Transcript OECD/IMF/World Bank Meeting in Paris

UNICEF Visit to FAD
October 8, 2009
General Overview
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Part 1: FAD and PFM
Part 2: Best Practices in PFM
Part 3: Specific PFM Tools of Likely Interest
to UNICEF
Part 4: Country Case Studies
UNICEF Visit to FAD
Part 1: FAD and PFM
Duncan Last
Overview of PFM Activities
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Developing and promoting good practices and standards
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Providing technical assistance
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TA diagnostic, specialized topic and review missions and desk work
Short term peripatetic and resident advisors
Regional technical assistance centers
Coordinating with donors
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Guidance notes and manuals, working papers, and books
Holding and participating in seminars on PFM issues
Membership in key PFM forums and groups
Special working relations with World Bank
Cooperation with other donors
Undertaking PFM assessments – ROSCs and PEFAs
Staffing
Developing and Promoting
Good Practices and Standards
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Guidance notes and manuals (http://blog-pfm.imf.org/#)
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Working papers (http://www.imf.org/external/pubind.htm)
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IPSAS, SBOs, DAC, CAPE, OECD symposiums
PFM-Blog (http://blog-pfm.imf.org/#)
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IMF managed training – INS, JVI, JAI, SAI; RTACs; Parliamentarians
Trainers in other events – CEF, country-based requests
Participation in key forums and groups
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general PFM guidance, implementing IFMIS, performance budgeting
Seminars and training
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wide range including cross country comparisons of practices, evaluation of the
effectiveness of FAD TA, and PFM issues in scaling up of aid
Books
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12 guidance notes produced on subjects such as program budgeting, cash
management, IFMS, commitment control, accrual accounting, now being made
publicly available.
Discuss recent developments in the PFM field
Providing Technical Assistance
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FAD led missions – generally 2 to 5 members, 2 week, 50-70
page report
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Responding to requests from countries with wide range of topics:
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Recruitment and backstopping of experts assigned for specific detailed
implementation tasks and/or close advisory support
Regional Technical Assistance Centers (RTACs)
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Drafting/updating legal frameworks
Providing best practice guidance based world-wide knowledge of PFM systems
Reviewing proposals prepared by third parties
Assigning short-term experts and resident/regional advisors
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Some TA also being provided to regional organizations – WAEMU, EAC
Desk based work
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Broad diagnostic and action plan missions
Advice on new initiatives: program budgeting, accrual accounting, MTEF
Solving specific problem areas: arrears, budget execution bottlenecks, IFMIS
Progress reviews on implementing FAD recommendations
7 currently operating - Africa (3), Middle East, Pacific, Caribbean and Central
America – and 3 more expected in 2010 - Africa (2) and Central Asia. Also close
association with CEF.
RTACs provide closer and more accessible support to member countries with
regionally based advisors in core competence areas of IMF, which includes PFM
Often TA linked to programs and surveillance
Coordinating with Donors
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All our TA work has some degree of coordination with donors
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Special coordination with the World Bank and Regional
Development Banks
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Frequent meetings of two staffs working on PFM issues, both on broad approach
as well as country specific PFM issues
Regular consultation with World Bank staff ahead of missions
Participation in reviews of each other’s work
Availability of TA reports
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TA missions brief donor groups at the end of each mission
On occasion, donor assigned staff participate in FAD missions
RTAC, regional and resident advisors maintain regular contact with countrybased donor staff working in PFM areas
Current policy encourages country authorities to share FAD provided TA reports
to legitimately interested donors, once reports are finalized
Jointly organized forums and discussions on PFM issues
Undertaking PFM Assessments
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Reports on Standards & Codes (ROSC) – Fiscal Module
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Public Expenditure & Financial Accountability (PEFA)
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Voluntary assessment instrument aimed at establishing degree of transparency
and accountability of government fiscal operations
107 countries have completed and majority published ROSCs
(http://www.imf.org/external/np/rosc/rosc.asp)
ROSCs prepared by IMF staff
Voluntary assessment of a country’s PFM system aiming of determining fiduciary
risk, often published (http://www.pefa.org/)
Multi-donor support (WB, IMF, EU, various bilateral donors)
FAD is a member of the PEFA Secretariat which meets to review development and
use of the assessment instrument
PEFA assessments prepared by a wide range of assessors, many of which are
consulting companies hired by a donor
PEFA Secretariat located in the World Bank
Staffing
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HQ has two Divisions of 12 professional staff each
(currently)
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Work shared with other FAD divisions
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M1 looks after Anglophone Africa, Middle East and Central Asia, and
Europe
M2 looks after Francophone/Lusophone Africa, Asia and Pacific and
America
Supplemented by 12 RTACs advisors and a varying number of regional
and resident advisors backstopped by HQ
Decentralization
Macro-fiscal issues
Expenditure policy and frameworks
Special areas – PPPs
FAD also has Tax Policy and Revenue Administration
Divisions
UNICEF Visit to FAD
Part 2: Best Practices in PFM
Mario Pessoa
Why PFM is Important:
Consequences of a Malfunctioning PFM System
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Macro control can be lost: arrears, increase in public debt.
