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International Monetary Fund Fiscal Affairs Department

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1 International Monetary Fund Fiscal Affairs Department
Accountability and Legislative Oversight in Budget Reforms Budget Reform Conference: Performance Indonesia – Modernizing the Budget International Monetary Fund Fiscal Affairs Department Holger van Eden Senior Economist Public Expenditure Management Division II Fiscal Affairs Department Jakarta, May 2008

2 Overview Role of Parliament in budget process
International Comparison of factors influencing Oversight and Accountability Budget Reforms and Parliament Some points for discussion for Indonesia

3 Role of Parliament in Budgeting
Review and approve fiscal, expenditure and tax policies as presented in budget documents (and sometimes in pre-budget documents) >>> direct/adjust and legitimize government plans Monitor and review budget execution documents and final accounts >>> ensure accountability of government Question 1: How involved/directive should parliament be in approval phase? National experiences vary considerably. Parliament should not be a rubberstamp machine, but also not want to take over the role of the Executive >>> What role is best for country? >>> accountability presumes delegation Question 2: How can Parliament’s dual role be enhanced? - through budget reforms, including PPB? rethinking internal process and roles? - additional analytic capacity?

4 Critical Factors for Oversight and Accountability
Scope, detail and relevance of budget information (budget, final accounts and other documents) Timing and sequencing of parliament’s involvement Appropriation structure Internal Management Parliament Legal powers MTEF and PPB reforms

5 Without appropriate information no oversight or accountability
First Level reforms Need for balance between overview and detailed information Need to look at government activities from various perspectives >>>use of multiple classifications Need for different information at different stages of the budget process Need to link plans with outcomes (i.e. clear link between budget and final accounts) MTEF and PPB Reforms: >>> places budget information in medium term perspective >>> links objectives, policies, activities and results >>> identifies responsibility for inputs and outputs

6 Budget Information is improving
Type of information Non-OECD OECD Indonesia Macroeconomic assumptions 100 % 93 % yes Fiscal policy objectives for the medium term 75 % 87 % Yes, could be provided earlier Budget priorities 88 % 94 % Comprehensive Annual Financial Plan % % Reasonably comprehensive Performance information 38 % 47 % Limited, just starting reforms Clearly defined appropriations 73 % No

7 Multi-year Expenditure estimates
Does the annual budget documentation submitted to the Legislature contain multi-year expenditure estimates? Multi-year Expenditure estimates Non-OECD OECD Indonesia No 25 % 3 % Yes, at the aggregate level 33 % Since 2008 Budget Yes, at the ministry level 12.5 % 17 % Yes, at line item level 20 % Other 27 %

8 What kind of performance information is included in budget ?
Non-OECD OECD Indonesia None 12.5 % 7 % Performance targets 37.5 % 64 % Performance measures 50 % 67 % Limited Evaluations of existing and new expenditure 77 % Benchmarking 25 % 30 % Other 27 %

9 Timing and sequencing influence the capacity for oversight and accountability
Is a pre-budget discussion on fiscal policy and strategic allocation held at the appropriate time? Does Parliament have enough time to review the budget thoroughly? But also: does the Executive have enough time to prepare and implement the budget Are the final accounts produced, and reviewed by SAI, timely, i.e. still politically relevant?

10 Does Legislature debate overall policy direction prior to the Executive’s detailed budget submission? All Countries OECD Indonesia Formal pre-budget debate 30 % 31 % Executive report & debate 28 % 27 % Government Work Plan Formal budget vote 10 % 12 % Informal discussion 15 % Sectoral work plans discussed in sectoral committees 2003 data: World Bank – OECD budget database;

11 2003 data: World Bank – OECD budget database;
Is there a pre-budget debate on the medium term fiscal framework in which ceilings are set All countries OECD Indonesia Yes, hard ceilings 20 % 30 % No, but non-binding debate on aggregate 37 % No 44 % 41 % 2003 data: World Bank – OECD budget database;

12 How far in advance of the beginning of the fiscal year does the executive present its budget to the legislature? Time (months) Non-OECD OECD Indonesia -4 < 2 50 % 11 % 2 to 4 37.5 % 70 % 4 to 6 12.5 % 17 % > 6 - 3 %

13 October 31, but review of DIPA’s continues
How far in advance of the beginning of the fiscal year does parliament approve the budget Time (months) Non-OECD OECD Indonesia <0 12.5 % 13 % 0 to <1 50 % >1 25 % 0 % October 31, but review of DIPA’s continues Not reported 37 %

