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Public Financial
Management Reform:
Trends and Lessons
Bill DorotinskyFiscal Affairs Department
IMF
ICGFM
June 18, 2008
Washington, D.C.
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Outline
Orientation
Objectives of PFM
PFM Cycle
Popular Reforms Recent Reform Trends
Observations
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Objectives of PFM and Budgeting
Three-level PFMFramework
Macrofiscal discipline Strategic allocation of
resources
Technical efficiency
Source: Public Expenditure Handbook World Bank (1998)
Three functions ofGovernment andbudgeting
Strategic Planning
Management Control
Operational Control
Source: Planning and Control Systems: A Framework forAnalysis. Robert Anthony (Boston, 1965)
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Planning
system
Medium term
plans, e.g. three
year rolling plans
Annual budgetsDevelopment,
recurrent and
revenue
Fund release
procedure, e.g...
warranting
Accounting for
revenue and
expenditure
Public expenditurereview Institutions
Reports and
financial statements
Audit system
Projectappraisal
Resourceallocation
Accountability
Expenditure
review
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
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And otherpopular 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
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Anglophone OECD Model?
Changing role of MoF From control to monitoring/oversight and advisory role
Risk management: analysis of emerging issues, problems, andhealth 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 efficiencyproblems, not macrofiscal stability or sectoral allocation issues;good control structures, high transparency
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And otherpractices..
Fragmenting MoF Separate debt agency
Separate procurement function
Separate treasury
Separate budget
Separate revenue authority
Separate planning and policy processes (persistent staterather 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/ProgramBudgeting
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 performancebudgeting 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 middleincome (LMIC) US$9063,595; upper middle income (UMIC) US$3,59611,115.
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Budget Execution
LIC
(35)
LMIC
(33)
UMIC
(13)
Treasury/Cash
management 51% 36% 31%
Commitmentcontrols 26% 18% 15%
Debt
management 11% 18% 8%
Accounting/classi
fication 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%
MoFReorganization 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, towardspragmatic 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 advancedreforms to weak environments
Realistic time horizons
Redefining ownership as helping the country solve practical financialmanagement challenges simply, directly
Right-sizing reforms, measures