Carlo Cottarelli on Bloomberg

Head of Fiscal Affairs Department of the IMF;“IMF’s Cottarelli Urges ‘Targeted’ Cuts of U.S. Budget”

Mauritius PEFA update

Mauritius appears to have done an update of its PEFA;

Mauritius continues to perform well against the PEFA benchmarks. The scores show progress compared to the 2007 PEFA assessment, with 27 out of the 31 reported ratings higher or equal to those obtained in 2007...

Comprehensiveness and transparency have improved since the last PEFA
assessment. The budget classification system adopted for the 2008-09 budget, which incorporates a program budget approach for the first time, is based on the IMF Government Finance Statistics Manual (GFSM) 2001. Budget documentation is relatively comprehensive, meeting seven out of nine of the required benchmarks. However, the analysis and discussion of macro-fiscal projections and fiscal outputs are limited, and transactions between the central government and extra-budgetary units are not fully reported

The monitoring of fiscal risks has been progressively strengthened over the
reporting period, though gaps still remain. Monitoring and reporting of fiscal risks is not always systematic and coverage remains incomplete―financial institutions and extra-budgetary units are not monitored. Budget integrity is in general sound, with some remaining issues in the monitoring and publication of contract awards and the tracking of flows of funds to primary service delivery units.

A clear annual budget calendar exists and is largely adhered to. The budget
circular provides the guidance necessary for line ministries to prepare a complete and detailed budget submission. However, strategic planning capacity in government remains limited and the links between macroeconomic projections, fiscal strategy, ministry-level strategic plans, and the budget process require strengthening. In particular, insufficient time is available at the early stages of the budget process for discussions between line ministries and the Ministry of Finance and Economic Development (MoFED) to determine strategic priorities within the fiscal framework. This is particularly apparent on the capital side of the budget, where significant capacity constraints result in substantial underspending.

Government Results Act fails

The bill, known as the 2010 Government Performance and Results Modernization Act, would also have required agencies to post program performance scorecards on a single public website on a quarterly basis, the release said.

It set a first-year goal of a 10 percent reduction in the number of written reports required by previous Congresses and presidential administrations that are little used or obsolete. As Federal Times has previously reported, agency officials sometimes have to compile massive reports that are outdated as soon as they are printed.

"Taxpayers fund 44 separate programs in nine different federal departments that support workforce training, and we also pay for 17 separate initiatives across seven federal departments that deal with food safety," Warner said in the release. "We need a better system — a system that allows us to review the results of each program and evaluate its impact in addressing overall policy goals, whether it's the important work of retraining people who've lost their jobs or ensuring the safety of the food we eat."

The Obama administration has already created its own website, performance.gov, to track agency progress in meeting high-priority goals laid out in the administration's 2011 budget request. The site, available to federal managers since August, was supposed to open to the public this year. That move has now been delayed to "kick the tires a little more" and to get agency feedback, Office of Management and Budget spokeswoman Moira Mack said Friday

-House kills bill to improve agency performance

Sri Lanka Budget 2011

Skimming through Sri Lanka budget speech;

-I undertook a Pre Budget Review of all 25 districts and provincial level work. I wish to share some evidence of progress. Sri Lanka’s poverty which was 15.2 percent in 2006 has declined to 7.6 percent in 2010. Most important development is that poverty in rural areas has declined from 15.7 percent to 7.6 percent while in the estate areas, it has declined from 32 percent to 9.2 percent. We will direct our strategies to reduce poverty below 5 percent within the next 5 years...

-All island unemployment which was 7.2 percent in 2005 has dropped to 5.8
percent by 2009. In addition, earnings of our farmers and the labour force have increased. In 2005, farmers could not secure even Rs.10 for a kilo of paddy they produced. We managed to maintain it in the range of Rs. 24 – 28 per kilo.

-Our country is ranked first in the world in the health and survival indicators, sixth in the political empowerment indicators and among the top 20 in the world in gender equality indicators as well as a location attractive for outsourcing. Our performance in education and health is above average.

-The export potential of value added, branded exports has been estimated in excess of US$ 5 billion over the medium term.

-Tourism should be a billion dollar business. Although
tourist arrivals have picked up and expected to be around 600,000 this year, earnings from tourism shows only a moderate increase. This is largely because the industry as a whole is underpriced. Therefore, I propose to impose a levy of US$ 20 per bed on all five star hotels which charge a room rate that is less than US$ 125 per night from January 2011 in order to compel all hotels to charge better rates.

