Budget Management and Financial Accountability: Overview Parminder Brar, OPCSFM Bill Dorotinsky, PRMPS Budget Management Course March 1-2, 2004

Outline The challenge of budget management. Budget management cycle. Why is budget management important? Key challenges: How to monitor progress for systemic improvements and budgetary outcomes? How to better support budgetary reform in client countries? What is the new approach? Can budget reform be achieved without a wider reform program? What impact will decentralization have on budget management? Organization of the course

The challenge of budget management. Budgeting is a highly political process Budget reform is extremely challenging – “Tragedy of the Commons”. Success has been much more modest than expected. Institutional incentives are key to budget reform. The principal-agent problem distorts budgetary outcomes. Budget is NOT an accounting document What are the incentives for compliance or non compliance? What are the lessons we can learn?

Budget management cycle Planning system Medium term plans, e.g. three year rolling plans Annual budgets: Development, Recurrent and Revenue Fund release procedure, e.g... warranting Accounting for revenue and expenditure Public expenditure review Institutional Politics and Power Sharing Reports and financial statements Audit system Project monitoring Project appraisal Resource allocation Liquidity management Expenditure control Monitoring & controlling Post event Accountability Formulation covers ‘expenditure review’ insofar as this is a step in preparation of future plans, and goes through to “annual budgets..” -- need for good budget -- Brazil roads, congress, MoF -- linking budget to cash management -- dc grants management Execution covers from ‘liquidity management’ through to PER’s, insofar as PER’s are part of the ex poste accountability system. Half of cycle (2) Hardware and software do not solve problems in human systems. Must know source of problem, and seriously assess whether computerization will solve the core problem. (DC Example) Underlying all of this is good recording of transactions and reporting! What are the main impediments to reform and what can be done to address them?

Why is budget management important? Budget Management systems are weak in client countries. The MDG’s cannot be achieved unless budget systems improve. Matching Plan to Implementation Good Macrofiscal But, look at sectoral allocations. Who gets harmed? 3-level framework Cash, accrual, commitment

New approach to support reform Government PFM Reform Strategy, Action Plan and Results Diagnostics Performance indicators Government / Donor Policy Dialogue Coordinated program of capacity building work Donor country Assistance Strategy

Organization of the course What can we do in the short term to improve systems in client countries? What is the new approach to supporting country reform strategies? Why has been our experience with reform of Treasury Systems? What can be done to strengthen internal and external controls? Will decentralization improve budget management? How can transparency and accountability be improved? What are the links between budget management, governance and impact? Time for questions and discussion Evaluation