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 Sector Accounting Reform in the EU

Posted by Martin Manuzi and Simon Tosserams[1]

High quality public services, democratic accountability, intergenerational fairness, and financial stability are just some of the key issues that people all over the world value, and depend heavily on good public sector accounting. Modern and transparent reporting is the cornerstone of effective management of public finances – and thereby critical for any country’s economic sustainability. 

The financial crisis led to austerity policies in many countries and an increased focus on better financial management in the public sector. It also resulted in the widespread acknowledgement of deficiencies in the financial information reported by EU governments, which were deemed insufficient to make a fair assessment of risk. Today government securities, whether in the EU or around the world, are no longer perceived as risk-free, and their proper rating and valuation is hampered by the opaqueness of public sector reporting. The EU can play an essential part in championing reforms in this area, which require both new legislation and institutional change. 

Spending Reviews in the European Union

Posted by Claude Wendling[1]

Spending reviews have become an increasingly popular tool in the European Union since the global financial crisis of 2007-08. A major policy lesson stemming from the crisis is indeed the need to enhance expenditure performance, which can be defined as the reinforced connection between funding decisions and policy priorities (shall this or that policy be funded with public money?) and subsequently between funding levels and results delivered to end-users (what is the value for public money?). Spending reviews seeking a 'smarter' expenditure allocation across national policy priorities - based on a selective and sustainable expenditure-based fiscal consolidation - appear to European policymakers as a particularly valuable instrument in this respect. A European Commission paper authored by Caroline Vandierendonck in July 2014 provides in this respect useful insights on the design, conduct and implementation of spending reviews and their development in Europe  (http://ec.europa.eu/economy_finance/publications/economic_paper/2014/ecp525_en.htm).

Stepping Up the Financial Oversight of Public Corporations

Posted by Richard Allen and Miguel Alves[1]

Why should policy makers worry about the performance of public corporations (PCs)?  One reason is that, despite the large-scale privatizations that began in the 1980s, companies owned or controlled by the government continue to account for a large share of economic activity, and of public assets and liabilities (see charts below). Many PCs are pressured or mandated into fulfill political objectives and engage in public service obligations and other quasi-fiscal activities (QFAs) for which they are not compensated. PCs may also be used as a mechanism for circumventing traditional fiscal controls and as a conduit for financial corruption. (click to enhance images)

PFM Reforms in South Africa after the End of Apartheid

An Interview with Trevor Manuel

In this extended article for the PFM Blog, Trevor Manuel[1] describes some of his experiences as Minister of Finance in South Africa under Nelson Mandela and subsequent Presidents. Mr. Manuel oversaw huge reforms in the South African public finances as well as the creation of the National Treasury. The article is based on extracts from an interview taped during the Annual Meetings of the World Bank and the IMF held in Washington DC in October 2016. The interview was conducted by Lesley Fisher of the IMF’s Fiscal Affairs Department.

Local Government Reform in Nepal Under the New Constitution

Posted by Franck Bessette[1]

The 2015 Constitution defines Nepal as a federal democratic republic organized around three levels of government – federal, state and local[2]. The functions and powers of local governments will be substantially increased under this new framework. Roles will also be rebalanced. For example, district governments played a central part in the former system of local administration, but will now assume a largely coordinating role. A substantial reengineering of the public financial management system at local level will be required. The Constitution, however, is silent on many important fiscal issues, bare bones that will need to be fleshed out before the new system of intergovernmental finance can be effectively implemented.

A Roadmap for Implementing Accrual Accounting

Posted by Suzanne Flynn, Delphine Moretti, and Joe Cavanagh[1]

Last week the IMF published a new paper in its technical notes and manuals (TNM) series, a guide to “Implementing Accrual Accounting in the Public Sector” by Joe Cavanagh, Suzanne Flynn and Delphine Moretti (TNM 16/06). The technical note is available here.

Many countries have changed or are considering changing the basis of their financial accounts from cash to accruals. This TNM explains what accrual accounting (AA) means for the public sector and discusses current trends in moving from cash to accrual accounting.  It outlines the factors that governments should consider in preparing for and sequencing the transition. The note recognizes that governments will have different starting points and objectives, and varying practices in preparing financial statements. Countries also vary considerably in the volume of stocks and flows, and the number of public sector entities, that are recorded outside the government accounts. These factors need to be considered when planning and sequencing the implementation of AA.

Progress on PFM Reform in Liberia

Posted by Bernard Jappah[1]

The Liberian civil wars, which lasted for most of the 14 years from 1989 to 2003, destroyed much of the country’s public and private infrastructure, as well as its human capital. Most people tend to forget or play down the fact that the public finance system – essential for the effective planning and execution of the budget, as well as the efficient management of cash, public debt and overseas development assistance - had also collapsed. The advent of the Ellen Johnson-Sirleaf administration, in 2006, provided a signal for positive change.

Challenges were in abundance, with financial management and economic governance taking center-stage. The Ministry of Finance and Development Planning (formerly the Ministry of Finance) was challenged to develop and apply a mix of policy measures to rebuild the confidence of partners, create an enabling business environment, reduce the debt burden, and restore the faith of the citizens.

With support from the IMF, and the strong leadership of Antoinette Sayeh, the then Minister of Finance, a Public Finance Management (PFM) law was enacted in 2009, while the country achieved HIPC completion status in 2010. There was buzz throughout Monrovia that good things were on the horizon. It became necessary to work on mainstreaming the new law within the country’s governance architecture.