-We must get ready to facilitate 2.5 million high spending tourists by 2016. Tourists must see our richness and diversity. Over the next few years the capacity of this industry need to be tripled from the current level of around 15,000 rooms.

-Sri Lanka is fast emerging as a niche global destination attracting outsourcing of IT and BPO services. It has become the fifth largest exporter. At present, the country is ranked seventh among the 50 best emerging global cities that attract outsourcing...The Government has launched various programs to increase ICT literacy to 75 percent by 2016.Our aim is to make this industry a US$ 2 billion export activity by 2016.

-our key goal in this decade of development is to improve our productivity by 5-6 percent per annum.

-SriLankan Airline and Mihin Lanka will be expanded with new aircrafts to increase the fleet to 30 by 2012. I propose to exempt SriLankan and Mihin Lanka from all taxes for a period of 10 years to strengthen the two enterprise

-nearly 3 million Sri Lankans are engaged in overseas employment.
The remittance income to the country is expected to be nearly US$ 4 billion this year. However, there is no proper social security system for these people when they reach old age. Therefore, I propose to set up an Overseas Employees’ Pension Fund (OEPF).

-My attempt in this Budget is to sustain our achievements and manage future risks in our economy. We have achieved an economic growth rate of near 8 percent. Inflation has stabilized at around 6 percent. Poverty has come down to 7.6 percent and unemployment to 5 percent. These are all achievements within 5 years. This argues well in favour of our development strategy. The Central Bank has built up US$7 billion reserves. Our banking system has a further US$ 1.5 billion. So the economy has sufficient external assets. All these are achievements that all of us must be proud of. A low rate of inflation of around 5-6 percent, economic growth rate of around 7-8 percent and a society free from poverty are our medium term targets.

-raising income beyond US$ 4,000 per capita is not the only objective in our strategy. People need equitable opportunities to enjoy such high income.

For Discussion: How do you rate this budget speech?

Related:
Budget Speech 2011

2011 budget to introduce fiscal reforms

"The 7.5 percent budget deficit target should be achieved comfortably
as the expenditure would be the same like last year and the revenue is
picking up," Jayasundera said. He said economic growth would be close
to 7 percent, as earlier forecast.

"The reserves are more than the IMF target. I am optimistic of the IMF
releasing both the third and fourth tranche together," he said.

Jayasundara said he expects tourism revenue to grow to $1 billion
annually from its present $400 million, and foreign direct investment
to boom to $1.5-2 billion annually from around $600 million now.

He said foreign investment inflows should put upward pressure on the
rupee currency. "I see a higher probability for appreciation than
depreciation," he said.

The six areas where the budget speech has to deliver

Core public goods are international relations, defence, police and judiciary. These are the foundations of civilised existence. They are pure public goods in that everyone benefits when these are done properly. When law and order conditions are good, a new born child benefits from these without imposing any new cost upon the country.

Evaluating Government Employment and Compensation- A Primer

Just released brief from IMF.

Evaluating Government Employment and Compensation
Author/Editor: Clements, Benedict J. , Gupta, Sanjeev . Karpowicz, I. , Tareq, Shamsuddin

Related:
Wage Policy and Fiscal Sustainability in Benin

Kiribati: 2009 Article IV Consultation - Staff Report

Kenya: Selected Issues and Statistical Appendix

'Long-run fiscal policy is health policy'

Is it a justification for earmarking a tax;

The National Commission on Fiscal Responsibility and Reform, co-chaired by former Clinton White House Chief of Staff Erskine Bowles and former Republican Senate Whip Alan Simpson, faces two over-riding problems. First, it must find a new source of revenue for the federal government, a source that is relatively stable, produces substantial proceeds, and does not create large disincentives for employment, saving, and investment. Second, it must bring the rate of growth of health care spending closer to the rate of growth of the rest of the economy. The gap over the last 30 years, 2.8 percent per annum, is unsustainable. As Alice Rivlin, a member of the new commission, has said, “Long-run fiscal policy is health policy.”1 Control of health expenditures will require comprehensive change in the way the country finances and delivers health care. A value-added tax (VAT) dedicated to funding basic health care for all through enrollment in accountable care organizations would help solve the revenue and health spending problems at the same time. A VAT, by itself, has much to recommend it. Unlike a payroll tax, it does not discriminate against employment. Unlike the income tax, it taxes only consumption, not saving. The base (consumer expenditures) is more stable than payroll or income over the business cycle and is large enough to provide a substantial yield at a relatively modest rate. While it is not immune to evasion or avoidance, a VAT is not as vulnerable to these problems as the income tax.

