ICGFM Promotes Knowledge Transfer Among Public Financial Management Experts

Working globally with governments, organizations, and individuals, the International Consortium on Governmental Financial Management is dedicated to improving financial management by providing opportunities for professional development and information exchange.

Friday, May 29, 2009

May 2009 Aid Effectiveness and Accountability Newsletter Available

The U.K. Department for International Development has published the May 2009 Aid Effectiveness and Accountability Newsletter. Highlights include:

  • Updated Guidance on Implementing the UK’s Conditionality Policy.
  • Reliable Statisitcs for Policy Making.
  • Report published on DFID’s engagement in fragile situations.

Middle East Government Accountability Summit 2009

Conference Scheduled for November 2009 in Abu Dhabi, United Arab Emirates

Organized by TCQ Triangle. "The event is still in planning and production stage and the speakers will be a mix of reputed International experts from USA and Europe as well as senior Government officials in the Middle East region. The delegates for the conference will be senior Government officials from UAE, Oman, Saudi Arabia, Qatar, Bahrain, Kuwait, Jordan, Egypt etc.".

Tuesday, May 26, 2009

OBI Response to Blog Posting

Editor's Note:

There was some controversy at the 23rd Annual ICGFM Conference surrounding the assessment of the Government of Honduras by the Open budget Initiative. Mr. Vivek Ramkumar had summary data on hand when he received questions at the conference. He has kindly provided ICGFM with a comprehensive answer.

As the manger of the International Budget Partnership’s (IBP) Open Budget Initiative, I would like to respond to the ICGFM’s headline (“Is the Open Budget Initiative Rating Accurate?”) for its May 20th blog posting of my responses to questions on the Open Budget Index 2008 (OBI) findings raised at its recent meeting in Miami, Florida.

The Open Budget Index 2008 is a comparative measure of the overall commitment of the governments in 85 countries to budget transparency. The OBI 2008 is calculated using a subset of data collected through the Open Budget Survey 2008—a comprehensive analysis and survey that evaluates whether central governments give the public access to budget information and opportunities to participate in the budget process. The Survey also examines the ability of legislatures and auditors to hold their governments accountable.

The Survey is implemented through a rigorous data collection and review process that spans nearly two years. Although the Survey is based on a questionnaire, it is not an opinion poll. All researchers’ responses to the 123 questions in the survey must be based on verifiable evidence, such as reference to specific budget documents, the country’s laws, or documented communications with government officials.

Within each country, a researcher or team of researchers, who are drawn from civil society or academia and are independent from the government and political parties, complete the survey and provide the required evidence for their answers. Their work is analyzed and reviewed by IBP staff to cross check it against available information. This include those budget documents that countries made available on the Internet, data collected by the Bank Information Center (a Washington, DC-based nonprofit that monitors the activities of international financial institutions); the International Monetary Fund (IMF) Reports on the Observance of Standards and Codes (ROSCs), covering fiscal transparency; IMF Article IV reports; World Bank documents and publications, including Public Expenditure Reviews; and the Organization for Economic Co-operation and Development-World Bank budgeting practices database.

Next, the completed questionnaire for each country is subject to a thorough peer review by two in-country budget experts, who were independent of both government and the researcher’s institutions.

Finally, governments were invited to comment on the completed questionnaires prior to publication. The decision to extend an invitation to a government to comment was based on a request by the research organization that completed the questionnaire for that country. In total, 61 countries were invited to participate. (For more details on the Survey’s methodology and findings, visit www.openbudgetindex.org.)

In addition to the thorough review process, IBP also conducted two further tests to check the reliability and robustness of the data. First, the Survey results were compared with the results of other indices of governance and transparency to see how the Survey fares as an overall indicator of the governance situation in a country. The Survey results showed a strong, positive correlation with the World Bank’s World Governance Indicator on Voice & Accountability (0.737), the Global Integrity Index produced by Global Integrity (0.681), and the Democracy Index produced by Freedom House (0.691). These positive results suggest that OBI is a relatively good proxy for broader measures of governance and the quality of institutions in the countries covered.

