BUDGET & FINANCIAL MANAGEMENT

AT SUBNATIONAL LEVELS

LAC Experience

Truth & Fallacy of Big Numbers

14,000 municipalities More than 200 intermediate governments

Less than 1 percent have access to direct credit

All of them can accumulate indirect, floating and contingency debt

With little or no political or auditing controls

Lima44.4%

Callao7.9%

Resto19.7%

Arequipa3.3% Cuzco

3.5%Piura4.5%

Lambayeque4.7%

Ancash3.2%

Loreto2.8%

Ica2.6%

Puno3.2%

Concentración geográfica del stock de deuda municipal (2003)

Amazonas 19 428,095 44.7 0.95 170.7Ancash 68 1,107,828 61.2 1.04 181.1Apurimac 20 463,131 42.5 1.07 199.9Arequipa 94 1,101,005 85.7 0.86 139.7Ayacucho 37 550,751 66.3 1.09 218.7Cajamarca 56 1,498,567 37.6 1.21 150.8Callao 214 787,154 271.4 0.41 149.0Cuzco 86 1,208,689 70.9 1.00 141.2Huancavelica 31 443,213 69.6 1.08 217.5Huanuco 46 811,865 56.4 1.21 130.8Ica 31 687,334 45.0 0.76 150.2Junín 60 1,246,663 47.8 1.34 142.7La Libertad 69 1,506,122 45.7 1.23 119.1Lambayeque 170 1,121,358 151.4 0.58 101.2Lima 1526 7,748,528 197.0 6.80 274.7Loreto 61 907,341 67.0 0.54 192.4Madre de Dios 8 99,452 82.1 0.96 249.6Moquegua 11 156,750 70.0 2.21 231.1Pasco 17 264,702 64.1 0.80 190.7Piura 120 1,636,047 73.1 1.10 123.2Puno 68 1,263,995 53.9 0.99 189.1San Martín 36 757,740 48.1 0.74 158.2Tacna 40 294,214 136.5 1.87 177.7Tumbes 20 202,088 98.6 0.71 233.6Ucayali 27 456,340 59.2 1.45 172.0

TOTAL 2933 26,748,972

Deuda 1/ Gasto Social

per cápita 5/

Deuda per

cápita 3/

Coef.

Variab.4/Población 2/

Deuda municipal a nivel departamental (2002)

Cumplen1.5%

No cumplen93.7%

Omisas4.8%

Deuda municipal a nivel departamental (2002)

62.3

27.1

1.5 3.7 5.4

Proveedores y contratistas Personal y pensionistas

Tributos por pagar 1/ Provision de beneficios sociales

Bancos 2/

Deuda registrada por tipo de acreedor(como porcentaje del total de la deuda registrada)

Where does the problem lie?

Anticipated payments, commitments and within the year budget reforms are not adequately reflected in budget provisions, treasury or medium term fiscal planning

High moral hazard and/or lack of adequate accounting and provisioning for labor and judicial (contingency) liabilities

Poor revenue forecasting – Weak enforcement of hard budget constraint

What are the countries doing?Ex-Post Visit to the ABC Colombia: Accounting back at the center Mexico: ERP for automatic linkages and

adjustments between commitments (procurement and legal liabilities), budgeting, disbursements and fiscal plans

Integrated Financial Management (now part of ERP) as standardization tool

Accounting comes back to Min. of Finance

What is still missing?

Slow transition towards international accounting standards

Resistance to standardization (federal) Resistance to ERP as a means towards

reform of structures and personnel