Timor-Leste, PFM consultants heaven!

Democratic Republic of Timor-Leste: Public Financial Management-Performance Report
Timor-Leste: Report on Observance of Standards and Codes (ROSC)-Fiscal Transparency Module

Highlights from the ROSC;

There is no clear and simple citizen’s guide to the budget.

 Short term recommendations;

• Initiate identification and costing of new government initiatives in the budget, both on the expenditure and revenue side, and identify recurring costs of public investment for the medium term. (2.1.3 paragraph 40)
• Require donors to provide estimates of planned expenditure volumes on a multiyear basis (but not on individual projects), and include these in the multiyear fiscal presentation and the expenditure projections in the budget. (2.1.5 paragraph 47)
• Start building capacity in costing and analytic review of capital projects and program expenditure. (2.1.1 paragraph 34)
• Include in the budget documents analysis of revenue and expenditure outturns compared to plan, for the three prior years to the budget year. (3.1.2 paragraph 63)
• Publish a clear and simple summary guide to the budget in Tetum and Portuguese to inform the population. (3.2.1 paragraph 72)
• Specify in the financial regulations the process and conditions for the access to contingency reserve funds to prevent use for other purposes. (2.2.3 paragraph 55)

 Medium Term Recommendations;

-Strengthen capacity in basic macrofiscal forecasting and use of the financial programming model. Document the macroeconomic framework. Basic macroeconomic assumptions underlying the budget estimates should be published at an early stage of the budget cycle and clearly presented in the budget documents. Extend the macrofiscal framework towards the medium term by estimating the main revenue and expenditure flows over the medium term; develop of a medium-term fiscal framework. (2.1.2 paragraphs 36 and 37)
-Develop a medium-term PIP with clear principles for the evaluation, prioritization, and approval of investment projects. Capacity building and/or buying in cost-benefit analysis in the context of multiyear investment projects is essential. (2.1.1 paragraph
34)
- Include in the timeline for budget preparation an extended period for line ministries to prepare and for the MOF to analyze and discuss the rationale and costing of the budget. For the latter, additional review capacity in MOF is needed to verify costing and challenge the recurrent and capital project budget submissions requests and correspondent links. (2.1.1 paragraph 35)
-Review and further develop the program classification of expenditure and better link it to line ministry policies; use it initially for budget planning and presentational purposes; extend the functional classification to include subfunctions and items.(3.2.2 paragraph 73)
-Strengthen the strategic planning capacity in the prime minister’s office, MOF, and line ministries, and establish clear links to the AAPs and line ministries’ budgets and
include in budget documents additional analysis on government priorities, programs, and targets. (3.2.4 paragraph 74)
-Cost existing policies and clearly separate them from new policies in the preparation of budget and forward estimates. This would enable the presentation of “baseline” expenditures at the start of the budget process. (2.1.3 paragraph 39)
-Develop a more robust methodology to expand production of baseline and budget estimates over the medium term.
-Decide on line ministry expenditure ceilings in the COM at the start of the budget cycle on the basis of baseline estimates, new expenditure initiatives and possible savings targets. These ceilings should be provided to line ministries in the budget circular, and cover both recurrent and capital expenditure
-Develop presentations in the budget in the following areas: fiscal risks, quasi-fiscal activities (including by petroleum companies), and contingent liabilities. (3.1.3 paragraph 66);
-Develop an overview of existing and new tax expenditures in the budget. (1.2.1 paragraph 22)
-The MOF should develop or commission occasional reports on long term expenditure and revenue trends. Such analyses would provide a good framework to address structural issues like population growth and the costs associated with this, or the limitations of natural resources. This would be particularly important in the preparation of the Vision 2020 plan update. (3.2.4 paragraph 74)

If New York State did a PEFA how would be its rating?

The payroll indicator would certainly be a 'D';

As Gov. David A. Paterson calls lawmakers back to work on the budget this week, he has announced that the fiscal situation is so serious that he must begin laying off state workers. But there is one wrinkle, as officials try to pare government spending: No one knows for sure how big the state work force actually is.

That is because the state has not one but two public payrolls.

One is controlled by the governor, encompassing about 131,000 employees, who toil for agencies like the Health Department, the parks department and the Department of Motor Vehicles. That payroll has shrunk by about 25 percent in the last two decades — so has the much smaller legislative payroll — and usually shoulders the brunt of layoffs.

The other lies beyond the direct control of the governor and includes perhaps 163,000 more workers employed by independent public authorities and agencies — though that number is an estimate, because not all authorities have been reporting their payrolls to a central state registry. And projections of state employment by the federal government do not always match the state government’s figures. The work force beyond the governor’s control has largely bucked the statewide retrenchment, according to a review compiled by The New York Times...