IBP also constructed a “unanimity score,” a measure to capture the degree of debate between the researcher and the two peer reviewers responsible for completing the questionnaire in each country. The scores for this Measure of Unanimity are available in the Survey report at http://openbudgetindex.org/files/FinalFullReportEnglish_lores.pdf.

The Open Budget Survey is intended to provoke public debate about budget transparency, public participation in budget debates, and accountability of budget institutions. As such, the research process frequently results in debate among the experts in the country responsible for completing and reviewing the questionnaires about important public financial management topics. IBP attempts to capture this debate through the “unanimity score” and by publishing within each questionnaire the exchanges between researchers and reviewers that led to the selection of a final answer to each Survey question (available at www.openbudgetindex.org).

Since the February 1, 2009, release of the Survey, challenges to OBI 2008 scores have come almost exclusively from governments that earned low scores. I am happy to report that in some cases these governments have made positive changes that should result in more budget information being available to the public. However, since these changes were made after the cutoff date (September 28, 2007) for data collection for the 2008 Survey, these efforts were not reflected in their OBI 2008 scores. If these efforts are sustained, though, they will be reflected in higher scores on the next round of the Open Budget Survey in 2010.

As I explained in my video response to the questions raised by the representative from Honduras about his country’s low OBI 2008 score, there are specific actions that the government could take that would improve their performance. Honduras’ OBI 2008 score of 11 out of a possible 100 is primarily due to the fact that as of September 27, 2007 the government did not produce a Pre-Budget Statement that outlines the macroeconomic framework of the budget, a Citizens Budget (a presentation of the budget that is delivered in a way that is easily understood and widely accessible), or a Mid-Year Report that compares the actual expenditures and revenues to those budgeted. The government did produce an Executive’s Budget Proposal but did not release it to the public. By producing and making these documents available to the public, Honduras could raise its OBI score significantly by 2010. A relatively quick and low-cost first step would be to post the Executive’s Budget Proposal, which is already being produced for internal purposes, on the government’s website. A summary of Honduras’s results on the Open Budget Survey 2008 is available at http://openbudgetindex.org/files/cs_honduras.pdf and the completed questionnaire for the country can be found at http://openbudgetindex.org/files/IBPQuestionnaire2008Honduras.pdf.

Finally, I would like to reiterate the point I make in the video that the IBP believes that governments must be strong and effective to meet the needs of their people, particularly the poor. This belief drives the Open Budget Initiative, which seeks not only to measure levels of budget transparency and accountability at particular points in time but also to provide guidance on how to improve.

Sunday, May 24, 2009

Announcement: DC Forum, June 3 - Managing Risk When Operating in Conflict and Post-conflict Environments

Managing Risk When Operating in Conflict and Post-conflict Environments

Fascinating insight into the risks, challenges, and accountability issues associated with providing relief and development programs in conflict and post-conflict areas around the world

The June 3 DC Forum, sponsored by Mosley and Associates, to be held at the Carnegie Endowment will provide fascinating insight into the risks, challenges, and accountability issues associated with providing relief and development programs in conflict and post-conflict areas around the world
Dr. Arthur B. Keys, Jr., President and CEO of International Relief and Development will speak about operating in regions of the world that present social, political, and technical challenges, IRD particularly specializes in helping communities going through and coming out of conflict and war to recover and improve.

Sponsored by Mosley and Associates

Closing Remarks from 23rd Annual ICGFM Conference

ICGFM 23rd Annual Conference on Governmental Financial Management
Country Perspectives on Public Financial Management
During Global Economic Uncertainty

Closing Remarks
Jim Ebbitt, President
May 22, 2009

On Monday, we began the conference with a discussion of the issues leading to the current economic outlook. Interestingly, while our speakers outlined the severe economic crisis around the world, they also expressed optimism that the world economy would recover. We also learned about a new word coined by David Walker, former Comptroller General of the United States, and currently President of the Peter G Peterson Foundation. That word is laggardship, or the opposite of leadership. Mr. Walker indicated that there was too much laggardship and not enough leadership in making the right decisions that impact the world’s economy.

