8 30hs 25.09.09 Jim Brumby Grand3


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Apresentação proferida durante o 6º. Seminário Internacional do CPC no CReCER realizado no hotel Grand Hayatt em São Paulo no dia 25/09/2009.

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8 30hs 25.09.09 Jim Brumby Grand3

  1. 1. CReCER’09 LATIN AMERICA AND THE CARIBBEAN Restoring Confidence in the Wake of the Financial Crisis September 23-25, 2009 Presented by Jim Brumby September 25, 2009 Closer to the People: PFM Innovations for Sub-national Governments
  2. 2. Outline of the Presentation <ul><li>Consequences of the Global Financial Crisis </li></ul><ul><li>How will the Financial Crisis Affect Sub-National Governments </li></ul><ul><li>What can SNGs do? Coping strategies </li></ul><ul><li>PFM innovations: Challenges and Lessons from International Experience </li></ul>
  3. 3. Global Financial Crisis and Poverty <ul><ul><li>By end-2010, 89 million more people are expected to be living in extreme poverty </li></ul></ul><ul><ul><li>Shortfalls to cover at-risk core spending (health, education, safety nets, and infrastructure) amount to about $11.6 billion for the poorest countries </li></ul></ul><ul><ul><li>Despite sharp declines in commodity prices </li></ul></ul><ul><ul><ul><li>Food prices in August 2009 are about 57.6 percent higher than in 2005 </li></ul></ul></ul><ul><ul><ul><li>Energy prices are about 27.5 percent above their average in 2005 </li></ul></ul></ul><ul><ul><li>Some specifics impacts: </li></ul></ul><ul><ul><ul><li>The current downturn could result in 30 to 50 thousand additional infant deaths in Sub-Saharan Africa in 2009. </li></ul></ul></ul><ul><ul><ul><li>Some 48 garment factories have closed in Cambodia between September 2008 and May 2009, leaving 62,000 unemployed. </li></ul></ul></ul><ul><ul><ul><ul><li>Women make up nearly 90 percent of garment industry workers. </li></ul></ul></ul></ul>
  4. 4. <ul><li>Projected increases in overall fiscal deficits in smaller advanced countries of 7.8 percentage points of GDP in 2009 and 8.8 percentage points in 2010 are larger than in the advanced G-20. </li></ul><ul><li>Much of the increase in fiscal deficits in emerging market and developing countries reflects a sharp decline in revenues, not fully matched by lower spending. </li></ul>
  5. 5. The Financial Crisis and Sub-National Governments <ul><ul><li>Contagion Mechanism – Fiscal stress at National Level might be transferred to SNG </li></ul></ul><ul><ul><li>National authorities might be tempted to transfer part of the adjustment to SNGs, for example, by cutting or delaying transfers. </li></ul></ul><ul><ul><li>Even in countries were transfers are automatically allocated and/or mandated by the Constitution (i.e. Philippines), the decrease in government revenue will reduce the amount of these transfers. </li></ul></ul><ul><ul><li>Difficulties in mobilizing Own Source Revenue </li></ul></ul><ul><ul><li>In most SNGs, the main source of OSR are: (i) Business Tax, and; (ii) Real Property Tax (RPT). Revenues from both sources will likely experience a significant decrease as a consequence of the economic downturn. </li></ul></ul><ul><ul><li>Reduced Fiscal Space in SNGs </li></ul></ul><ul><ul><li>Depending on expenditure assignments, SNGs will likely experience even tighter fiscal space, and temptations will be to cut capital outlays to absorb the lion’s share of the adjustment cost. </li></ul></ul><ul><ul><li>Balance sheet adjustment likely to be large </li></ul></ul>
  6. 6. What can SNGs do? Coping strategies <ul><li>Productive Efficiency : “ Do the same with less &quot; or improve the value for money of existing public expenditures; </li></ul><ul><li>Allocative Efficiency : Cut poor quality or low-performing programs; </li></ul><ul><li>New public asset management policies : Adjustment in SNG’s balance sheet in response to reduced fiscal space, and where possible, stimulate demand. </li></ul><ul><li>Performance information/monitoring systems ; </li></ul><ul><ul><li>Performance budgeting or result-oriented budgeting ; </li></ul></ul><ul><li>Fundamental reviews & strategic planning (preference changes) </li></ul><ul><li>Public investment management performance strategies . </li></ul>
  7. 7. PFM Innovations Lessons from International Experience <ul><li>Lessons in implementing performance-oriented reforms </li></ul><ul><li>When reforms involve different tiers of government… </li></ul><ul><ul><li>Strong partnership between central and sub-national levels of government </li></ul></ul><ul><ul><li>Active consultation increases chance of adoption and implementation of reforms </li></ul></ul><ul><li>Well designed reforms </li></ul><ul><ul><li>Performance oriented reforms require creation of adequate information systems Performance indicators need coupled with performance Objectives </li></ul></ul><ul><ul><li>Targets should be set at realistic levels </li></ul></ul><ul><ul><li>Beware perverse incentives </li></ul></ul><ul><ul><li>Usage is a major measure of success – focusing on using information for decision making </li></ul></ul>
  8. 8. PFM innovations Lessons from international experience (2) <ul><li>Lessons in implementing performance-oriented reforms </li></ul><ul><li>Think Big, Start Small </li></ul><ul><ul><li>Make a virtue of simplicity. Avoid over engineered reforms </li></ul></ul><ul><ul><li>Initial diagnostic should reduce concerns about duplication or overlapping efforts </li></ul></ul><ul><ul><li>Costs need to be managed </li></ul></ul><ul><ul><li>Flexibility. Performance oriented reforms need permanent , progressive and incremental improvements </li></ul></ul><ul><li>JURISDICTIONAL OWNERSHIP!! </li></ul><ul><ul><li>Donor driven efforts usually not sustainable </li></ul></ul><ul><ul><li>Strong champion is usually essential to success </li></ul></ul>
  9. 9. Conclusion <ul><li>GFC is significant toll on the balance sheet of all levels of Government </li></ul><ul><li>SNGs are likely to bare a very significant share of adjustment costs </li></ul><ul><li>Improvements in productive and allocative efficiency can help: </li></ul><ul><ul><li>&quot;Doing the same with less&quot; or improving value for money; </li></ul></ul><ul><ul><li>Cutting poor quality , or low-performing, or out of favor programs; and </li></ul></ul><ul><ul><li>Resorting to new public asset management policies. </li></ul></ul><ul><li>Some promising PFM innovations focus on performance include: </li></ul><ul><ul><li>Performance budgeting or result-oriented budgeting; </li></ul></ul><ul><ul><li>Performance monitoring systems; </li></ul></ul><ul><ul><li>Strategic planning, informed by fundamental reviews; and </li></ul></ul><ul><ul><li>Reinvigorated public investment management processes, including innovative infrastructure financing vehicles, particularly in the context of large size cities and states. </li></ul></ul>