Legislation last year forced them for the first time to turn over their employment data to a central registry. But that represents only current staffing, making it difficult to determine whether the authorities have been shrinking or expanding over time.

Public Reports Watch-Running Public Hospitals in Australia

National Health and Hospitals Network report

Related;
Canberra Babylon

Health debate

Public hospitals - reform overseas

Special Announcement: Focus on Fiscal Responsibility Laws

For the next 4 weeks this blog will be focusing on Fiscal Responsibility Legislations and their international experience. Comments and views welcome.

Enjoy the following post by YangHyun Jin over at IMF's PFM blog;
Pakistan: Monitoring Implementation of the Fiscal Responsibility and Debt Limitation Law

Performance Reporting Case Studies

Australia

The Australian government introduced an Outcomes and Outputs Framework as the basis for budgeting and reporting for public sector agencies in 1999–2000. Among the main elements of the framework are:
• Specification of what the government is trying to achieve (outcomes);
• Specification of how actual deliverables will assist in achieving the outcomes (outputs); and
• Annual performance reporting of agencies’ contribution to the achievement of outcomes and the delivery of outputs (Australian National Audit Office, 2007, p. 15). Annual reports to Parliament detail the degree to which plans for the coming budget year are realized and targeted performance is achieved.

Canada
Canada has had an Improved Reporting to Parliament project running since the 1990s. Thirteen broad Government of Canada outcomes are specified, and agencies must develop clearly defined and measurable strategic outcomes that link in to these over-arching outcomes. Departmental performance reports are intended to provide a comprehensive but succinct picture of departmental performance, as it compares against the strategic outcomes, through the reporting of program activities linked to the strategic outcomes (Treasury Board of Canada, 2007). An effort is being made to refocus reporting away from governmental out¬puts to higher-level outcomes that show how agencies make a difference to citizens.

Ireland
In Budget 2006, the Minister for Finance indicated that the government had decided that, starting in 2007, individual departments would publish an annual state¬ment on the outputs and objectives of their depart-ments, and from 2008, the actual out-turns. These statements (named output statements) are presented to the relevant parliamentary committee along with the department’s annual estimates. Guidance from the Department of Finance suggests that, with regard to reporting on performance, a small number of high-level goals per department—each with a macro level outcome indicator—should be complemented by a small number of more detailed output indica¬tors which should, where possible, be quantitative in nature; otherwise, qualitative.

United States
The Government Performance and Results Act of 1993 requires federal agencies to produce strategic plans, annual performance plans, and annual performance and accountability reports (PARs). These are aimed at establishing a system of accountability whereby agencies articulate what they are trying to achieve, how they will accomplish it, and how Congress and the public will know if they are succeeding (Breul, 2007, p. 313). Goals and objectives need to be stated as outcomes, and performance indicators must be valid indicators of the impact on outcome goals (Department of Energy, 2006).

For more read, a report by Richard Boyle, Head of Research for the Institute of Public Administration in Dublin, 'Performance Reporting: Insights from International Practice'

One lesson:

there is a clear distinction between performance reports in the US and those in other countries he examined. On the whole, indicators contained in US reports are more likely to report on outcomes, be quantitative in nature, meet data quality criteria, and have associated targets and multi-year baseline data.

Related;
Performance Reporting - Good Practices Handbook

Idiots Guide to the US Budget System

The Budget System and Concepts

Budget Reform Proposals

And more by Peter R. Orszag

Which country needs economic reference letters?

Togo - IMF's Assessment Letter for the World Bank;

Reforms implemented during the preceding Staff Monitored Program and the first year of the PRGF-arrangement are showing positive results in terms of public financial management governance and effectiveness, and going forward the focus of the PRGF arrangement will broaden to include reforms to restore the conditions for faster growth and poverty reduction. To achieve this, strong actions are needed to reform the ailing state-owned banks and enterprises and to improve the overall business environment, consistent with the country’s Poverty Reduction Strategy.

