Transcript PUBLIC SECTOR AND GOVERNANCE BOARD 17 October, 2002

Improving Public Financial
Management:
The Role of Analytic Instruments
Presentation to ICGFM Conference
Miami, 2 April, 2003
David Shand and Parminder Brar
The World Bank
[email protected]
[email protected]
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THE IMPORTANCE OF SOUND PFM
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Need for accountability to citizens (and
donors)
Need for pro-poor budgets – and which are
implemented
Good PFM reduces corruption, poor PFM
facilitates it
Concern with good PFM should be with
- all ministers, not just Minister of Finance
- all ministry heads, not just Finance
Ministry
- all program managers, not just finance
staff
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WORLD BANK’S WORK ON PFM
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Central place of PFM in Bank’s dialogue with most
borrowing countries
Substantial growth of Bank’s PFM work
Part of public sector reform – can we reform PFM
separately?
Changes in Bank’s business – growth of adjustment
lending, debt relief and sector programs
Less emphasis on “ring fenced” PFM systems (“islands
of excellence in a sea of failure”) more on country PFM
systems
“Integrated Fiduciary Assessment” proposed as future
pre-requisite for all budget support lending
Growth of Bank’s involvement with sub-national
governments
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OBJECTIVES OF PFM ANALYTICAL
TOOLS
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Importance of development as well as fiduciary
objectives - complementary not opposites
Best fiduciary assurance comes from a
government committed to a sound PFM system
Risk is to country (and other donor) funds as
well as Bank funds
These tools are not audits, or seeking to trace
individual transactions
or a “pass/fail” certification of adequacy of the
PFM system for budget support lending
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OBJECTIVES - (cont’d)
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Rather a knowledge tool about the
environment into which Bank funds are going
Going into lending operations with “eyes open”
Influencing decisions on amount, timing and
form (budget support, sectoral support,
investment projects) of lending
Budget support lending may be appropriate in
a weak PFM environment where there is clear
government commitment to PFM improvement
– and evidence of improvements
Improved PFM may therefore be an outcome
of or a precondition for adjustment lending 5
PFM AS AN INTEGRATED SYSTEM
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Budget development – comprehensiveness,
realism, classification, processes
Budget execution and monitoring – internal
controls, FMIS, cash and debt management
External fiscal reporting and transparency
Internal and external auditing
Legislative scrutiny of budget execution
Problems in budget execution may reflect
problems in budget construction – can’t
implement well a badly constructed budget
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PFM Diagnostic Tools
Variety of PFM diagnostic instruments
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World Bank –
- Country Financial Accountability Assessment (CFAA)
- Public Expenditure Review (PER)
- Country Procurement Assessment Report (CPAR)
IMF Fiscal Transparency Assessment (Fiscal ROSC)
Joint Bank/Fund HIPC Expenditure Tracking
Assessments – 15 PFM benchmarks
EC assessments of country financial management
UNDP Contact
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Collaboration with Development
partners
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Over half of current CFAAs being undertaken in
collaboration with other development partners – IADB,
DFID, SPA, EC, Netherlands, SIDA, NORAD etc.
Reflecting the international harmonization agenda
Interest of other donors in using CFAA for their own
decisions on budget support
But different donors will have different thresholds for this
Collaboration may reduce transaction costs to countries,
but poses management and quality challenges. Too
many cooks ?
Collaboration should also improve diagnostic quality and
increase likelihood of country addressing PFM problems
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Donor Collaboration –
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Sharing of diagnostic work plans and needs
Open and participatory reviews – results
widely shared, “no surprises”
Rationalize scope, timing and conduct of
diagnostic reviews
Many possible forms of collaboration –
depends on country context. Possible “lead
agency” approach
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Involving the Country
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Strong country participation desirable to build
country commitment to PFM reforms. Continuous
consultation - “no surprises”. A general
diagnostics issue.
Risk is to country as well as Bank funds –
persuading the country ? Hard to improve “by
force”.
Various levels of country participation; in practice
Bank generally “holds the pen”
Involvement of key officials; may undertake some
of diagnosis
Collaboration among development partners
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facilitates country participation (although claims of
PFM FOLLOW UP
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Need to increase Bank understanding of and skills in
capacity development
And working collaboratively with other donors
and the country
PFM improvements as a condition for further lending or
as components of PS Reform loans
Need for regular performance measurement of PFM – is
progress being made
But measurement of progress within a country is more
important; hard to compare different countries
Agreement with other donors and country on
harmonized performance indicators
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A National Perspective: India
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Are expenditure outcomes being
achieved?