Fiscal Space

Interesting staff policy note from the Fund on Fiscal Space.

In Pictures- UK Emergency Budget

via Big Picture

 via The Economist

The first crucial decision he had to make was his goal for the public finances: his “fiscal mandate”. He set an exacting objective of balancing the cyclically adjusted current budget (which excludes net investment) within five years. In his next big decision, he plumped for overachieving: the specific plans he set out over the next four years mean that the goal should be met in 2014-15, a year early.

Australian Budget 2010-11, assorted

Budget Overview

What I wrote on Budget Day: Aid;

The story behind the $1 billion is that Australia has promised to increase development aid to 0.5 per cent of its Gross National Income (as I explain here (link to critique of Henry Review from last week), National Income and not the more commonly used Domestic Product is the right basis for most calculations. Unfortunately for the government (at least in this instance), a recent agreement by statistical agencies has changed the way GNI is calculated. Australia’s statisticians were the first to implement this change, and the result was to increase our GNI by 4 per cent, or about $50 billion.

Budget 2010 – It’s no Sex & The City 2

Federal budget 2010-11 – a sad document

Overall score: 4/10 – too much emphasis on the surplus and not enough emphasis on jobs and living standards.

Generating a Social Surplus;

Too often when evaluating the budget, we tend to focus on the accounts. To be sure, making sure the government has enough revenue to pay the bills is central to the process. But at its core, it is about economic policy-making. So on that level, we need to think broadly about economic benefits and costs.

IMF's Fiscal Monitor

See the transcript of the discussion of the FM;

QUESTIONER: Hi. One, I have a basic math question I’m trying to understand and then a sort of broader question.

So, you’re saying overall for the advanced G-20 countries, by 2030 the debt increases by 40 percentage points or thereabouts. And so to get it to a safe level they have to reduce the deficit by 8.5 percentage points over 10 years -- 8.75, sorry. How does that math work? Why does 8-3/4 get you 40 percentage points?

And then secondly, a sort of broader philosophical question, so you have a variety of tax increases and spending cuts, why don’t you have built in there, since you’re saying growth is so important, growth measures that you would score in the same way you’re scoring this?

MR. COTTARELLI: Let me start from the second one. Of course, there is a recovering growth in the projections, but there is no major increase in potential growth. The reason why we have not done this is to be, in a way, on the cautious side because these reforms in this area are extremely important but it’s difficult to calculate when they will yield benefits.

So, I think that while all countries facing fiscal adjustment should implement the measures to boost potential growth, I think it would be a bit risky to assume from the beginning that potential growth would pick up more strongly than expected, than before the crisis.

What countries, in our view, should do is to base fiscal adjustment on relatively conservative projections on output growth and then hope, to have the strong expectation, that through reforms it would be possible to improve potential growth and there would be upside surprises.

But in terms of measuring risk, I think it would be better not to base fiscal adjustment plans on the expectation that potential growth will be higher than before the crisis. Actually, it is better to be cautious.

On your specific question, the difference is between flows and stock. The improvement in the primary balance is an improvement in the flow and that of course is not from the first tier. It’s a gradual improvement, but it’s an improvement in the flow, in the primary position every year. As a result of this, at the end, you get a decline in the debt ratio by about -- with respect to the baseline and to the starting point, by about 35, 40 percentage points. We can perhaps go through separately to do the math later on at the end.

Filling a $9 billion hole- an MTEF for New York?

One way to save New York's finances;

Years of decisions dictated by political expediency have led to a chronic budget imbalance that threatens our short-term solvency and long-term economic health.

Fortunately, Lt. Gov. Richard Ravitch has put forward a plan to provide sorely needed oversight and discipline. He proposes to create a financial review board that would certify the budget only if it’s balanced. The board would employ a smart, multiyear strategy that would weigh significant cuts in spending against limited borrowing. And it would require Albany to adopt generally accepted accounting principles, the standard bookkeeping rules used in business.

According to the report, 'The State needs a multi-year financial planning process directly linked to the annual budget process.'