With the implementation of planned growth-enhancing reforms, the economy could achieve real GDP growth of about 4 percent annually by 2011, with a gradually improving fiscal position. The fiscal stance in 2009 will not harm long-term debt indicators, given its temporary nature and pro-growth focus. Assuming full HIPC debt relief in 2010, the primary domestic balance is projected to revert to a sustainable 1 percent of GDP surplus by 2011. Inflationary pressures are projected to be moderate over the medium term. The medium-term reform strategy to support this scenario would have two central elements: (i) fiscal reforms to make room for growth-oriented spending and strengthen fiscal and external sustainability; and (ii) economic reforms aimed at raising growth potential and external competitiveness, particularly steps to reform state-owned banks and enterprises. As highlighted in the LIC DSA conducted for HIPC decision point (November 2008), positive debt dynamics depend on this acceleration in growth and fiscal strengthening, even with full HIPC relief. Satisfactory performance under the PRGF will be an essential element in reaching the HIPC completion point. We therefore believe that the PRGF supported program will provide a sound macroeconomic framework to guide the reform efforts. Staff will continue to conduct biannual missions to monitor performance and maintain close coordination with donors.

Model Fiscal Rules

The empirical and theoretical literature has identified the key characteristics of a model fiscal rule. The rule should be as follows:
• Well-defined: indicator, institutional coverage, specific escape clauses:
- Overall balance preferred over current balances as investment expenditure suffers from both conceptual and measurement weaknesses;
-Public sector rather than general government (to include off-budget operations and the cost of quasi-fiscal activities of public enterprises; however, it may be desirable to exclude the social security system as assets cover future contingent liabilities).
• Transparent: accounting, forecasting, and institutional arrangements.
• Adequate: contain inflation (limits on borrowing from the central bank), reduce remaining external vulnerabilities (limits on budget deficit), sustainability of public-debt-to-GDP ratio (limits on government debt, or a minimum primary surplus).
• Consistent: criteria need to be internally consistent and with other macroeconomic or policy rules (inflation targeting).
• Simple: appeal to legislature and public.
• Flexible: accommodate external shocks by allowing room for automatic stabilizers and discretionary policies to work (i.e., use of structural primary surplus rule or balanced-budget rules over a medium-term horizon).
• Enforceable: constitutional or legal statutes, perhaps with penalties; independent fiscal councils.
• Efficient: the rule should prevent structural one-off measures (frequent adjustment in tax rates); a fiscal rule should be a catalyst for fiscal reforms that ensure sustainability.

-FISCAL POLICY DURING DOWNTURNS AND THE PROS AND CONS OF ALTERNATIVE FISCAL RULES, chapter in
Philippines: Selected Issues

El Salvador letter of intent

To mitigate these risks, we have designed a program aimed at preserving macroeconomic stability during 2009 and boosting the economy’s resilience to external shocks. The program aims to: (i) bolster confidence by maintaining sound macroeconomic policies; (ii) upgrade the regulatory and supervisory framework of the banking system; and (iii) increase the liquidity buffers of the financial system.

Within this context, the program will focus on preventive and contingency measures, in particular, in the financial system. The measures will be anchored on strict adherence to El Salvador’s monetary regime of official dollarization and a prudent fiscal policy, while expanding social programs to mitigate the impact of the global growth slowdown. Financial system policies will concentrate on enhancing readiness to detect and respond resolutely to signs of stress in the banking system...

The nonfinancial public sector (NFPS) comprises the central government, the rest of the general government (Instituto Salvadoreño del Seguro Social (ISSS), the municipal governments, public hospitals, the national university, and other decentralized agencies), and the nonfinancial public sector enterprises (Comisión Ejecutiva Hidroeléctrica del Río Lempa (CEL), Comisión Ejecutiva Portuaria Autónoma (CEPA), Administración Nacional de Acueductos y Alcantarillados (ANDA), and Lotería Nacional de Beneficiencia (LNB)).

3. The overall balance of the NFPS is measured on a cash basis from below the line, defined as (a) net domestic financing of the NFPS; plus (b) net external financing of the NFPS; plus (c) proceeds from exceptional revenues such as, but not limited to, proceeds from privatization or licenses and concessions, as defined in the attached Table A1. The components of the NFPS financing will be defined and measured as follows:

(a) The net domestic financing of the NFPS is defined as the sum of: (i) the increase in net claims of the domestic financial system on the NFPS, excluding government bonds initially sold abroad; (ii) the net increase in the amount of public sector bills (Letes) and bonds held outside the domestic financial system and the NFPS, excluding bonds initially sold to nonresidents; and (iii) floating debt of the NFPS due to expenditure operations and tax refund payments.

(b) The net external financing of the NFPS comprises (i) disbursements of external loans; plus (ii) receipts from the issuance of government bonds abroad and Letes held by nonresidents; minus (iii) cash payments of principal (current maturities of both loans, bonds and Letes); minus (iv) cash payments of arrears (principal and interest); minus (vi) debt buybacks or other prepayments of debt (at market value); minus (vii) debt-equity swaps accounted at the market value of these papers; and minus/plus (viii) the net increase/decrease in other foreign assets of the nonfinancial public sector.

