Fiscal Planning and PFM
Reforms
Jean-Marc Lepain
AFRITAC West 2 Resident Regional PFM Advisor
jlepain@imf.org
Workshop on ...
Outline of the Presentation
I. Key ideas
II. Fiscal Planning in the framework of
PFM Reforms
III. A quick Tour of Fiscal P...
I. Key ideas
 Fiscal planning is a key component of PFM
reforms.
 Fiscal planning must evolve is stages.
 Sequencing of...
II. Fiscal Planning in the
Framework of PFM Reforms
Objectives of a PFM System
1. Macro economic stability
2. Strategic allocation of resources to foster
economic development...
Fiscal risk management :
Are all fiscal risked identified
and monitored (contingent
liabilities, guarantees, SoE,
State Fu...
Typical sequencing of reforms
1. Fiscal discipline and budget
credibility
2. Timely information and accountability
3. Stra...
Fiscal discipline and budget
credibility
- MTFF + budget ceiling
- TSA + cash management
- Commitment control
Timely infor...
Key messages
 Reforms should be planned with a strategic
vision of the final PFM System architecture.
 Reforms should ta...
PFM Reform Methodology
 Pragmatic approach (Action Plans)
 Systemic approach
 Basic First approach
 Platform approach
...
Basic-First Approach
 Control inputs before seeking to control outputs.
 Account for cash before introducing internal co...
III. A quick tour of fiscal
planning
Sequencing of Fiscal Planning
10 years
5 years
3-4 years
- Macroeconomic
sustainability
- Debt strategy
- Fiscal disciplin...
Medium Term Fiscal Framework
 Credibility of the budget depends on
credibility of the MTFF
 Focus on the surplus / defic...
MTFF main issues
 Realism of revenue forecasts
 Extra-budgetary funds
 Unplanned expenditure
 Unrecorded arrears
 Con...
MTEF Objectives
 Ensure budget alignment with
economic priorities
 Ensure budget ceiling realism by
better knowledge of ...
Medium Term Expenditure
Framework
 The MTEF links the planning process to the
budget process
 It combines the top-down a...
When to introduce PBB?
 MTBF or MTEF ?
 Budget credibility is a prerequisite
 Chart of Accounts must be tested
 Scope ...
IV. Issues in the region
Issues in the region
 Budget credibility is not established in
most countries
 FMISs do not cover all expenditure
and ar...
Budget credibility in the region
(PEFA indicators)
Gambia Ghana Liberia Sierra Leone Cabo Verde
P1 Aggregate expenditure o...
The tools for enforcing budget
credibility and fiscal discipline
 MTMF and debt sustainability study to
ensure fiscal sus...
National Development
Strategy
Sector Strategies
Sector Development
Frameworks
Sector Financial
Framework
Sector
MTEF
Natio...
Fiscal issues to be taken into
consideration
 Dependence on export of natural and
agricultural resources with volatile pr...
The Four stages of MTF
Sequencing
 Budget credibility through MTFF
 Aggregate fiscal discipline though
MTBF
 Policy-bas...
Thank you
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Fiscal Planning and Public Finance Management Reforms

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Integration of the sequencing of fiscal planning and medium term frameworks with the sequencing of public finance management reforms

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Fiscal Planning and Public Finance Management Reforms