Cash Basis IPSAS Needs to be More Ambitious

Posted by Andy Wynne[1]

The IPSAS Board has issued an exposure draft to revise its Cash Basis IPSAS and comments were being requested by end July:

http://www.ifac.org/publications-resources/exposure-draft-61-amendments-financial-reporting-under-cash-basis-accounting

Late comments are still welcome, however, and this article could be considered my informal submission. As a PFM practitioner in Africa and elsewhere I have worked on accounting reforms that are both achievable and of practical use. The proposed revised Cash Basis IPSAS is feasible, but does not add much for informing policy makers or providing accountability to the public. The initiative to amend the present standard is indeed welcome, but more is needed to make the standard a useful guide to good practice. Below we provide some comments on how the revised Cash Basis IPSAS could be improved.

IFAC, MOSAIC and Strengthening Public Accountancy

Posted by Alan Edwards[1]

Collaboration between the International Federation of Accountants (IFAC) and various donors that operate under the name MOSAIC is quietly making a big impact on the global accountancy profession, and public financial management (PFM) more broadly. In 2013, MOSAIC issued the innocuous sounding Professional Accountancy Organization (PAO) Global Development Report which launched a program of capacity building for public accountants around the world. In a related initiative, IFAC and one of the MOSAIC partners, the UK’s Department for International Development (DFID), formed a partnership to invest in the capacity of PAOs in countries that are focal points of UK’s development assistance.

The initial emphasis of the IFAC-DFID programme is on three African countries - Ghana, Uganda and Rwanda. Four accountancy organizations in the UK[2] were selected to partner with the PAOs in these countries - ICAEW for Ghana, ACCA for Rwanda, and ICAS and CIPFA in partnership for Uganda. Tailored terms of reference were developed for each country depending upon their needs. In Uganda, for example, CIPFA is developing a roadmap to assist the national PAO in strengthening public sector accountancy. This work should be completed by December 2016.

Implementing the PFM Directives in WAEMU

Posted by Jérôme Bonherbe[2]

Directives[3] issued by the West African Economic and Monetary Union (WAEMU) contain many provisions on public financial management (PFM). These provisions include better access to budget information, multiyear budgeting, results-oriented management, decentralized budget execution, and a new accounting and financial monitoring framework. Most of the provisions relating to public information and budget formulation came into effect in 2012. The deadline for implementing the remaining provisions, mainly on budget execution and controls, is set for 2017.

The WAEMU Commission recently carried out a self-assessment of the PFM reforms required by the Directives. This exercise used a tool prepared by the Commission that includes a range of objective, evidence-based indicators for each of the six Directives. A similar approach and tool are being employed by the CEMAC Commission for its countries[4].

Saluting 40 Years of Accounting Reform in India

By Suhas Joshi[1]

1976 marked a major step in the Indian accounting reform process with the creation of a new organization called the Controller General of Accounts (CGA). The CGA, as the head of the governmental accounting profession, is the principal advisor to the government on all accounting matters. He is also primarily responsible for establishing and administering a technically sound management accounting system across the government, and for the compilation of the government’s accounts and their submission to the Parliament. The CGA heads the Indian Civil Accounts Service (ICAS), which was carved out from the Indian Audit & Accounts Service in 1976, following the separation of the accounting and auditing functions in India.

Official Launch of PEFA 2016

Posted by Lewis Hawke [1] and Urška Zrinski [2]

After four years of development, consultation and testing the PEFA 2016 Framework was released on February 1, 2016. [3]   

What is so special about PEFA 2016? What do users think of it? How can it make a difference in understanding and improving public financial management?

These are just some of the questions that will be explored during the PEFA conference and training event in Budapest, Hungary, from April 26-29, 2016. Over 250 delegates from around 50 countries will participate in the event.

Article by CABRI on the Use of Country PFM Systems in Africa

Posted by PFM Blog Administrator

A recent blog post by Neil Cole of CABRI discusses the use of country systems in Africa. The post outlines several cases where development objectives are being achieved using local country systems, and how to strengthen these systems to make more efficient use of aid resources. The increased use of country systems has raised the capacity of governments in areas such as PFM, cross-governmental organization, and the management of donor programs.

CABRI is the Collaborative Africa Budget Reform Initiative and a peer-learning and exchange network for senior budget officials working in African Ministries of Finance/Planning.

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.

 

An Innovative Approach to Supporting Liberia’s PFM Reforms

Posted by Lesley Fisher[1]

The IMF’s traditional approach to providing technical assistance (TA) has usually involved staff and experts traveling to a country, discussing various issues with government counterparts, and leaving a report, including recommendations, for the country to implement. This approach has been used extensively in Liberia since the mid-2000s and has been complemented by two resident experts, and numerous short-term experts, providing hands-on support in implementing the recommendations of the headquarters-based missions.

Ups and Downs of PFM Reform in Ethiopia: Book Review

Posted by Richard Allen[1]

Between 1996 and 2008, Ethiopia undertook a comprehensive reform of its core financial systems, and successfully transformed itself in to one of the fastest growing economies in Africa. Since then, according to a recently published book[2] by Stephen B. Peterson, reforms have stood still or even moved backwards. Peterson provides a valuable case study of a reform experiment in which—as a USAID consultant working for the government on the Decentralization Support Activity (DSA) project—he was intimately involved.

