1. The World Bank PREM Public Sector Governance 1 Public Expenditure Management: An Introduction Presented to: PREM – WBI Core Course on Public Sector Governance & Anticorruption Presented by: Bill Dorotinsky PREM Public Sector Group http://www1.worldbank.org/publi csector/pe/index.cfm February 14-17, 2005

2. The World Bank PREM Public Sector Governance 2 Outline What is Public Expenditure Management? What institutions matter? Process: Expenditure Management Cycle Organizations, Systems Three- objectives Applications –Rules –Roles –Information

3. The World Bank PREM Public Sector Governance 3 What institutions matter? Formal and Informal Rules –Laws and regulations Constitutions, fiscal, budget, procurement, civil service, special funds, sector laws, public enterprises, mandatory spending Process –Policy –Planning –Financial/resource management Organizations and their roles Information

4. The World Bank PREM Public Sector Governance 4 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 Institutions Reports and financial statements Audit system Project monitoring Project appraisal Resource allocation Liquidity management Expenditure control Monitoring & controlling Post event review Accountability Expenditure review Financial management system boundaries Source: Adapted from Integrated Financial Management. Michael Parry, International Management Consultants Limited. Training Workshop on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997. Expenditure Management Cycle

5. The World Bank PREM Public Sector Governance 5 Budget and Policy Execution System in Hungary (1999)

6. The World Bank PREM Public Sector Governance 6 Three Objectives of Public Expenditure Management Systems Macrofiscal discipline and stability –Support economic growth and stability (and reduce poverty) –Avoid public finance crises Strategic allocation of resources –Match government policy with programs, objectives And assure social safety nets, and promote growth Technical efficiency –Getting the most from each zloty spent And just delivering core services Framework

7. The World Bank PREM Public Sector Governance 7 Rules and Outcomes Source: World Bank – OECD budget procedures database at http://ocde/dyndns.org/http://ocde/dyndns.org/ Application

8. The World Bank PREM Public Sector Governance 8 Informal Rules Dominican Republic Budget Deviation, 1996-2000 Identifying sources of weakness for further investigation Identifying incentives at work Source: Dominican Republic PER 2003, background data Application

9. The World Bank PREM Public Sector Governance 9 Dominican Republic Budget Deviation (ratio of executed to approved budget) Identifying trends for transparency Source: Dominican Republic PER 2003, background data Application

10. The World Bank PREM Public Sector Governance 10 Roles and Information Republic budget revenues have performed closely to budget estimates, owing in large part to ZOP efficiency in revenue collection. Between 1995 and 2001, actual revenues collected averaged 99 % of planned levels. (This excludes own revenues and other off-budget revenues.) Republic expenditures have been less successfully contained. Between 1996 and 2001, actual Republic expenditures averaged 106 % of planned expenditures, with the variation growing to 119 % for 200 and 117 % for 2001. The Pension Fund has run a deficit in five of seven years between 1995 and 2001. The Health Fund has run a deficit in three of the last seven years, broke-even in three years, and had a surplus one year. The financing gaps requiring Republic Budget or other nonsocial contribution support has been increasing. Source: Serbia and Montenegro PEIR 2003, Volume III Montenegro Application

11. The World Bank PREM Public Sector Governance 11 Information Technical efficiency In terms of technical efficiency, as with the Federal and Republic of Serbia systems reviewed in Volume 1, we have no detailed numbers on costs per unit of service delivered, or comparative procurement costs. However, a proxy measure is variation in aggregate budget position. For 2000, the wage bill variation from approved budget, by budget users, was 15 percent, ranging from a high of 42 % above budget for the Ministry of Justice to a low of 54 % below budget for the Customs Service. This degree of volatility in funding levels undermines effective program implementation. Budget users cannot plan in advance, focus on program effectiveness, efficiency, or improved productivity, if they are spending most of their time battling arrears or having no funds to operate their program. Source: Serbia and Montenegro PEIR 2003, Volume III Montenegro Application

12. The World Bank PREM Public Sector Governance 12 100 clinics, but only 70 operating 10 built with donor funds, donor funds off-budget Budget not comprehensive 10 built with domestic funds, capital budget separate Budget fragmented 10 funded in budget, but no cash allocated to operate Cash triage Donor ring-fencing for “accountability” Line ministry gets flexible resource pool Local staff seek higher PIU pay Above-the- waterline observation WHY? Weak budget law Too rigid budget executionLow public pay WHY? And what can be done about it? Exploring problems

13. The World Bank PREM Public Sector Governance 13 Additional information is available on the Public Expenditure website: http://www1.worldbank.org/publicsector/pe/index.cfm Q&A