On Monday afternoon, we began a series of discussions on the tactics we can use to address the financial management issues resulting from the economic crisis. We also discussed the budget process and the importance of communicating the budget to citizens in a clear and transparent manner.

On Tuesday, we discussed the role of the news media in Public Financial Management (PFM). We noted the importance of a strong and independent media to bring transparency to the financial crisis, and the impact the crisis is having in general, and the importance of the citizens being informed about the issues.

We also heard from several countries, the Republic of Kosovo, Malawi, and Nigeria, of their responses to the financial Crisis. We discussed the need for making Government more transparent so that citizens are better informed of the economic issues impacting their daily lives. For this perspective, we had reports from Brazil and Uganda.

On Tuesday afternoon, we had a lively discussion on Public Private Partnerships (PPPs) and how the financial crisis has changed the market for PPPs. One of our speakers presented a view that PPPs were very important in the current financial arena, while the other felt that PPPs were not the best way to go because in the final analysis, government was generally responsible in the end for whatever the project being handled by the PPP was trying to accomplish, and if the PPP was not successful, the government remained responsible.

On Wednesday, we discussed budgeting in a time of crisis, and received a report on the Canadian perspective on an economic stimulus package. And on Wednesday afternoon, there were several special interest sessions for conference participants. One in particular sparked a lot of interest, that being a discussion on establishing a new international organization for Comptrollers General. There was also a demonstration of the “Aid Management Platform” which is a _e-government solution for tracking and reporting on official development assistance.

On Thursday, we discussed the importance of financial management systems and having the necessary technical support for those systems in order to provide strong financial oversight, and provide support for good financial stewardship. We also had two technical sessions on Public Expenditure Financial Accountability (PEFA) assessment process. Conference attendees participated in work sessions designed to assess financial accountability using the PEFA assessment process.

On Friday, we continued our discussions with an address by Pamela Bigart, Lead Procurement Specialist of the World Bank, on Public Procurement Reform and Importance in the Current Economic Climate. This excellent discussion on public procurement systems was then followed by a case study of a procurement assessment in Chile.

In summary, I thank all of the conference organizers and those who worked very hard to make this conference a success and all of the conference participants for their participation and observations during the conference. Thank you to all ICGFM members for their participation, invited those who are not yet members to join, and invited all to ICGFM’s Monthly Forum series in Washington D.C. and to the next ICGFM Winter conference in Washington D.C. to be held December 2-4, 2009.

Friday, May 22, 2009

What Goes on at an ICGFM Conference?

The 23rd Annual Conference came to close earlier today. Conference delegates

The 3 Critical Considerations for Public Procurement Reform

Jorge Claro, President and CEO of the International Procurement Institute, describes the three main factors to consider when developing a public procurement reform project.

Public Financial Management Key to Overcoming the Financial Crisis

ICGFM surveys delegates at conferences to determine the state of public financial management. The surveys at the 23rd Annual ICGFM Conference presented interesting evidence of a renewed focus on public financial management reform because of the financial crisis. PFM professionals from over 40 countries participated in the Miami conference. The largest contingent of delegates came from Africa.

Most of the participants are public servants from emerging countries. These participants believe that public financial management reform has become more critical because of the crisis. The surveys suggest that many countries are facing similar challenges and can learn from each other. Most use the ICGFM and other PFM conferences to learn and execute good practices (63%). The lack of political will was noted in numerous polls as the first or second most important barrier for reform. Nevertheless, the majority of delegates come from countries with formal PFM reform programs (68%).

Important Role of Public Financial Management Reform in the Financial Crisis
ICGFM delegates believe that government financial experts have an important role in identifying financial issues (92%). The delegates believe that the G20 can do more to overcome the financial crisis (70%).

The majority of countries represented at the conference have formal PFM reform programs (68%). Increased transparency (30%), improved budget expenditure (26%) and improved accountability (24%) were cited as major factors encouraging reform.