The book has many important things to say, especially about the huge institutional challenges of reform in developing countries. A key finding is that reforms take a long time, at least 12-15 years, and basic systems (of what Peterson calls “public financial administration”, PFA) must be introduced before moving on to more sophisticated systems. But the volume also contains some serious flaws.

Sustainable Development and the Role of PFM

Opening remarks by Mr. Vitor Gaspar, Director, IMF Fiscal Affairs Department at the ICGFM Winter Conference, December 7, 2015 in Washington DC

Ladies and Gentlemen, good afternoon!

It is my great pleasure to welcome you, and thank you for participating in this Winter Conference of the International Consortium on Governmental Financial Management. The topic of this year’s Conference is: Transforming Development Finance: PFM’s Role in Meeting Sustainable Development Goals

The international community is in the midst of developing a new framework to promote sustainable development, to end poverty, protect the planet, and ensure prosperity for all. In this endeavor, everyone needs to do their part: governments, the private sector, civil society, and international financial institutions, including the IMF.

China Moves Ahead on Accrual Accounting

Posted by Gouhua Hang[1]

With over 15,000 budget entities in central government, and hundreds of thousands in local government, good government accounting is obviously very important in China. From a fiscal risk point of view, local government is perhaps the most important, as they have borrowed extensively through informal mechanisms in the past decade, and have started doing so formally (on a non-pilot basis) through bond issuance at the start of this year. For this reason, China’s State Council approved the Accrual Government Comprehensive Financial Reporting Reform Plan in 2014. As part of the plan’s implementation, the Ministry of Finance (MOF) recently published a package of accounting and financial reporting guidelines, including the Government Accounting Basic Standard, Government Financial Reporting Regulations, and the General Budget Accounting Regulation. The issuance of these critical documents marks the start of a substantial transformation China is making towards adopting accrual accounting.

Sector Ministries: As Important as the Finance Ministry for Good PFM!

Posted by Lena de Stigter[1] and Jennifer Moreau[2]

Post Addis Ababa, the debate on development finance focuses in large part on the generation of the necessary additional resources to support the Sustainable Development Goals (SDGs). Improving tax systems and compliance is an important element in this regard and strongly supported by the German Development Cooperation agency GIZ. Yet, taxation is only one side of the coin. Sound public financial management (PFM), especially at the level of sector ministries, should be the other. The generation of savings through more effective and efficient budgeting and expenditure policies in sectors may be as important for countries as resource mobilization through taxes. For instance, the IMF has recently shown that there is much to gain by reducing the inefficiencies around public investment management (IMF, 06/2015, Making Public Investment more Efficient). Moreover, the Collaborative Budget Reform Initiative (CABRI), through its sector dialogues, has done important work on highlighting the possible gains of improving value-for-money in program expenditure in key parts of the public sector. Sound investment policies and development-oriented public expenditure will enhance trust of citizens in their government and increase their willingness to pay taxes. Moreover, it will have a positive impact on the socio-economic environment of a country and generally, serve as a catalyst for development. 

Trapping the White Elephants: Can the Latest Public Investment Boom Avoid the Mistakes of the Past?

By Richard Hughes[1]

On November 11 and 12, the Overseas Development Institute’s Centre for Aid and Public Expenditure (CAPE) in London will be dedicating its annual conference to the question of how developing countries can get a bigger “bang” for their public investment “buck”. The conference takes place against the backdrop of a surge in public (and private) investment in infrastructure in developing countries in recent years. However, the impact of this latest investment boom on economic and social development will depend crucially on the way in which that investment is managed. Past public investment booms in the developing world have often been associated with “white elephant” projects, time delays, cost overruns, inadequate maintenance, illusive returns, and ultimately fiscal instability and retrenchment.  

Will this time be different? On the eve of the 2015 CAPE conference, Richard Hughes, Division Chief in the IMF’s Fiscal Affairs Department and co-author of the Fund’s new policy paper “Making Public Investment More Efficient” explores these issues below.

Steady Progress on PFM Reform in Cambodia

Posted by Suhas Joshi and Frans Ronsholt[1]

Work on preparing the 2015 Public Expenditure and Financial Accountability (PEFA) assessment for Cambodia is nearing completion. A high-level workshop to discuss the draft report was held recently in Phnom Penh, and the final report is expected to be issued by late November.

This latest PEFA assessment updates the one completed in 2010. The main objectives of the exercise were to update the PFM reform action plan, track progress since the 2010 assessment, and develop internal capacity to enable any future PEFA assessments to be carried out independently.

Book Review - PFM Reforms in Latin America

Posted by Carlos Pimenta [1] and Mario Pessoa [2]

 Over the last two decades, almost all countries in Latin America have conducted substantive reforms to strengthen their public financial management (PFM) systems and generate reliable information in an effort to promote fiscal stability and sustainable development. These reforms have enhanced the quality of macro-fiscal management in the region and improved economic performance observed throughout the 2000s. As the recent economic crisis demonstrated, however, there is room for further improvement, as well as a need to increase the resilience of the PFM systems.

IMF Launches New Public Investment Management Assessment

 

Posted by: Richard Hughes

  ADDIS ABABA, July 15, 2015 - The IMF today launched its new Public Investment Management Assessment (PIMA) at the Third Financing for Development Conference in Addis Ababa, Ethiopia.

