Public Financial Reform Trends Icgfm June 2008

Public Financial Management Reform: Trends and Lessons Bill Dorotinsky Fiscal Affairs Department IMF ICGFM June 18, 2008 Washington, D.C.

Outline

Orientation

Objectives of PFM

PFM Cycle

Popular Reforms

Recent Reform Trends

Observations

Objectives of PFM and Budgeting

Three-level PFM Framework

Macrofiscal discipline

Strategic allocation of resources

Technical efficiency

Source: Public Expenditure Handbook World Bank (1998)

Three functions of Government and budgeting

Strategic Planning

Management Control

Operational Control

Source: Planning and Control Systems: A Framework for Analysis . Robert Anthony (Boston, 1965)

Expenditure Management Cycle Source: Adapted from Integrated Financial Management . Michael Parry, International Management Consultants Limited. Training Workshop on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997. Planning system Medium term plans, e.g. three year rolling plans Annual budgets Development, recurrent and revenue Fund release procedure, e.g... warranting Accounting for revenue and expenditure Public expenditure review Institutions Reports and financial statements Audit system Project monitoring Project appraisal Resource allocation Liquidity management Expenditure control Monitoring & controlling Post event review Accountability Expenditure review Financial management system boundaries

Popular Reforms Recommended reforms generally try to change incentives to better meet objectives by changing rules, roles and information   External audit ? ? ? Accrual Accounting  Internal control/audit  Procurement    Reporting/ Transparency    Budget classification, chart of account   Treasury Single Account  Fiscal Responsibility Laws   IFMIS, automation   Performance, Program budgeting    Medium-Term Expenditure Frameworks Operational Efficiency Strategic Allocation Macrofiscal Discipline

And other popular themes….

Anti-corruption

Anti-corruption commissions

Decentralization

Deconcentration

Demand-side

Legislative oversight, involvement

Civil society oversight, participation

Sovereign wealth funds

Public-Private Partnerships

Monitoring and Evaluation

Sectoral measures (e.g. road funds)

Long-term planning

Debt sustainability analysis

Anglophone OECD Model?

Changing role of MoF

From control to monitoring/oversight and advisory role

Risk management: analysis of emerging issues, problems, and health of decision-making and finance system

From excessive budget detail to policy analysis and development

Shifting authority and accountability towards line ministries

Emphasizing MoF training and guidance

Performance over compliance

New Public Management

Separating policy from implementation

Contractual relationships, agency model

Empowering line ministries for efficiency

Caution: advanced industrial economies, to solve efficiency problems, not macrofiscal stability or sectoral allocation issues; good control structures, high transparency

And other practices…..

Fragmenting MoF

Separate debt agency

Separate procurement function

Separate treasury

Separate budget

Separate revenue authority

Separate planning and policy processes (persistent state rather than trend)

All tend to weaken the MoF

Effect on financial management unclear

Frequently done to improve pay or improve independence

Budget Formulation Recent Reform Emphasis Different drivers of reforms confuse the picture. Which are donor-driven? Which country driven? Which address real need? Which are simply fashionable? If higher income enables more self-direction, interesting that performance budgeting of greater interest in upper-middle income countries. * 2006 gross national income (GNI) per capita. The groups are: low income (LIC) US$905 or less; lower middle income (LMIC) US$906–3,595; upper middle income (UMIC) US$3,596–11,115. 23% 21% 9% Capital-Investment Bdgts 38% 15% 23% Performance/Program Budgeting 46% 39% 37% MT Expenditure Framework 31% 45% 29% MT Fiscal Framework UMIC* (13) LMIC* (33) LIC* (35)

Budget Execution Recent Reform Emphasis na 12% 14% Procurement na 12% 11% Internal audit/control 15% 9% 17% Payroll/Personnel 23% 42% 40% Accounting/classification 8% 18% 11% Debt management 15% 18% 26% Commitment controls 31% 36% 51% Treasury/Cash management UMIC (13) LMIC (33) LIC (35)

Other Reforms Recent Reform Emphasis 23% 15% 26% Decentralization 15% 21% 3% PPPs 15% 30% 20% Transparency 23% 36% 26% Budget Law/Legal 8% 18% 3% MoF Reorganization 23% 36% 49% IFMIS UMIC (13) LMIC (33) LIC (35)

Observations