Wanted - Costing Experts!

Cost accounting is relatively overlooked area in Central Finance Agencies in low income countries- which I think aught to be an important area if we want to progress to a comprehensive MTEF. The following job advertisement for an expert to Brazil, sounds interesting;

The objectives of the project are to (i) implement the public cost system in phases, starting with four pilot entities (health, education, prisons, and social assistance); (ii) develop a cost methodology adequate to the public services at the state level; (iii) organize seminars, courses, and other training events to educate the state officials on how to prepare and use cost information; (iv) document the cost methodology used in the existing projects; (v) prepare guidelines for external dissemination of cost data; and (vi) prepare progress reports.

Making PFM TAs more effective- follow the Chinese way

I really liked the suggestions made by Richard Allen on improving PFM technical assistance. The second recommendation is for me more relevant and practical. The first one is not something practical, and should be left to the reform champions in the country. As in other areas, the we could learn a thing or two from the Chinese on PFM.

The first is for technical PFM missions to become less purely technical...
Take, for example, a recommendation that I found in a recent report on a middle-income country with a distinctively Southern European approach to public administration. This was to establish a top-down budget preparation process, in which the cabinet of ministers would play a key role in debating fiscal policy options, and setting multi-annual ceilings on budgetary expenditure. A related recommendation was to establish a system of periodic expenditure review, as used quite successfully in countries such as the Netherlands and the U.K.

...Unfortunately, in relation to the country concerned they make very little sense because (i) the cabinet system is weak and would require a complete overhaul to make it work on the lines suggested, an outcome which seems politically implausible; (ii) the government is a weak coalition, unlike in many Anglo-Saxon countries which have one-party governments, and has no proven capability to make hard choices about public expenditure; (iii) the ministry of finance is politically fragmented, weakly led and has limited capacity to undertake the technical analysis which would be necessary to improve the efficiency of the expenditure prioritization process...

... My suggestion would be that technical PFM missions mounted by the Fund or Bank should include a political economy expert whose job should be to carry out the necessary institutional analysis and subject the recommendations of the PFM technicians to a rigorous reality check before they are put onto paper. Greater use could also be made of local consultants with an in-depth knowledge of both public finance and the institutional environment...

My second suggestion is that technical assistance reports should never be the end-point of a process of intervention by the Bank or Fund. To prevent such reports being quietly put on a shelf in the minister’s back office, and left to gather dust, they should always be the starting point of a discussion and dialogue with the finance ministry on the analysis undertaken by the mission, and its findings and recommendations,..
 Instead of reports containing 50 or more recommendations compressed into a complex multi-annual action plan, the outcome of such a dialogue should be, for the average developing country, a much smaller subset – say three or four, at most -- of carefully selected actions that could realistically be undertaken during a 4-5 year period, and which stand a reasonable chance of being implemented.

China has adopted this approach for many years, with some success. Rather than asking the Bank or Fund to mount a full-blown technical assistance mission, the authorities propose a seminar on accounting or budget classification or budget preparation to which they invite specialists from a range of countries. The emphasis is on learning, engaging in a dialogue with experienced counterparts, and translating the experience of others into ideas which might (or might not) be relevant to the Chinese experience, their institutions and decision-making processes.

Thank you Mr. Eivind Tandberg

Eivind Tandberg is on a roll at IMF's PFM Blog.

Recent TAs from ADB

Kingdom of Cambodia: Capacity Development for National Economic Policy Analysis and Development Management, Phase III

Strengthening Governance and Accountability in Pacific Island Countries (Phase 2)

Random Technical Assistance reports

Nepal: Strengthening National Accounts System
Technical Assistance Consultant's Reports

National Accounts Manual

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

Tuvalu to get an MTEF

ADB to Help Tuvalu Strengthen Public Financial Management and Good Governance

“The Improved Public Financial Management Program will assist Tuvalu with fiscal stability, improve public enterprise performance, and boost business and public confidence in the government’s financial management and governance systems,” said ADB Country Specialist Emma Ferguson.

