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Budget Transparency in the Kingdom of Lesotho: The Roles of PFM Reform and Public Outreach<br />ICGFM 25th Annual Internat...
Overview<br /><ul><li>Country Background
PFM Reform – Budgeting Processes
PFM Reform – Integrated Financial System
Promoting Transparency with Enhanced Budget Information
Lessons Learned and Next Steps</li></ul>2<br />
Country BackgroundMs. Sheryl Kelly<br />3<br />
Country Background<br /><ul><li>General
An enclave within South Africa known as “The Mountain Kingdom”
Lowest elevation is 4,600 feet
About the size of Belgium
Population =           1.9 million</li></ul>4<br />
Country Background<br /><ul><li>Political
Constitutional monarchy
Established as British protectorate in 1868
Gained independence in 1966
Bicameral Parliament, with a 33-member Senate and 120-member National Assembly
Cabinet is comprised of Prime Minister and Ministers/Assistant Ministers from the 19 ministries</li></ul>5<br />
Country Background<br /><ul><li>Economic
Manufacturing (textiles and clothing)
Royalties from water transfers to South Africa
Diamond mining
Agriculture
Miners’ remittances
Construction
Southern African Customs Union (SACU) revenues</li></ul>6<br />
Country Background<br /><ul><li>Budget
27 Ministries and Offices
FY 2010/11 Recurrent Budget = M7.4 billion (US$1 billion):
22% to Ministry of Education and Training
11% to Ministry of Health and Social Welfare
11% to Ministry of Finance and Development Planning (student scholarships)</li></ul>7<br />
Country Background<br /><ul><li>Budget
FY 2010/11 Capital Budget = M3.6 billion (US$ 491 million)
About half is government-funded:
11% to Ministry of Public Works and Transport
8% to Ministry of Local Government and Chieftainship
7% to Ministry of Health and Social Welfare</li></ul>8<br />
Country Background<br /><ul><li>PFM Reform
PFM Programme commenced in January 2005
Funded by several donors, including the European Union (EU), UK Department for International Development (DFID), Irish Aid...
Seven Areas of Focus:</li></ul>Strengthened macroeconomic analysis and forecasting linked to fiscal policy, budget perform...
Country Background<br /><ul><li>PFM Reform
Seven Areas of Focus:</li></ul>Modern integrated accounting, revenue and expenditure management systems<br />Strong indepe...
PFM Reform – Budgeting ProcessesMs. ‘Mapalo Grace Moejane<br />11<br />
PFM Reform – Budget Processes<br /><ul><li>Budget Processes Enhanced through Implementation of a Medium Term Expenditure F...
MTEF:
General Overview
Medium Term Fiscal Framework (MTFF)
Budget Framework Papers
Programme Budgeting
Successes to Date
Issues Currently Being Addressed</li></ul>12<br />
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  1. 1. Budget Transparency in the Kingdom of Lesotho: The Roles of PFM Reform and Public Outreach<br />ICGFM 25th Annual International Conference<br />Miami, Florida USA<br />May 15-20, 2011<br />
  2. 2. Overview<br /><ul><li>Country Background
  3. 3. PFM Reform – Budgeting Processes
  4. 4. PFM Reform – Integrated Financial System
  5. 5. Promoting Transparency with Enhanced Budget Information
  6. 6. Lessons Learned and Next Steps</li></ul>2<br />
  7. 7. Country BackgroundMs. Sheryl Kelly<br />3<br />
  8. 8. Country Background<br /><ul><li>General
  9. 9. An enclave within South Africa known as “The Mountain Kingdom”
  10. 10. Lowest elevation is 4,600 feet
  11. 11. About the size of Belgium
  12. 12. Population = 1.9 million</li></ul>4<br />
  13. 13. Country Background<br /><ul><li>Political
  14. 14. Constitutional monarchy
  15. 15. Established as British protectorate in 1868
  16. 16. Gained independence in 1966
  17. 17. Bicameral Parliament, with a 33-member Senate and 120-member National Assembly
  18. 18. Cabinet is comprised of Prime Minister and Ministers/Assistant Ministers from the 19 ministries</li></ul>5<br />
  19. 19. Country Background<br /><ul><li>Economic
  20. 20. Manufacturing (textiles and clothing)
  21. 21. Royalties from water transfers to South Africa
  22. 22. Diamond mining
  23. 23. Agriculture
  24. 24. Miners’ remittances
  25. 25. Construction
  26. 26. Southern African Customs Union (SACU) revenues</li></ul>6<br />
  27. 27. Country Background<br /><ul><li>Budget
  28. 28. 27 Ministries and Offices
  29. 29. FY 2010/11 Recurrent Budget = M7.4 billion (US$1 billion):
  30. 30. 22% to Ministry of Education and Training
  31. 31. 11% to Ministry of Health and Social Welfare
  32. 32. 11% to Ministry of Finance and Development Planning (student scholarships)</li></ul>7<br />
  33. 33. Country Background<br /><ul><li>Budget
  34. 34. FY 2010/11 Capital Budget = M3.6 billion (US$ 491 million)
  35. 35. About half is government-funded:
