Transcript Capacity Development in Public Finance Reforms: The

Capacity Development in Public Finance Reforms:
The Approach of GTZ
Presentation at the
XVIII Seminario Regional de Política Fiscal
Santiago de Chile, January 23-26, 2006
Philipp Krause
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Overview
1. Good Financial Governance
2. A Systemic Perspective on Public Finance
3. Capacity Development in Public Finance
Reforms
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The Overarching Objective:
Good Financial Governance
 Good Governance means a conducive political framework
for social, economic and environmental development, as
well as the state‘s responsible use of political power and
public resources.
 Responsible and transparent management of public
resources depends on proper policies for revenue
collection, resource allocation and their control by audit
courts and parliaments.
 Functioning systems of public finance are a prerequisite of
a country‘s successful development and poverty reduction.
 Good Financial Governance matters both as a means
towards better public sector performance, but also as and
end, being a central element of good governance overall.
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Core Principles of
Good Financial Governance (1)
 Legitimacy and voice: The totality of decisions, rules
and regulations of the state must be legitimized by
democratic rules. Particularly relevant for
 revenue collection, where legitimacy depends on
equitable tax policy while successful revenue collection
depends on legitimacy of the state, and
 the budget, where oversight and control of elected
representatives is crucial, as is a fiscal policy that
provides public goods and services for all citizens.
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Core Principles of
Good Financial Governance (2)
 Accountability: Holding individuals and organizations
accountable for their performance.
 First of all requires transparency of public finances.
 Needs various mechanisms and organs of control,
including audit institutions, legislatures, civil society
and media.
 Centers on the budget as the comprehensive
expression of a government‘s priorities. The more
activities are run off-budget, the weaker is
transparency, the higher is the potential for corruption
and the lesser is the scope for control.
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Core Principles of
Good Financial Governance (3)
 Rule of Law: Requires all actions by the state to be
embedded in a fair and impartial legal framework.
 Rule of law secures trust and predictability in public
finances as all activities of public finance policy and
management have to be based on democratic laws.
 Development orientation of the government: To turn
reform advances into benefits for the population.
 Underscores the importance of a fair tax system.
 Depends on a sound macroeconomic framework.
 Puts public management for development results at
center stage.
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Core Principles of
Good Financial Governance (4)
 Performance: Public sector institutions deliver public
goods that meet the needs of the population while
making the best use of resources.
 Increased performance of institutions depends on
advances in three areas: decision making,
implementation and control.
 Raising performance cannot be achieved by
implementing adequate technical procedures and
information systems alone.
 Has to be seen within a systemic process of capacity
development.
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A Systemic Perspective:
 Sees Public Finance as a complex system, which is:
»a central part of any country‘s public sector,
»divided into several interrelated subsystems,
»linked in various ways to its environment.
 Focuses on processes and linkages between actors, not
on individual instruments or actors.
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The System of Public Finance and its
Subsystems
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Core Subsystems of Public Finance
Reform:
 Revenue Policy and Administration:
» Comprises of tax policy, tax administration and customs administration.
» Seeks to boost countries own revenues as a prerequisite of sustainable
reforms.
 Budgetary Policy and Expenditure Management:
» Reforming budgetary policy aims at reorienting budget priorities towards
most important government priorities.
» Reforming expenditure management seeks to strengthen the capacity of
the administration to implement government policies.
 Oversight and External Control:
» Parliamentary oversight and capable decision-making are key for
responsible, efficient and effective public spending.
» Strong external auditing serves to detect irregularities and identifies
related weaknesses in management controls.
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Examples for Reforms Linking
Subsystems of Public Finance:

The distribution of responsibilities between the treasury
department and the budget department should be clarified.

Debt management departments should be unified.

Co-ordination between tax administration and departments
responsible for preparing tax forecasts should be reinforced.

Inter-ministerial cooperation needs strengthening at the political
and operational level, e.g. Ministry of Finance – Ministry of
Economy – National Statistics Office.

Parallel reforms at the central and sector level are required, e.g.
improving investment budgeting depends on the effectiveness of
procedures to screen and select projects within the line
ministries.

Attention should be given to the linkage between the central and
sub-national layers.
Source: OECD (2001) Managing Public Expenditures
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Examples for Linkages to the Environment:
 Independent Judiciary: Assures individual rights,
legality of government actions.
 Party system and political groups: precede formal
debate in the legislature.
 Civil Society: Participates, controls, channels
individual interests.
 Media: Informs, translates complex data for wider
citizenry.
 Informal networks of rules and norms of behavior:
affect autonomy and embeddedness of the state.
 General Population: Taxpayer, Beneficiary, Citizen.
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Capacity Development
in Public Finance Reforms
 Capacity development has been a core task
of GTZ since its foundation.
 Is the process of strengthening the abilities
of individuals, organizations and institutions
to achieve their own goals on a sustainable
basis.
 GTZ‘s work of capacity development in
public finance reforms employs a systemic
perspective and strives towards good
financial governance.
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Increased Importance of Capacity
Development in Public Finance Reforms:
 Traditionally important as the strengthening of a
central function of the modern state, but sometimes
neglected in favor of more immediate development
objectives.
 New emphasis in the international dialogue for more
aid effectiveness: With the Paris Declaration,
countries committed to an ambitious agenda of using
efficient and effective country systems of public
finance.
 Millennium development goals and poverty reduction
strategies create a constructive pressure for
governments to perform.
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Systemic Capacity Development for
Good Financial Governance: Necessary Good
Practices
1. Facilitation of country ownership and leadership of
reform processes
2. Integration of political reforms, institutional
changes, and managerial and technical aspects
3. Adaptation strategies to country context
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Facilitation of Country Ownership and
Leadership of Reform Processes
 Take a long-term view and develop a common language
for dialogue.
 Use joint country-donor diagnostics to facilitate ownership.
 Build upon external incentives for reform.
 Step back to create space for government to lead:
Capacity development can only be facilitated, not lead by
donors.
 Build upon the leadership of the ministry of finance.
 Strengthen Supreme Audit Institutions and parliamentary
oversight as agents of change.
 Build awareness and ownership in line ministries.
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Integration of Political Reforms, Institutional
Changes, and Managerial and Technical Aspects
 Integrate organizational strengthening into institutional
context.
 Use training strategically to support institutional and
organizational changes.
 Structure project management roles realistically.
 Balance local and international expertise in the
implementation.
 Make use of practitioners to build bridges between
administrations in different countries.
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Adaptation of strategies to country context
 Be responsive to government’s most pressing needs.
 Support government in setting clear objectives and
advancing incrementally.
 Focus on specific public finance outcomes, rather than a
department or function.
 Reform fundamental procedures and structures first.
 Extract key concepts in lieu of replicating whole systems.
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For further Discussion:
Four Challenges for Future Work
 How to balance a long-term capacity development
agenda with short-term pressures to show results.
 How to understand and manage the politics of public
finance reforms.
 How to introduce results-based management
techniques without overtaxing country capacities.
 How to facilitate momentum for a „results-culture“ in
the public finance system.
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Forthcoming Publications:
 „Capacity Development in Public Finance Reforms“
 „Good Financial Governance“
 „Towards Good Financial Governance in Vietnam“,
first in a series of country information papers
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Thank you for your attention!
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