ADB is providing a grant of $3.24 million sourced from the concessional Asian Development Fund (ADF).

Related;

Tuvalu: Capacity Development for Public Financial Management

The Government of Tuvalu (the Government) has adopted a set of five performance benchmark indicators (PBIs) developed jointly by it, the Asian Development Bank, the Australian Agency for International Development, and New Zealand International Aid and Development. The PBIs track the achievement of the stated social outcomes with a focus on improved financial management and fiscal consolidation. The PBIs are as follows:
(i) Benchmark 1.1. The Government’s recurrent expenditure each year should not exceed the total of its recurrent revenue plus a sustainable Tuvalu Trust Fund (TTF) distribution (consolidated investment fund drawdown).
(ii) Benchmark 1.2. The target minimum value of funds retained in the consolidated investment fund should not be less than 16% of the maintained value of the TTF at the beginning of the TTF year, to ensure that sustainable distribution is available to help finance annual budgets.
(iii) Benchmark 1.3. The Government’s total debt liability, both domestic and external, should not at any time exceed 60% of the gross domestic product, as specified in Te Kakeega II.
(iv) Benchmark 2.1. In 2008, the Government will increase its budgeted non-salary expenditure on basic education by at least 5%.
(v) Benchmark 2.2. In 2008, the Government will increase its budgeted non-salary expenditure on primary and preventative health services by at least 5%.

See also there Development Coordination Matrix (page 59)

Feasibility study of PFM regional training center

For the MENA region

MTEFs in the Pacific

Strengthening Public Financial Management in Pacific Developing Member Countries;

These and other efforts have produced positive results in several aspects of PFM. For instance, public auditing in the Pacific region overall has advanced substantially in the past decade, with numerous audit backlogs cleared and a significant improvement in audit quality. Likewise, the application in the Pacific of the Public Expenditure and Financial Accountability (PEFA) PFM Assessment Framework reveals that planning and budget processes are rated satisfactorily (B+ average). Given their potential to better link policy with budgets and to enable better decision-making, it is not surprising that emphasis has been placed on developing medium-term expenditure frameworks (MTEFs), but some reviews caution countries to implement MTEFs only when basic financial controls and annual budgeting are working well. However, Pacific island countries rate poorly in terms of budget execution, with payroll controls scoring a C- average and internal audit scoring a D+ average. A Pacific auditor-general reported recently to their public accounts committee that “Put simply, sometimes there is nothing to audit because the records are non-existent” … “there was a lack of bank reconciliations, poor documentation supporting the transactions, lack of physical stocktakes … and ineffective budget controls. [… Moreover, the Office has been] auditing accounts and records that are sometimes six years old.”15 The situation described is not uncommon in the Pacific.

USD700k for Enhancing Aid Effectiveness

What would Easterly say?

Lao People’s Democratic Republic:Capacity Strengthening for Enhancing Aid Effectiveness

Principal Aid-Effectiveness Functions in Government
• National planning (National Socio-Economic Development Plan and Public Investment Program)
• Sector Assistance Program Planning
• Local Government Investment Planning
• National Aid Coordination
• Sector Aid Coordination
• Provincial Aid Coordination
• Aid Policy Reform
• Aid Policy Reform Tracking
• Aid Information and Reporting Systems
• Aid Program Evaluation
• Project and Program Design
• Project and Program Implementation
• Project and Program Monitoring
• Project and Program Evaluation

Lessons in Study Tours- don't get carried away

Second, in determining study tour locations, the need for showcasing state-of-the-art technology and procedures should be balanced against their relevance and replicability in the participant country. While the 4-day study tour to Singapore was well organized and comprehensive, some aspects were not relevant in the Kyrgyz context given the vast difference in the levels of development of the two countries, and the resource and capacity gaps.

-Capacity Building and Institutional Strengthening for the Customs Modernization and Infrastructure Development

Solomon Islands- Domestic Maritime Project

Solomon Islands- Domestic Maritime Project, ADB

How much spending is enough on strengthening public expenditure management?