  36. 36. 11% to Ministry of Public Works and Transport
  37. 37. 8% to Ministry of Local Government and Chieftainship
  38. 38. 7% to Ministry of Health and Social Welfare</li></ul>8<br />
  39. 39. Country Background<br /><ul><li>PFM Reform
  40. 40. PFM Programme commenced in January 2005
  41. 41. Funded by several donors, including the European Union (EU), UK Department for International Development (DFID), Irish Aid, World Bank, and African Development Bank
  42. 42. Seven Areas of Focus:</li></ul>Strengthened macroeconomic analysis and forecasting linked to fiscal policy, budget performance and monitoring<br />Integrated planning and budgeting systems<br />Modern procurement systems<br />9<br />
  43. 43. Country Background<br /><ul><li>PFM Reform
  44. 44. Seven Areas of Focus:</li></ul>Modern integrated accounting, revenue and expenditure management systems<br />Strong independent oversight bodies and mechanisms<br />Information to facilitate effective Cabinet participation in the budget process<br />Enhanced capacity within Ministry of Finance and Development Planning (MFDP) to support and sustain reform<br />More on those areas related to budget processes <br />and systems…<br />10<br />
  45. 45. PFM Reform – Budgeting ProcessesMs. ‘Mapalo Grace Moejane<br />11<br />
  46. 46. PFM Reform – Budget Processes<br /><ul><li>Budget Processes Enhanced through Implementation of a Medium Term Expenditure Framework (MTEF)
  47. 47. MTEF:
  48. 48. General Overview
  49. 49. Medium Term Fiscal Framework (MTFF)
  50. 50. Budget Framework Papers
  51. 51. Programme Budgeting
  52. 52. Successes to Date
  53. 53. Issues Currently Being Addressed</li></ul>12<br />
  54. 54. PFM Reform – Budget Processes<br /><ul><li>Medium Term Expenditure Framework (MTEF)
  55. 55. Introduced in 2005 to improve planning and budgeting processes. Prior to implementation:
  56. 56. Incremental approach to budget preparation
  57. 57. Input focused budget
  58. 58. Annual budgets
  59. 59. Ceilings set without consultation with stakeholders
  60. 60. No link between planning and budget
  61. 61. Limited integration between recurrent and capital budgets
  62. 62. Weak linkage between government objectives and allocation of resources</li></ul>13<br />
  63. 63. PFM Reform – Budget Processes<br /><ul><li>Medium Term Expenditure Framework (MTEF)
  64. 64. Implementation Strategy:
  65. 65. Establishment of MTEF Task Team
  66. 66. Selection and training of MTEF Facilitators
  67. 67. Establishment of Cabinet Budget Committee
  68. 68. Formation of ministry Budget Committees
  69. 69. Pilot approach using six ministries, which were selected on the basis of ministry size and prior experience with results-based reporting
  70. 70. Subsequent phase-in of non-pilots, which continues today</li></ul>14<br />
  71. 71. 15<br />MTEF Process Followed by Lesotho:<br />
  72. 72. PFM Reform – Budget Processes<br /><ul><li>Medium Term Expenditure Framework (MTEF)
  73. 73. Medium Term Fiscal Framework (MTFF)
  74. 74. Implemented in 2007
  75. 75. Includes three-year macroeconomic revenue and expenditure projections, which are used in setting overall budget ceilings
  76. 76. Reflects the impacts of government policies on the national budget
  77. 77. Comprised of data from four Macro Accounts</li></ul>16<br />
  78. 78. PFM Reform – Budget Processes<br /><ul><li>Medium Term Expenditure Framework (MTEF):
  79. 79. Budget Framework Papers (BFP’s)
  80. 80. Used in the setting of ministry ceilings
  81. 81. Ideally, ministries whose functions are more relevant to government priorities receive a larger share of the total funding
  82. 82. Current format includes: ministry objectives linked to national planning documents; service delivery issues; key performance indicators; and costing of new funding/savings proposals</li></ul>17<br />
  83. 83. PFM Reform – Budget Processes<br /><ul><li>Medium Term Expenditure Framework (MTEF)
  84. 84. Programme Budgeting:
  85. 85. Programme-based budgeting introduced in 2007
  86. 86. Financial/budget system lacked the needed functionality at the time
  87. 87. Various approaches attempted, with some being too complex and creating confusion; activity-based budgeting as a method for producing programme-based estimates was particularly problematic
  88. 88. Approach was simplified in 2010, and focus was narrowed to five pilot ministries
  89. 89. Implementation was successful and will be reflected in the FY 2011/12 budget</li></ul>18<br />
  90. 90. PFM Reform – Budget Processes<br /><ul><li>Medium Term Expenditure Framework (MTEF)
  91. 91. Successes to Date:
  92. 92. Strengthened macroeconomic forecasting capability
  93. 93. Budgeting approach changing from an input-based incremental approach to a results-oriented approach
