Transcript How FAD is implementing the MTS

Liberia
PFM Reform Experience in SSA
Elements and Practices
By
Florence Kuteesa
Public Financial Management Division
24 February 2011
OUTLINE OF PRESENTATION
I. Context
II. Main Elements and Practices of the PFM
System
III. Discussion on issues regarding reform
agenda
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Context of Recent PFM Reform
Initiatives (1)
• Late 1990’s, early 2000’s attention began to
focus more on poverty reduction in Low
Income Countries in Africa:
– to address the “missing link between public
expenditure and poverty reduction”.
Development or
poverty
reduction
strategies
Mobilization &
allocation of
resources
Transformation
mechanism
Are the expenditures
translated into enhanced
access to improved service
delivery ?? ???
Desired
outputs and
outcomes
??????
Context of Recent PFM Reform Initiatives
(2)
• Increasing adoption of Budget Support as a
preferred modality of aid mobilization:
– Effectiveness in use of donor resources
– Enhance credibility of national budget
• Increasing recognition that PFM systems would have to
be strengthened to support the implementation of fiscal
consolidation or adjustment measures:
– Reliable macro-fiscal forecasts(revenue and expenditure
estimates)
– Enhanced expenditure management- better cash management
and in-year fiscal reporting.
Main Elements of the PFM System
Macro-Fiscal
Policy
Accounting
& Audit
Roles,
Responsibilities
& Oversight
Treasury
Management
Budgeting
Main elements of the PFM system
Key Areas of concern
Main Elements
I. Roles &
Responsibilities
a.
b.
c.
d.
e.
Cabinet Secretary/Finance & Principal Secretary/Treasury
Accountant General, Accounting Officers, County Treasurers, Rev. Collectors
Internal Auditor General, Internal Auditors, Audit Committees
Auditor General & Controller of the Budget
Parliament, Parliamentary Budget Office, County Assemblies
II. Macro-Fiscal
Policy
a.
b.
c.
d.
Principles/rules: Stability, sustainability, responsibility
Content & presentation of fiscal strategy
Reporting of fiscal performance
Fiscal discipline
III. Budgeting
a.
b.
c.
d.
e.
Principles: Comprehensiveness, annuality, specificity
Calendar for budget preparation & approval
Budget policy statement & budget documents
Unit of appropriation and virement & carryover rules
In year reporting, contingency reserve, supplementary & excess vote
IV. Treasury
Management
a.
b.
c.
d.
Principles: Unity, efficiency, timeliness
Treasury Single Account, banking arrangements & cash management
Authority to commit & spend public funds
Borrowing, guarantees, lending, on-lending & sale of assets
V. Accounting
& Audit
a.
b.
c.
d.
Principles: Transparency, integrity, accountability
Coverage, standards & timetable for production of accounts
External audit & timetable for production of audit reports
Scrutiny, timetable for completion of scrutiny & follow-up
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Clarity of Roles and responsibilities
• The government sector should be distinguished
from the rest of the public sector and from the rest of
the economy,
• Policy and management roles within the public
sector should be clear and publicly disclosed. For
example:
– Relationships between the government and public corporations
should be based on clear arrangements.
– Government relationships with the private sector should be
conducted in an open manner- following clear rules and
procedures.
• There should be a clear and open legal, regulatory,
and administrative framework for fiscal
management.
Coverage of Government/Fiscal operations
Public Sector
General
Government
Central
Government
Local
Government
Public
Corporations
Financial
Non-Financial
Monetary
Non-Monetary
8
Extent of Institutional Coverage in Africa
9
Components of a Macro-fiscal function…..
• Macroeconomic modeling and fiscal projections- provides a
basis for forecasts of fiscal aggregates used in annual budget
preparation and fiscal policy formulation
• Macro-fiscal policy analysis- entails setting fiscal policy objectives
and targets, so as to align fiscal policy instruments in line with
macroeconomic objectives
• Fiscal analysis- examination of potential differences between
expected and actual fiscal outcomes.
• Monitoring and reporting on fiscal developments: regular reports
on macro-fiscal trends & prospects needed to inform government of
policy measures required to address impending fiscal imbalances.
10
Open budget process
• Budget preparation should follow an
established timetable and be guided by welldefined macroeconomic and fiscal policy
objectives.