The People's Republic of Bangladesh intends to apply for a grant of around US$ 95 million from a Multi-donor Trust Fund (MDTF) administered by the International Development Association (IDA) and with the participation of five development partners, Department for International Development (DFID), European Commission (EC), Canadian International Development Agency (CIDA), Danish International Development Agency (DANIDA) and the Netherlands, toward the cost of Strengthening Public Expenditure Management Program (SPEMP) and it intends to apply part of the proceeds to payment for goods, works and services to be procured under this program.

- Strengthening Public Expenditure Management Program in Bangladesh

IMF Fact of the Day

The Fund devotes about a quarter of its budget to capacity building. It extends beyond the mere provision of technical assistance and includes work on standards and codes, financial sector assessment, and training of officials.

-The Role of the Fund in Low-Income Countries - Background Paper

Hoisted from Comments

KL from India commented;

I think "From Line-item to Program Budgeting" edited by John M Kim is a good document on how MTEF is at the core of Program Budgeting.
I am also currently working in evovling MTEFs for selected departments for a DFID funded project in India.

Jordan: Technical Assistance, 2000–2008

Fiscal

• May 2000 Framework for managing nontreasury accounts

• September 2000 Oil pricing mechanism
• January–June 2002 Pension reform
• January–September 2002 GST reform
• November 2002 Macrofiscal capacity and treasury single account
• February, October 2003 Revenue administration reform
• June, August, December 2003 Peripatetic advisor on single treasury account
• February, June, October 2004 Peripatetic advisor on revenue administration reform
• February, May 2004 Public expenditure management
• August 2004–June 2005 Resident expert in macrofiscal management
• February 2005 Distributional effects of replacing oil subsidies
• February–March 2005 Revenue administration reform
• April 2005 Fiscal ROSC
• February, May 2006 Public financial management
• April–August 2006 Expert visits on revenue administration reform
• October–November 2006 Revenue administration inspection visit
• March–April, July, December 2007Revenue administration reform (METAC)

Monetary and Financial

• January–February, April–May 2001, International reserve management
• April–May 2008, Debt management strategy

Statistical

• July 2000 National accounts statistics
• January–February 2002 Report on the Observation of Standards and Codes—Data module

• December 2003 Follow-up on Report on the Observation of Standards and Codes—Data module
• Oct. 2003–Jan. 2004, Mar–May 2004 Balance of payments statistics
• April–May 2004 Government finance statistics
• December 2006 National accounts statistics
• October–November 2006 SDDS Assessment mission
• July 2007 Follow-up on SDDS/Government Finance Statistics

Other

• March 2008 Financial programming workshop

Source: Jordan: 2008 Article IV Consultation - Staff Report

For Discussion: IMF has done a relatively better job at capacity development than other IFIs, especially the peripatetic model has been quiet effective. Discuss.

Related; IMF to Enhance Impact of Its Technical Assistance

In the IMF's FY2008 alone, close to 200 "person-years" (or about 52,000 working days) of assistance was delivered to IMF member countries

An MTFF for Suriname

The mission welcomed the authorities’ interest in establishing a medium-term fiscal framework (MTFF) and encouraged them to move as fast as feasible on this front.

• Staff proposed that fiscal discipline over the medium term be anchored on a debt target of no more than 20–25 percent of GDP when revenues are at trend. This would allow some room for debt to temporarily rise when commodity revenues were unusually low, without threatening sustainability. The authorities found this ceiling somewhat restrictive, and preferred a ceiling of some 30 percent.

• Staff indicated that an MTFF should also include a target for the non-mineral balance. The authorities explained that setting a formal target for this would require changing legislation, which could take time. They will consider the staff’s recommendation to appendix). Staff also indicated that it would be advisable to supplement the MTFF by a ceiling on expenditure growth, especially since the debt ceiling is non-binding and formal adoption of a target for the non-mineral balance may take time.

