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September 2020

September 28, 2020

Integrated Infrastructure Planning and Budgeting

IG Book
Posted by Richard Allen and Ashni Singh[1]

Efficient and well-integrated planning and budgeting functions are key for building quality infrastructure. Planning functions establish a framework of national, sectoral and subnational government goals, policies, and targets. Budgeting puts these policies into a defined fiscal space and resource envelope, thus allowing policymakers to implement their plans. In many countries, however, strategic planning and budgeting systems are neither efficient nor well integrated. Planning systems are often poorly designed and largely aspirational, while decisions on major infrastructure projects can be dominated by short-term considerations. Budgeting is often separated administratively from the planning process, undermined by weak enforcement of fiscal and budgetary rules, and affected by poor control of budget execution, so that the annual budget lacks credibility.

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September 24, 2020

From Hurricanes to COVID-19: PFM Tools in the Caribbean

Covid
Posted by Jean Luc Helis, Bruce Stacey and Bill Rafuse[1]

As part of the UK Government’s Climate Change Support, the IMF’s Caribbean Regional Technical Assistance Centre (CARTAC) reviewed how governments prepared their PFM processes for natural disasters and how successful these measures were in mitigating the effects of Hurricanes Irma and Maria in September 2017.  Four of the six countries affected were reviewed: Anguilla, the British Virgin Islands, Dominica and the Turks and Caicos Islands. The reviews of Antigua and Barbuda and Saint Maarten had to be delayed until after the COVID-19 pandemic.

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September 21, 2020

Tracking COVID-19 Operations in Francophone Africa

Covid
Posted by Jean-Luc Hélis, Jean-Pierre Nguenang, Amina Bambara, Jean-François Dagues, Abdoulaye Touré and Pierre Roumegas[1]

Many governments have developed administrative, fiscal, economic and social measures to contain the spread of the COVID-19 pandemic and alleviate the suffering of their populations. These measures have been financed both from domestic and external resources. A recent technical note by the IMF argues that tools should be developed to track and transparently report on the use of these resources. The note focuses on reporting systems in Francophone Africa. Its recommendations are summarized below.[2]

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September 17, 2020

IPSASs Implementation – ‘Walk’ and ‘Talk’

Tobias
Posted by Tobias Polzer, Pawan Adhikari and Levi Gårseth-Nesbakk[1]

Substantial investments have been made by governments worldwide to adopt the International Public Sector Accounting Standards (IPSASs) and translate them into native languages. Does the ‘implementation walk’ (actual implementation) match the ‘talk’ (announcement of a decision to adopt IPSAS)? And, do these efforts eventually deliver value for money, and improved public sector governance and accountability?

A recent study[2] attempts to answer these questions. It finds that there have been three major accrual accounting reform waves in OECD countries: first, Anglo-Saxon countries (late 1980s to the mid-1990s), second, Nordic countries (1990s to the early 2000s), third, some non-Nordic European countries (since the late 2000s). The advanced economies (e.g., Australia, New Zealand, United Kingdom) that introduced accrual accounting reforms before the development of IPSASs in the early 2000s have generally resisted making any subsequent changes to their accounting policies and rules, even where these policies may not be fully consistent with IPSAS.

The situation is less clear for emerging economies and low-income countries. While some of these countries (e.g., in Asia and sub-Saharan Africa) have embarked on reforms to implement the cash basis IPSAS, many Latin American countries have attempted, or are attempting a transition to the full accrual basis IPSASs. Given the political opposition to enhanced transparency and accountability – a fundamental concept of IPSASs – in parts of Latin America, the study argues that these reforms might remain superficial, or even detrimental to development.

In several countries, a decoupling of the reform ‘walk’ and ‘talk’ can be observed. For instance, in Nepal, progress in implementing the cash basis IPSAS adopted in 2009 has been confined to experimentation by a few central ministries. For some countries, IPSASs adoption might be viewed as an exercise in seeking legitimacy. In the Nordic countries, for example, issues such as the usefulness of IPSAS for decision-making and lack of interest among users (politicians and public sector managers) in adopting the standards appear to be common struggles. The research highlights that it can take a long time to persuade critics of the merits of IPSAS and to ensure that the new standards are being implemented effectively.