  1. 1. Fiscal Planning and PFM Reforms Jean-Marc Lepain AFRITAC West 2 Resident Regional PFM Advisor jlepain@imf.org Workshop on Medium-Term Budget Frameworks June 2nd–6th, 2014 Accra, Ghana
  2. 2. Outline of the Presentation I. Key ideas II. Fiscal Planning in the framework of PFM Reforms III. A quick Tour of Fiscal Planning IV. Regional issues
  3. 3. I. Key ideas  Fiscal planning is a key component of PFM reforms.  Fiscal planning must evolve is stages.  Sequencing of the introduction of the different MTFs must be aligned with the sequencing of PFM Reforms.  The fist batch of reforms must aim at establishing budget credibility, using MTFF among other tools.  Program-based budgeting and MTEF can be introduced only after budget credibility is established.
  4. 4. II. Fiscal Planning in the Framework of PFM Reforms
  5. 5. Objectives of a PFM System 1. Macro economic stability 2. Strategic allocation of resources to foster economic development 3. Timely and effective funding of public services 4. Aggregate fiscal discipline 5. Financial compliance 6. Social justice, fiscal fairness, income redistribution
  6. 6. Fiscal risk management : Are all fiscal risked identified and monitored (contingent liabilities, guarantees, SoE, State Funds, etc.)? Exhaustive and timely information: Is a system of information dissemination already in place ? How comprehensive is the reporting system ? Budget exhaustively and linkage with economic objectives : Does the budget records all state transactions ? Does it reflect economic priorities ? Realism of the budget: Can the budget be executed in a timely and predictable manner ? Expenditure Control : Is the expenditure control reliable? Does the system identifies all arrears and monitor the stock Acomptabilité et transparence: Des mécanismes cohérents et complets garantissant l’acomptabilité et la transparence sont-ils en place? Les Six Critères d’Evaluation des Système de Gestion des Finances Publiques The six characteristics of well performing PFM Systems
  7. 7. Typical sequencing of reforms 1. Fiscal discipline and budget credibility 2. Timely information and accountability 3. Strategic allocation of resources 4. Value for money and performance management
  8. 8. Fiscal discipline and budget credibility - MTFF + budget ceiling - TSA + cash management - Commitment control Timely information and accountability - Revised CoA + FMIS - MTBF - Program-Based Budgeting - Risk management Strategic allocation of resources - Sector strategies +Sector Development Frameworks -MTEF Value for money and performance management -Analytical accounting - Budget analysis - Monitoring and evaluation - Performance framework Reform sequencing and PFM requirements
  9. 9. Key messages  Reforms should be planned with a strategic vision of the final PFM System architecture.  Reforms should take into consideration two parameters: efficiency gains and improvement in PFM performance  Introduction of MTFs should be done in phases well coordinated with other reforms.  Complexity should not be underestimated.  Choice of a PMF reform methodology is essential.  Sequencing of reforms must integrate sequencing of fiscal planning.
  10. 10. PFM Reform Methodology  Pragmatic approach (Action Plans)  Systemic approach  Basic First approach  Platform approach  PEFA indicator approach
  11. 11. Basic-First Approach  Control inputs before seeking to control outputs.  Account for cash before introducing internal control.  Establish external controls before introducing internal control.  Ensure budget credibility before moving to accountability  Establish internal control before introducing managerial accountability.  Operate a reliable accounting system before installing an integrated financial management system.  Do not introduce program budgeting before budget credibility is established and a robust accounting system is in place.  Budget for work to be done before budgeting for results to be achieved.  Budget analysis before Monitoring & Evaluation  Monitoring & Evaluation before performance budgeting  Enforce formal contracts in the market sector before introducing performance contracts in the public sector.  Have effective financial auditing before moving to performance auditing.
  12. 12. III. A quick tour of fiscal planning
  13. 13. Sequencing of Fiscal Planning 10 years 5 years 3-4 years - Macroeconomic sustainability - Debt strategy - Fiscal discipline - Fiscal envelopes - Budget Credibility - Program Budgeting -Value for money - Performance management - Accountability Medium Term Performance Framework - Strategic Allocation of funds
  14. 14. Medium Term Fiscal Framework  Credibility of the budget depends on credibility of the MTFF  Focus on the surplus / deficit and on financing the gap  Main output: sector ceilings
  15. 15. MTFF main issues  Realism of revenue forecasts  Extra-budgetary funds  Unplanned expenditure  Unrecorded arrears  Contingent liabilities  Para-fiscal activities of the central bank
  16. 16. MTEF Objectives  Ensure budget alignment with economic priorities  Ensure budget ceiling realism by better knowledge of sector funding needs  Move away from political bargaining to rational decisions based on sector needs and value for money
  17. 17. Medium Term Expenditure Framework  The MTEF links the planning process to the budget process  It combines the top-down approach of the MTFF with a bottom-up approach  The National MTEF is the result of discussion based on sector MTEFs  Sector MTEF are based on costed Sector Strategies and Sector Development Framework.
  18. 18. When to introduce PBB?  MTBF or MTEF ?  Budget credibility is a prerequisite  Chart of Accounts must be tested  Scope of PBB must be defined and introduced in phases  Management rules must be agreed (no “one size fit all”)  Piloting is recommended
  19. 19. IV. Issues in the region
  20. 20. Issues in the region  Budget credibility is not established in most countries  FMISs do not cover all expenditure and are at various stages of development  Program budgeting is introduced without accountability
  21. 21. Budget credibility in the region (PEFA indicators) Gambia Ghana Liberia Sierra Leone Cabo Verde P1 Aggregate expenditure out-turbn compared to original approved budget B C D B A P2 Composition of expenditure out-turn compared to original approved budget C NR D+ C B P3 Aggregate revenue out-turn compared to approved budget B C D B B P4 Stock and monitoring of expenditure payment arrears D D B NA B+
  22. 22. The tools for enforcing budget credibility and fiscal discipline  MTMF and debt sustainability study to ensure fiscal sustainability;  MTFF to allocate realist expenditure ceilings;  Single Treasury Account to ensure an efficient mobilization of resources;  Cash management
  23. 23. National Development Strategy Sector Strategies Sector Development Frameworks Sector Financial Framework Sector MTEF National MTEF From Economic Planning to MTEF
  24. 24. Fiscal issues to be taken into consideration  Dependence on export of natural and agricultural resources with volatile prices.  Limited fiscal space with limited potential for increase  Revenue leakages  Price variation that makes difficult expenditure forecasting  Lack of information on ongoing tenders  Stock of arrears
  25. 25. The Four stages of MTF Sequencing  Budget credibility through MTFF  Aggregate fiscal discipline though MTBF  Policy-based budgeting through MTEF  Result-based budgeting through MTPF
  26. 26. Thank you
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