A mathematician on Capital Budgeting

Priority-setting and capital budgeting. Allocating a budget often involves the comparisons of diverse projects whose benefits are difficult to directly estimate and then compare. Organizations also often confuse budget items defined by accounting conditions with actionable projects. A good budgeting process is built by creating useful "decision units," robust measurement criteria and a group process for obtaining inputs and finally ranking projects. Such budgeting processes are equally useful in private corporations and governmental organizations. I have developed such ranking processes for Los Alamos National Laboratory, Sandia National Laboratory, ChevronTexaco. Included in the projects are rankings to allocate yearly budgets for contaminated site cleanups, repair priorities for oil pipelines and capital project rankings for electric utilities.

From John Kadvany

Tongo Medium Term Budget Framework

Tongo- Budget Process

PFM Lesson of the Day

Albert van Zyl reviews some reviews of PFM systems;

So for example, Matt Andrews (2010), in his study of 31 countries in Sub-Saharan Africa found that “they have alarmingly similar reforms in place” (page 44), “an MTEF was implemented in 28 countries, programme budgeting in 25 and an IFMIS in 20”. As a result of these findings, Andrews calls for “less similarity of reforms and more context appropriateness”, as one of his three main recommendations.

Related:
Weekend reading- Mathew Andrews paper mentioned above.
Budgets are made better than they are executed

Better Know Your Baselines

Why baselines are important;

Baselines are essentially the status quo, the starting point for whatever fiscal discussion you're having, and help show the change certain policies might have on the federal budget. However, as TaxVox, the Tax Policy Center's blog, pointed out in a great post last year, not everyone uses the same baseline, and some baselines are better than others

Capital Investment Diagnostic

An interesting new paper from World Bank- A diagnostic framework for assessing public investment management;

Summary: This paper provides a pragmatic and objective diagnostic approach to the assessment of public investment management systems for governments. Since weaknesses in public investment management can negate the core argument that additional fiscal space allocated to public investments could enhance future economic prospects, attention to the processes that govern public investment selection and management is critical. The paper begins with a description of eight key "must-have" features of a well-functioning public investment system: (1) investment guidance, project development, and preliminary screening; (2) formal project appraisal; (3) independent review of appraisal; (4) project selection and budgeting; (5) project implementation; (6) project adjustment; (7) facility operation; and (8) project evaluation. The emphasis is placed on the basic processes and controls (linked at appropriate stages to broader budget processes) that are likely to yield the greatest assurance of efficiency in public investment decisions. The approach does not seek to identify best practice, but rather to identify the "must have" institutional features that would address major risks and provide an effective systemic process for managing public investments. The authors also develop a diagnostic framework to assess the main stages of the public investment management cycle. In principle, the identification of core weaknesses will allow reforms to focus scarce managerial and technical resources where they will yield the greatest impact. In addition, the framework is intended to motivate governments to undertake periodic self-assessments of their public investment systems and design reforms to enhance the productivity of public investment.

PFM in MENA- what's the value for money of 407 billion dollars

A new report from the World Bank "Public Financial Management Reform in the Middle East and North Africa: An Overview of Regional Experience" surveys the experience of the region on the topic of public financial management reform.

According to the most recent World Bank data, governments throughout the MENA region spent approximately $407 billion dollars in 2007 in delivering their policy, regulatory and service functions.

Related:
Executive Summary
Country Cases

India's got a PEFA

India Public Expenditure and Financial Accountability : Public Financial Management Performance Assessment Report by Pratap Ranjan Jena With assistance from Satadru Sikdar

Strategic Sourcing- Can it work in Developing Countries

For Discussion: Do you think it can work in developing countries? Or would it lead to more corruption?

Increasing the use of strategic sourcing by agencies, where agencies band together to use their purchasing power to buy commodities – such as paper, copiers, and printers — at a discount.

Why the Conservatives should win in UK!

I liked Cameron's promise of putting all government contracts online, and putting details of all government expenditures above 25k online.

Key Words: Post-Bureaucratic Age, Behavioral Economics, Politics and Human Nature, Transparency, Accountability, Choice Architecture, Missouri Accountability Portal,

Recently from GAO

International Monetary Fund: Lending Programs Allow for Negotiations and Are Consistent with Economic Literature;

