Angels and Demons – the Political Economy of PFM Reform

 
Posted by Richard Allen¹ 

In a thought-provoking presentation during the IMF Fiscal Affairs Department’s (FAD) 50^th Anniversary Conference on December 5, 2014, Professor Ravi Kanbur of Cornell University analyzed the intellectual origins and roots of FAD.  In his view, these roots derive not from the influence of Keynes, one of the founding fathers of the IMF, who was more concerned with issues of monetary policy and balance of payments stabilization than with fiscal policy. A much stronger influence on FAD’s development was one of Keynes’ illustrious colleagues at Cambridge University, Arthur Pigou. Professor Kanbur’s main thesis [Presentation_Available here (.ppt)], however, was that FAD, while responsible for many important applications of fiscal policy, had taken little advantage of important recent work on political economy analysis, and the application of behavioral economics to fiscal issues. These developments derive from the work of notable economists such as Knut Wicksell and 2002 Nobel Prize winner Daniel Kahneman. Another strong influence has been the work on public choice theory and the economics of state bureaucracy, a line running from Pareto, through the great Italian school of public finance to the work of scholars such as Buchanan, Tullock and Peacock.

PEFA NEWS FLASH! (33) - Release of the Country Testing Version of the Upgraded PFM Framework

Following the public consultation on the draft upgraded PEFA indicator set, the PEFA Partners are pleased to release a version of the entire upgraded PFM Performance Measurement Framework for use in testing at country level– the ‘testing version’ – which incorporates guidance on the indicators and PFM performance report content, available here. A short explanation of changes from the consultation draft is available here.

Book Announcement: Reconstructing Iraq's Budgetary Institutions: Coalition State Building After Saddam

 
Posted by James D. Savage, University of Virginia

The invasion of Iraq led to a costly nine-year state-building and reconstruction effort. Reconstructing Iraq's budgetary institutions proved to be a vital element of the state-building project, as allocating Iraq's growing oil revenues to pay salaries and pensions, build infrastructure, and provide essential public services played a key role in the Coalition's counterinsurgency strategy.  Employing a historical institutionalist approach, this book first explores the Ottoman, British, and Ba'athist origins of Iraq's budgetary institutions. The book next examines American pre-war planning, the Coalition Provisional Authority's rule making and budgeting following the invasion of Iraq in 2003, and the mixed success of the Coalition's capacity-building programs initiated throughout the occupation. The budgetary process introduced by the Coalition offered a source of institutional stability in the midst of insurgency, sectarian violence, economic uncertainty, and occupation. This book explores the problem of "outsiders" building states, contributes to a more comprehensive evaluation of the Coalition in Iraq, addresses the question of why Iraqis took ownership of some Coalition-generated institutions and not others, and helps explain the nature of institutional change.

The OBS Tracker: A new Tool for Continuous Monitoring of Budget Transparency

 

 

 

 

 

 

 

 

 

 

Posted by Paolo de Renzio¹

Based on international standards like the recently updated IMF Code of Good Practices on Fiscal Transparency, the Open Budget Survey (OBS) – carried out every two years by the International Budget Partnership (IBP) – has been providing independent and comparable data and analysis on the transparency of government budgets since 2006. Now covering over 100 countries, the OBS – and its resulting Open Budget Index – has come to be seen as an important reference for assessing the public availability and comprehensiveness of budget documents that governments produce and publish.

The Survey is based on a thorough process that takes up to 18 months to complete, and that relies on local researchers and independent peer reviews, including from the governments being assessed. Many have noted how the two-year gap between surveys does not allow for a continuous monitoring of budget transparency, and for civil society actors to keep up the pressure on governments to open up their budgets to public scrutiny. As a consequence, IBP has recently launched a new tool – the OBS Tracker – which aims to fill this gap by providing monthly updates on the publication of key budget documents by the 30 governments that are part of its pilot phase.

