Transcript Public Financial Management Reform:

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
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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)
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Expenditure Management Cycle
Financial management system boundaries
Planning
system
Project
appraisal
Medium term
plans, e.g. three
year rolling plans
Resource
allocation
Annual budgets
Development,
recurrent and
revenue
Expenditure
review
Public expenditure
review
Institutions
Fund release
procedure, e.g...
warranting
Accountability
Audit system
Reports and
financial statements
Accounting for
revenue and
expenditure
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.
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Popular Reforms
Recommended reforms generally try to change incentives to better
meet objectives by changing rules, roles and information
Macrofiscal
Discipline
Medium-Term Expenditure Frameworks

Performance, Program budgeting
Strategic
Allocation
Operational
Efficiency




IFMIS, automation


Fiscal Responsibility Laws

Treasury Single Account

Budget classification, chart of account

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
Reporting/ Transparency


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
Procurement

Internal control/audit

External audit

Accrual Accounting
?

?
5?
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
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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
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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
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Recent Reform Emphasis
Budget Formulation
LIC*
LMIC*
UMIC*
(35)
(33)
(13)
MT Fiscal Framework
29%
45%
31%
MT Expenditure Framework
37%
39%
46%
Performance/Program
Budgeting
23%
15%
38%
Capital-Investment Bdgts
9%
21%
23%
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.
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Recent Reform Emphasis
Budget Execution
LIC
LMIC
UMIC
(35)
(33)
(13)
Treasury/Cash
management
51%
36%
31%
Commitment
controls
26%
18%
15%
Debt
management
11%
18%
8%
Accounting/classi
fication
40%
42%
23%
Payroll/Personnel
17%
9%
15%
Internal
audit/control
11%
12%
na
Procurement
14%
12%
na
10
Recent Reform Emphasis
Other Reforms
LIC
LMIC
UMIC
(35)
(33)
(13)
IFMIS
49%
36%
23%
MoF
Reorganization
3%
18%
8%
Budget
Law/Legal
26%
36%
23%
Transparency
20%
30%
15%
PPPs
3%
21%
15%
Decentralization
26%
15%
23%
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Observations
• LICs struggle to get basics in place
– Do advanced reforms may detract from this objective?
• LMICs and UMICs frequently struggle to overcome legacy systems
• Recently, slight movement away from larger reforms, towards
pragmatic reforms linked to country problems
– IFMIS to FMIS
– Unbundling MTEFs, better sequencing
• Challenges remain on
– Holistic views of PFM systems, focus on weakest links
– Sequencing reforms
– Limiting adverse impact of supply-push, transplanting of advanced
reforms to weak environments
– Realistic time horizons
– Redefining ownership as helping the country solve practical financial
management challenges simply, directly
– Right-sizing reforms, measures
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