(c) proceeds from exceptional revenue such as, but not limited to, proceeds from privatization, the sale of licenses, and the granting of concessions. These would be defined as (i) the cash payments received by the Treasury from the sale of state-owned assets; plus (ii) debt equity swaps, accounted at market values. Also included are up-front payments

-El Salvador: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

Tanzania Civil Service reform experience

Reform efforts in this area started in 1991 with the Civil Service Reform Program (CSRP). This program, implemented between 1991 and 1999, was designed to reduce the size of both the civil service and the wage bill to contain costs while strengthening managerial capacity and improving the organizational structure. The main achievements were a decline in the number of central government personnel from a peak of 355,000 in 1992 to 264,000 by 1998/99 (Figure 11); better control over employment levels using a personnel database and a computerized payroll system (the wage bill exceeded budget by 40 percent in 1994 but by only 2 percent in 1999); and recomposition of the aggregate wage bill by rationalizing and decompressing the pay structure and consolidating allowances into basic salaries.

The next stage of reform, the Public Service Reform Program (PSRP), spanned 2000–07. The focus changed to improving delivery of public services. While improvements were made in some areas, progress was slow. Positive areas included the introduction of a performance management system and more decentralized policy making. However, poor service delivery persists in many areas, accountability remains weak, and there are limited value-for-money assessments. The PSRP sought to adjust salary scales to attract and retain qualified staff. For this purpose, it incorporated the medium-term pay policy, which had been adopted by the government in 1999, aimed at gradually increasing civil servant remuneration over the following five years, as well as enhancing the salaries of key professional, technical, and managerial personnel. The policy envisaged a gradual increase in the wage bill of about half a percentage point of GDP by 2003/04, together with a further decline in the size of the civil service. Its implementation was uneven, but the significant wage increase introduced with the 2006/07 budget (reflecting in part a consolidation of allowances previously recorded separately from wages) put remunerations close to the targeted level. Even so, retaining quality staff remains challenging. A further substantial salary increase was granted in 2008. At the same time, the wage bill increased by more than originally envisaged, as the government recalibrated its employment strategy to achieve the MDGs and substantially expanded the hiring of education and health workers.

To enhance performance and accountability and better align its operations with MKUKUTA, a second phase of the PSRP has recently been launched. It emphasizes building the capacity of government entities to formulate policies; decentralizing human resources processes and systems; retaining quality staff through adequate remuneration and incentives; institutionalizing performance management systems; and increasing public sector accountability. The government is still aggressively hiring teachers and health care workers to address pressing social needs. A revised Medium Term Pay Policy is under preparation.

-Tanzania: The Story of an African Transition

Carnival of Economic Podcasts

More Or Less;
The numbers behind the news with presenter Tim Harford. This week: the figures behind fertility, statistical significance and what is a recession?

Phelps Says Unemployment Has `Exploded Like a Virus'

Levitt Says Davos Exhibits `Extravagence' of Power, Excess

Case Says Housing to Hit Bottom This Year as Building Stalls
Karl Case, an economics professor at Wellesley College and co-creator of the S&P/Case-Shiller home-price index, talks with Bloomberg's Pimm Fox and Ken Prewitt about U.S. housing.

LSE's Davies Sees More Turmoil in U.S. Insurance Market

Taleb Says Banking Is Organized to `Milk' Investors

Stephen Roach Says Mood at Davos Is `Very Pessimistic'

Yale's Levin Says Economic Stimulus May Not Be Enough

Hausmann Predicts More Fiscal Regulation in 2009

Geiger Says Lawsuit Could Expose Madoff's Swiss Assets

Big Powers/Small Conflicts - The U.S. in the Sri Lanka Peace Process

Reflections on the World Economy - Paul Volcker

Origins of and Responses to the Ongoing Financial Market Crisis

Crisis and Capitalism: Does History Suggest Where We`re Headed?
Michael Bordo, Prof. of Economics, Rutgers University; Jerry Muller, Professor of History, Catholic University of America; Robert J. Shiller, Arthur M. Okun Professor of Economics, Yale University; Richard Sylla, Henry Kaufman Professor of the History of Financial Institutions and Markets, New York University .

Is this a good idea?

From Malawi- a unit to coordinate PFM reforms;

A public financial management (PFM) unit under the Secretary of Treasury has been established in the Ministry of Finance to promote and coordinate the modernization of PFM systems. In addition, a cash management unit at the Accountant General Office has been formed to enhance the government’s capacity for cash flow planning.