  Speaking at seminar on Bolstering Country Public Financial Management Systems for Efficiency and Delivery, Sanjeev Gupta (Deputy Director of the IMF’s Fiscal Affairs Department) presented the findings of a new IMF research paper entitled Making Public Investment More Efficient. The paper showed that the average country was losing around one-third of the potential benefits from their public investment to inefficiencies in the way in which those investments are managed. Mr. Gupta stressed that the potential development benefits of closing this efficiency gap are significant, saying “The most efficient public investors get twice the growth “bang” for their public investment “buck” than the least efficient public investors.” 

  Mr. Gupta went onto explain that if government want to realize the full economic and social benefits from public investments, they have to improve the way in which those investments are managed. The IMF’s new paper also found that strengthening public investment management institutions can close up to two-thirds of the public investment efficiency gap.

 To help countries evaluate the strength of the public investment management practices and identify priorities for reform, Mr. Gupta unveiled the IMF’s new Public Investment Management Assessment (PIMA). The PIMA evaluates 15 institutions that shape public investment decision-making at the three key stages:

• Planning sustainable investment across the public sector;
• Allocating investment to the right sectors and projects; and
• Implementing projects on time and on budget.

 The IMF will be piloting the PIMA over the coming year in close collaboration with the World Bank, Regional Development Banks, and country authorities

 To learn more about the PIMA and the IMF’s work on public investment click here, watch the video below, or contact us at pubinvest@imf.org.

 

 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.

JICA’s Technical Cooperation in PFM: Key Principles

Posted by Tomoaki Tanaka[1]

The Japanese International Cooperation Agency (JICA) is the world’s largest bilateral development institution, with a budget in 2013 of more than one trillion yen. Out of this budget, 177 billion yen was disbursed on technical cooperation (TC), the remainder on overseas development loans and grants.[2] JICA’s operations cover a variety of sectors, such as Planning and Public Administration, Public Works (infrastructure), Agriculture, Education, Health & Medical Care, and Energy, Commerce & Tourism. JICA is represented in over 150 countries and regions, and has more than 100 overseas offices. Much of JICA’s TC is focused on South and South-Eastern Asia, but other regions where it is active include the Pacific, Latin America, the Middle East, Africa, and Eastern Europe.

Public financial management (PFM) has become one of JICA’s most important areas of TC. In JICA’s view, effective PFM systems are fundamental to the development process. If such systems are not in place, the flow and control of financing for key development projects may be jeopardized.

Enhancing Fiscal Reporting & Transparency in East Africa

 

Posted by Amitabh Tripathi[1] 

East AFRITAC (AFE) countries[2] have been progressively improving their fiscal reporting practices. These practices have benefitted from wider reform efforts including strengthening of the PFM legal and regulatory frameworks, extending and enhancing the functionalities of IFMIS and progressive improvements in the timeliness and comprehensiveness of in-year and end-year fiscal reports. However, despite some notable improvements, the fiscal reporting function in many of the countries continues to underperform. Common problems include: unclear definition and classification of public entities in the legal framework that adversely impacts the coverage of fiscal reports; lack of timeliness and regularity in the publication of in-year reports and consolidated annual financial statements; failure to adopt internationally accepted standards; and inadequate reporting of expenditure arrears and contingent liabilities.   

These issues have become more significant in the context of the East African Monetary Union (EAMU) protocol that requires harmonization of PFM legal frameworks and fiscal reporting for partner countries, four of which are part of the AFE constituency. Accordingly, following requests from some of its member countries, AFE organized a four-day regional workshop on “Enhancing Fiscal Reporting and Transparency” in Arusha, Tanzania during April 2015. The workshop was attended by twenty-eight officials from the Ministries of Finance and Planning in Eritrea, Ethiopia, Kenya, Malawi, Rwanda, Tanzania (including Zanzibar) and Uganda.   

Why Sovereign Wealth Funds Should Not Invest at Home

 

Posted by Andrew Bauer[1]

Developing, capital-scarce countries need domestic investment. Governments in countries such as Angola, Mongolia, and Timor-Leste must invest in education, health and public infrastructure if they hope to achieve middle- or high-income status. What’s more, mineral-rich countries have access to large (yet finite) sources of income that can be used to boost domestic investment and help overcome the poverty trap. On this nearly everyone can agree.

In response to this need for domestic investment, some commentators have recently suggested that there might be opportunities for these countries’ sovereign wealth funds (SWFs) to directly invest at home. Nearly every country with significant oil, gas or mineral exports operates a SWF. Already, governments in Angola, Azerbaijan, Iran, Nigeria and Russia, for example, use their SWFs to channel money to special domestic projects.

DAMS AND DIKES FOR PUBLIC FINANCES

Posted By Vitor Gaspar, Richard Hughes, and Laura Jaramillo

Fortune, wrote Machiavelli five hundred years ago in The Prince, is like a violent river. She “shows her power where virtue has not been put in order to resist her and therefore turns her impetus where she knows that dams and dikes have not been made to contain her.” Managing the ebb and flow of government’s fiscal fortunes poses similar challenges today. We need a risk-based approach to fiscal policymaking that applies a systematic analysis of potential sources of fiscal vulnerabilities. This method would help countries detect potential problems early, and would allow for institutional changes to build resilience.

Digitization of Payments in Mexico Saves Billions

Posted by Ruth Goodwin-Groen[1]

The Mexican government is saving an estimated US$ 1.27 billion per year, or 3.3 percent of its total expenditure, on wages, pensions and social transfers. How? By digitizing and centralizing its payments.