IMF-supported programs in the four countries GAO reviewed--Liberia, Zambia, Hungary, and Iceland--include different sets of objectives, targets, and conditions that reflect country circumstances, based on negotiations between the IMF staff and country officials. In postconflict Liberia, the program focuses on rebuilding capacity and contains a target for maintaining a balanced budget with no borrowing. In Zambia--a country negatively affected by the recent economic crisis--the IMF-supported program is designed to increase economic growth, reduce poverty, and improve governance. Hungary, which faced a rising risk of default, has a program that focuses on restoring investor confidence while reducing debt and expenditures. A banking and currency collapse in Iceland precipitated the IMF-supported program, which contains some controversial approaches to monetary policy and banking reform. All four countries are making progress but face challenges in implementing conditions or achieving targets in their IMF-supported programs. The macroeconomic policies in IMF-supported programs are broadly consistent with the findings of the empirical literature GAO reviewed, although this literature lacks precise guidance for setting policy targets. For low-income countries, empirical evidence generally suggests inflation is detrimental to economic growth after it exceeds a critical threshold, which is broadly consistent with the inflation targets included in the IMF-supported programs we reviewed. For middle- and high-income countries, the literature identified specific policy weaknesses in advance of crises, including high inflation, high public indebtedness, and low international reserves. These weaknesses are consistent with the policies upon which the IMF focuses in the 13 programs in middle- to high-income countries GAO reviewed.

2010 Census: Census Bureau Has Made Progress on Schedule and Operational Control Tools, but Needs to Prioritize Remaining System Requirements

Operation Iraqi Freedom: Preliminary Observations on DOD Planning for the Drawdown of U.S. Forces from Iraq;

DOD has yet to fully determine its future needs for contracted services. Second, the potential costs and other concerns of transitioning key contracts may outweigh potential benefits. Third, DOD lacks sufficient numbers of contract oversight personnel. Fourth, key decisions about the disposition of some equipment have yet to be made. Fifth, there are longstanding incompatibility issues among the information technology systems that may undermine the equipment retrograde process. And sixth, DOD lacks precise visibility over its inventory of some equipment and shipping containers.

Millennium Challenge Corporation: MCC Has Addressed a Number of Implementation Challenges, but Needs to Improve Financial Controls and Infrastructure Planning

Industry best practices and past GAO work have shown that conducting design reviews and updating cost estimates prior to contract solicitation help to ensure that projects can be successfully bid and constructed.

Bureau of Prisons: Methods for Cost Estimation Largely Reflect Best Practices, but Quantifying Risks Would Enhance Decision Making;

BOP uses three general steps to estimate costs for its annual budget submission: (1) estimating cost increases to maintain service levels, such as inmate medical care and utilities; (2) projecting inmate population changes for the budget year and for several years into the future using a modeling program that incorporates data on the current inmate population and estimated incoming population and associated sentences; and (3) estimating costs to both provide additional capacity to house projected inmate population growth and implement new programs, such as activating new prisons. BOP's methods for cost estimation largely reflect best practices outlined in GAO's Cost Estimating and Assessment Guide

Troubled Asset Relief Program: Continued Stewardship Needed as Treasury Develops Strategies for Monitoring and Divesting Financial Interests in Chrysler and GM

U.S. Government Accountability Office: Performance and Accountability Report Fiscal Year 2009

The Contest to Find Government Waste

In his weekly radio address on April 25, Obama promised that the administration would establish a process for every government employee to submit their ideas on how their agency can save money and perform better. "Americans across the country know that the best ideas often come from workers -- not just management," Obama said in the speech.

The "SAVE Award," which stands for Securing Americans Value and Efficiency, is open to all federal employees, and only people with government e-mail addresses will be able to submit suggestions.

Entries will be judged by these questions, according to the Web site: Does the idea reduce costs in a way that is concrete and quantifiable? How does it improve the way that government operates? Does the idea have a tangible impact on citizens' lives or the environment? Is there a clear and practical plan for implementing the idea? Will it be possible to realize savings immediately?

-Search Is On for Best Cost-Cutting Ideas

Paper for Discussion next week on the blog

The following working paper from IMF;

The Challenge of Reforming Budgetary Institutions in Developing Countries;

Summary: The paper notes that the development of sound budgetary institutions in countries such as France, the U.K. and the U.S. has taken a very long time?200 years or more?and is still evolving. It discusses Douglass North's prediction 'which is supported by available data that institutional reform is also likely to be very slow in developing countries since the budget is especially prone to rent-seeking influences. Finally, the paper discusses the currently fashionable emphasis on complex, multiannual PFM reform strategies, which have been strongly promoted by the donor community; and advocates a simpler approach grounded on Schick's important principle of "getting the basics right." The paper identifies several areas where further research would be fruitful.

Idiots Guide to the US Budget System

The Budget System and Concepts

Budget Reform Proposals

And more by Peter R. Orszag

Planning Commissions are supposed to disappear

Now South Africa's incoming President Jacob Zuma is moving Manuel to a new job, a cabinet-level post heading a National Planning Commission (NPC) that is key to Zuma's plans for overhauling much-criticised public services.

"The NPC will be responsible for strategic planning for the country to ensure one national plan to which all spheres of government would adhere," Zuma said in announcing the change.

