Liberia PFM Reform Experience in SSA Elements and Practices

1. Liberia PFM Reform Experience in SSAElements and Practices By Florence Kuteesa Public Financial Management Division 24 February 2011

2. OUTLINE OF PRESENTATION • Context • Main Elements and Practices of the PFM System • Discussion on issues regarding reform agenda

3. Context of Recent PFM Reform Initiatives (1) • Late 1990’s, early 2000’s attention began to focus more on poverty reduction in Low Income Countries in Africa: • to address the “missing link between public expenditure and poverty reduction”. Development or poverty reduction strategies Mobilization & allocation of resources Desired outputs and outcomes ?????? Transformation mechanism Are the expenditures translated into enhanced access to improved service delivery ?? ???

4. Context of Recent PFM Reform Initiatives (2) • Increasing adoption of Budget Support as a preferred modality of aid mobilization: • Effectiveness in use of donor resources • Enhance credibility of national budget • Increasing recognition that PFM systems would have to be strengthened to support the implementation of fiscal consolidation or adjustment measures: • Reliable macro-fiscal forecasts(revenue and expenditure estimates) • Enhanced expenditure management- better cash management and in-year fiscal reporting.

5. Main Elements of the PFM System • Macro-Fiscal Policy • Accounting • & Audit • Roles, Responsibilities& Oversight • Budgeting • Treasury Management

6. Main elements of the PFM system Main Elements Key Areas of concern Cabinet Secretary/Finance & Principal Secretary/Treasury Accountant General, Accounting Officers, County Treasurers, Rev. Collectors Internal Auditor General, Internal Auditors, Audit Committees Auditor General & Controller of the Budget Parliament, Parliamentary Budget Office, County Assemblies • I. Roles & Responsibilities Principles/rules: Stability, sustainability, responsibility Content & presentation of fiscal strategy Reporting of fiscal performance Fiscal discipline • II. Macro-Fiscal Policy Principles: Comprehensiveness, annuality, specificity Calendar for budget preparation & approval Budget policy statement & budget documents Unit of appropriation and virement & carryover rules In year reporting, contingency reserve, supplementary & excess vote • III. Budgeting Principles: Unity, efficiency, timeliness Treasury Single Account, banking arrangements & cash management Authority to commit & spend public funds Borrowing, guarantees, lending, on-lending & sale of assets • IV. Treasury Management Principles: Transparency, integrity, accountability Coverage, standards & timetable for production of accounts External audit & timetable for production of audit reports Scrutiny, timetable for completion of scrutiny & follow-up • V. Accounting • & Audit

7. Clarity of Roles and responsibilities • The government sector should be distinguished from the rest of the public sector and from the rest of the economy, • Policy and management roles within the public sector should be clear and publicly disclosed. For example: • Relationships between the government and public corporations should be based on clear arrangements. • Government relationships with the private sector should be conducted in an open manner- following clear rules and procedures. • There should be a clear and open legal, regulatory, and administrative framework for fiscal management.

8. Coverage of Government/Fiscal operations

9. Extent of Institutional Coverage in Africa

10. Components of a Macro-fiscal function….. • Macroeconomic modeling and fiscal projections- provides a basis for forecasts of fiscal aggregates used in annual budget preparation and fiscal policy formulation • Macro-fiscal policy analysis- entails setting fiscal policy objectives and targets, so as to align fiscal policy instruments in line with macroeconomic objectives • Fiscal analysis- examination of potential differences between expected and actual fiscal outcomes. • Monitoring and reporting on fiscal developments: regular reports on macro-fiscal trends & prospects needed to inform government of policy measures required to address impending fiscal imbalances.

11. Open budget process • Budget preparation should follow an established timetable and be guided by well-defined macroeconomic and fiscal policy objectives. • Comprehensiveness and unity • Unity of budget is a basic principle • Extra-budgetary (ear-marked funds including donor funds) classified on the same basis as overall budget • Financial reports of government activities should consolidate the operations of EBFs, SAGAs

12. Common practice: Medium term planning and the annual budget Timing Element Content Principles of fiscal management Fiscal rules and procedures Escape clause, sanctions Fiscal Rule or FRL Permanent 3-5 Year macroeconomic forecast 3-5 Year fiscal forecast Fiscal risk analysis Medium-term fiscal target Medium-term Fiscal Strategy FY 3-Year expenditure ceiling 3-Year ministerial allocations Contingency & planning margins Performance indicators/targets Medium-term Expenditure Framework FY Budget Orientation Debate Scrutinize macro forecast Vote MT fiscal target Vote expenditure ceiling FY Updated 3-5 Year MTFS & MTEF Explanation of changes from MTFS/MTEF Detailed annual appropriations Annual Budget FY 12

13. Africa: Budget Timetables

14. Treasury Management Practices“Good Practice” features of a treasury management system Objective: To facilitate the efficient execution of the budget • Annual cash flow plans based on line ministry work plans and procurement plans, aligned to achievable revenue inflows • In-year rolling cash flow plans with daily projections for next month, aligned with macro-economic and fiscal conditions • Minimized idle cash and optimized borrowing Timely availability of resources through • Annual deficit borrowing optimized against annual cash flow plans and market conditions • In-year liquidity borrowing and short-term investments of surplus cash aligned with cash flow plans • Mix of instruments for optimal liquidity management Harmonized cash & debt management supported by • Comprehensive commitment control system which informs on future spending and reserves funds • Timely recording of invoices and standard payment terms • Banking arrangements that support treasury control of cash • Adequate and timely information on budget execution Robust budget execution Result: Credible Budget, Value for Money, Effective Service Delivery

15. In-year fiscal reporting …. • Timeliness of reports- serve as early warning systems. • Comprehensiveness of Coverage • Relevance and strategic orientation – to influence budget (spending or allocation)decisions • Access to published information

16. Frequency of In-Year Reporting: Practices Source: CABRI 2008

17. Assurances of Integrity: Role of Audit and Oversight Institutions • Fiscal activities should be subject to effective internal oversight and safeguards • Internal Audit: focus shifting from “pre-audit” to risk-based & systems audits. • Fiscal information should be externally scrutinized. • External Audit: roles, responsibilities and powers. • Parliamentary oversight committees: • Public Accounts Committee • Public Investment Committee • Local Government Accounts Committee

18. Comparative analysis of budget management within Africa

19. Some of the key challenges to prioritization and sequencing of PFM reform agenda: • Limited understanding of issues and inadequate exposure on reforms to, a large extent, adversely affects the decisions regarding design, order and timing. • Promoting coherence within overall PFM- high level issues and priorities - remains a challenge, even in cases where PFM strategy exists. • Inadequate coordination of donor-funded reforms prevent a logical sequencing of reform actions. • PFM reforms are hardly integrated within Public Service Reforms, and if tried, integration is not sustained.

20. Inter-dependence is a critical dimension in sequencing and prioritization of reform agenda Public Service Reforms PFM Budget Preparation ( Interdependencies ) Interface Treasury

21. THANK YOU