• Comprehensiveness and unity
– Unity of budget is a basic principle
– Extra-budgetary (ear-marked funds including
donor funds) classified on the same basis as
overall budget
– Financial reports of government activities should
consolidate the operations of EBFs, SAGAs
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Common practice: Medium term planning and the
annual budget
Timing
Element
Content
Permanent
Fiscal Rule
or FRL
Principles of fiscal management
Fiscal rules and procedures
Escape clause, sanctions
FY
Medium-term
Fiscal Strategy
3-5 Year macroeconomic forecast
3-5 Year fiscal forecast
Fiscal risk analysis
Medium-term fiscal target
FY
Medium-term
Expenditure
Framework
3-Year expenditure ceiling
3-Year ministerial allocations
Contingency & planning margins
Performance indicators/targets
FY
Budget
Orientation
Debate
FY
Annual Budget
Scrutinize macro forecast
Vote MT fiscal target
Vote expenditure ceiling
Updated 3-5 Year MTFS & MTEF
Explanation of changes from MTFS/MTEF
Detailed annual appropriations
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12
Africa: Budget Timetables
13
Treasury Management Practices
“Good Practice” features of a treasury management system
Objective: To facilitate the efficient execution of the budget
Timely
availability
of resources
through
Harmonized
cash & debt
management
supported by
Robust
budget
execution
• Annual cash flow plans based on line ministry work plans and
procurement plans, aligned to achievable revenue inflows
• In-year rolling cash flow plans with daily projections for next
month, aligned with macro-economic and fiscal conditions
• Minimized idle cash and optimized borrowing
• Annual deficit borrowing optimized against annual cash flow
plans and market conditions
• In-year liquidity borrowing and short-term investments of
surplus cash aligned with cash flow plans
• Mix of instruments for optimal liquidity management
• Comprehensive commitment control system which informs on
future spending and reserves funds
• Timely recording of invoices and standard payment terms
• Banking arrangements that support treasury control of cash
• Adequate and timely information on budget execution
Result: Credible Budget, Value for Money, Effective Service Delivery 14
In-year fiscal reporting ….
 Timeliness of reports- serve as early
warning systems.
 Comprehensiveness of Coverage
 Relevance and strategic orientation –
to influence budget (spending or allocation)decisions
 Access to published information
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Frequency of In-Year Reporting: Practices
Frequency
Weekly
Monthly
Quarterly
Six Monthly
Annually
Countries
Burkina Faso
Botswana, Ethiopia, Liberia, Malawi,
Morocco, South Africa, Tunisia, Zimbabwe
Benin, Congo (Brazzaville), Kenya
Madagascar, Mali, Mozambique, Rwanda,
Sierra Leone, Zambia
Ghana, Guinea, Uganda
Lesotho, Mauritius, Namibia, Nigeria
Source: CABRI 2008
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Assurances of Integrity: Role of Audit and Oversight
Institutions
•
Fiscal activities should be subject to effective internal oversight and
safeguards
•
Internal Audit: focus shifting from “pre-audit” to risk-based & systems
audits.
•
Fiscal information should be externally scrutinized.
•
External Audit: roles, responsibilities and powers.
•
Parliamentary oversight committees:
– Public Accounts Committee
– Public Investment Committee
– Local Government Accounts Committee
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Comparative analysis of budget management within
Africa
Management
of Arrears
Oversight of
fiscal risk over
other public
sector entities
Orderliness
of budget
process
Multi-year
perspective
Predictability
in cash flow
Management of
cash balances,
debt and
guarantees
D
D+
C
C+
D+
D+
D+
Dem. Rep. Congo
NS
D
NS
D
D+
D
C
D
D
D
D
D
D+
D
B
C+
Guinea Bissau (2008)
D
D
D
NS
D
D+
D+
D+
Sao Tome & Principe
(2007)
D
NS
D
C
C+
D
D
D+
Sao Tome & Principe
(2010)
C
D
C+
D+
D
D
D
D+
Tanzania (2008)
A
B
D
C
A
C+
C
B
B
B
B+
C
B+
C+
B+
C
Uganda (2005)
B
C
D
D
C+
B
C+
C
Uganda (2008)
B
C
D
C
C
C
C+
C18
Country
Aggregate
Outturn versus
Appropriation
Disaggregated
Outturn versus
Appropriation
Central African
Rep(2010)
D
Cote d'Ivoire
Tanzania (2005)
Some of the key challenges to prioritization and sequencing
of PFM reform agenda:
• Limited understanding of issues and inadequate exposure
on reforms to, a large extent, adversely affects the
decisions regarding design, order and timing.
• Promoting coherence within overall PFM- high level issues
and priorities - remains a challenge, even in cases where
PFM strategy exists.
• Inadequate coordination of donor-funded reforms prevent
a logical sequencing of reform actions.
• PFM reforms are hardly integrated within Public Service
Reforms, and if tried, integration is not sustained.
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Inter-dependence is a critical dimension in
sequencing and prioritization of reform agenda
Public Service Reforms
PFM
Budget
Preparation
Interface
Treasury
( Interdependencies )
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• THANK YOU
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