"This would enable us to take a more comprehensive view of socio-economic development in the country."

Manuel's successor at the finance ministry, former tax boss Pravin Gordhan, is also a respected figure credited with improving tax collection during his time at the helm of the revenue service...

Appointed Nelson Mandela's finance minister without any formal economics training in 1996 at the age of 40, the trained civil engineer announced a budget surplus a decade later -- the first in 30 years.

Stringent fiscal policies under his watch are also credited with steering South Africa's banks safely through the global meltdown.

But while widely applauded, Manuel has not shied from unpopular choices and has frequently raised the ire of South Africa's powerful political left who criticise his tight controls over the budget and views on inflation targeting.

-Manuel handed S.Africa planning commission post

For Discussion: What do you think of the creation of this new planning commission in South Africa? In terms of PEFA ranking for medium term fiscal planning, the country gets a B grade- not a bad score?

Related; Development of central fiscal institutions;

Planning ministries are quite common in developing countries, but become less common as countries develop. Across the world, there has been a shift from traditional detailed planning, as reflected in 5-year plans and similar instruments, towards strategic coordination. This coordination is increasingly done by finance ministries or by prime ministers’ offices. This is often accompanied by a gradual integration of planning, strategy development and budgeting into a single, coordinated process, and a unified, strategic budget document. Planning ministries were often involved in project preparation, but this function is shifted to line ministries as their capacity develop. Macroeconomic forecasting is often transferred to the emerging macrofiscal and macroeconomic departments in the finance ministries, and statistics are increasingly produced by independent statistics agencies.

Singapore helps Lao in PFM

Singapore’s best practices in treasury, tax and customs will be shared with senior policy makers and officials from Lao PDR in a two-year capacity-building programme supported by Temasek Foundation, Singapore Cooperation Enterprise and the World Bank, in partnership with the Ministry of Finance, Lao PDR. There will be policy roundtable discussions and workshops to enable the policy makers and treasury, tax and customs officers to acquire new knowledge and skills.

Ex-senior officials from the Inland Revenue Authority of Singapore, Singapore Customs and the Ministry of Finance of Singapore will be roped in to share their experience, and help Lao’s Ministry of Finance to adapt best practices in policies, systems and processes to the Lao context.

Temasek Foundation is supporting the programme with a S$1.15 million grant, with additional funding by World Bank at S$950,000

The Ministry of Finance of the Lao People’s Democratic Republic to Tap Into Singapore’s Expertise in Public Finance Modernisation and Governance;

This is the first ever tripartite collaboration between SCE, WB and Temasek Foundation. Increasing, International Organisations (IOs) have approached SCE to share Singapore’s developmental experience with their client countries.

Mr. Alphonsus Chia, Chief Executive Officer of SCE added: “We are happy that Singapore’s developmental experience has been recognised by International Organisations (IOs) like the World Bank and Temasek Foundation. SCE is pleased to partner the IOs to participate in more public sector led projects in this region. We hope that this programme will lead to more collaboration between Singapore and Lao PDR. Through greater understanding of the needs of the foreign governments and the types of expertise available, SCE hopes to contribute more meaningfully in development projects.”

The Budget- Dept of Parliament of Whores edition

The Daily Show With Jon Stewart	M - Th 11p / 10c
Moment of Zen - Overseas Contingency Operations Budget
comedycentral.com
Daily Show Full Episodes Economic Crisis Political Humor

The Daily Show With Jon Stewart	M - Th 11p / 10c
The Ever Spending Story
comedycentral.com
Daily Show Full Episodes Economic Crisis Political Humor

The Daily Show With Jon Stewart	M - Th 11p / 10c
Moment of Zen - More Charts
comedycentral.com
Daily Show Full Episodes Economic Crisis Political Humor

All the discussion you need on The Budget is here at Economist Mum

PPPs- Back to Basics

Public-Private Partnerships: In Pursuit of Risk Sharing and Value for Money

Economic Geography of the Military Industrial Complex

An excellent talk on economic geography of Pentagon's secrete programs-



Highly Recommended the first 10 minutes.

