Dorotinsky public financial management trends and lessons


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June 18th2008 presentation from Bill Dorotinsky of the IMF on trends in Public Financial Management

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  • Formulation covers ‘expenditure review’ insofar as this is a step in preparation of future plans, and goes through to “annual budgets..” -- need for good budget -- Brazil roads, congress, MoF -- linking budget to cash management -- dc grants management Execution covers from ‘liquidity management’ through to PER’s, insofar as PER’s are part of the ex poste accountability system. Half of cycle (2) Hardware and software do not solve problems in human systems. Must know source of problem, and seriously assess whether computerization will solve the core problem. (DC Example) Underlying all of this is good recording of transactions and reporting!
  • Dorotinsky public financial management trends and lessons

    1. 1. Public Financial Management Reform: Trends and Lessons Bill Dorotinsky Fiscal Affairs Department IMF ICGFM June 18, 2008 Washington, D.C.
    2. 2. Outline <ul><li>Orientation </li></ul><ul><ul><li>Objectives of PFM </li></ul></ul><ul><ul><li>PFM Cycle </li></ul></ul><ul><li>Popular Reforms </li></ul><ul><li>Recent Reform Trends </li></ul><ul><li>Observations </li></ul>
    3. 3. Objectives of PFM and Budgeting <ul><li>Three-level PFM Framework </li></ul><ul><li>Macrofiscal discipline </li></ul><ul><li>Strategic allocation of resources </li></ul><ul><li>Technical efficiency </li></ul><ul><li>Source: Public Expenditure Handbook World Bank (1998) </li></ul><ul><li>Three functions of Government and budgeting </li></ul><ul><li>Strategic Planning </li></ul><ul><li>Management Control </li></ul><ul><li>Operational Control </li></ul><ul><li>Source: Planning and Control Systems: A Framework for Analysis . Robert Anthony (Boston, 1965) </li></ul>
    4. 4. 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
    5. 5. 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
    6. 6. And other popular themes…. <ul><li>Anti-corruption </li></ul><ul><ul><li>Anti-corruption commissions </li></ul></ul><ul><li>Decentralization </li></ul><ul><li>Deconcentration </li></ul><ul><li>Demand-side </li></ul><ul><ul><li>Legislative oversight, involvement </li></ul></ul><ul><ul><li>Civil society oversight, participation </li></ul></ul><ul><li>Sovereign wealth funds </li></ul><ul><li>Public-Private Partnerships </li></ul><ul><li>Monitoring and Evaluation </li></ul><ul><li>Sectoral measures (e.g. road funds) </li></ul><ul><li>Long-term planning </li></ul><ul><li>Debt sustainability analysis </li></ul>
    7. 7. Anglophone OECD Model? <ul><li>Changing role of MoF </li></ul><ul><ul><li>From control to monitoring/oversight and advisory role </li></ul></ul><ul><ul><li>Risk management: analysis of emerging issues, problems, and health of decision-making and finance system </li></ul></ul><ul><ul><li>From excessive budget detail to policy analysis and development </li></ul></ul><ul><ul><li>Shifting authority and accountability towards line ministries </li></ul></ul><ul><ul><ul><li>Emphasizing MoF training and guidance </li></ul></ul></ul><ul><ul><ul><li>Performance over compliance </li></ul></ul></ul><ul><li>New Public Management </li></ul><ul><ul><li>Separating policy from implementation </li></ul></ul><ul><ul><li>Contractual relationships, agency model </li></ul></ul><ul><ul><ul><li>Empowering line ministries for efficiency </li></ul></ul></ul><ul><ul><li>Caution: advanced industrial economies, to solve efficiency problems, not macrofiscal stability or sectoral allocation issues; good control structures, high transparency </li></ul></ul>
    8. 8. And other practices….. <ul><li>Fragmenting MoF </li></ul><ul><ul><li>Separate debt agency </li></ul></ul><ul><ul><li>Separate procurement function </li></ul></ul><ul><ul><li>Separate treasury </li></ul></ul><ul><ul><li>Separate budget </li></ul></ul><ul><ul><li>Separate revenue authority </li></ul></ul><ul><ul><li>Separate planning and policy processes (persistent state rather than trend) </li></ul></ul><ul><li>All tend to weaken the MoF </li></ul><ul><ul><li>Effect on financial management unclear </li></ul></ul><ul><ul><li>Frequently done to improve pay or improve independence </li></ul></ul>
    9. 9. 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)
    10. 10. 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)
    11. 11. 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)
    12. 12. Observations <ul><li>LICs struggle to get basics in place </li></ul><ul><ul><li>Do advanced reforms may detract from this objective? </li></ul></ul><ul><li>LMICs and UMICs frequently struggle to overcome legacy systems </li></ul><ul><li>Recently, slight movement away from larger reforms, towards pragmatic reforms linked to country problems </li></ul><ul><ul><li>IFMIS to FMIS </li></ul></ul><ul><ul><li>Unbundling MTEFs, better sequencing </li></ul></ul><ul><li>Challenges remain on </li></ul><ul><ul><li>Holistic views of PFM systems, focus on weakest links </li></ul></ul><ul><ul><li>Sequencing reforms </li></ul></ul><ul><ul><li>Limiting adverse impact of supply-push, transplanting of advanced reforms to weak environments </li></ul></ul><ul><ul><li>Realistic time horizons </li></ul></ul><ul><ul><li>Redefining ownership as helping the country solve practical financial management challenges simply, directly </li></ul></ul><ul><ul><li>Right-sizing reforms, measures </li></ul></ul>