Another suggestion;

Finally, our short-term cash crunch would be eased if the state refinanced the interest rates on its tobacco-settlement bonds. Given current low long-term interest rates, this is preferable to Lt. Gov. Richard Ravitch’s plan, under which the state would borrow $2 billion a year over three years for operations, leading us down a perilous road of annual borrowing.

Related: Citizen's Budget Commission

Creating More Fiscal Space in Good Times

One of the lessons from recent crisis, according to the Fund;

A key lesson from the crisis is the desirability of fiscal space to run larger fiscal deficits when needed. There is an analogy here between the need for more fiscal space and the need for more nominal interest rate room, argued earlier. Had governments had more room to cut interest rates and to adopt a more expansionary fiscal stance, they would have been better able to fight the crisis. Going forward, the required degree of fiscal adjustment (after the recovery is securely under way) will be formidable, in light of the need to reduce debt against the background of aging-related challenges in pensions and health care. Still, the lesson from the crisis is clearly that target debt levels should be lower than those observed before the crisis. The policy implications for the next decade or two are that, when cyclical conditions permit, major fiscal adjustment is necessary and, should economic growth recover rapidly, it should be used to reduce debt-to-GDP ratios substantially, rather than to finance expenditure increases or tax cuts.

The recipe to create additional fiscal space in the years ahead and to ensure that economic booms translate into improved fiscal positions rather than procyclical fiscal stimulus is not new, but it acquires greater relevance as a result of the crisis. Medium-term fiscal frameworks, credible commitments to reducing debt-to-GDP ratios, and fiscal rules (with escape clauses for recessions) can all help in this regard. Similarly, expenditure frameworks based on long-term revenue assessments help limit spending increases during booms. And eliminating explicit revenue earmarking for prespecified budget purposes would avoid automatic expenditure cuts when revenues fall. A further challenge, as governments come under greater pressure to display improved deficit and debt data and are tempted to provide support to ailing sectors through guarantees or off-budget operations, is to ensure that all public sector operations are transparently reflected in fiscal data and that well-designed budget processes reduce policymakers’ incentives to postpone needed adjustment.

Related;
The Case For Higher Inflation

I would add, however, that there’s another case for a higher inflation rate — an argument made most forcefully by Akerlof, Dickens, and Perry (pdf). It goes like this: even in the long run, it’s really, really hard to cut nominal wages. Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis.

Goolsbee defends Obama fiscal policies

GOOLSBEE: I think there's some conventional wisdom forming among opponents of the administration that the deficit is getting bigger primarily because Obama is spending like crazy, and it's totally wrong.

If you look at the 10-year budget, the reason that 10-year deficit is getting bigger, it's first and foremost because the economy has gotten substantially worse, and as the current economy gets worse, it makes the 10-year deficit numbers significantly worse also. And that's by far the biggest thing driving it.

The second is the President consciously came in and said, "We're going to stop engaging in a series of budget gimmicks that are used to artificially make the 10-year deficit look smaller," so things like, they put in zero dollars for natural disaster cost each year, even though there's a hurricane season. So you would think that this is a somewhat regular expense.

Each year, they say, "Oh, my goodness. How could we have predicted there would be a hurricane hitting South Carolina this year?" And so the president said, "Look, let's take the average cost for natural disasters. Let's put it in the budget every year. Let's stop saying the R&D tax credit is only temporary. Let's make it permanent because they renew it every year. Let's stop saying we're going to go cut all doctors' salary by 20 percent at the end of the year and then, at the end of the year, saying actually we're not going to do it this year, but we promised to do it all future years," thereby keeping the long-run deficit smaller.

None of those are spending. The president is not spending anything that people were not spending before for all of those budget gimmicks. He is instead saying, "Let's be honest about what the situation we're in," and so I would just encourage that people who are agitated about the spending to do two things.

The first is go look at the 10-year budget and ask how much of the increase in the 10-year deficit is actually due to new programs versus just being honest and just the state of the economy, and the second is, for this year and next year, while we're in stimulus and Recovery Act land, in the face of the stiffest recession since 1929, that is not when you try to tighten the belt. It is extremely dangerous to do that. That is exactly what Herbert Hoover did that got us into the Depression.

ROMANO: Well, why not? Now, see, that's counterintuitive for a lot of people listening to you. They're saying, "Well, we should be tightening our belt."