The Mexican government’s reform is the story of a sustained effort over time driven by successive, committed Ministers of Finance and Treasurers who were sure of the ultimate benefits of electronic payments systems. This process and the resulting lessons have been examined by the Better Than Cash Alliance in an in-depth case study entitled, Sustained Effort, Saving Billions: Lessons from the Mexican Government’s Shift to Electronic Payments.[2]

The Better Than Cash Alliance is a partnership whose members are committed to moving away from cash to digital payments. Housed at the United Nations Capital Development Fund (UNCDF), the Alliance is uniquely positioned to bring together a broad cross section of governments, multilateral and bilateral donors, UN Agencies, international NGOs and companies. The Alliance is funded by the Bill & Melinda Gates Foundation, Citi, the Ford Foundation, the Omidyar Network, USAID and Visa Inc. It operates both globally and in country, providing diagnostics, toolkits, technical support and case studies, like the present example from Mexico.

What Drives Improvements in PFM Performance?

 

Posted by Verena Fritz, Marijn Verhoeven and Stephanie Sweet

Reforms of public financial management (PFM) systems – pursued by many countries and supported by development partners -- have attracted considerable debate and analysis in recent years. Significant variation in progress achieved and lack of broad-based and sustained improvements in metrics of PFM performance, as reflected in the World Bank’s CPIA ratings and PEFA scores, suggests to many observers that outcomes have not matched reform efforts and expectations. 

This has led to a search for better solutions in two directions: first, grounding reform efforts in stronger problem analysis, and based on this, a better fit and sequencing of reform approaches to specific country circumstances and identified bottlenecks. Second, seeking a better understanding of non-technical aspects and, in particular, the role of political economy drivers in influencing which PFM reforms are pursued, in which countries, and with what degree of success. ‘Doing things differently’ along these lines sounds promising, but reformers and development partners may well question whether we know enough to pursue such alternative approaches on a wider scale. 

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.

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.

Taking Stock of PFM Reforms in the WAEMU

Posted by Bruno Imbert¹

In 2009, the Council of Ministers of the Western Africa Economic and Monetary Union (WAEMU) adopted six regional directives² on public finance. These directives aim at reforming the public finance system in the WAEMU’s eight member countries³. All countries are required to bring their domestic legislation into line with the directives by January 2012 and to implement the changes by January 2017. The first deadline, however, has already been missed, as indicated in the table below. By October 2014, only four countries have successfully enacted all of the six directives. Three countries have enacted one or two directives and are currently working on the others, while one country has so far failed to enact any of the directives.

THE PROOF OF THE PUDDING: STRENGTHENING CASH MANAGEMENT IN NIGERIA

Posted by Salawu Zubairu, Sailendra Pattanayak and Yasemin Hurcan[1]

Nigeria is now the largest economy in Africa and the Federal Government’s (FGN) operations account for more than 13 percent of GDP. However, the management of the government’s cash resources was quite fragmented until a major reform was launched recently to implement a treasury single account (TSA). Prior to this reform, the federal government ministries, departments and agencies (MDAs) held more than 5,000 accounts in different banks. Due to these fragmented banking arrangements, the cash resources of the FGN were not being consolidated and huge cash balances were remaining idle in MDAs’ bank accounts, while the FGN was incurring ways and means charges to meet the cash shortfall. For example, at the end of 2009 the FGN had an overall cash balance of more than 362 billion Naira in the MDAs’ various bank accounts (held both at the Central Bank of Nigeria and commercial banks), but the Central Bank still needed to provide ways and means financing of 147 billion Naira through the Consolidated Revenue Fund to meet the government’s cash requirements. To address this issue and strengthen FGN cash management system, the authorities sought technical assistance from the IMF’s Fiscal Affairs Department (FAD).

Philippines: A Competency Model for PFM Professionals

Posted by Gordon Ferrier¹

Human resource aspects of public financial management (PFM) reform strategies are given less than their due in the literature. Yet they are fundamental to the success of such strategies, as a recent initiative by the Government of the Philippines (GOP) to develop a Competency Framework for some 60,000 government employees exemplifies.

In March 2013, the GOP embarked on an ambitious new strategy for reforming PFM systems. Its PFM Reform Roadmap aimed to “clarify, simplify, improve and harmonize the financial management processes and information systems of the entire government machinery for improved public service delivery”.

Politics Matter…But PFM Reforms Do Too.

Posted by Carlos Scartascini*

The recent CAPE 2013 conference organized by ODI provided a forum for discussing where PFM is and where it is going. While many interesting issues arose from the discussions, one theme was ever present: namely, the importance of considering PFM as much more than a purely technocratic process. Politics matter, and they tend to determine the way reforms are implemented, and their probability of success. In this note, I highlight the reasons why politics matter for the budget process and how this issue can be dealt with.

Is There a “New Consensus” on PFM Reform?

Posted by Richard Allen

The Overseas Development Institute’s annual CAPE Conference (the eighth in the series) on Budgeting in the Real World took place in London from November 13–14, 2013. The Conference attracted an impressive group of 110 national and international public servants, consultants and academics who work on budget institutions. For many practitioners, CAPE is the definitive PFM event of the year. The keynote speech, which was featured in a recent blog post, was given by Antoinette Sayeh, Director of the IMF’s Africa Department. Other notable presentations were made by Matt Andrews of the Harvard Kennedy School, and Allen Schick of the Brookings Institution and University of Maryland.