Resources can be misallocated and credibility in government
undermined: poorly prepared or executed budget, combined with offbudget spending, can result in resources allocated to non-intended
purposes, and, therefore, non-achievement of Government’s stated
strategic objectives and policy goals.
The basis for sound policy analysis can be undermined: when
fiscal data is incomplete, inadequate and/or unreliable, and not based
on reconciled accounting data.
Unclear responsibilities and lack of transparency can lead to poor
decision-making: due to inappropriate and outdated legal framework,
poorly-defined internal structures (within the executive), fragmentation
of responsibilities within the MOF, poor accountability arrangements
(e.g., to parliament), and inadequately trained staff.
The FAD Board papers on “Scaling Up Aid in LICs” note that the quality of PFM
systems in LICs are generally poor and that the speed of progress in PFM
reforms has often been slow.
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Paris Declaration - Indicators
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Key Features
of a Good PFM System
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Credibility and comprehensiveness of the budget: budget framed with
clear fiscal objectives and within realistic resource projections,
with allocations linked to priorities, and limited scope for major
changes during the year.
Effective budget execution: adequate controls to ensure (a) that the
budget is executed in a cost efficient and timely manner, and (b)
that spending is in full conformity with the regulatory framework
and procedures (including procurement).
Accurate accounts maintained and published: Appropriate
government accounting and reconciliation with banking data, and
regular, high-quality in-year fiscal reporting
Appropriate legal framework and institutional arrangements: (e.g., MOF
structure; external audit)
Capacities exist to sustain the PFM system: Adequately trained staff
and tools (in particular, computerized) to meet the above goals.
Promotion of transparency and accountability: administrative and
management culture that promote transparency and accountability
in PFM
Achieving a Good PFM System Requires
Attention Across Many Areas
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Legal and institutional framework
Budget preparation
Budget execution, internal control and internal
audit
Cash and debt management
Accounting and annual accounts
Monthly fiscal reporting and computerization
Role of Parliament and external audit
Aid management
However, not all can be tackled at the same time: reforms
need to be customized to country needs, properly
sequenced, and adjusted to suit capacity constraints.
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Legal and Institutional Framework
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Legal framework and regulations: Issue: laws and regulations
no longer corresponds to the budget system the
government wishes to implement. Impact: unclear budget
responsibilities and procedures. Actions: adopt new law
and/or regulations.
Institutional setup: Issues: Inappropriate structure or
unclear/fragmented roles within the executive branch.
Impact: Difficult internal decision-making process, e.g.
between Finance and Planning Ministries, or between
Budget and Accounting Departments. Actions: review and
clarify roles and responsibilities, in particular authorities of
Ministers, Ministries and senior officials. Strengthen
horizontal coordination (between ministries, between
departments).
Budget Preparation
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Policy and budget relationship: Issue: long-term and medium-term policy are
not linked to budget priorities. Impact: frustation in implementing policy priorities.
Actions: Actions: introduce medium term framework, starting with MTFF,
then progressing to MTBF/MTEF, strengthen sectoral planning, incorporate a
programmatic approach, and improve ex-post assessment to calibrate policy
in order to influence the budget process.
