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March 26, 2020

French Experience with Stimulus Packages, 2008-2009

Covid
Posted by Claude Wendling[1]

The  most immediate emergency with the current COVID-19 crisis is to sustain a modicum of normal economic life in spite of very adverse circumstances, it can be expected that shortly attention will turn towards the best way to design and implement far-reaching and diversified stimulus packages to help economies gather momentum.

France’s experience in the Global Financial Crisis (GFC) provides some useful lessons. Like other EU countries, France in 2008 committed itself to a « timely, temporary and targeted » (3T) stimulus package of around 1.5 percent of GDP. The stimulus package tried to reconcile the need to provide a short-term boost to the economy with medium and long-term public finance sustainability concerns.

Then French President, Nicolas Sarkozy, gave a speech in Douai (Northern France) on December 4, 2008 outlining the main aspects of an overall stimulus plan, estimated to total € 26 billion (1.3 percent of GDP). This included € 10.5 billion in tax measures (essentially to provide cash to businesses), €9 billion in state expenditures, € 4 billion in investment by State Owned Enterprises (SOEs) and € 2.5 billion to support investment by subnational governments.

This plan was developed in a hurry, mostly through work coordinated by the President’s and the Prime Minister’s offices involving all ministerial advisors. This collaborative work led to the identification of « shovel-ready » projects that could correspond to the « 3T » logic outlined above: road infrastructure works, ordering new vehicles for police forces, restoration of heritage and defense procurement. In institutional terms, the Douai speech was short on details but simply stressed that Patrick Devedjian, a close associate of President Sarkozy, would be appointed as the Minister in charge of the Economic Recovery.

From a public financial management standpoint most issues related to State expenditure. While state expenditure was only a third of the overall package, it was the most complex to implement. The challenge was twofold: ensuring a speedy implementation of stimulus-related expenditure while not adding to the baseline of State expenditure, especially against the background of France’s freshly adopted (September 2008, just on the eve of the Lehman crisis!) medium-term budgetary framework.

To address these challenges, the French Budget Directorate obtained agreement from the political leadership on a unique institutional setup. Within the French budget programming framework, a new mission (policy area) dedicated to the « Economic Recovery Plan » was created, divided into three programs dedicated to (i) public investment (ii) support for employment and economic activity and (iii) housing and solidarity. Three Deputy Directors within the Budget Directorate were appointed as program managers under the authority of the Minister in charge of Economic Recovery. In legal terms, this new setup was translated into a draft supplementary budget for FY 2009, which was prepared in less than two weeks after the Douai speech and adopted by the Cabinet on December 18, 2008. This supplementary budget was enacted in Law n°2009-122 on February 4, 2009, making available € 10.9 billion in commitment appropriations and € 10.3 billion in payment appropriations broken down into the three aforementioned programs: public investment, support for employment and activity, as well as housing and solidarity.

Expenditures were implemented in two different ways: either through direct payments to extra-budgetary funds in charge of a given action (e.g. an agency that had a significant payment processing capacity was in charge of managing a « cash for clunkers » scheme; the agency in charge of urban renewal received additional funding to finance an acceleration of the urban renewal program), or through budget transfers towards programs managed by other ministries (e.g. a transfer towards the « Heritage » program of Ministry of Culture or towards the « Defense Equipment » program of the Ministry of Defense).

Thematic Steering Committees were established to bring together representatives of the « program managers » in the Budget Directorate, advisors to the Minister in charge of Economic Recovery and line ministry representatives. These committees met regularly (usually monthly) to monitor the type of activities which received appropriations under the economic recovery plan, the precise schedule of implementation and the type of reporting imposed on each line ministry benefitting from the stimulus package. These Steering Committees could reallocate appropriations if some activities were found to be lagging and not as « shovel-ready » as initially thought, or claimed by line ministries. A key element which enhanced the monitoring of budget execution was the « tagging » of appropriations from the economic recovery plan appropriations within the French Financial Management Information System.

After two years, the budget mission « Economic Recovery Plan » was, in accordance with its temporary nature, eliminated and the Ministry for Economic Recovery disappeared in a Cabinet reshuffle. Overall, the implementation mode chosen for the spending aspects of the stimulus package turned out to be successful. The Budget Directorate led the way in ensuring that the political guidance on speed and adequate targeting of expenditures were followed. The Directorate was also accountable for overcoming any technical hurdles that could hamper swift implementation. Even though this is not a « natural » role for the Budget Directorate, the experience was positively rated. The Court of Audit stated in a July 2010 report that « overall the « Economic Recovery Plan » mission had been managed effectively, and adequately discharged its function in terms of targeting expenditures and the centralization and quick disbursement of appropriations under the stimulus package. »

This is probably the reason why in the most recent COVID-19 crisis, France again took a leaf out of this book. The Supplementary Budget submitted on March 18 2020 and adopted on March 20 creates one mission (policy area) dedicated to the fight against the COVID-19 crisis (« Emergency Plan against the Health Crisis »), placed under the responsibility of the Budget Minister and endowed with a total of 6.25 billion euros in appropriations. The set of actions under this mission is limited to short-term support to help businesses to pay the wages of their employees (€ 5.5 billion) and aid to small businesses and the self-employed (€ 0.75 billion). The Supplementary Budget also provides, as in many countries, for a substantial amount of guarantees (up to € 300 billion, around 11 percent of French GDP) for bank loans to companies affected by COVID-19.

Overall the main lessons from the French experience are twofold: first, in a crisis situation, the Budget Directorate has to adjust its usual gatekeeper role and become more of an enabler and facilitator of spending, while safeguarding the long-term interests of public finance. This is easier in countries where the Budget Directorate has already made the shift to a more service- and less compliance-oriented approach. Second, in times of crisis program budgeting frameworks need to be approached in a pragmatic and flexible manner, so as to enable a good tracking and monitoring of one-off expenditures.

This article is part of a series related to the Coronavirus Crisis. All of our articles covering the topic can be found on our PFM Blog Coronavirus Articles page.

 

[1] Claude Wendling is a Technical Assistance Advisor at the IMF’s Fiscal Affairs Department

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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