Capacity Development in Public Finance Reforms: The Approach of GTZ

1. Capacity Development in Public Finance Reforms: The Approach of GTZ Presentation at the 2nd Meeting of Senior Budget Officials in Central and Eastern Europe Ljubljana, February 17-18, 2006 Matthias Witt

2. 6/25/2012 Overview Introduction: Why Good Financial Governance? The Overarching Objective: Good Financial Governance A Systemic Perspective on Public Finance Steering Reforms: Capacity Development in Public Finance

3. 6/25/2012 1. Introduction: Why are we talking about  Good Financial Governance? Senior Budget Officials are often at the centre stage of comprehensive reform initiatives which have a political impact. The Senior Budget Officials initiative from our point of view is extremely helpful to discuss and compare the content of reform initiatives. This contribution is meant to share preliminary insights into reform patterns, including the strategic objective of why reforms had been initiated. Why GTZ? The German government assists since more than 25 years partner governments worldwide in their reforms in public finances through providing expertise (technical cooperation) or financial means (financial assistance). The content of reform processes is usually politically highly contentious. However, comparing reforms internationally, there are requirements / standards for reform processes, and also certain experiences regarding patterns of reforms. The content of reform processes is usually politically highly contentious. However, comparing reforms internationally, there are requirements / standards for reform processes, and also certain experiences regarding patterns of reforms.

4. 6/25/2012 2. The Overarching Objective:  Good Financial Governance Good Governance means a conducive political framework for social, economic and environmental development, as well as the state�s responsible use of political power and public resources. Responsible and transparent management of public resources depends on proper policies for revenue collection, resource allocation and their control by audit institutions and legislatures. Functioning systems of public finance are thus a prerequisite of a country�s successful development and poverty reduction. Good Financial Governance matters both as a means towards better public sector performance, but also as and end in itself, being a central element of good governance in general.

5. 6/25/2012 Core Principles of  Good Financial Governance (1) Legitimacy and voice: The totality of decisions, rules and regulations of the state must be legitimized by democratic rules. Particularly relevant for revenue collection, where legitimacy depends on equitable tax policy, while successful revenue collection depends on legitimacy of the state (�compliance�), and budgeting, where oversight and control of elected representatives is crucial, as is a fiscal policy that provides public goods and services for all citizens.

6. 6/25/2012 Core Principles of  Good Financial Governance (2) Accountability: Holding individuals and organizations accountable for their performance. First of all requires transparency of public finances. Needs various mechanisms and organs of internal/ administrative and external control, including audit institutions, legislatures, civil society and media. Centers on the budget as the comprehensive expression of a government�s priorities. The more activities are run off-budget, the weaker is transparency, the higher is the potential for corruption and the lesser is the scope for democratic control.

7. 6/25/2012 Rule of Law: Requires all actions by the state to be embedded in a fair and impartial legal framework. Rule of law secures trust and predictability in public finances as all activities of public finance policy and management have to be based on democratic laws. Development orientation of the government: To turn reform advances into benefits for the population. Underscores the importance of a fair tax system. Depends on a sound macroeconomic framework. Puts public management for development results at center stage. Requires new ways to manage public spending and eventually a new �culture of results� in the public sector. Core Principles of  Good Financial Governance (3)

8. 6/25/2012 Core Principles of  Good Financial Governance (4) Performance: Public sector institutions deliver public goods that meet the needs of the population while making the best use of resources. Increased performance of institutions depends on advances in three areas: decision making, implementation and control. Raising performance cannot be achieved by implementing adequate technical procedures and information systems alone. Raising performance requires a systemic process of capacity development.

9. 6/25/2012 3. A Systemic Perspective � sees Public Finance as a complex system, which is: a central part of any country�s public sector, divided into several interrelated subsystems, linked in various ways to its environment. � focuses on processes and linkages between actors, not on individual instruments or actors.

10. 6/25/2012 The System of Public Finance and its Subsystems