On with QUESTION 6

Mauro

Also, Jack Diamond's paper on sequencing which has been discussed on the PFM Board in https://pfmboard.com/index.php?topic=6478.msg19620#msg19620 and is referenced Page 86 of that book.  The Conversation with Marc Robinson is worth reading for those not familiar with it and rereading for those that may have read it. Indeed, the Fireplaces are all worthy of reflection!

Re QUESTION 6
Mauro
The important issue is getting the basics right and the sequencing right.  You list the progression but often there is a jump in the progression before steps have been taken. Take accrual accounting, there is lot to be done on cash management etc. and getting the basic financial statement sorted even on a cash basis.  Then modified, then full.  But is the architecture in place?  What about the state of physical asset registers? PEFA scores are low relative to other aspects of PFM.  A lot of work may well be needed there.  And you are right about SOEs but also fiscal risk – pandemic and climate changes are focusing attention there!   But countries are different and at different stages of progression so there should be lots to do!

If you are asking me to have a crystal ball, then capacity building in PFM may well be an area that could be addressed.  I don’t think PFM gets enough coverage in economic courses, and, of course, in all countries there is a need to expand experience in PFM.   

A short Short answer!

QUESTION 6

John,

My career in consulting is just a bit shorter than yours.

When I started in development there were projects, budget inputs and activities.
Now it is normal to talk about costed strategies, programmes and budget performance.

Yet I see a plateau in the PFM reform process, recently. The next big thing appears to be the extension of accrual accounting to developing and transition countries.
What is your take on the above and what you see in the future for the PFM reform?

RESPONSES TO QUESTION 5

Alban,

Q1. Paradoxically I think it strengthens the case for Medium-Term Budget Planning (MTBP).  Typically, MTBP is made up of a fiscal table which looks at revenue projections and rolling over of existing policies and what that would mean for borrowing which may be constrained by fiscal rules.  Estimated fiscal space would indicate if new policies and /or improvement in standards are possible. Rolling over of existing policies would determine what is being delivered in terms of services such as education in but also pensions.  Such services as education have to be planned in the medium term.  Provision for pandemics, climate change etc. are “usually” paid for from contingency but if these are thought to be more of a frequent but unplanned event either the contingency has to be increased or there is sufficient fiscal space from increasing revenues and/or borrowing.  This may require more prudent annual/medium-term commitments and also use of a supplementary budget to deal with these in-year adjustments.  Indeed, in the case of likely but unpredictable in the short-term climate change that may happen in the medium term, contingency provisions for such events may be best to be accumulated (when unspent) so that when disasters do occur there is some funding in place to deal with the emergencies. 

Recent events were generally paid by increased borrowing but that may not be sustainable in the medium to long term. But it is difficult to see how core services such as education could be cut if a country is to progress.  So, in that context MTBP is essential so that these core services are planned and delivered over the medium term and are the basis of expenditure projections.  It may be that non-core services may have to be cut to make way for increased contingency or greater fiscal space.  Configuring core services becomes a challenge.  Ultimately it will be a political decision and often politicians have short term vision!

Q2 The focus of line-item budgeting is on input costs and their control.  Programme budgeting adds a further dimension to it but the line-item element is still there.  The main difference (simplistically!) is that programme budgeting should focus on delivery of services measured by outputs/objectives/outcomes – the Key Performance Indicators (KPI) and assigning the inputs (the Line Items) to achieve them.  There is nothing to stop KPIs being assigned to administrations (the other classification item) but generally programmes are considered to be more amenable for that purpose. 

Most of the countries that I have been involved in over the past few years have successfully implemented programme budgeting.  A key element of this has been the development of appropriate IT and software.  However, at the times too many KPIs may have been specified for programmes that complicate things and in some cases country wide KPIs are not specified for common local authority services that make intra country comparisons of the same service not possible.  The development and roll out of programme budgeting is not an overnight event. Generally speaking, those countries that have done this successfully have been able to focus expenditure on better delivery of key services and ultimately economic development even though fine-tuning is required.

The discussion in https://pfmboard.com/index.php?topic=9160.msg31672#new would be an example of initial technical efficiency would lead to considerable savings and allocative efficacy in carrying out research on impact analysis.