1 ST APG FORUM ON LOCAL FINANCE MANAGEMENT 7-8 May 2015, Lombok, Republic of Indonesia Camila Vammalle Economist/Policy Analyst OECD, Public Budgeting and Expenditure Division Public Governance and Regional Development Directorate

2 The OECD is an international institution based in Paris, which gathers 34 countries engaged with democracy and open economies, in order to foster a sustainable economic development What is the OECD?

Does not give or lend money, so its studies do not contain any type of conditionality Produces international statistics, carries out comparative analysis of public policies, organises meetings and workshops, publishes about 250 reports per year on economic and public policy issues It provides a platform to compare policy experiences, seeking answers to common problems, identify good practices and coordinate domestic and international policies of its members The OECD aims to help building a “stronger, cleaner and fairer world”

The OECD is structured as a government, with Directorates mirroring Ministries

SNGs are key economic players –Responsible for large shares and important areas of public spending But they have a limited room of manoeuver to adjust their fiscal situation –Small revenue autonomy –Constrained expenditures And they were hardly hit by recent crisis –Participated in stimulus plans, then in consolidation efforts Ensuring they have effective public financial management tools is therefore essential –In particular, budgeting is an essential tool –And the recent OECD Recommendation on budgetary governance can be a useful reference for SNGs Main messages of this presentation

SNGs are important actors in key sectors Source: OECD National Accounts and OECD Fiscal Decentralisation database 6 SNGs represent on average 62% of public investment, 31% of public spending, 20% of public revenues and 14% of public debt in OECD countries And they are key players in important spending areas (housing, environment, education, social protection).

SNGs have little room for manoeuvre for adjusting their financial situation SNG autonomy to increase revenues is usually limited An important share of SNG expenditure is mandatory and very difficult to cut 1.A large share of their spending is in critical sectors. 2.Some SNG expenditures are expected to rise due to demographic factors 3.Rules and standards of SNG expenditure are often dictated by higher levels of government Fiscal rules often constrain SNGs room of manoeuvre 7 SNG expenditure by function in OECD countries Source: OECD National Accounts and OECD Fiscal Decentralisation Database

Evolution of SNG Expenditure (EU, ) Evolution of SNG Revenues (EU, ) SNGs finances were hardly hit by financial crisis SNG tax revenues fell during crisis ( ), but transfers were increased so that total revenues remained stable. During first phase of the crisis ( ), SNGs participated in stimulus plans, and investment was sustained. Since 2010, SNGs participate in fiscal consolidation plans. The main adjustment variable has been public investment Social benefits soard during crisis

In such a context, it is essential for SNGs to have sound public financial management practices, and in particular, good budgeting practices 9 Budget Prioritisation and implementation of government objectives Turning plans into realities Contract between citizens and states Shows how resources are raised and allocated Supports: transparency, integrity, openness, participation, accountability, strategic approach

Recent trends in budgetary frameworks in OECD countries Annual  Multi-annual PF Management  Strategic planning Identifying savings  Policy instrument Financial inputs  Performance Bottom-up  Top-down, fiscal targets Fiscal transparency  Fiscal risks, resilience Budget institution  Other institutions  citizens Budget process  Public governance

1.Manage budgets within clear, credible and predictable limits for fiscal policy 2.Closely align budgets with the medium-term strategic priorities of government 3.Design the capital budgeting framework in order to meet national development needs in a cost-effective and coherent manner 4.Ensure that budget documents and data are open, transparent and accessible 5.Provide for an inclusive, participative and realistic debate on budgetary choices 6.Present a comprehensive, accurate and reliable account of the public finances 7.Actively plan, manage and monitor budget execution 8.Ensure that performance, evaluation & value for money are integral to the budget process 9.Identify, assess and manage prudently longer-term sustainability and other fiscal risks 10.Promote the integrity and quality of budgetary forecasts, fiscal plans and budgetary implementation through rigorous, independent quality assurance including independent audit The OECD Recommendation on Budgetary Governance apply both to CGs and SNGs

THANK YOU!