Reform Trends in OECD Member countries

Jón R. BlöndalDeputy Head of Division

Budgeting and Management Division

Warsaw, 8 February 2005

Agenda

Introduce the SBO

Reform trends in OECD countries

The SBO

The Working Party ofSenior Budget Officials

Founded in 1980“One of the most senior bodies within the OECD.”

Forum of senior officialsResearch and analysis

The SBO Mandate

“to improve the effectiveness and efficiency of resource allocation and management in the public sector”

“addresses the entire budget cycle, including budget formulation, budget approval (role of the legislature), budget implementation (management, organizational structure), and audit.” “co-operates with non-Members in order to share the results of its work”

SBO Subsidiary Networks

Structureof

GovernmentOfficials

Structureof

GovernmentOfficials

Performanceand Results

Officials

Performanceand Results

Officials

FinancialManagement

Officials

FinancialManagement

Officials

ParliamentBudget

CommitteeChairmen

ParliamentBudget

CommitteeChairmen

BudgetDirectors

(SBO)

BudgetDirectors

(SBO)

SBO Regional Networks

Central &EasternEurope

Central &EasternEurope

Africa?

MENA?

Africa?

MENA?

LatinAmerica

LatinAmerica

AsiaAsia

BudgetDirectors

(SBO)

BudgetDirectors

(SBO)

Research and Analysis

Holistic reviews of individual Member countries’ budgeting systems

Comparative analysis of specific budgetary issues across Member countries

Comprehensive database of budgeting practices in Member countries

Reform Trends

Key reforms

Medium-term expenditure frameworks

Economic assumptions

Top-down budgeting techniques

Relaxing input controls

Performance and results

Accruals

Budget transparency .

Medium-term expenditure frameworks

Very few Member countries do this well– A separate track for MTEF and annual budget– New MTEF prepared each year

Objectives– Setting of fiscal objectives– Baselines– Reconciling the two

Common design features– Same level of detail as budget– Generally 3 years beyond the budget

Medium-term expenditure frameworks (2)

Benefits– Enhances credibility– Enables managers to plan better

Risks– Can lock in expenditures – hampers annual reallocation– Real vs. nominal– Economic assumptions

Economic Assumptions

By far, the most significant fiscal risk

Risk management strategies

– Full disclosure– Sensitivity analysis– Comparison with private forecasters– Independent boards

“Prudency factors”– Canada– The Netherlands

Top-Down Budgeting Techniques

One of the most successful reforms in Member countries– Transition is generally difficult (trust is a prerequisite)

Benefits

– Budget reflects political prioritization– Reduces game-playing– Internal reallocations; less “auto” increases– Information Asymmetry– “Ownership” of Actions

Top-Down Budgeting Techniques (2)

“Each minister is his own finance minister”– One minister responsible for each allocation– Inter-ministerial (joint) allocations do not work

Level of detail of top-down allocations

– One allocation for all activities?– Separate allocation for mandatory and discretionary

expenditure?– Separate allocation for operating, transfers and capital

expenditures?– Specific programs should not be “ring-fenced”

Relaxing input controls

“Deregulation” in the Public Sector– Merging line-items in budgets – Reforming central management controls– Ministries and agencies organizational model

Heads of ministry/agency in best position

to manage resources effectively & efficiently

Strong pre-conditions required– Fully functioning input system already in place– Robust system of internal controls and audit– Professional civil service

Performance and Results

“Quid Pro Quo” for Increased Flexibility– New form of accountability, but generally lagging

Key Issues– Some activities more easily measured than others– Outcomes versus outputs– “What gets measured, gets managed” (comprehensiveness)– What impact on annual budget allocations?– Information Overload– Lack of interest by ministers and parliamentarians– Reliability and Consistency– Targets

Accruals

No consensus in Member countries– Financial reporting versus budgeting– Selected transactions only– The political “matching principle”; impact of parliament

Treatment of Unique Assets and Liabilities– Heritage, Military, Infrastructure Assets– Social Insurance Programs

Valuation Methodology

Accounting Standards-Setting

Budget transparency

Three key elements– Timely release of budget data– Effective Role for the Legislature– Effective Role for Civil Society

OECD Best Practices for Budget Transparency

Conclusion

Budget reforms is a journey, not a destination

Too fast vs. too slow

For further information

www.oecd.org/gov/budget

OECD Journal on Budgeting

jon.blondal@oecd.org