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Coverage: Issue: off-budget spending. Impact: spending left out of budget
framework. Actions: initiate regular reporting, scrutinize during budget
preparation, include statement in budget annex, eventually bring on budget.
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Dual budgeting: Issue: separate budgets, often prepared by separate
ministries. Impact: recurrent costs of projects not taken into account,
current spending on development budget, different classifications. Actions:
merge ministries, merge documents, unify budget cycles.
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Classifications: Issue: outdated (some countries) or incomplete (many
countries) classifications. Impact: inadequate/unreliable fiscal analysis.
Actions: upgrade classifications to GFS standard; for some, moving from
GFS 1986 to GFS 2001 framework.
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Performance budgeting: Issue: input focused budget (most countries).
Impact: limited linkage between policy and budgetary allocations. Actions:
introduce output focus to budget, starting with program classification,
progressively adding performance elements.
Accounting
and Budget Classifications
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Economic (Asset x Liabilities; Revenue x Expenditure)
Institutional (Ministries, entities, companies)
Functional - Education (division)
Pre and Primary Education (group)
Primary Education (class)
Program/Project-Activity
Source of Funding
Geographic
Budget Execution, Internal Control,
and Internal Audit
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Expenditure execution procedures: Issue: multiple and complex
execution procedures. Impact: incentive to use “parallel”
procedures, to avoid controls. Actions: simplify procedures and
accelerate spending execution (computerization helps).
Internal control: Issue: expenditure not adequately controlled at
various stages of budget execution. Impact: overall fiscal control
lost. Actions: record, report, monitor spending at each stage,
especially commitments; establish approvals and controls for
each type of spending.
Payment arrears: Issue: government does not pay its invoices (e.g.,
21% of GDP in Togo). Impact: credibility in government payment
system is lost, cost of procuring services goes up as suppliers
add margins. Actions: multi-faceted approach - improving costing
of budget, strengthening expenditure control, introducing cash
management, and expanding accounting systems.
Internal audit: Issue: procedures/system for executing budget not
reviewed adequately; Impact: poor expenditure control; corruption
thrives. Actions: strengthen capacity and funding of internal audit
units, develop appropriate internal audit guidelines, and raise
profile of internal audit reports.
Cash and Debt Management
and Government Banking Arrangements
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Cash Management: Issue: no in-year management of cash flow.
Impact: ad-hoc execution of the budget, no assurance of funding to
line ministries, and delays procurement. Actions: introduce in-year
cash flow planning and advance notification of spending limits.
Domestic debt management: Issue: treasury bills not serving fiscal
needs. Impact: cash not available when required, unnecessary
borrowing. Actions: align treasury bill regime to cash flow plans,
integrate cash and debt management.
Coordination with Central Bank: Issue: fiscal and monetary policy not
coordinated. Impact: inefficient monetary liquidity management,
MoF and CB in competition for funds. Actions: establish monthly
liquidity committee to coordinate fiscal and monetary operations.
Treasury banking arrangements: Issue: proliferation of bank
accounts. Impact: idle balances, inefficient use of cash, difficulty in
managing bank reconciliations. Actions: zero-balanced accounts,
ultimately Treasury Single Account (TSA).
Other government accounts: Issue: separate accounts for agencies
and funds. Impact: inefficient use of cash. Actions: bring agency
and fund accounts into the treasury system.
Cash Management - TSA
$
Account 1
$
info
Account 2
info
TSA
$
info
Account 3
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$
info
Account n
Monthly Fiscal Reporting and
Computerization
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Monthly fiscal reporting: Issues: incomplete coverage,
untimely reporting, not based on accounting data. Impact:
inadequate information for decision making, available
information ignored, undermines credibility of budget.
Actions: strengthen reporting obligations from central
government, subnational government, public companies;
strengthen reporting from donor funded projects; ensure
fiscal data is based on reconciled accounts.
Reconciling fiscal and monetary data: Issue: large
discrepancies between monthly fiscal and monetary data.
