Implementing Budget Reforms Global Lessons Bill Dorotinsky Fiscal Affairs Department IMF Budget Reform Conference Jakarta May 26, 2008

Outline Framework for considering reforms Functions of administration and objectives of public financial management Understanding the intent of budget reform Broad Lessons of Reform Case Lessons Integrated Financial Management Information System (IFMIS) Projects Performance Budgeting Key Points

Objectives of PFM and Budgeting Three-level PFM Framework Macrofiscal discipline Strategic allocation of resources Technical efficiency Source: Public Expenditure Handbook World Bank (1998) Three functions of Government and budgeting Strategic Planning Management Control Operational Control Source: Planning and Control Systems: A Framework for Analysis. Robert Anthony (Boston, 1965)

Budget Reform Not only changing Budget document Changing incentives (and therefore behavior and ultimately system outcomes) of all actors by changing Rules/Process Roles Information* *Source: A Contemporary Approach to Public Expenditure Management. Allen Schick. World Bank (1998)

Broad Lessons The World Bank, IMF, and development partners have worked to understand Why PFM reforms fail and systems remain weak? What factors support successful reform? Three factors present in sustained improvement in PFM systems A country-led reform program – including a PFM reform strategy and action plan A coordinated donor program of support to government strategy A common framework for measuring and monitoring results over time – The PFM Performance Measurement Framework (PEFA)

HIPC Expenditure Tracking Lessons Realistic expectations of reform progress are needed. Over-all the countries improved 10 percent over three years, or about 3 percent per year The "basics" of PFM systems were still not right. Basic PFM system operations were very weak, but fads remain popular A holistic – systems – approach to PFM system analysis and reform development is needed. The connections between various PFM system components are understood, but infrequently emphasized or included in reform measure development

Lessons (continued) Country ownership of reforms is the critical variable for PFM system improvement. Country action plan implementation best predictor of PFM system improvements. Efforts to improve PFM systems must begin with country ownership – leadership – in assessing performance, setting the reform agenda and implementing reforms. How PFM system assessments, reform actions, and implementation are undertaken is at least as important as assessment instruments. Joint action planning between authorities and technical assistance providers can yield better results. Narrowly focused action plans, reflecting clear reform priority setting, might improve reform impact and PFM system performance. Donor coordination around a more limited set of reforms might help keep reforms focused and yield better results. Customized reforms to country needs may yield better results Rather than donor pre-packaged measures Country’s pragmatic needs for managing resources, self-defined, may be the best place to start

IFMIS Case: Risk, success & failure factors Projects risks 20 % cited technical complexity, too many components 24 % lack of institutional capacity 21 % weak government commitment, understanding of reform objectives and benefits Success factors Full-time project coordinator (36%) Champion at political level (14 %) Training (14 %) (IT, FM, change management) Failure factors Full-time project coordinator (23%) Commitment/understanding (23%) Project design (20%) Institutional resistance (10%) HR capacity (7%)

Performance Case: Performance reforms have many objectives and drivers MoF need for basis for reallocation of funds Desire to get agencies to think about linking inputs and outputs MoF desire to know what they buy Desire for more accountability and control Desire for greater efficiency, effectiveness … are introduced in many situations Weak accounting, reporting Absence of budget offices (Burundi) IT rich (Brazil) and IT poor (Burundi) situations … and frequently with other reforms Budget classification IFMIS Tracking spending MTEF Deconcentration of spending authority

Performance of what, for whom? Different systems have been developed to meet different intents, problems Government to society (Oregon – accountability) Government to external stakeholders? Bureaucracy to Elected officials (UK Next Steps – accountability; Brazil PPA; US High Impact Agency Initiative; Mexico National Plan) Agencies to their managers (US GPRA – performance) Ministries/programs to MoF/budget office (US PART – efficiency, effectiveness, parsimony) Service providers to ‘purchasers’ (balanced scorecard, accountability) Many reforms have been initiated without addressing what area of performance is being targeted, who will use the information, and how Few also distinguish between performance monitoring (short-term) and assessments of effectiveness and impact (medium to long-term)

Program Budgeting Implementation Lessons Lots of attention on communicating new methodology to line ministries Initial efforts won’t be perfect, and commitment to continuous improvement important Piloting can be useful, with lessons shared as it progresses Ultimate responsibility for budget structure, budget format and indicators with line ministries Budget office role is one of providing guidance, process framework, lesson learning and sharing, training Do not use change process to reorganize or retrench Regular brief stakeholders on progress

Key Points Common view of reform objectives, problem to be solved important As important as high-level leadership is reform organization, task assignment The single best predictor of progress in PFM reform was rate of implementation of action plans