Simplify Program Budgeting: Is There a Place for ‘Activities’ in a Program Classification?

Posted By Khuram Farooq and Michael Schaeffer [i]

The traditional program budgeting structure is program, sub-program and activity. Can we simplify this structure? Is the ‘activity’ element of this classification really necessary?  Why ‘activity’?  The conventional argument is that ‘activity’ will be used to capture ‘projects’ or capital expenditures under sub-programs. This may be a valid explanation on paper. In practice, however, the concept of ‘activity’ has caused much confusion and difficulties during the implementation of program budgeting in several countries.

In Zambia, there were 3000 ‘activities’ under the Ministry of Health’s budget (FY 2011), with at least 5 subheads under each activity. This constituted around 15000 line-items! In Cambodia, there are 10,000 activities under the newly introduced program classification. This level of detail and complexity in the budget classification system is problematic on several counts, but the most fundamental issue is that it undermines the justification for moving to program budgeting.

Stocktake of PFM Diagnostic Instruments

Posted by Lewis Hawke[1]

So, you’ve heard of PEFA, and maybe TADAT, FTE and DeMPA. But what about EITI, EU-FB, GACAP II, HTS or MiGestion? The PEFA program has just released a consultation draft report that provides a stocktake of public financial management (PFM) diagnostic tools[2] under three main categories:

1. Broad diagnostic or analytical tools covering all aspects of the PFM system;
2. Tools focusing on individual PFM elements, institutions or sub-systems; and

• Tools used by development partners to assess fiduciary risk.

The stocktake was limited to tools that were in common usage internationally in 2016 but still managed to identify 46 different products. There were 12 broad, government-wide diagnostic tools, 25 tools covering a wide range of sub-systems and institutions, and 9 tools focusing on fiduciary risks to country financial systems.

How to Strengthen the Management of Government Guarantees

Posted by Sandeep Saxena[1]

A new paper on “How to Strengthen the Management of Government Guarantees” has been published by the IMF. The paper highlights commonly observed weaknesses in the management of government guarantees, describe good practices, and discuss measures governments could take to strengthen this often-neglected area.

Gabon’s Public Expenditure and Financial Accountability (PEFA) Assessment

Posted by Gwénaëlle Suc, Anicette Koumba, Danielle Nyamat and Wilfried Nzamba Mangala[1].

The 2016 Gabon Public Expenditure and Financial Accountability (PEFA) report is now available online. This publication concludes a six-month process to assess the performance of the Gabonese public financial management (PFM) system using the 31 indicators which make up the PEFA framework. This is the first PEFA to be undertaken in the Central African Economic and Monetary Community (CEMAC) using the upgraded 2016 methodology.  This revised PEFA framework includes four new indicators, expands and refines existing indicators and recalibrates baseline standards for good performance in many areas.

This assessment was funded by the European Union and led by the IMF’s Fiscal Affairs Department (FAD) in close cooperation with the Gabonese authorities. Since the previous 2013 PEFA assessment, Gabon has implemented major PFM reforms. These include the adoption of a new organic budget law and introducing program budgeting. These reforms had a direct positive impact on the 2016 PEFA scores with a quarter of the indicators showing improvement mainly in the areas of policy-based budgeting and timeliness of fiscal reporting. Nevertheless, performance against several indicators still fell below the basic levels set by PEFA standards. In particular, in the areas of managing arrears, expenditure execution, internal and external control and audit, public procurement, public investment management, oversight of public entities and quality of fiscal reporting.

Public Finance and Development Resource Round-Ups

Posted by Mark Miller[1]

Followers of the IMF’s PFM blog may be interested in the Overseas Development Institute’s recently introduced monthly resources round-up that provides a commentary on the must-reads in the public finance and development world.

These round-ups have three objectives:

1. To draw attention to some of the major research papers, articles and blogs relevant to people working on questions of public finance and development. As part of our work at ODI, we sift through many of these materials and so hope to serve the public good by sharing those pieces that interest us.
2. To illustrate the relevance of public finance to other key issues the development community grapples with. Public finance issues often get described in ways that is difficult for a non-specialist audience to understand, but they matter to a whole range of questions on policy and building effective states. Our previous round-ups have looked at how India’s tax policy reforms have reduced internal trade barriers, commented on the impact of the global financial crisis for how finance ministries operated, and drew lessons from recent UK political debates on public-private partnerships for current development financing debates.
3. To encourage and enliven debate on public finance issues. The round-ups reflect the views of the authors and not everyone will always agree with everything we write.  We believe this is a good thing as it encourages critical reflection on research being produced in this area. We would encourage people to comment or get in touch when they disagree.

Brazil: Making the Spending Rule Work

By Fabian Bornhorst and Teresa Curristine¹

Brazil is emerging from a deep recession. While the country is expected to register positive growth in 2017, the crisis left deep scars in Brazil’s public finances. From 2013 to 2016, the primary budget balance, which excludes interest payments, tumbled from a surplus of 1.7 percent to a deficit of 2.5 percent of GDP, and public debt increased by almost 20 percentage points. The impact of the downturn was magnified by long-standing structural fiscal problems.

To restore fiscal health and boost the credibility of fiscal policy, the Brazilian government introduced important reforms. The central element is a new spending rule, which was included in the Brazilian Constitution in December 2016. This rule limits the growth of federal spending to the rate of inflation. But successful implementation of this rule will require structural reforms and institutional and procedural changes in the management of public finances.