The Conference included sessions on the form and functionality of budget systems, what constitutes a capable ministry of finance, how reform can deliver change in the budget process, and how improved budget systems impact on development outcomes. Much of this is familiar ground and there was a sense of déjà vu in some of the presentations. One participant asked rhetorically why there were no feedback loops in our profession, why the same messages kept on being repeated from one year to the next, and why PFM practitioners appeared to learn so little and did not change their attitudes or behavior. Nevertheless, while the agenda had a familiar look on the surface, there were encouraging signs that an important if uncomfortable truth about the nature of budget reform is beginning to sink in to the collective mind of the PFM community. Indeed, the Conference may prove to be a watershed in the development of thinking on PFM reform, though much work remains to be done to flesh out the details of the new approach—an emerging “New PFM Consensus”—and put it into practice.

Budgeting in the Real World - What Do We Know? What Should We Do?

This is the keynote speech given last week, November 13^th, by Antoinette Sayeh, Director of the IMF’s African Department at the UK’s Overseas Development Institute’s annual CAPE Conference in London on why PFM matters, why reforms are difficult, and what we know to make them successful…..

I am delighted to have the opportunity to deliver this keynote address and would like to thank Messrs. Ed Hedger, Kevin Watkins, and Philip Krause for inviting me to this important conference and for that generous introduction.

Let me start by saying that from the IMF’s perspective, good governance is important for countries at all stages of development. Transparent government accounts and effective public resource management are preconditions for sustained economic growth and prosperity. Indeed, budget formulation, implementation, and oversight lie at the core of good economic governance. Strong budget institutions are essential for countries to achieve sound fiscal policies and effective expenditure programs. Budgets can only be spent once. Getting the priorities right all the way from formulation to execution, and being efficient at it, is all the more important. Transparency and fairness are most important in ensuring that expenditures are aligned with broadly agreed priorities, and in securing society’s buy-in. While most can agree to the underlying principles, the hard part is to have systems and capacity in place that actually ensure that they are respected all along the process chain. As so often, the devil is in the detail. 

Guinea – A Decade of Public Financial Management Reforms

Posted By Abdoul Wane[1]

In this latest in the series of blog posts by IMF area department country teams, IMF Resident Representative Abdul Wane reviews the mixed progress of PFM reform in Guinea.

Against the backdrop of economic fragility and fiscal challenges, Guinea’s medium-term programs supported by Fund arrangements over the last decade aimed to reduce financial imbalances. The growth objectives were predicated on greater fiscal discipline and an improved quality of public spending. Fiscal consolidation was to be supported by tax policy and tax administration reforms and a gradual shift in budget allocations toward priority spending, including investment. To address these challenges structural measures in Fund programs – as well as program conditionality - focused largely on PFM reforms (Figure 1 below). The 2001 PRGF request included three structural performance criteria (PC) of which two were on PFM reforms. Likewise, the 2007 PRGF request included six PCs on PFM out of a total of nine PCs.

However, since Guinea never implemented fully a program supported by the IMF, several measures had to be reprogrammed in successor programs. The sluggish implementation of reforms partly reflects Guinea’s political and institutional fragility. Vested interests stalled the reform agendas, in the absence of checks and balances. Important structural measures could not be implemented fully or were reversed because of insufficient political support, and control systems were bypassed under the watch of the political leadership. As a result, overall performance in PFM reforms has been feeble as periods of regression followed episodes of progress.

Keeping Reform in the DRC on Track

Posted by Oscar Melhado Orellana

In this third article on the blog in which IMF area department staff express their views on PFM reforms in “their” country, Fiscal Affairs Department technical assistance advisor, Jean Pierre Nguenang, speaks with IMF Resident Representative for the Democratic Republic of Congo (DRC), Oscar Melhado Orellana, about the importance of PFM technical assistance in keeping the IMF program on track.

What contribution are reforms of PFM, revenue administration and tax policy expected to make to improved economic and fiscal performance in the DRC?

The DRC is one of the poorest countries in the world in terms of nominal GDP, despite being considered one of the richest countries in terms of natural resources. It has more than 30 percent of the world’s diamond reserves and 70 percent of the world’s coltan. The DRC is also one of the lowest-ranked countries in the international Corruption Perception Index. The government is still struggling to bring order to the eastern part of the country where recurrent attacks on citizens are perpetrated by armed groups opposed to the regime.

A New PFM Reform Strategy for Cyprus

Posted by George Panteli[1]

The government of Cyprus recently launched a radical reform plan for modernizing the country’s public financial management (PFM) system. The reforms are crucial to the implementation of the economic and financial recovery program on which we are now engaged with the help of the European Union, the European Central Bank and the International Monetary Fund. It will enable Cyprus to bring its budget process into line with best practice in the EU region, and enforce the fiscal rules and financial discipline that are necessary to comply with our Treaty obligations. At the same time, it will create an opportunity for line ministries to enjoy a new-found flexibility in managing their staff and other resources and to focus efforts on improving the quality of education, health and other public services that in many cases lag behind out counterparts in Europe. The strategy encompasses both traditional aspects of the budget system and emerging topics such as project evaluation processes, the management of fiscal risks including public-private partnerships (PPPs) and the future development of a sovereign wealth fund.  

The reform plan is challenging and a realistic timeline is required since the plan will take several years to implement. What are the plan’s main components?  

