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June 18th2008 presentation from Bill Dorotinsky of the IMF on trends in Public Financial Management
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Public Financial Management Reform:
Trends and Lessons
Bill DorotinskyFiscal Affairs Department
IMF
ICGFM
June 18, 2008
Washington, D.C.
2
Outline
• Orientation– Objectives of PFM– PFM Cycle
• Popular Reforms
• Recent Reform Trends
• Observations
3
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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Planningsystem
Medium termplans, e.g. three
year rolling plans
Annual budgetsDevelopment,recurrent and
revenue
Fund releaseprocedure, e.g...
warranting
Accounting forrevenue andexpenditure
Public expenditurereview Institutions
Reports andfinancial statements
Audit system
Project monitoring
Projectappraisal
Resourceallocation
Liquidity
managem
ent
Expen
ditur
e
contr
ol
Monitoring
& controlling
Post eventreview
Accountability
Expenditurereview
Financial management system boundaries
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.
Expenditure Management Cycle
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Popular Reforms
Macrofiscal Discipline
Strategic Allocation
Operational Efficiency
Medium-Term Expenditure Frameworks
Performance, Program budgeting
IFMIS, automation
Fiscal Responsibility Laws
Treasury Single Account
Budget classification, chart of account
Reporting/ Transparency
Procurement
Internal control/audit
External audit
Accrual Accounting ? ? ?
Recommended reforms generally try to change incentives to better meet objectives by changing rules, roles and information
6
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
7
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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Budget Formulation
LIC*(35)
LMIC*(33)
UMIC*(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%
Recent Reform Emphasis
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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Budget Execution
LIC(35)
LMIC(33)
UMIC(13)
Treasury/Cash management 51% 36% 31%
Commitment controls 26% 18% 15%
Debt management 11% 18% 8%
Accounting/classification 40% 42% 23%
Payroll/Personnel 17% 9% 15%
Internal audit/control 11% 12% na
Procurement 14% 12% na
Recent Reform Emphasis
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Other Reforms
LIC(35)
LMIC(33)
UMIC(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%
Recent Reform Emphasis
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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