  94. 94. Budget horizon has been expanded from one year to three years
  95. 95. Recurrent and capital budgets are being integrated
  96. 96. Stronger linkage being developed between government objectives and resource allocation through programme budgeting implementation</li></ul>19<br />
  97. 97. PFM Reform – Budget Processes<br /><ul><li>Medium Term Expenditure Framework (MTEF)
  98. 98. Successes to Date:
  99. 99. Ministry preparation of Budget Framework Papers has made resource allocation decisions (setting of ceilings) more transparent
  100. 100. More budget information now available to Cabinet for making informed decisions
  101. 101. More involvement by Cabinet in the budget process as a result of the establishment of the Cabinet Budget Committee
  102. 102. Expenditure implications of new policies are better quantified</li></ul>20<br />
  103. 103. PFM Reform – Budget Processes<br /><ul><li>Medium Term Expenditure Framework (MTEF)
  104. 104. Initial Challenges:
  105. 105. Lack of government ownership of the reform
  106. 106. Limited number of MTEF Facilitators, and limited training for these Facilitators
  107. 107. Training material for ministries too complex, training period insufficient, and poor attendance at trainings
  108. 108. Confusion over MTEF elements/concepts</li></ul>21<br />
  109. 109. PFM Reform – Budget Processes<br /><ul><li>Medium Term Expenditure Framework (MTEF)
  110. 110. Issues currently being addressed:
  111. 111. “Reform Fatigue”
  112. 112. MTEF interpreted as a tool for increasing ministerial budgets
  113. 113. Quality of BFP data needs to be enhanced
  114. 114. Focus remains on first year of three-year budget
  115. 115. MTFF impacted by time lags in updating, as well as revenue data availability in IFMIS</li></ul>22<br />
  116. 116. PFM Reform – Integrated Financial SystemMr. KekeletsoMosala<br />23<br />
  117. 117. PFM Reform – Integrated Financial System<br /><ul><li>GoLFIS (Government of Lesotho Financial Information System)
  118. 118. Existing Regulatory Framework
  119. 119. IFMIS implementation
  120. 120. Accompanying Reforms
  121. 121. Sustainability</li></ul>24<br />
  122. 122. PFM Reform – Integrated Financial System<br /><ul><li>GoLFIS (Government of Lesotho Financial Information System) was previous financial system
  123. 123. GoLFIS shortcomings:
  124. 124. Back office payables system, maintained by the Treasury Department and not available to the ministries
  125. 125. Marred by errors and omissions, with users able to override controls
  126. 126. Ex post entry of transactions for Sub Accountancies and foreign missions led to lengthy delays in production of public accounts </li></ul>25<br />
  127. 127. PFM Reform – Integrated Financial System<br /><ul><li>GoLFIS shortcomings:
  128. 128. Limited Chart of Accounts prevented the following:
  129. 129. Integration of capital and recurrent budgets
  130. 130. Compliance with international standards
  131. 131. Comprehensive reporting on budget execution
  132. 132. Budget entries on both a cost centre and programme basis</li></ul>26<br />
  133. 133. PFM Reform – Integrated Financial System<br /><ul><li>GoLFIS shortcomings:
  134. 134. Manual vote books were maintained by ministries:
  135. 135. used to control commitment but not kept up to date
  136. 136. controls easily by-passed and not reconciled with GoLFIS
  137. 137. Allowed commitments without available funds
  138. 138. Budgets prepared on spreadsheets</li></ul>27<br />
  139. 139. PFM Reform – Integrated Financial System<br /><ul><li>Existing Regulatory Framework:
  140. 140. Finance Order of 1988 – based on centralised accountability model, with Accountant General responsible for compiling Public Accounts
  141. 141. No responsibility of ministries to report to Parliament on use of funds appropriated
  142. 142. Updated framework required to implement modernized financial processes</li></ul>28<br />
  143. 143. PFM Reform – Integrated Financial System<br /><ul><li>IFMIS Implementation:
  144. 144. In 2006, a process was initiated to implement an Integrated Financial Management Information System (IFMIS)
  145. 145. Underpinning of PFM reform efforts
  146. 146. Formal project management methodology used to manage scope, budget, expectations and risks throughout implementation
  147. 147. Required establishment of a modern technical platform
  148. 148. System delivered to whole of government within 16 months</li></ul>29<br />
  149. 149. PFM Reform – Integrated Financial System<br /><ul><li>Accompanying Reforms:
  150. 150. Revised organisational structure to reflect new business processes
  151. 151. Re-skilling of Accounting staff across government
