country that has unstable annual budgets.

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July 26, 2012

Australia’s Changing Budgeting Framework – Accrual or Cash?

Posted by Tim Youngberry[i]

There have been a number of articles on this blog that pose a question on whether the Australian Government has a cash-based budgeting framework or an accrual-based budgeting framework, or some sort of hybrid mix.  Hopefully, this contribution will provide a degree of clarification.

In the 1999-2000 Budget, the Australian Government moved to a full accrual accounting and budgeting framework.  The key features of the framework when implemented included:

  • A shift to an outcomes/outputs framework;
  • Introducing accrual concepts into the Budget, often referred to as accrual budgeting;
  • Applying a capital use charge on line ministries to reflect the cost of the use of “capital assets” and to provide an incentive for improved asset management;
  • Introducing devolved banking arrangements so that each agency had its own transactional banker and paying interest to agencies on accumulated cash balances to encourage better cash flow management; and
  • Funding agencies on the basis of full accrual expenses (including depreciation) – otherwise known as accrual appropriations.

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July 23, 2012

A New Dataset on Numerical Fiscal Rules

Posted by Andrea Schaechter

Working paper logo
Strengthening fiscal frameworks, in particular fiscal rules, has emerged as a key response to the fiscal legacy of the global economic crisis. Fiscal rules are defined as long-lasting constraints on key budgetary aggregates through numerical limits on deficits, debt, expenditures, or revenue. A new IMF working paper[1] takes stock of fiscal rules in use around the world, compiles a dataset—covering national and supranational fiscal rules, in 81 countries from 1985 to end-March 2012—and presents details about the rules’ key design elements.


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July 20, 2012

Signs of Fiscal Progress: Will It Be Enough?

Posted by Carlo Cottarelli and previously published on iMFdirect

We’ve just updated our latest assessment of the state of government finances, debts, and deficits in advanced and emerging economies.

Fiscal adjustment is continuing in the advanced economies at a speed that is broadly appropriate, and roughly what we projected three months ago. In emerging economies there’s a pause in fiscal adjustment this year and next, but this too is generally appropriate, given that many of these countries have low debt and deficits.

The improvement in fiscal conditions in many advanced economies is welcome, but it’s going to take more than lower deficits to get countries under market pressure out of the crosshairs.

Signs of Progress

There are clear signs of fiscal progress in advanced economies. The deficit will decline in about three quarters of advanced economies this year, and in almost 90 percent of them next year. Debt ratios are also starting to come down: we project one-third of advanced economies to have a declining debt ratio this year and half of them to do so next year.

The progress in deficit-cutting in Europe means less fiscal tightening will be needed in the future, reducing the fiscal drag on growth: in 2011–12 the fiscal tightening in the euro area will amount to a cumulative 2½ percentage points of GDP, while in 2013–14 it is projected to be one third of this, which is good news for growth.

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July 17, 2012

Strengthening PFM in Post-conflict Countries – What Works and What Can Be Improved

Posted by Verena Maria Fritz [1]

Strengthening public financial management (PFM) systems is a key area that development partners and the World Bank and IMF in particular seek to support in many post-conflict environments. As the World Bank intensifies its assistance to fragile and post-conflict countries, it is important to invest in learning what works, why and with what impacts in these environments with regards to PFM reforms.

A new comparative study [Strengthening PFM in Post-Conflict Countries] -- a joint product by the World Bank's PREM Public Sector Governance Unit and the WB’s Global Center for Conflict, Security, and Development in partnership with the Centre for Aid and Public Expenditure at the UK’s Overseas Development Institute (ODI) -- captures the experiences, successes, and challenges with PFM reforms in eight post-conflict countries. The review provides a systematic mapping of the PFM reform trajectories of eight cases over a period of 7 to 10 years and the achievements made to date, with the intention to complement the practitioner experience that PFM experts bring to bear in their work. The country cases include Afghanistan, Cambodia, the Democratic Republic of Congo, Kosovo, Liberia, Sierra Leone, Tajikistan, and West Bank and Gaza. Based on the cross-country findings, the review develops recommendations on supporting PFM in post-conflict countries in general, and more specifically with regards to the remaining challenges in the reviewed countries.


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July 06, 2012

Latest Issue of the International Journal of Governmental Financial Management

Posted by Andy Wynne – andywynne@lineone.net

The latest issue of the International Journal of Governmental Financial Management is now available for free down load from: www.icgfm.org/journal

This issue of the Journal begins with An Overview of Accounting in the Nigerian Public Sector which is the first chapter of a recent book by two eminent Nigerian authors, Eddy O. Omolehinwa and J. K. Naiyeju. This paper reviews the differences between public sector accounting and that undertaken in the private sector. It then discusses the different types of public sector organisation and the approaches to public sector accounting which have been developed for each of these institutions. Finally the authors consider the research challenges in the area of public sector accounting. They note that the most important has been access to data, but that this has improved in recent years with the annual and even quarterly financial statements now being made available for the Nigerian public sector on the Internet.

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July 04, 2012

Budget Reform: Borrowing a Leaf from the Accounting Profession’s Book

Posted by Florence Kuteesa

 Since the 19th century, there has been a sustained effort to develop and disseminate professional standards and qualifications in accounting. In stark contrast, there are currently no internationally accepted standards for budget preparation. Could this absence of a professional foundation for budget preparation  help explain the short lifespan of many reforms that have failed to take root in budget departments and bear fruit in the form of more credible and predictable budgets, especially in low income countries (LICs)? Is it time for the budget reformers to borrow a leaf from the accounting profession’s book?

It is of concern that national budget preparation reforms in many LICs have failed to deliver intended objectives. Budget practices continue to be based on a patchwork of traditions and procedures that have evolved slowly. There are marked disparities between the principles and practices of budgeting within countries, as well as large variations across countries. New ideas and techniques of planning and budgeting are tried but, all too frequently, are abandoned or overtaken by some other initiative making it even more difficult to build strong foundation for budgeting. Short-lived budget reforms have lead to poor outcomes and dissatisfaction among staff. The continuous search for more appropriate budgeting structures and procedures is demonstrated by recent debates among the senior budget officers’ networks, in Asia, Middle East and North Africa, and Africa.

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July 02, 2012

Can Policymakers Stem Rising Income Inequality?

Posted by David Coady and Sanjeev Gupta and previously published on iMFdirect

The issue of rising income inequality is now at the forefront of public debate. There is growing concern as to the economic and social consequences of the steady, and often sharp, increase in the share of income captured by higher income groups.

While much of the discussion focuses on the factors driving the rise in inequality—including globalization, labor market reforms, and technological changes that favor higher-skilled workers—a more pressing issue is what can be done about it.

In our recent study we find that public spending and taxation policies have had, and are likely to continue to have, a crucial impact on income inequality in both advanced and developing economies.

In advanced economies, this is especially important given that the ongoing fiscal adjustment needs to be continued for many years to reduce public debt to sustainable levels. But it is equally important in developing economies where inequality is relatively high.

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