Integration of the sequencing of fiscal planning and medium term frameworks with the sequencing of public finance management reforms

1. Fiscal Planning and PFM
Reforms
Jean-Marc Lepain
AFRITAC West 2 Resident Regional PFM Advisor
jlepain@imf.org
Workshop on Medium-Term Budget Frameworks
June 2nd–6th, 2014 Accra, Ghana

2. Outline of the Presentation
I. Key ideas
II. Fiscal Planning in the framework of
PFM Reforms
III. A quick Tour of Fiscal Planning
IV. Regional issues

3. I. Key ideas
 Fiscal planning is a key component of PFM
reforms.
 Fiscal planning must evolve is stages.
 Sequencing of the introduction of the different
MTFs must be aligned with the sequencing of
PFM Reforms.
 The fist batch of reforms must aim at
establishing budget credibility, using MTFF
among other tools.
 Program-based budgeting and MTEF can be
introduced only after budget credibility is
established.

4. II. Fiscal Planning in the
Framework of PFM Reforms

5. Objectives of a PFM System
1. Macro economic stability
2. Strategic allocation of resources to foster
economic development
3. Timely and effective funding of public
services
4. Aggregate fiscal discipline
5. Financial compliance
6. Social justice, fiscal fairness, income
redistribution

6. Fiscal risk management :
Are all fiscal risked identified
and monitored (contingent
liabilities, guarantees, SoE,
State Funds, etc.)?
Exhaustive and timely information:
Is a system of information dissemination already
in place ? How comprehensive is the reporting
system ?
Budget exhaustively
and linkage with
economic objectives :
Does the budget
records all state
transactions ? Does it
reflect economic
priorities ?
Realism of the
budget:
Can the budget be
executed in a timely
and predictable
manner ?
Expenditure Control :
Is the expenditure
control reliable? Does
the system identifies
all arrears and
monitor the stock
Acomptabilité et
transparence:
Des mécanismes
cohérents et complets
garantissant
l’acomptabilité et la
transparence sont-ils en
place?
Les Six Critères d’Evaluation des Système de Gestion des Finances
Publiques
The six
characteristics
of well
performing PFM
Systems

7. Typical sequencing of reforms
1. Fiscal discipline and budget
credibility
2. Timely information and accountability
3. Strategic allocation of resources
4. Value for money and performance
management

8. Fiscal discipline and budget
credibility
- MTFF + budget ceiling
- TSA + cash management
- Commitment control
Timely information and
accountability
- Revised CoA + FMIS
- MTBF
- Program-Based Budgeting
- Risk management
Strategic allocation of resources - Sector strategies +Sector
Development Frameworks
-MTEF
Value for money and
performance management
-Analytical accounting
- Budget analysis
- Monitoring and evaluation
- Performance framework
Reform sequencing and PFM requirements

9. Key messages
 Reforms should be planned with a strategic
vision of the final PFM System architecture.
 Reforms should take into consideration two
parameters: efficiency gains and improvement
in PFM performance
 Introduction of MTFs should be done in phases
well coordinated with other reforms.
 Complexity should not be underestimated.
 Choice of a PMF reform methodology is
essential.
 Sequencing of reforms must integrate
sequencing of fiscal planning.

10. PFM Reform Methodology
 Pragmatic approach (Action Plans)
 Systemic approach
 Basic First approach
 Platform approach
 PEFA indicator approach

11. Basic-First Approach
 Control inputs before seeking to control outputs.
 Account for cash before introducing internal control.
 Establish external controls before introducing internal control.
 Ensure budget credibility before moving to accountability
 Establish internal control before introducing managerial
accountability.
 Operate a reliable accounting system before installing an integrated
financial management system.
 Do not introduce program budgeting before budget credibility is
established and a robust accounting system is in place.
 Budget for work to be done before budgeting for results to be
achieved.
 Budget analysis before Monitoring & Evaluation
 Monitoring & Evaluation before performance budgeting
 Enforce formal contracts in the market sector before introducing
performance contracts in the public sector.
 Have effective financial auditing before moving to performance
auditing.

12. III. A quick tour of fiscal
planning

13. Sequencing of Fiscal Planning
10 years
5 years
3-4 years
- Macroeconomic
sustainability
- Debt strategy
- Fiscal discipline
- Fiscal envelopes
- Budget Credibility
- Program Budgeting
-Value for money
- Performance
management
- Accountability
Medium Term Performance
Framework
- Strategic Allocation
of funds

14. Medium Term Fiscal Framework
 Credibility of the budget depends on
credibility of the MTFF
 Focus on the surplus / deficit and on
financing the gap
 Main output: sector ceilings

15. MTFF main issues
 Realism of revenue forecasts
 Extra-budgetary funds
 Unplanned expenditure
 Unrecorded arrears
 Contingent liabilities
 Para-fiscal activities of the central
bank

16. MTEF Objectives
 Ensure budget alignment with
economic priorities
 Ensure budget ceiling realism by
better knowledge of sector funding
needs
 Move away from political bargaining to
rational decisions based on sector
needs and value for money

17. Medium Term Expenditure
Framework
 The MTEF links the planning process to the
budget process
 It combines the top-down approach of the
MTFF with a bottom-up approach
 The National MTEF is the result of
discussion based on sector MTEFs
 Sector MTEF are based on costed Sector
Strategies and Sector Development
Framework.

18. When to introduce PBB?
 MTBF or MTEF ?
 Budget credibility is a prerequisite
 Chart of Accounts must be tested
 Scope of PBB must be defined and
introduced in phases
 Management rules must be agreed
(no “one size fit all”)
 Piloting is recommended

19. IV. Issues in the region

20. Issues in the region
 Budget credibility is not established in
most countries
 FMISs do not cover all expenditure
and are at various stages of
development
 Program budgeting is introduced
without accountability

21. Budget credibility in the region
(PEFA indicators)
Gambia Ghana Liberia Sierra Leone Cabo Verde
P1 Aggregate expenditure out-turbn compared to original approved budget B C D B A
P2 Composition of expenditure out-turn compared to original approved budget C NR D+ C B
P3 Aggregate revenue out-turn compared to approved budget B C D B B
P4 Stock and monitoring of expenditure payment arrears D D B NA B+

22. The tools for enforcing budget
credibility and fiscal discipline
 MTMF and debt sustainability study to
ensure fiscal sustainability;
 MTFF to allocate realist expenditure
ceilings;
 Single Treasury Account to ensure an
efficient mobilization of resources;
 Cash management

23. National Development
Strategy
Sector Strategies
Sector Development
Frameworks
Sector Financial
Framework
Sector
MTEF
National
MTEF
From Economic Planning to
MTEF

24. Fiscal issues to be taken into
consideration
 Dependence on export of natural and
agricultural resources with volatile prices.
 Limited fiscal space with limited potential for
increase
 Revenue leakages
 Price variation that makes difficult
expenditure forecasting
 Lack of information on ongoing tenders
 Stock of arrears

25. The Four stages of MTF
Sequencing
 Budget credibility through MTFF
 Aggregate fiscal discipline though
MTBF
 Policy-based budgeting through MTEF
 Result-based budgeting through
MTPF

26. Thank you