In countries that have experienced better results, IPSASs have often been introduced as part of a larger public financial management reform program (e.g., in Austria) or where there is a powerful political pressure for change (e.g., in Iceland). The study finds that countries with the greatest difficulties and worst results appear to be those that have been subject to coercive external pressures (such as from donors), most commonly in low-income countries (e.g., Benin). Finally, arguments about the alleged high costs of implementation compared to the perceived benefits are commonly brought forward by countries that have been reluctant to adopt IPSASs.

 

[1] Tobias Polzer is an Associate Professor at the University of Sussex, UK. His research interests include public financial management and public governance. Pawan Adhikari works as Associate Professor at the University of Essex, UK. He is interested in accounting change in emerging and advanced economies. Levi Gårseth-Nesbakk is a Professor at the Nord University. His research centres on how global phenomena are translated into national and local practices.

[2] https://www.emerald.com/insight/content/doi/10.1108/IJPSM-03-2019-0071/full/html

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.

September 14, 2020

Accrual Accounting and the Government’s Intertemporal Budget Constraint

TIM
Posted by Tim Irwin[1]

One of the possible benefits of a government’s adopting accrual accounting is to improve the analysis of fiscal sustainability. For example, it provides better information on the government’s assets, unpaid bills, pension liabilities, and other things that typically don’t get reported in cash-only accounts (see, for example, the Fiscal Monitor of October 2018). Yet when governments have adopted accrual accounting the new information has not always been used for the analysis of fiscal sustainability.

The conclusions of the French Court of Account’s review of the first ten years of experience with the accrual accounts in France probably apply to many countries: “In comparison with central government’s budget accounts and national accounts, the general [accrual-based] accounts are underused. The picture of central government’s financial position provided by the general accounts is not systematically used by Government, sufficiently analysed by Parliament, or fully taken on-board by central government’s creditors and credit rating agencies.”

One reason accrual accounts may not be used to analyze fiscal sustainability is uncertainty about how the main measures of accrual accounts relate to the economic theory of fiscal sustainability. That theory is built around the “intertemporal budget constraint,” which essentially states that in the long run, and in present values, the government cannot spend more than its revenue. When the theory was developed, all governments measured their surpluses and deficits on a cash basis, and they tended to record their debt but no other balance-sheet items. So it was natural that the intertemporal budget constraint was expressed as a relation between debt and cash surpluses: future cash surpluses, not including interest on the government’s debt, need to be big enough to eventually pay off the debt. This formulation seems to leave no room for use of accrual surpluses and deficits or the government’s full balance sheet.

A recently published paper aims to remedy this problem by showing how the constraint can be expressed in terms of accrual surpluses and net worth as shown on the balance sheet. The paper explains the details. In a nutshell, it shows that the present value of the government’s future accrual deficits, not including the return on the government’s assets and liabilities that are recognized on the corresponding balance sheet, cannot be more than the government’s net worth as measured on that balance sheet.

 

[1] Tim Irwin is a consultant and former staff member of 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.

September 10, 2020

PFM Reform Strategy in the Pacific Island Countries

IStock-508101634
Posted by Richard Allen and Majdeline El Rayess[1]

In 2010 the Economic Ministers of the 16 Pacific Island countries (PICs) published a strategy for PFM reform in the region. The strategy called for countries to carry out regular PEFA assessments to measure the performance of their PFM systems, prepare detailed action plans (“PFM Reform Roadmaps” which have proved a mixed success), and coordinate support by development partners including the IMF’s Regional Technical Assistance Center for the region (PFTAC).

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September 08, 2020

How Strong Infrastructure Governance Can End Waste in Public Investment

IG Book
By Gerd Schwartz, Manal Fouad, Torben Hansen, and Geneviève Verdier

COVID-19 has had a profound impact on people, firms, and economies all over the world. While countries have ramped up public lifelines to individuals and firms, they will face enormous challenges to recover from the pandemic, amidst low economic activity and unprecedented levels of debt.

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September 03, 2020

GIFT Guide on Fiscal Data for Emergency Responses

Covid GIFT logo
Posted by Lorena Rivero and Juan Pablo Guerrero[1]

The COVID-19 pandemic has forced many governments to launch emergency spending and tax policy measures to mitigate the potentially catastrophic impact on the health of their people and economies. The speed of these adjustments has challenged traditional approaches to managing risks, inefficiencies, budgetary allocations and corruption. At the same time, fiscal rules have been put on hold. Budget balances, debt obligations and revenue adjustments in many countries exceed any level that would have been deemed acceptable before March 2020.

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