Aggregate fiscal discipline
 Prioritization of expenditures
 Operational efficiency
 Transparency – processes and information
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National Perspective:
Budget Formulation:Unrealistic revenue
forecasts have resulted in unachievable fiscal
deficit targets.
GOI's Receipts, Expenditure and Deficit
500,000
450,000
+34,782
400,000
+41,560
+36,842
350,000
+27,527
+18,718
300,000
Rs. Cr.
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+26,611
+37,048
+47,298
250,000
+31,060
150,000
+14,703
+13,428
200,000
+27,350
+8,856
+22,886
100,000
50,000
0
1996/97
1997-98
98/99
99/00
00/01
01/02
02/03 (RE)
03/04 (BE)
Total Receipts
134,275
143,131
166,017
193,368
206,796
221,499
258,547
285,158
Total Expenditure
201,007
232,068
279,366
298,084
325,611
362,453
404,013
438,795
Fiscal Deficit
66,732
88,937
113,349
104,717
118,815
140,954
145,466
153,637
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National Perspective:
Budget Execution:Focus remains on
meeting spending targets instead of
outputs or outcomes.
Trend of GOI Expenditure
2001-02
70000
60000
50000
40000
Rs. Cr.
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30000
20000
10000
0
Apl
May
Jun
Jul
Aug
Plan (Developmental)
Sep
Oct
Nov
Dec
Non-Plan (Non Developmental)
Jan
Feb
Mar
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National Perspective
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Fiscal Reform is at the top of the agenda
for many governments.
State Fiscal Reform Facility (2000-01 – 2004-05): Incentive
Fund established to encourage states to improve fiscal discipline.
Releases from the fund require a five percentage point reduction in
the revenue deficit as a proportion to the State’s total revenue
receipts in each year till 2004-05.
States are required to draw up a Medium Term Fiscal Reform
Program (MTFRP) which aims to bring down the fiscal deficit,
eliminate the revenue deficit by 2005 and reduce the debt – GDP
ratio, including contingent liabilities. MTFRP’s drawn up by 16
states.
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There is a community of interest in
improving PFM systems.
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Diagnosis:
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Dialogue on PFM issues is increasing:
 April 2000 – March 2002: 4 WB structural
adjustment loans released for fiscal reform in
 Uttar Pradesh (pop. 166 m.)
 Karnataka (pop.53 m.) and
 Andhra Pradesh (pop. 76 m.).
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February 2001: IMF Fiscal Rosc
April 2002: CGA / MoF Conference on Financial
Reforms
May 2002: IMF Data Rosc initiated
By July 03: Four SFAA’s due for delivery
June 2003: Regional Conference of CGA’s
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Results:
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Karnataka:
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Improved Aggregate Fiscal Management: MTFP being updated
annually. Fiscal Responsibility Act enacted – binds state to
achieve fiscal deficit of 3% by 2005-06.
Increased performance orientation: Departmental MTFP’s
completed in 5 departments - being rolled out to other
departments.
Budget simplification: Object heads reduced by 50%.
Systems Modernization: 220 Treasuries and Sub Treasuries
computerized.
New accounting system introduced in biggest urban local
body.
Improved transparency: First state to publish monthly
accounts on the web.Right to Information Act enacted along
with Transparency in Public Procurement Act.
Improved response to Audit.
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Results:
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Andhra Pradesh:
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Improved Aggregate fiscal management: MTFP being updated
annually.
Hard budget ceiling on departments.Line departments given
much more flexibility to to prioritize expenditures within
ceiling limits. Performance budgeting systems evolving.
Cash management system vastly improved.Significant
decrease in use of overdrafts.
Incentives provided to improve collection of user charges.
Systems modernization : Integrated Financial Information
System being introduced.
Codes and regulations being updated.
Internal Audit introduced in Government, with assistance
provided by Institute of Chartered Accountants of India.
Monitoring and enforcement of internal controls improved.
Self Diagnosis: SFAA being prepared by the Government.
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The Way Forward:
Country leadership
 Strong Partnership
 Results focus
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