Impact: difficulty in establishing reliable information for
macro-fiscal management. Actions: identify possible
sources for discrepancies; establish task force with relevant
staff to find solutions to the identified problems; strengthen
bank reconciliation routines; routinely identify cash in
transit.
Government Financial Management Information System
(GFMIS): in principle can improve access to data, however
some do not justify the expense; sometimes simple systems
are more effective. Use of off-the-shelf x tailor made
systems. Preparation of a proper conceptual design.
Figure 1: GFMIS LEDGER SYSTEM
History and Actual Data
from GL,
Approved Budget Profile
to GL
Human Resource
Payroll Management
BUDGET
PREPARATION
Position Budgeting
Purchase Requisition,
Purchase Order
Commitment
Stores
PAYROLL
PURCHASING
(PROCUREMENT
SUB LEDGER)
Transfer Journals to
GL
PAYABLE
(SUB
LEDGER)
INVENTORY
Invoice Verification
Payment Voucher
Transfer Journals to
GL
CASH
MANAGEMENT
Bank Transfers
Check Payments
Cash Planning
Cash Forecasting
Bank Reconciliation
FIXED ASSETS
(SUB LEDGER)
GENERAL LEDGER
PROJECT
MANAGEMENT
Construction Projects
Work in Progress
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Transfer Journals to
GL
Chart of Accounts
All Accounting Transactions
Journal Entries
Control Reports
Management Reports
Statutory Accounts Analysis
Import Journals from Subledgers
RECEIVABLE
(SUB LEDGER)
DEBT
MANAGEMENT
Role of Parliament and
External Audit
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Adoption of budget by parliament: Issues: Late adoption of
annual budget; little discussion within parliament. Impact:
Inadequate “ownership” of government’s budget; abuse of
parliament. Actions: Change budget preparation calendar so that
submission of annual budget is 1-3 months before new FY begins;
strengthen parliament committees and technical support to
parliament
External Audit reports: Issues: Audit reports are often very late;
audit offices are poorly equipped; Impact: Public accountability
suffers. Actions: Strengthen capacity at Offices of Auditor General
or Court of Accounts, as well as Parliament, to ensure high-quality
audit reports and follow-up of recommendations.
Publication of budgets, accounts and audit reports: Issue:
budgetary, accounting and audit information not routinely
available to the general public. Impact: limited civil society
interest/participation in government spending. Actions: establish
routine publication (paper and/or website) of annual and in-year
budgetary and accounting data, as well as audit reports.
Accounting Methodology
and Annual Accounts
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Cash versus accrual accounting: Issue: Pressure to
adopt accrual accounting, given GFSM2001. Impact:
Complicates accounting framework. Actions: Top priority:
Improve timeliness and quality of cash-based accounts.
Gradually introduce elements of accrual accounting
(already the case in francophone countries).
 Preparation of annual accounts: Issues: long lags for
central government accounts; incomplete annual accounts
for local governments; donor funds not fully accounted for.
Impact: incomplete and late annual accounts and reports;
reconciliation problems with annual budget. Actions:
address weaknesses in government accounting; limit
complementary accounting periods; catch up with
accounting backlogs and ensure timeliness/quality of (cashbased) annual accounts for central government.
 Consolidated General Government accounts: Issue:
no consolidated picture of government accounts. Impact:
limited fiscal analysis, limited focus of spending reviews.
Actions: initiate steps to regularly consolidate general
government accounts.
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Aid Management
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Information on aid flows: Issue: fragmented or partial
information on aid flows. Impact: incomplete fiscal
information, difficulties in reconciling accounts, including
fiscal and monetary accounts. Actions: establish aid flow
tracking unit and database, undertake regular reconciliation
with donors and include aid flow information in accounts.
Uncertain aid projections: Issue: future aid commitments
unclear or volatile. Impact: undermines credibility of the
budget, forces uncertain aid flows off budget. Actions: work
with donors to improve forward planning of aid
commitments, improve country systems to track
commitments.
Project bank accounts: Issue: separate accounts for donor
funded projects (most countries). Impact: complex
reconciliation, difficult to track spending. Actions: persuade
donors to channel funds through national systems, or at
least a TSA for external funds.