-Malawi: Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

The big correction in Latvia

An interesting Box from IMF's Republic of Latvia: Request for Stand-By Arrangement - Staff Report;

Latvia’s consolidation is relatively large. With the general government’s structural primary balance improving by 14 percent of GDP between 2009 (constant policy scenario) and 2012, Latvia’s fiscal consolidation plans would fall among the largest consolidation episodes in comparable countries during the past two decades, along with Denmark, Finland, Greece, New Zealand, or Sweden. Latvia’s consolidation is twice larger than Lithuania’s 1999-2003 adjustment motivated by EU accession. Similar results are obtained if one focuses on the primary balance of the central government.

The consolidation will need to be sustained over 3-5 years. Successful consolidations tend to be gradual, spanning over a period of time that allows savings from structural reforms to materialize. Long consolidation episodes include Japan in the 1980’s and Finland, New Zealand, Sweden, the United Kingdom and the United States in the 1990’s. Latvia’s consolidation is front-loaded, with three quarter of the structural adjustment happening in the first year versus 40 percent on average in comparable countries. However, articulated around the medium-term objective of meeting the Euro adoption criteria, Latvia’s consolidation plan is expected to last three to five years, with savings from major structural reforms materializing progressively over 2010-2013.

Latvia’s approach is expenditure heavy yet more balanced than the average. The composition of consolidations is a crucial determinant of their success. Expenditure-based consolidations tend to be associated with deeper structural reforms increasing government productivity—more important than its size in ensuring sustainable growth and development—and to be eventually more successful. Revenue-based adjustments have a greater risk of reversal in industrial economies, but can be sustained when associated with tax policy or administration reforms, particularly in emerging market and developing countries. Latvia’s consolidation is relatively expenditure-heavy, with 60 percent of the adjustment coming from expenditure cuts, but more balanced than the average.

Clear medium-term objectives, strong political leadership and mobilization of public support will be key. Consolidations tend to be more successful when perceived by markets and the population at large as durable and sustainable. In many European countries in the 1990s, consolidations were justified by the objective of the Euro adoption, which is also the case for Latvia. On the other hand, most consolidations tend to be led by new governments and under a broad consensus. Latvia’s Parliamentary elections in 2010 represent a risk.

Selected sources: “Experience with Large Fiscal Adjustments”, Occasional Paper No. 246; “Fiscal consolidation: Lessons from past experiences”, OECD, 2007; “Fiscal Adjustments: Determinants and Macroeconomic Consequences”, IMF WP 07/178, Kumar et al., 2007.

Dept of Macro case study- Let Latvia devalue

Latvia is the new Argentina

Latvia economy: Big bailout

Why The IMF’s Decision To Agree A Lavian Bailout Programme Without Devaluation Is A Mistake

Latvia has chosen economic torture over complete collapse

Why Latvia Should Not Devalue

Book recommendation on India

Regional Growth Dynamics in India in the Post-Economic Reform Period
Biswa Swarup Misra

BISWA SWARUP MISRA heads the Department of Economic Analysis and Policy at the Patna office of the Reserve Bank of India. He was an Economist at the Union Bank of India from 2001-2002. He is a core team member in Reserve Bank's research reports and resource person for policy documents. He has published in Banca D'Italia's Conference Volume of Workshop on Public Finance, Reserve Bank's Occasional Papers, the Journal of Quantitative Economics, and the Indian Economic Journal.

Performance Budgeting in Mauritius

2009 Budget Circular

Manual for Programme-Based Budgeting (PBB)

Feasibility study of PFM regional training center

For the MENA region

It's the policies that matter?

Institutions vs. Policies: A Tale of Two Islands;

Recent work emphasizes the primacy of differences in countries' colonially-bequeathed property rights and legal systems for explaining differences in their subsequent economic development. Barbados and Jamaica provide a striking counter example to this long-run view of income determination. Both countries inherited property rights and legal institutions from their English colonial masters yet experienced starkly different growth trajectories in the aftermath of independence. From 1960 to 2002, Barbados' GDP per capita grew roughly three times as fast as Jamaica's. Consequently, the income gap between Barbados and Jamaica is now almost five times larger than at the time of independence. Since their property rights and legal systems are virtually identical, recent theories of development cannot explain the divergence between Barbados and Jamaica. Differences in macroeconomic policy choices, not differences in institutions, account for the heterogeneous growth experiences of these two Caribbean nations.

Recently from Fund

Mauritius: Financial System Stability Assessment-Update

Enhancing Fiscal Policy in Armenia

North and South Korea - a comparison

-Economic Survey of Korea 2008: Priorities for Macroeconomic Policy