IMF Spring Meetings April 2011 Public Financial Management Reforming Budget Preparation Mounir Rached Vice president Lebanese Economic Association 12/3/2018

I. Introduction Countries in MENA have made some progress (but fragmented) toward improving their public financial management (PFM): Budget preparation Budget execution Accounting Auditing GFMIS 12/3/2018

Introd. Reforms were introduced However unevenly and many challenges remain 12/3/2018

II. Budget Preparation Budget Preparation Serious effort is still needed to address many shortcomings that face the process of Budget Preparation Absence of a fundamentally sound approach to budgeting 12/3/2018

II. cont… Most countries are cognizant of what is needed to develop sound budgeting Extensive technical assistance by the IMF and EU over the past 2 decades have been successful in introducing knowledge of the sound principles of budgeting and surveyed current weaknesses TA effectiveness limited 12/3/2018

II. cont. Capacity, administrative and political constraints have impeded progress Human capacity remains an important retarding factor- but limited effort has been made to improve it. There is a broad shortage in PFM capacity in nearly all countries 12/3/2018

III. Budgeting process A. Economic strategy In many countries, there is an absence of full and complete economic strategy An economic strategy calls for a full plan that takes into account (or establishes) clear medium –term objectives. When designed, it is often fragmented and not carefully implemented 12/3/2018

III. cont Frame work (MTF) B. Medium-Term Few countries have a medium-term macroeconomic economic framework Not enough resources are allocated to the macroeconomic and strategic frameworks 12/3/2018

III. Cont. Such a framework would define : Targets, Resource perspectives & Sectoral priorities of the budget 12/3/2018

III. Cont.. MTF requires particular skills that can perform thorough economic analysis and financial programming- Are such skills available!! MTF Provides a forward vision of the future fiscal and overall economic performance 12/3/2018

III. Cont… Several countries have advanced their medium-term fiscal/economic outlook in recent years ( notably Algeria, Jordan, Morocco, Tunisia, Lebanon) But all need to strengthen their methodology and techniques 12/3/2018

III.cont… Budgeting requires a Medium Expenditure Framework (MTEF) Determines ceilings for line ministries A prelude to top-down budgeting Determines current & capital spending Progress is partial as in many countries. Budget preparation is not a key policy process yet 12/3/2018

III. cont Following sectoral allocation Each Ministry prepares it budget based on the ceiling and current capital mix performance based budgeting requires: Development of performance indicators 12/3/2018

IV. Other weaknesses in Budget preparation A. Coverage principle is not respected. In some countries the budget is not unified and dual budgets are practiced Even when they appear unified: B. Integration between the current budget and the capital budget is week. 12/3/2018

IV. cont C. Earmarking Some have resorted to earmarked budgeting to overcome the week coordination between current and capital budgets Leads to having fractured budgets 12/3/2018

IV. Cont D. The “annuality principle “ is not respected in some. Spending in some cases is carried over to the following year 12/3/2018

IV. cont E. In many a top- down approach is not practiced F. Absence or weakness of prioritization at the national level and at the Ministry level G. External financing is not well coordinated with national plans H. Debt service in some is not well projected and its risk is played down 12/3/2018

IV. Cont.. I. Few have introduced performance budgeting & performance indicators J. GFMIS application remains limited in the budget preparation process only Jordan and Morocco are well advanced , ands some Gulf states (Dubai in particular) 12/3/2018

V. Challenges Adopt an integrated approach instead of a fractured approach to reforming budget preparation Evaluation of existing human resource capacity Define needs for the coming 5 to 10 years Availability of adequate financing to assure sustainability of reform & training 12/3/2018

V. Cont… Trainees selection Retention policy A unified training program for MENA can economize and provide efficiency in capacity building Thank you 12/3/2018