Successful International PFM Workshop for IFMIS Coordinators at IDB

Posted by Carlos Pimenta[1]

This event, which took place in Washington, DC from May 15-17, discussed the PFM challenges faced in modernizing Integrated Financial Management Information Systems (IFMIS), as they relate to technology, public accounting, treasury and budget. The workshop was attended by about 120 participants, including IFMIS coordinators from 17 countries in Latin America and the Caribbean, private consulting firms, international experts and staff from IDB, IMF and World Bank.

The agenda of the event included topics such as: (1) How to measure progress in efficiency and quality of PFM reforms and systems? (2) The role of IFMIS in cost systems and result-based management, (3) Technological advances in IFMIS development, (4) Budget transparency and accountability, (5) Definitions, techniques and regulatory framework for interoperability and its impact on IFMIS context, (6) Change management and IFMIS implementation, and (7) Service management, maintenance and support for IFMIS.

All presentations, speakers and other information can be reached using the links in the Final Report attached below (in English and Spanish) or here. 

Post-Crisis PFM Reforms in Mali

Posted by Christian Josz[1]

This is the second article on the blog in a series about the views of IMF area department staff on PFM reforms in “their” country. In this article Fiscal Affairs Department technical assistance advisor, Benoit Taiclet, speaks with  IMF mission chief for Mali, Christian Josz, about the importance of PFM technical assistance in keeping the IMF program on track. 

What are the challenges of working in Mali at the present time?  How resilient has the country been in the face of the recent political and economic crisis?

Mali ranks among the poorest countries in the world, and has been under a succession of IMF programs for more than two decades. External funding has always played a significant role in the country’s development with grants reaching more than three percent of GDP. More recently, in 2011 the economy traversed a very difficult period when the country was hit by a drought and terrorist attacks. Following the 2012 military coup, fueled by military defeats, persistent corruption and failing institutions, donors suspended or dramatically reduced their support.  By the end of 2012, despite the fiscal austerity measures taken by the government, including the cutting of almost all capital spending, substantial arrears had accumulated, and the country’s debt rose markedly.

Faced with such concerns, the Fund seized the opportunity of last year’s slight recovery to re-settle in the country, with the reinstatement of our Resident Representative’s office in late 2012. We stepped up our involvement in early 2013 when the military situation was resolved with the fielding of an international coalition against rebel separatists and terrorists.

In the first quarter of 2013, the recommitment of IMF support through a rapid credit facility helped trigger the return of a number of donors whose pledges for funding reached US$ 4 billion in May. Now we hope the economy will rebound, as the authorities move to overcome the challenges ahead, and the production of gold and agricultural products increases. But political and security risks still cast a cloud over the nascent recovery.

Time to Overhaul PFM in the UK?

Posted by Tom Josephs

Should the public sector aim to follow the approach to financial control used in the private sector?  In 2011 the UK government took a step in this direction by publishing the first Whole of Government Accounts (WGA) which consolidate the financial accounts of over 1,500 organizations across the public sector on a similar basis to commercial accounting.  Two recent papers[1] suggest that the UK government should build on this initiative—following the introduction of accrual-based accounting and budgeting ten years earlier—by developing better financial control structures which mirror those used in the private sector. The ideas put forward provide a useful contribution to this debate.

WGA is based on the system of accounts used internationally by the private sector, adapted where appropriate for the public sector, and uses a similar presentation to private sector accounts. It is the first time a consolidated set of accounts has been published for the UK public sector. Because it follows commercial accounting practices it should open up the public sector finances to wider external scrutiny by accounting professionals. While WGA’s contribution to increased transparency has been widely recognized it has yet to find a role in policy-making.  Partly this reflects the fact that it is a relatively new innovation. It is unfamiliar to policy-makers and there is no historical series and few international comparators against which to benchmark the current position.  There are significant differences between the key measures of the public sector deficit and net liability position found in WGA compared to the equivalent National Accounts measures produced by the UK’s national statistical agency which are currently used in fiscal policy-making.

Treasury Community of Practice Debates Internal Control Issues in Kiev

Posted by Mark Silins

The Treasury Community of Practice (TCOP) of PEMPAL[1] conducted a highly participative three-day workshop entitled “Internal Control and the Role of a Modern Treasury” from April 24–26, 2013.  Over 60 officials, including treasury managers and specialists from 18 TCOP-member countries, as well as representatives of the Ministries of Finance of the Netherlands and Ireland, took part in the workshop held in Kiev, Ukraine. The workshop was also supported by experts from the World Bank, OECD, and the Slovenian Centre of Excellence in Finance.

The general objective of the Kiev event was to provide an opportunity for TCOP members to exchange experiences and take stock of the steps taken to date in implementing internal controls in each country and what, if any, steps remained. The workshop discussed both the role of a treasury in terms of managing internal controls within its own operations along with the broader role of the treasury as a key player within the overall public internal control framework in government. Prior to the workshop, participant countries responded to a 40-question survey to ascertain the status of their internal controls in relation to both of these two roles. Responses to the surveys proved extremely useful in designing an agenda relevant to participating countries.

Kenya’s Bold Course in PFM Reform

Posted by Ragnar Gudmundsson[1]

Note: This is the first in a new series of articles on the blog about PFM reforms in selected countries. Each article will be written by the IMF’s mission chief or resident representative in the country concerned, thus casting a fresh light on the reforms and their relationship to the Fund’s surveillance work.

Kenya is going through a huge set of political reforms, including a new Constitution.  What issues in public finance and PFM has this created? 