Drawing up a Strategy
for addressing PFM Problems
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Diagnosis—comprehensive (whole PFM system) vs.
specific areas of focus
Prepare a reform strategy and action plan
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identify the reform priorities
recognize past failures and address them
sequence implementation; avoid being too ambitious;
monitor developments and update action plan.
Country ownership: ensure authorities’ endorsement of
action plan, and allocation of skilled staff to oversee the
reforms.
Address capacity constraints: identify needs and establish
appropriate training programs; allow time for new capacity
to be developed.
Donor coordination: particularly important when significant
funding required – common case in LICs.
Example of PFM Action Plan
Activity
Responsibility
Timing
Create a working group for reviewing and assessing how can be incorporated in the central
government budget, while they continue to enjoy the appropriate levels of autonomy
MoF, FCGO
December
2007
Make a decision to adopt the general government sector as the basis for fiscal analysis and
reporting
MoF, FCGO
March 2008
Produce consolidated budget and financial statements for the central government
MoF, FCGO
(TA may be
required)
2008/09
budget
Produce consolidated fiscal information for the general government
MoF, FCGO
(TA may be
required)
2009/10
budget
Review and revise budget classification and CoA based on double entry accounting and GFSM
2001
MoF, FCGO (TA
may be required)
2009/10
budget
The AG should highlight the most important and systemic issues that should be addressed by
the government.
AG
2006/07
financial
statement
Annual financial statements should be produced in accordance with the IPSAS on Financial
Reporting under the Cash Basis of Accounting.
FCGO (TA may be
required)
2007/08
financial
statement
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Sequencing and implementing
PFM reforms
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Sequencing Issues:
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Failure to address sequencing has led to PRGF
program benchmark problems.
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Lesson: Do not be too ambitious.
Implementing reforms also requires adequate PFM
capacity. Need for on-going training programs:
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What are main constraints to PFM reform (technical, capacity,
managerial, and political).
Is there “ownership” by authorities? Champions for reform?
Stumbling blocks? e.g., a non-cooperative Treasury director?
Speed of reform: judgment is needed.
through RTACs or resident advisors; and/or
through other donors, who have resources for training.
UNICEF Visit to FAD
Part 3: Specific PFM Tools of Likely
Interest to UNICEF
Duncan Last
Public Expenditure Tracking Surveys
(PETS)
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This instrument has been successfully used in
countries to track the funding for specific service
delivery type activities from budget through to
implementing unit, identifying potential leakages and
bottlenecks:
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E.g. schools, clinics, hospitals
PETS have helped identify cases of misuse of funds, as well as
inefficiencies in PFM systems
Well functioning internal control and audit systems
should handle this. Where not available, PETSs have
often been donor initiated and funded
Aid on Budget
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Part of the push for donors to use country
systems to channel their aid:
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Paris DAC Declaration and Accra Agreement implementation
To encourage donors to reflect their aid on budget and in the
accounts of the beneficiary country
To better coordinate and plan scarce resources
To avoid overlap/duplication of effort
To avoid investment spending where recurrent costs have not
been planned for
Useful reference: Aid on Budget report
prepared by CABRI (Africa’s SBOs)
Costing, Performance Setting,
and Measuring Results
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MTEFs
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Program/performance budgeting
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To improve prioritization of resource allocation at a sectoral level according to
declared policy (e.g. growth and poverty reduction strategies, MDGs)
To ensure spending is constrained by resource availability
To provide a medium term planning framework
To provide a new approach to detailed budget preparation, also focused on
policy based allocation of resources, linked to specific outputs/results
Requires improved managerial responsibility and flexibility to ensure successful
implementation, as well as full integration of programs into the accounting
system
MTEFs and program budgeting should complement each other
Both require improved costing techniques and strengthen
sectoral planning capacities
Budget Framework Based in a MTEF - a Programmatic Approach
Jan-Mar
Apr-Jun
Jul-Sep
Informal Discussions
Legislative
3
7
Review of MTFF and
MTEF
Executive Cabinet
MTEF
document and
calendar
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Review and
approval of the
MTEF
Discussion of
alternative MTEFs
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- Document MTEF
strategic budget
framework
2
Oct-Dec
Publication, presentation and