• A well-managed natural resource fund (NRF) could help safeguard surpluses and accumulate financial assets as future mining projects come on stream. Staff stressed that an NRF should be fully integrated into the budget, with no independent spending authority. The authorities agreed that, since new large mining projects are not expected to come on stream in the near term, priority should be given to establishing an MTFF. Staff also pointed to the need to settle external arrears before starting asset accumulation in an NRF, and supported plans to normalize relations with creditors.

The mission urged better assessment of fiscal risks. Available public debt statistics cover only debt contracted or guaranteed by the central government. In addition, some state-owned enterprises are legally allowed to borrow without government guarantee, and reporting on their operations is incomplete. The mission recommended improving monitoring mechanisms and reporting their operations in budget documents. The authorities noted that cases of public enterprises borrowing with no government guarantee had been very rare, and that for external loans, creditors consistently asked for a government guarantee even for financially sound enterprises. They explained that a ministry of finance unit was already charged with monitoring public enterprises, although they were not yet in a position to comprehensively report these entities’ operations in budget documents.

Source:Suriname: 2008 Article IV Consultation - Staff Report


Related;
Suriname - Key Indicators

Governance in Suriname- IADB

Some IADB Projects in Suriname
Program for the Modernization of the Surinamese Tax Administration
Public Financial Management Assessment

Support for the Public Sector Investment System

Design of Pension Reform

Strengthening of Public Sector Management-USD 6,250,000
Road Map for Public Sector Reform
Institutional Strengthening of Debt Management
Advisory Services to the Central Bank of Suriname

Report Forum for Next Week

Next week we will be discussing the report Public Sector Reforms - What works and Why? and its background paper.

Here's a backgrounder on the report.

Related Multimedia;
IEG Public Sector Reform: What Works and Why? ;

Francis Fukuyama, renowned author and external advisory group member for the report, presented his concerns regarding the public service reform project. Fukuyama highlighted four issues, including the use of CPIA scores, quantitative analysis, report results, and the demand for good governance. Concerning the projects results, Fukuyama presented a theory on ineffective reforms, proposing that no amount of time will result in change because public sector dysfunctions are deeply rooted in political and social structures.

Finally, Robert Klitgaard, author and President of Clairmont Graduate University, explained that more public service reform data and theory were needed. Klitgaard said that in order to eliminate corruption, the gap between “what the state says and what it does must be closed”. He then explained that the Bank has its own challenges regarding its credibility and perceptions and recommended working more with professional organizations, the eradication of internal violations and the continuation of supply-side work. Moving forward, Klitgaard asked the audience whether it’s time for the World Bank to step-back or step-up even further concerning the fight against corruption.

For Discussion- MTEF in Laos

From the previous 4 posts whose advice was the most practical and realistic? Did the Loa government get value for money from the ADB technical assistance?

Links;
MTEF commitment from Loas Government
MTEF Advice for Laos- IMF

MTEF Advice for Laos- World Bank
MTEF Advice for Laos- Asian Development Bank

MTEF commitment from Loas Government

The Loas government's commitment in 2004;

A strict Medium-Term Expenditure Framework (MTEF) will preside over revenue and expenditure management, and define the country’s financial possibilities. A well-mastered MTEF is also a guarantee for strengthened macro-economic management and thus poverty eradication.

From the Joint Assessment of PRSP;

More work is needed in developing a medium-term expenditure framework (MTEF). In particular, the MTEF needs to be extended to cover recurrent expenditures and linked to the budget process—if it is to become an effective policy tool, as forward expenditure estimates now focus exclusively on the public investment plan. Another priority is to strengthen the information on public expenditure allocations—for both economic and functional expenditure classifications—as this is crucial if the government is to effectively align available resources with its developmental priorities. Work is also needed on the expenditure policy analysis including costing of key policy objectives. Preliminary work is currently underway in this area, but is unlikely to be ready for the first annual report. Subsequent updates of the NGPES should also make use of planned expenditure tracking surveys, as well as data from existing surveys, such as the household survey, to examine the links between poverty and expenditure.