Kenya’s ambitious new Constitution was promulgated in August 2010, and one of its eighteen chapters is devoted to Public Finance. Key provisions in this chapter relate to devolution and the process of fiscal decentralization to the 47 newly created counties. Devolution was considered by the drafters of the Constitution as a way to promote political stability by ensuring adequate representation and the participation of all Kenyans in the running of the country. In this context, fiscal decentralization was perceived as a mechanism to enhance the delivery of social services on the ground and to promote enhanced accountability from State Officers. Moreover, a central objective of the Constitution is to promote good governance in PFM through the establishment of a sound institutional and regulatory environment at both national and county level.

PFM Law Reforms: Balancing Legislative and Executive Powers

Posted by Kubai Khasiani and Florence Kuteesa

A growing number of Parliaments in Commonwealth African countries are casting off their Westminster inheritance and demanding a greater role of parliaments in budget decision-making. The last decade has seen restive backbenchers in some of  these countries bring forward Private Member’s Bills which look to enhancing the legislature’s powers over the public purse at the expense of the executive. This approach has sometimes been fiercely contested or not fully supported, and the product of this struggle between the branches of government leaves many unresolved issues and, in some cases, an outcome that is fiscally challenging to the country.

For almost half a century after achieving their independence, former British colonies in Africa implemented a budget preparation system that enshrined a weak legislature and a strong executive in the decision-making process. Ian Lienert examined the British influence on budget systems in Tanzania, as an example, and noted that the  parliament was engaged only very late in the budget preparation process, had limited powers to alter the government budget after it was presented, and was often not consulted about changes made by the government during the budget execution phase. As a result, parliaments seldom had a significant impact on the size or distribution of government revenue or expenditure.

FMIS Choice: the Dangers of In-House Development in Low-Capacity Countries

Posted by Lewis Murara and Christopher Iles[i]

A major decision faced by many countries is what sort of Financial Management Information System (FMIS) they should develop to support their PFM reform efforts. The decision is more difficult in low-capacity countries where implementing an FMIS can have a disproportionate impact on management, operations, and operating costs.

There are three general FMIS options that governments can consider:

• Bespoke, i.e. own developed software solutions
• Customized “enterprise resource planning” (ERP) systems
• Non-customized COTS systems

In making the decision, recent studies[1] have demonstrated that there is no single best solution. Over a decade or so, the tendency in many Latin American countries has been for in-house development of their FMIS, while Africa has preferred commercial off-the-shelf solutions (COTS) and developed countries have tended to favor customized ERPs.

Latest Issue of International Journal of Governmental Financial Management Published

Posted by Andy Wynne

The latest issue of the International Journal of Governmental Financial Management was recently published and is now available for free download. 

We begin this issue of our Journal with an examination of key public financial management (PFM) reform measures undertaken in India in the recent past and suggestions to enhance the effectiveness of the PFM systems involved involved. In recent years the role of sound PFM systems in achieving the objectives of fiscal discipline, strategic planning and improved service delivery has been receiving increased public attention in India. PFM reforms undertaken intermittently over the years have, however, not delivered the anticipated results in these areas. Studies and recommendations of government appointed committees and expert bodies have identified gaps that need attention to strengthen the institutional framework and to improve the efficiency of government spending.

Reforming PFM in Developing Countries

Posted by Richard Allen[i]

I recently had the pleasure of discussing PFM reform issues with senior officials of the Ministry of Finance in Jamaica and, a few days later, at a workshop in Trinidad for the member countries of the IMF’s Caribbean Technical Assistance Centre (CARTAC) which was attended by several Finance Secretaries from the region. In Jamaica, reform of the public sector is high on the government’s agenda as a result of the negative impact of the global financial crisis, high levels of indebtedness and a weak economy. Finance officials in other parts of the region are trying to reconcile the need to make important structural reforms with the day-to-day pressures of managing the budget and dealing with myriad other financial contingencies. 

What are the main messages that came out of these various interesting conversations?

Make Way for the Hybrids

Posted by Matt Andrews. This article was originally published by Foreign Policy on April 2, 2013.

Development experts are often quick to focus on the role of institutions. They are, simply put, the "rules of the game" derived over time that drive politics, economics, and other social interactions. Social scientists like Douglass North, Daron Acemoglu, and Jim Robinson have shown that these rules strongly influence how countries grow and develop. Over decades, theorists and development practitioners have compiled what one might consider a script of the "right" rules and institutions needed to foster economic growth and open societies with good governments that advance the needs of their citizens. But despite all the good intentions, this western-created game plan hasn't quite worked out as expected. 

Organizations like the World Bank have supported institutional reforms in developing countries for more than two decades now, often making it the backbone of their development agendas. Such work accounts for billions of dollars of development spending each year, devoted to creating democratic electoral processes, robust public financial management systems, effective anticorruption regimes, and other new rules of the game in countries ranging from Afghanistan to Uganda. 

At first glance, many of these reforms seem to have yielded success. In Afghanistan, for example, new laws adopted after 2003 have modernized the government's budgeting and financial management system. The system's quality was ranked "higher than a middle-income country" in a 2008 assessment using the multi-donor Public Expenditure and Financial Accountability (PEFA) framework, which compares countries' governance systems with what is considered "international good practice." Similarly, Uganda's anticorruption reforms have produced new laws that donors tout as world-class. The think-tank Global Integrity rated these laws as best in the world in 2008, giving them a perfect 100 score. Canada scored 90; Italy got 82.