Sequencing of Performance-Based Budget Reforms

Posted by Maarten de Jong[1] and Alfred T. Ho[2]

Performance budgeting (PB) is increasingly viewed as challenging by countries with advanced PFM systems, but continues to be popular with many governments and development partners.  In response to its far from trouble-free history, attitudes towards PB reform have gone through a transformation during the last decade. Overrated expectations have been lowered and lessons are being learned. Today, PB is no longer considered as an effective tool to alter budget allocation but rather as a way to increase fiscal transparency, align government priorities with activities and spending, and foster organizational learning. As a result, the line between performance management and performance budgeting has become increasingly blurred. Two lessons in particular surface from recent academic studies. First, the degree to which performance information will actually be used by public sector organizations is key to the success of PB reforms. Second, the use of such information is highly dependent upon institutions such as power relationships, leadership and culture.

Apart from macro-factors such as the economic and political environment, specific institutional factors include acceptance by stakeholders, codification in laws and procedures, capacity (both people and systems), incentives and safeguards for employees to use performance logic, and power relationships between the center of government and other stakeholders. Culturally, specific barriers may stand in the way of embracing PB’s underlying assumptions of technical rationality, openness and transparency, especially in non-western cultures and political systems. Ignoring these factors may nullify a reform effort or make it vulnerable to window dressing.

Toward Next-Generation Performance Budgeting

Posted by Ivor Beazley[1] and Don Moynihan[2]

Performance budgeting (PB) has a deep and enduring appeal. What government would not want to allocate resources in a way that fosters efficiency, effectiveness, transparency, and accountability? However, such aspirations have proven poor predictors of how performance data are actually used. The potential benefits of identifying and tracking the goals of public spending are undeniable, but have often justified a default adoption of overly complex systems of questionable use. Faith in PB is sustained by a willingness to forget past negative experiences and assume that this time it will be different. Without a significant re-evaluation, PB’s history of disappointment seems likely also to be its future.

A next-generation approach to PB should acknowledge that not only are the transaction costs of such systems significant, they often result in a checklist mentality. A more targeted approach can both reduce administrative costs and make performance data more useful. It requires clear and realistic objectives for performance budgeting, and systematic differentiation between ministries and programs that merit a substantial performance focus, and those where a lighter regime is appropriate. Attention also needs to shift from creating a new set of rules and formats for performance budgeting to instilling routines whereby performance information is used regularly as part of program management, thus instilling a “performance culture” in government.

The French General Inspectorate of Finance

Posted by Grégoire Tirot[1]

Created in 1797, the Inspection générale des finances (IGF – General Inspectorate of Finance) is a high level consulting and auditing service that is part of the French Ministry of Finance and Economy. In 1831, during the reign of Louis-Philippe, Baron Louis, Minister of Finance at that time, made the IGF the only body of control of his ministry: "The IGF is the arm and eye of the minister," he wrote. Today the IGF works not only for the Minister of Finance and Economy but for the entire government.

The IGF is considered as one of the three most prestigious organs of the French State (“Grands corps de l’Etat”), along with the Council of State (“Conseil d’Etat” which is the highest administrative jurisdiction in France) and the Court of Auditors (“Court des comptes”). Since the beginning of the Fifth Republic in 1958, one president of the Republic (Valéry Giscard d’Estaing) and four Prime Ministers have come from the IGF.

Top Ten PFM Blog Posts of 2016

Posted by Richard Allen and Kyle Axberg[1]

2016 was an exceptional year for the PFM blog, with readership levels increasing by about 50 percent over the last 12 months. The diversity of our articles, authors and readers has also increased. More than 60 articles were published on the blog during 2016. Nearly half of these articles were written by external contributors from a wide range of organizations in the public sector, academia, and the private sector. Topics ranged widely, sometimes stretching the boundaries of any recognized definition of PFM.

The articles included, for example, an extended interview with Trevor Manuel, celebrated former finance minister of South Africa, and pieces on topics such as accrual budgeting in Kazakhstan, innovative ways to fight HIV/AIDS, sharing natural resource revenues, the timing of a country’s fiscal year, how to make budget documents transparent, spending reviews in the EU, the new PEFA framework, IPSAS, accounting reforms in India, transparency and corruption (two pieces from the Anti-Corruption Summit in London), dispelling fiscal illusion, the capabilities of finance ministries, just to name a few.

Implementing a Public Services Cost System in São Paulo (Brazil)

Posted by Mario Pessoa and Gerardo Uña[1]

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The Government of the State of São Paulo, Brazil, is implementing a sophisticated new public services costs system (PSCS). The system aims to improve the efficiency of public services, strengthen budget realism, generate savings, and increase the transparency of public spending. The PSCS seeks to influence both the macro level of budget management, and decisions at the micro level, i.e., in relation to the final services provided to citizens by each cost center. For example, in the case of the State Secretariat of Education (SSE), PSCS would calculate the costs associated with the provision of basic education per pupil at the level of each of the 5,500 schools, each of which is a center cost. In the case of the Secretary of Penitentiary Administration, cost reports for each of the 166 state penitentiaries are routinely produced by PSCS already.

Public Investment Management in East/West Africa – Self-Assessment

Posted by Kubai Khasiani[1]

• A recent PFM Blog article discussed a workshop on public investment management (PIM) for the countries of Southern Africa organized by the IMF’s technical assistance center, AFRITAC South. A similar workshop took place recently in Kigali, Rwanda, for 13 countries of East and West Africa[2]. The workshop was planned against the background of increased infrastructure investment in the region, especially in power generation, transport (air, rail and roads), telecommunications, water, and sanitation. During the workshop, the participants completed a self-assessment based on the IMF’s Public Investment Management Assessment (PIMA) tool (please attach the linkimf.org/publicinvestment). The PIMA framework is divided into three broad areas, covering the planning, allocation and implementation of public investment projects, and 15 institutions, each of which has three dimensions, making 45 dimensions in total. The summary scores are shown below.

Reconciling a “True and Fair” View of Public Accounting with Realities

Posted by Johann Seiwald[1]

The fourth meeting of the International Public Sector Accounting Standards (IPSAS) Board in 2016 was held in Stellenbosch, South Africa from December 6-9, 2016. As usual, the meeting focused on the board’s core business of setting accounting standards for the public sector. The agenda covered a broad range of technical accounting topics such as heritage assets, revenues and non-exchange transactions, leases, financial instruments, social benefits, and public sector combination. But issues of more general interest were also discussed.

Guatemala: Fiscal Transparency Evaluation

Posted by Mario Pessoa[1]

The International Monetary Fund has published a Fiscal Transparency Evaluation (FTE) report for Guatemala.

In many areas Guatemala performs well against the standards set by the IMF’s Fiscal Transparency Code. Some eight of the Code’s 36 principles are rated as either “good” or “advanced,” 17 principles are rated as “basic,” and in ten areas the basic requirements of the Code are “not met.” One dimension was not assessed, as there are no existing public-private partnership contracts in Guatemala.