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Public Financial Management
Reforms
Trends and lessons
Istanbul
June 6, 2005
Bill Dorotinsky
The World Bank
Three Objectives of Public Expenditure
Management Systems
Macrofiscal discipline and stability
– Avoid public finance crises
– Support economic growth and stability
Strategic allocation of resources
– Match government policy with programs,
objectives
Technical efficiency
– Getting the most from each lira spent
The World Bank
2
Popular Reforms
Reforms generally try to change incentives to better meet objectives
by changing rules, roles and information
Macrofiscal
Discipline
MTEF
Performance, Program budgeting
IFMIS, automation
Fiscal Responsibility Laws
Treasury Single Account
Budget classification, chart of account
Reporting/ Transparency
Strategic
Allocation
Operational
Efficiency
Procurement
Internal control/audit
External audit
The World Bank
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Recent trends
Fragmenting MoF
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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
The World Bank
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Longer-term Trends
Changing role of MoF, central budget office
– Control to monitoring/oversight
– Policy analysis and development over excessive
budget detail
– Shifting authority towards line ministries
Emphasizing training and guidance
Performance over compliance
– Analysis of emerging issues, problems, and health
of decision-making and finance system
Integration of planning into budget process
– Integration of capital and recurrent budgets
The World Bank
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“Benchmarking”
Recent McKinsey Study looked at 7 dimensions
of 7 country Finance Ministries
Australia, Brazil, Malaysia, Singapore, Thailand, UK, US
All had taken steps to ‘empower’ line
ministries and professional managers
All had made substantial efforts to strengthen
external audit
All had taken measures to move away from
input budgeting towards performance or
output budgets
Most had taken measures to improve
transparency of processes and information
The World Bank
Source: Transforming MOF: Organizational Recommendations and Implementation.
Confidential report to Indonesian Ministry of Finance. June 18, 2003.
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“Benchmarking” (continued)
Six had made substantial effort to separate
policy development and oversight from
implementation
All had taken strong measures to consolidate
similar functions, especially cash and debt
management
Most had taken some measures towards
greater checks and balances to MoF
functions
The World Bank
Source: Transforming MOF: Organizational Recommendations and Implementation.
Confidential report to Indonesian Ministry of Finance. June 18, 2003.
7
Broad Lessons
How reform undertaken, organized matters
– Stakeholder, user involvement
– Clear change sought, clear problem to fix
Measureable results
Focused objectives
Proper sequencing
– MTEFs fail if accounting, execution weak
– Too many reforms at one time tend to fail
– Narrow reforms, well sequenced, may have more
impact than comprehensive, government-wide reforms
The World Bank
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