14 Months after the fiscal year
When are the final accounts audited by the SAI made public/presented to parliament ? Months after the fiscal year Non-OECD OECD Indonesia ≤ 3 12.5 % 13 % 3 < to ≤ 6 37.5 % 34 % 6 < to ≤ 9 27% 9 < to ≤ 12 20 % >12 7 %

15 The Appropriation Structure defines what expenditure parliament actually approves
Enhances accountability if defined right Too detailed >>> restricts managerial freedom, flexibility>>> no accountability Little detail >>> maximum flexibility for Executive >>> no accountability Multi-dimensional or one dimensional (“budget classification”)? Number of layers that are part of the classification structure Should be used consistently for accountability >>>Trend in OECD: one dimensional, programmatic appropriation structure with only a few layers

16 One dimensional classifications
Organization Function Program Economic Funding One dimensional classifications

17 Combined classifications -examples

18 Good Internal Legislative Management can enhance accountability and oversight
Issues Committee structure - centralized vs decentralized? - special committee for final accounts review? Parliamentary Budget Offices and/or research staff Discussion with Executive - With whom in the Executive? - Can bureaucrats be questioned? Decision making - along party lines or unanimous? - hierarchy of decision making? - sequencing of committee activities

19 What committee structure manages the budget?
Non-OECD OECD Indonesia Single budget committee 25 % 40 % Single budget committee, with sectoral committee input 37.5 % 10 % Single budget committee for aggregate spending, sectoral committees for sector spending 12.5 % 23 % Sectoral committees only Other 17 %

20 Is there a specialized budget research office supporting the legislature?
Non-OECD OECD Indonesia No 62.5 % 57 % Yes 25 % 30 % Other 12.5 % 13 %

21 Do individual parliamentarians have budget specialist staff?
All countries OECD Indonesia Yes 8 % 4 % Yes, if on budget or finance committee 35 % 31 % No 58 % 65 % 2003 data: World Bank – OECD budget database;

22 Legal Powers that enhance Parliamentary oversight
To what extent can Parliament amend the budget? Do fiscal rules restrain both Executive and Legislature? Is the SAI an instrument of Parliament? How is follow-up of SAI findings arranged?

23 What are the formal powers of the Legislature to amend the budget ?
Non-OECD OECD Indonesia Unrestricted 12.5 % 57 % Deficit/surplus can not be changed 25 % 10 % No extra spending, no new initiatives 7 % No changes allowed 30 % Other 75 % 23 %

24 In developing the budget, are there any fiscal rules that place limits on fiscal policy?
Non-OECD OECD Indonesia No 23 % Yes, expenditure rule 75 % 50 % Yes, revenue rule 87.5 % 13 % Yes, budget balance rule 60 % Yes, debt rule 40 % Other 7 %

25 To whom does the Supreme Audit Institution principally report?
Non-OECD OECD Indonesia President 37.5 % 10 % Prime minister 25 % 7 % Cabinet 20 % Legislature 62.5 77 % - Budget Committee 12.5% - Specialized Public Accounts Committee 12.5 % 33 %

26 Budget reforms and Parliament
Budget planning reforms have focused on MTEF and PPB type reforms Budget reforms have in quite a few cases been initiated by Parliament (France, Netherlands) to role of Parliament Better oversight thanks to: - Improved structuring of information - medium term projections and ceilings - linkage of policies to expenditure - performance information on expenditure programs - identification of responsible Minister or bureaucrat - (international) benchmarking - better linkage between budget and final accounts

27 Key points for discussion (based on international comparison)
Accountability and legislative oversight could improve through: Further improvements in budget information, especially with regard to medium term projections and program performance More focus on pre-budget discussion of and agreement on fiscal policy and sectoral allocation Less focus on expenditure details Simplification of, and use of program basis, in appropriation structure More centralized budget management in Parliament More streamlined interaction with Executive Technical support for Budget Committee Specialized Public Accounts Committee Enhanced follow-up arrangements for final accounts review

28 Data Sources 2007 Data: OECD Budget Database; © OECD, Two country groups: (1) Non-OECD: Argentina, Brazil, Chile, Costa Rica, Israel, Peru, Slovenia and Venezuela, and (2) OECD: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic,, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States 2003 data: World Bank – OECD budget database; © OECD/World Bank, 2003 data includes country groups (1), (2) and (3): Algeria, Bolivia, Cambodia, Colombia, Egypt, Indonesia, Jordan, Kenya, Morocco, South Africa, Suriname, Uruguay


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