approval of MTEF by the
Legislature
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Budget discussed and
approved by the Legislature
Revision and
approval of the
budget
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Presentation of
MTEF for donors
Finalization of
budget proposal
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Ministry of
Finance
- Identification of MTEF
objectives
- Initial Medium-term fiscal
framework (MTFF)
- Expected financial aid from
donors
- Preparation of
MTFF
- Analysis of
transversal issues
Sector ceilings
(MTBF)
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- Macrofiscal
framework revision
- Completion: (i)
analisys of main policy
issues; (ii) sector
strategies; and (iii)
ceilings
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Update and review
of MFMP and
ceilings budget
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Revision of Ministerial
budget proposals
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5
Sector Line
Ministries
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Preparation of the Medium-Term Expenditure Framework
- policy priorities, result-oriented programs
-multiannual strategy, sector perspective, focus in programs integration current/capital budgets, central and sub-national
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Budget Circular
- Revision of current program
- Multiannual sector strategy compared with
objectives, activities and previous year
results
- Indicative program ceilings for 3-years Identification of probable external financing
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Ministries and entities prepare
detailed budget cost estimate
consistent with sector ceilings
Annual Budget Preparation
by the entities
according to budget ceilings
Questions and Answers
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UNICEF Visit to FAD
Part 4: Country Case Studies
Duncan Last and Mario Pessoa
Example of a PFM reform strategy
MOZAMBIQUE
In 2002, after many years facing problems with TA
coordination and having made little progress in reforming
crucial PFM areas, the government took several measures:
 Create
an administrative unit (UTRAFE) in the MoF (headed by a
coordinator, at director level, reporting directly to the minister) in charge
of implementing the PFM reforms.
 Eliminate parallel bilateral TA.
 Create a Partners Committee for the PFM reforms, chaired by the
UTRAFE coordinator, and comprising representatives of the main TA
donors in the country, and the IMF and World Bank resident
representatives.
 International donors established a common fund to finance UTRAFE’s
operations and the PFM reforms The invitation for FAD (a “neutral”
entity) to place a PFM resident advisor in the country directly linked to
the UTRAFE coordinator, who in practice began to coordinate all PFM TA
delivered to the MoF.
 Establish a Quality Assurance Group (QAG) to evaluate progress of the
reforms.
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Example of a PFM reform strategy
MOZAMBIQUE (cont.)
 FAD
placed a PFM resident advisor for 3 years in the
country directly linked to the UTRAFE coordinator.
 Then moved for an annual follow-up mission to evaluate
implementation progress and suggest other reforms.
 Also comprises a Quality Assurance Group (QAG),
established in late 2003, comprising four PFM experts. The
QAG undertook missions to Mozambique twice a year to
assess locally implementation progress. Its reports are
distributed to the international partners and the
government.
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Post-Conflict Country
FAD PFM Assistance to Liberia
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Immediately Post Conflict - 2003
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Before the new government - 2006
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FAD mission recommended very basic systems – infrastructure
and capacities had been destroyed by the civil war
Peripatetic regional advisor support to help with implementation
Review of progress and guidance on establishing first level PFM
system – budget management, cash management, simple
accounting, auditing
Further use of peripatetic regional advisor
Some success but very slow due limited capacities and very
basic infrastructure (generator based electricity, limited internet,
mostly manual systems
Post-Conflict Country
FAD PFM Assistance to Liberia (cont.)
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After installation of first elected government - 2007
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FAD diagnostic mission recommended a 3-year reform plan, including:
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Peripatetic TA provided to assist with drafting new PFM Law
Regional advisor recruited and based in Liberia for 70% of time
June 2009 review and development of new PFM reform plan
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Development of a legal framework for PFM
Double entry accounting system
Further strengthening and streamlining of budget execution
Improved cash management
Review of progress in implementing 2007 mission recommendation and
preparation of an action plan for the next 3 years
New PFM Law adopted by the Legislature in August 2009 and regulations being
completed currently
Close coordination with donors who have been and will continue to provide PFM
TA, including significant capacity building