PFM Reform: Lessons, Promises and Tears

Posted by Suhas Joshi and Sandeep Saxena[1]

If you don’t know where you are heading you will not understand why you are walking. This was the key message that emerged from the Asia Regional PFM Conference, held in Phnom Penh, Cambodia on November 25-26, 2014. The event was jointly organized by the Cambodian Ministry of Economy and Finance and the Fiscal Affairs Department of the IMF. Around 180 participants from 15 countries discussed the wide range of PFM reforms undertaken in the region and elsewhere in the world, the reasons behind their success and failure, and the lessons that could be learnt from such failure.

Top Ten for 2014!

Posted by Richard Allen, Holger van Eden, and Ted Twinting

This year’s award for the most read blog of 2014 goes to Carlos Scartascini of the Inter-American Development Bank (IDB) for his article on the IMF’s new Fiscal Transparency Code. His post won by several lengths with more than three times the number of hits recorded by the second-placed article. Another post by Carlos also features in the Top Ten. He is definitively our star blogger of the year!  Of the Top Ten articles, seven were written by people who are outside IMF headquarters, a good advertisement for the blog’s richness and diversity! This is a trend which the editors would like to maintain in the New Year. The wide range of topics covered by the Top Ten posts is also notable – from cloud computing to fiscal councils, to the public finances of Barcelona to sovereign wealth funds, to fiscal reform in the WAEMU to the political economy of PFM, to the work of senior budget officials in Central Africa.

We extend an open invitation to potential authors in the PFM profession to contribute articles during 2015, while noting that posts should be relevant to PFM and budget issues, and be no more than 800 – 1,200 words in length.

Finally, on another New Year note, alert readers may have noticed some recent innovations in the presentation and formatting of the PFM blog. More changes are in process. These changes are designed to improve the readability and usefulness of the blog, and will:

• Update the biographies of the co-editors of the blog
• Provide information on recent working papers, technical notes and manuals and other publications of the IMF’s Fiscal Affairs Department
• Provide a reading list of other selected PFM references
• Update and streamline the archive of more than 1,000 posts issued since September 2007.

Keep reading to find the top ten posts of 2014!

Efficient Debt Management through SALM

 

 

 

 

 

 

Posted by Yasemin Hurcan and Fatos Koc[1]

A recent paper by Fatos Koc discusses the benefits and challenges of adopting a sovereign asset and liability management (SALM) framework in debt management.[2] The paper draws on the experience of countries such as New Zealand, Denmark and Turkey, all of which have adopted the SALM approach, in various forms.

The SALM framework is based on a balance-sheet approach. It is designed to identify and effectively manage the key financial exposures of the public sector as a whole. SALM entails monitoring and quantifying the impact of movements in exchange rates, interest rates, inflation, and commodity prices on both sovereign assets and liabilities in a coordinated way. On the liability side, the aim is to minimize debt service costs subject to a prudent level of risk. On the asset side, the aim is to accumulate an adequate level of net foreign assets, including foreign exchange reserves, in order to conduct effective monetary and foreign exchange policies, and provide a buffer against external shocks.

Accrual Budgeting in Estonia

 

 

 

 

 

 

 

 

Posted by Eliko Pedastsaar

FAD recently interviewed Ivar Sikk, a Senior Advisor in the Executive Director’s Office of the World Bank, and a former Deputy Secretary (Budget) in the Estonian Ministry of Finance, about the government’s decision to introduce accrual budgeting.

Why has Estonia decided to adopt accrual budgeting (AB)?

Macroeconomic and fiscal pressures are likely to remain or grow over the medium term as a result of an aging population, the challenge of maintaining a liberal trade policy, and ensuring a favorable investment and business climate. Maintaining or increasing the quantity and quality of public services will become more and more difficult in this environment of restrained resources, and requires new approaches to budgeting and fiscal policy. The government’s decision to introduce AB will transform the budget from a statement of flows to a statement of fiscal impact, and will help identify the true cost of public services. The preconditions for the introduction of AB are good. Estonia is a small country with solid budgetary institutions and a strong track record of implementing budgetary reforms.

What are the expected benefits of this change, and the challenges likely to be faced?