The latest edition to Fiscal Responsibility Laws

The Fiscal Responsibility Law adopted by parliament on November 17 provides a domestic anchor for fiscal policy and is in line with the program. The law introduces numerical and procedural rules for the preparation of annual budgets, including the obligation to achieve a decline in public debt in real terms, the prohibition of primary deficits, compliance with medium-term expenditure ceilings, and the requirement to offset the impact of legislative initiatives on the budget balance. During a transitory period, which applies to the preparation of budgets for 2010-12, the projected growth of real expenditure cannot exceed half the projected growth of real GDP. The law also establishes a fiscal council, consisting of three wise persons and a secretariat. The council, which should be operational by the end of 2009, will prepare macroeconomic forecasts and projections of budgetary aggregates; it will also assess the budgetary impact of draft legislation (scoring) and make recommendations on corrective actions when needed. Finally, the council will have an advisory role, providing information and assessments to all branches of government upon request. The authorities and staff agreed on the importance of implementing medium-term budget preparation and planning, and of providing the fiscal council and its secretariat with a budget appropriation commensurate to its mandate

-Hungary - Stand-By Arrangement - Interim Review Under the Emergency Financing Mechanism

Related;
The outlines of the Fiscal Responsibility Act

The Fiscal Council

- prepares macro-economic forecasts;

- prepares baseline projections for the budget figures;

- prepares methodological recommendations relating to fiscal planning, forecasting and impact assessment;

- prepares estimates, both following submission to Parliament and before the final vote, concerning the fiscal effects of the budget bills and supplementary budget bills as well as any other bills discussed by Parliament that may have an impact on the development of mandatory items;

- may prepare estimates concerning the budgetary impacts of draft bills other than those indicated above, as well as of motions for amendment submitted in the first or second phase of the Parliamentary debate or before the final vote which are subject to parliamentary decision;

- provides information, upon request, to the President of the Republic, the parliamentary commissioners, the president of the State Audit Office, the governor of the National Bank of Hungary and the committees of Parliament concerning issues within their competence;

- informs the budget committee of Parliament or the Government about its legislative recommendations to promote the maintenance of fiscal discipline and the transparency of public finances;

- comments on draft legislation relating to fiscal accounting rules.

Budget Simulation Model and its explanation

The state of GFS in Malawi

The accuracy and reliability of the data are affected by inadequate source data. A key shortcoming in this area is inadequate system of recording source data. In addition, there are serious quality problems, including data inconsistencies, that complicate program monitoring:

• While tax revenue data are received in a timely fashion, it is not always possible to reconcile them with deposits in the Malawi Government (MG) Account.

• Nontax revenue, including capital revenues collected by line ministries are not properly accounted for in the fiscal reports prepared by the Ministry of Finance.

• Data on recurrent expenditure suffer from serious shortcomings partly related to insufficient bank reconciliation between expenses records prepared by line ministries and financing information prepared by the Ministry of Finance. Line ministries submit spending reports to the Ministry of Finance based on recorded expenses, while the Ministry of Finances estimates expenses based on funding data (from the Credit Ceiling Authority). At times, there are sizable discrepancies between these two sources of data for both wages and other recurrent transactions—to some extent reflecting the widespread practice of reallocation across budget lines.

• Domestically financed development expenditure estimates are based on funding released to line ministries, and estimates on externally funded expenditure are based on reported project grants and loans. Owing to differences in timing and financing modalities (e.g., some donors require prefinancing of expenditure before reimbursement), there are substantial differences between the flow of expenses and corresponding financing data. Thus, there are substantial errors in the reporting of capital spending. In addition, many donor projects are still not incorporated in the budget, and hence the corresponding expenditure is not captured in government finance statistics. Some externally funded development expenditures are likely recurrent and reported capital expenditure therefore overstated.

• Data on expenditure arrears are likely incomplete, as reporting from the Commitment Control System appears to be only partial, and ministry level data are not consistent from report to report.

• The budget classification and chart of accounts may be adequate for some administrative, economic, functional and program classifications. An output-oriented activities-based budget classification (ABB) is used for the presentation of the budget. However, pro-poor expenditures that have been protected in line with the PRSP are only identified in the ABB classification. As no bridge table exists to map the ABB classification into the program classification used for expenditure reporting and accounting, pro-poor expenditures cannot be monitored.

• Financing estimates are based on monetary and debt data, rather than on government records of financing. Reporting on treasury bills directly issued to the RBM at times has been slow.

8. The authorities have received significant technical assistance from the Fund and other donors to strengthen expenditure monitoring and reporting, accounting, and statistical reporting, but results have lagged. The government has pledged to strengthen public financial management and fiscal reporting, and renewed efforts are being made to establish a work plan, including utilizing donor technical assistance more effectively.

9. Government finance data are not reported for publication in the Government Finance Statistics Yearbook (GFSY) or the International Financial Statistics (IFS). An August 2005 and August 2007 STA mission that visited Lilongwe reiterated the importance of continued efforts to implement the Integrated Financial Management Information System (IFMIS), and encouraged the authorities to improve the coverage and sectorization of government financial operations and to correctly classify transactions according to international guidelines. The mission proposed, and discussed with the authorities, a migration plan and timetable to adopt the GFSM 2001 methodology.

-Malawi: Request for a One-Year Exogenous Shocks Facility Arrangement - Staf Report

Related;
Malawi Ministry of Finance
Report on MTEF process