  152. 152. New regulatory framework to govern and underpin new business processes
  153. 153. New Chart of Accounts to exploit reporting capabilities of the IFMIS and bring reporting into compliance with international standards
  154. 154. New Chart of Accounts also provides more flexibility for the integration of recurrent and capital budgets and the entry of budgets on both a cost centre and programme basis</li></ul>30<br />
  155. 155. PFM Reform – Integrated Financial System<br /><ul><li>Sustainability:
  156. 156. Implementation achieved but sustainability now the challenge:
  157. 157. Retention of skilled staff
  158. 158. Ongoing training capability to ensure minimum competency levels for users
  159. 159. Ability to support the system and manage upgrades (outsourcing where necessary)
  160. 160. Demand-side – use of reporting capabilities to inform financial management
  161. 161. Adequate budget provisions to maintain system capability – life cycle replacement of equipment</li></ul>31<br />
  162. 162. Promoting Transparency with Enhanced Budget InformationMr. Tom Mpeta<br />32<br />
  163. 163. Promoting Transparency<br /><ul><li>As a result of PFM reform efforts just highlighted, significant improvements have been made to budget data and documentation
  164. 164. Dissemination of this information has also improved
  165. 165. All have contributed to enhanced budget transparency:
  166. 166. MTEF
  167. 167. Performance oriented Budget Book
  168. 168. Information made available on MFDP web site
  169. 169. Public outreach efforts</li></ul>33<br />
  170. 170. Promoting Transparency<br /><ul><li>MTEF:
  171. 171. More transparent methodologies for estimating medium-term revenues through the implementation of the MTFF
  172. 172. A transparent and evidence-based bidding process for budget resources by ministries through the use of Budget Framework Papers; also, more information available to Cabinet for decision making
  173. 173. Integration of recurrent and capital budgets reflect full cost of projects and, ultimately, the delivery of programme outputs</li></ul>34<br />
  174. 174. Promoting Transparency<br /><ul><li>MTEF:
  175. 175. Greater transparency in funding of government priorities through Programme Budgeting implementation:
  176. 176. Budgets traditionally prepared using cost centre structure, which generally represents a ministry’s administrative structure
  177. 177. The cost centre structure does not always align well with ministry objectives/outputs; therefore, difficult to align with overall government priorities
  178. 178. The new programme structure being designed based on government priorities, which will present a clearer picture of the resources allocated to support these priorities </li></ul>35<br />
  179. 179. Promoting Transparency<br /><ul><li>Better Access to Ministry Performance Data through New Budget Book
  180. 180. Budget Book contained only budget data by economic classification, no other supporting information
  181. 181. Budget Book currently being piloted has ministry descriptions and performance information:
  182. 182. Ministerial Vision, Mission Statement, Objectives
  183. 183. Primary challenges and how they are being addressed
  184. 184. Primary achievements
  185. 185. Performance indicators by programme
  186. 186. Combined recurrent/capital budget by programme and sub-programme</li></ul>36<br />
  187. 187. Promoting Transparency<br />37<br /><ul><li>Example of performance information provided in new Budget Book:</li></li></ul><li>Promoting Transparency<br /><ul><li>Information made available on MFDP web site www.finance.gov.ls (some published as a result of donor requirements):
  188. 188. Budget Book
  189. 189. Budget Speeches
  190. 190. Budget Guidelines
  191. 191. Budget Framework Papers
  192. 192. Circulars and Notices
  193. 193. MFDP Reform Initiatives (IFMIS, MTEF, Procurement, etc.)</li></ul>38<br />
  194. 194. Promoting Transparency<br /><ul><li>Public Outreach Efforts to Disseminate Budget Information and Obtain Stakeholder Input:
  195. 195. Major public outreach event occurs every year as the Honourable Minister of Finance and Development Planning tables the Budget Estimates before Parliament for approval. During this time, the Budget Estimates are broadly distributed to the citizens:
  196. 196. Honourable Minister participates in media events and meetings with the business community to explain the budget
  197. 197. Budget Teams from MFDP are assigned to travel to each of the Districts of Lesotho to conduct public forums with stakeholders in the Districts:</li></ul>39<br />
  198. 198. Promoting Transparency<br /><ul><li>Public Outreach Efforts:
  199. 199. These meetings are attended by people from different sectors, including farmers, business community, Non-Governmental Organizations (NGOs), as well as public servants from different government departments in the Districts
  200. 200. In these forums, the stakeholders have opportunities to inquire about the current Budget Estimates and to learn about progress made from the funding of projects/ initiatives under previous budgets
  201. 201. The stakeholders are also given an opportunity to provide their own input, including the identification of priority requirements and recommendations for future year budgets</li></ul>40<br />
  202. 202. Promoting Transparency<br /><ul><li>Public Outreach Efforts:
  203. 203. Budget Teams then report back to the Honourable Minister on the stakeholder input
  204. 204. These meetings are very effective because they aid in identifying public priority areas for resource allocation
  205. 205. The following pictures were taken by the Budget Teams to help justify the priority requirements and recommendations of the stakeholders, as well as to document progress on previously funded projects/ initiatives:</li></ul>41<br />
  206. 206. 42<br />Public Priority Area – Bridge Construction:<br />
  207. 207. 43<br />Documenting Progress on Bridge<br />Construction Project:<br />
  208. 208. 44<br />Final Outcome – Strategic Allocation of Resources Based on National Priorities:<br />
  209. 209. 45<br />Public Priority Area – School Construction:<br />Supports Lesotho’s Primary Education Priorities for 2011/12, which include increasing access, efficiency, and equity of education through construction of primary school classrooms and toilet blocks in the remote areas of Lesotho <br />
  210. 210. Next Steps and Lessons LearnedMs. Sheryl Kelly<br />46<br />
  211. 211. Next Steps and Lessons Learned<br /><ul><li>PFM reform initiatives related to budgeting have resulted in a number of successes thus far
  212. 212. These have been accompanied by a host of challenges, some resolved and others still being addressed
  213. 213. Good foundation now in place for both ongoing and future initiatives – a result of introduction of MTEF, as well IFMIS implementation</li></ul>47<br />
  214. 214. Next Steps and Lessons Learned<br /><ul><li>Next Steps
  215. 215. Revise Budget Framework Paper template to enhance value/relevance and allow for a programme orientation
  216. 216. Develop template for a consolidated Budget Framework Paper and make publicly available
  217. 217. Require the ministry preparation of comprehensive and defensible budget requests for the indicative, or planning, years of the budget horizon
  218. 218. Strengthen usage of Budget Module in IFMIS, particularly for budget development</li></ul>48<br />
  219. 219. Next Steps and Lessons Learned<br /><ul><li>Next Steps
  220. 220. Roll out programme budgeting to remaining ministries using a phased approach
  221. 221. Incorporate performance data for all ministries into the Budget Book
  222. 222. Enhance quality of ministry performance monitoring systems
  223. 223. Ensure strong linkage between ministry programmes and Lesotho’s National Strategic Development Plan (currently being drafted) </li></ul>49<br />
  224. 224. Next Steps and Lessons Learned<br /><ul><li>Lessons Learned
  225. 225. Reform initiatives should be country-specific (not one-size-fits-all)
  226. 226. Initiatives should be designed such that they avoid unnecessary complexity and compliment existing institutional and human and physical resource capacities in the ministries
  227. 227. Initiatives must be properly sequenced, and donors should ensure that support for initiatives is well coordinated with other contributing donor partners</li></ul>50<br />
  228. 228. Next Steps and Lessons Learned<br /><ul><li>Lessons Learned
  229. 229. Financial and payroll system functionality must be considered well in advance of implementing any reforms that are dependent upon these systems
  230. 230. New systems may be implemented, but, if staff are not adequately trained, they many undermine the effectiveness and sustainability of the systems </li></ul>51<br />
  231. 231. Next Steps and Lessons Learned<br /><ul><li>Lessons Learned
  232. 232. Exposure to budget concepts and basic knowledge of the budget process can enhance citizens’ ability to effectively monitor government performance and accountability of taxpayer money
  233. 233. Government ownership of PFM reforms is required for long-term sustainability, with Ministries of Finance leading the initiatives, carefully guiding the design and implementation, and ensuring sufficient capacity to fully support the line ministries</li></ul>52<br />
  234. 234. Comments/Questions?<br />53<br />
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