GOOLSBEE: We should tighten our belts in the sense of getting the savings rate up. Getting long-run fiscal responsibility is going to be quite important, but if you go at everybody and the savings rate went to 25 percent in a day and we went and massively cut government spending right now, it would drive the GDP downward. And this may be a paradox, but in a period of crisis, you can't do that. That's what Herbert Hoover did. They faced stiff recession, big financial crisis, and they said, "You know what we should do, we should try to balance the budget, and let's start raising taxes and cutting spending." And by doing that and by letting the financial systems collapse, they started the Great Depression, which was a spiral that they would not fix itself and really stuck with us for more than 10 years until World War II ends up getting us out as you know, as a big stimulus.

We faced a financial crisis bigger than the one in 1929. We faced a recession, the stiffest since 1929. The stage was set that if we engaged in a series of policy missteps, we're in the Great Depression, and the Fed deserves great credit and this administration deserves great credit as taking actions to prevent that. And one of the actions that was absolutely needed to prevent it was loosening the belt, not tightening the belt, in the face of those things.

-Voices of Power Transcript: Austan Goolsbee, Economic Adviser to President Obama

F & D is out

Finance and Development June 2009

Where Does the Public Sector End and the Private Sector Begin?

Where Does the Public Sector End and the Private Sector Begin?;

Summary: The boundary between the public and private sectors can be defined on the basis of ownership of institutional units. Nonmarket government-owned entities and corporations that are owned or controlled by government units belong to the public sector. “Economic ownership” is more important than majority ownership. Joint ventures, public-private partnerships, and social insurance funds (including for public employees) can be unambiguously allocated to the public or private sector on the basis of international public sector accounting standards. Boundary problems within the public sector are just as acute as those between the public and private sectors, mainly because of ambiguities in distinguishing “market” from “nonmarket” activities.

How to Use Fiscal Policy in a time of crisis

An interesting podcast from the Fund

Latin America's Finance Minister of the Year

Velasco, 48, applied the lessons learned from decades of economic failure in Latin America -- ones he said could also help the U.S. The current crisis followed “a massive regulatory failure in many advanced financial markets over the last decade or so,” Velasco said in an interview April 21 in his office overlooking the presidential palace in downtown Santiago...

Velasco, who runs 30 miles (48.3 kilometers) a week, is the son and grandson of national politicians. He received his higher education while living in the U.S. after Augusto Pinochet’s military dictatorship exiled his father from Chile in 1976 for criticizing the regime. Velasco earned a bachelor’s degree in philosophy and economics in 1982 and a master’s in international relations in 1984 at Yale University in New Haven, Connecticut, according to his resume. He received a doctorate in economics from Columbia University in New York in 1989....

Velasco taught economics for most of the 1990s at NYU, according to his resume. From 2000 to 2006 he was a professor at Harvard University in Cambridge, Massachusetts, where he worked with Lawrence Summers, now U.S. President Barack Obama’s National Economic Council director.

“In this world, there are some people who are smart. There are some that are practical,” said Summers. “Andres Velasco is both.”...

Velasco “was always looking for the policy implications of what he was doing, which is very unique,” said Guillermo Calvo, a Columbia macroeconomist who hired Velasco as a teaching assistant. “He was one of the best, but you always sensed that he was going to eventually converge to politics.”

Summers, Calvo and Velasco will be panelists tomorrow at a seminar in Washington examining the effects of the global economic meltdown on Latin America.

-Harvard Peso Doctor Vindicated as Chile Evades Slump

Assorted

Causes of the Oil Shock of 2007-08

Japan’s recovery

Government deficits through fiscal policy and inter-generational justice

Mongolian government takes action to support small businesses (or Inspections Gone Wild)

To regulate finance, try the market

Consumer confidence indices: further economic deterioration

Why the GST is a good idea

Taylor rule and liquidity trap

The GPT That Dares Not Speak Its Name

Fed Confronts Financial Crisis by Expanding Its Role as Lender of Last Resort

Peter Orszag on The Daily Show

The Daily Show With Jon Stewart	M - Th 11p / 10c
Peter Orszag Pt. 1
comedycentral.com
Daily Show Full Episodes Economic Crisis Political Humor

The Daily Show With Jon Stewart	M - Th 11p / 10c
Peter Orszag Pt. 2
comedycentral.com
Daily Show Full Episodes Economic Crisis Political Humor

The Man to save Pakistan Tax System?