Transcript Diagnosis to Action

Sequencing and Politics of PFM Reform in
Turkey
(A Dated Re-telling)
Diagnosis to Action
PFM Reform Workshop, Fiduciary Forum
Anand Rajaram, AFTPR
March 21, 2008
Stylized facts: Turkey circa 2000
• Some facts
– A political economy with short lived coalition governments (57 in 78
years) and a history of military interventions (1980, 1997)
– A volatile economy with periodic crises and high average inflation
– Coalition partners, each with control over key ministries at war with each
other
• Some presumptions
– Short time horizons of decision makers
– Fragmentation of information and institutional responsibility a serious
handicap to economic management and cause of fiscal risks
– Non-transparency is both a symptom of unstable politics as well as a
contributor to political and policy dissonance
– “Technical” solutions – merging core ministries, handing public
investment portfolio to MOF – not politically viable
Vicious cycle of political instability, fiscal policy
based on fragmented information, and declining
transparency
•Politicized Agencies and
•Technocrats
•Fragmented approach to
•Fiscal and sector policy
•Unstable Coalition Politics
•Periodic Economic Crises
Diagnosis of problems
• Policy not a driver of budgets
• Budget formulation: Not comprehensive, not credible
with line agencies, annual budget, all discretionary
activities are off-budget, O&M crowded out
• Budget implementation: Controls are rigid and
encourage off-budget recourse, procurement is a weak
link
• Accounting: Lack of common standards but timely
• Classification: Only economic and administrative
classification exists - no functional or program
classification - hinders policy implementation
• Auditing: Not comprehensive, compliance oriented
Key sequencing concerns
• How to get a comprehensive budget
framework
– What are incentives for fragmentation and offbudget activity?
• Internal control regime – tight ex ante controls by
politically powerful financial controllers
• SAI involved in ex ante approvals
• All departments created revolving funds to retain
some discretionary authority
• Any major policy initiative needed an extrabudgetary arrangement and further fragmentation
Other concerns
• How to sustain inter-ministerial dialogue
and collective action
• Within MOF, overcome influence of
financial controllers
• Restrain enthusiasm for avant garde
reforms (MTEF, performance budgeting)
• Think about “entry points” which had the
potential for positive reform dynamic
The Challenge of Reform
• Solving the Common Property Resource
Management problem
• Encouraging Cooperative Behavior by
Central and Line Agencies
• Addressing Causes of Budget
Fragmentation
7/21/2015
Some Essential Elements
• Develop a Unifying Vision with Political
Support (“Effective Government”)
• Encourage Line Agency Participation in
Design of Reform Strategy
• Avoid top down technical solutions address practical issues tied to vision
7/21/2015
A Three Level Strategy
• Move quickly to consolidate public sector
budget information (consensus on this)
• Begin with pilot agencies to increase
budget flexibility in return for performance
focus (a la Law 4306)
• Strengthen Cabinet capacity to review and
prioritize policy
7/21/2015
Piloting Budget Reform
• Tactically important to broaden support,
develop momentum
• Across the board reform is unlikely to work
in Turkey
• Pilots within a larger design is consistent
with Turkish tradition
• Risk of further fragmentation can be
managed
7/21/2015
Some aspects of Pilot Reforms
• Need to select pilots with care
• Will need innovative full time management
• Lead time may be long for actual launch of
reform
• Consider ways to supplement government
capacity
7/21/2015
Pilots were key to MOF reform
• Small pilot projects were catalyst for a
major paradigm shift in MOF
– convinced Usec. of need to reform internal
control regime
– Internal battle between reformers and
financial controllers
The Role of Serendipity
• 2001 Turkey roiled again by fiscal crisis
• 2002 elections brought in single (AK) party
government
• Prospects of EU Accession stimulated
commitment to recasting PFMC Law
• 2003 Parliament passed the new PFMC
Law
• Implementation remained challenging
Conclusions
• For better or worse, budgets and PFM are about
policies and politics and political incentives
• Budgetary pathologies reflect the failure of
politics to address collective action needs
• System may be serving some parochial interests
• Budget/PFM reform needs to understand and
address these underlying facts
• Go beyond the “technical”, take a long term
perspective,
• Hope the political winds are in your favor