The most important resources needed by countries for PFM reform include employee training (32%) and automated financial management systems (24%). When asked to determine the most important type of technical assistance required, the implementation of an Integrated Financial Management Information System received twice as many votes (33%) as the number two choice, from 10 choices.

PEFA assessments have been carried out in many of the countries represented at the conference. Most respondents (72%) believe that PEFA assessments can improve PFM reform.

International Changes Required
The emphasis should be on green growth (70%) according to the majority of delegates at the conference. Somewhat more than half believe that the IMF and World Bank need to undergo reform as well as countries (57%). Many believe that there should be an international regulator (56%), but most believe that national governments will be reluctant to allow this (70%).

Common Problems and Solutions
ICGFM delegates believe that the financial crisis will continue for two years or more (77%). Most indicated that their country faces similar challenges as the United States (72%). Most have a local banking crisis (59%) that is reducing domestic financing for infrastructure (68%). Most countries represented (60%) have developed a stimulus program.

Public Private Partnerships were discussed as a solution to find more financing (40%), although many (23%) thought that PPPs are created for political reasons.

Some countries are seeing a reduction in donor funds since the financial crisis (39%). Most agree that there is poor aid coordination (68%).

Country legislative branches require more budget expertise (60%) according to delegates.

Transparency and Accountability
Transparency and accountability issues were discussed. Most delegates believe that their government does not adequately communicate with the local media (67%). More believe that the local media does not adequately report local economic events (74%).

More than half of delegates say that governments do not effectively inform the public about public spending (55%). This lack of effectiveness is attributed, most often, to a lack of political will (62%). Yet, transparency and accountability represents 2 of the 3 leading motivators for PFM reform, according to delegates.

Procurement Assessment Case Study - Chile

Jorge Claro of the International Procurement Institute presented a case study of a procurement assessment of Chile at the 23rd Annual ICGFM Conference. The Country Procurement Assessment Report (CPAR) process began in 2007, but a comedy of errors resulted in bureaucratic delays of a year. Mr. Claro discussed the best time, within the election cycles, to assess procurements.

Mr. Claro described the complicated political setting in Chile. He cautioned that an effective assessment needs to go beyond the procurement personnel to senior members of the government.

The OECD/DAC benchmarking tool is not a perfect methodology, but it has a common vocabulary. Mr. Claro found that country personnel focused on the grading. Donors tell them not to worry about the grading, yet they worry about the grading.

The OECD/DAC methodology is highly participatory, according to Mr. Claro. A good practice is to identity stakeholders, including engaging the press and Transparency International The tool represents a serious investment of time and resources, and the participation of many public officials requires political will. It is not cheap to assess the procurement process.

No one thinks of investments in procurement as investments. They look at it in terms of expenses, even though the investment can have good results.

Mr. Claro is concerned about the message of the procurement assessments to governments.
When systems are perceived as poor, Governments are more amenable to finding problems and identifying solutions Yet, when systems are perceived as adequate, governments prefer not to identify issues and leave the system as-is, as priorities lay elsewhere. Yet, procurement processes can be very much improved to gain efficiencies and value for money. He found that Paraguay was much more interested than Chile to change processing.

The methodology is hard in that items are rated 1, 2 or 3. Consultants found that the real rating should be 1.5 or 2.5, yet there was no facility to articulate this. The political nature has caused frequent drafts of the final report.

Mr. Claro suggests that, although the exercise was successful, opportunities for a more in-depth discussion on present and future issues and further refinement of the system could, perhaps, have been exploited further

Mr. Claro explained that procurement reform in any country is 1)political, 2)political, 3)political

OECD / DAC Benchmarking Tool for Public Procurement

Pamela Bigart of the World Bank introduced the OECD/DAC benchmaking tool for public procurement at the 23rd Annual ICGFM Conference. This tools is based on broadly accepted international tool. It was attended to achieve good practices in many countries across a spectrum of capacity.

The benchmarking tool has been used in over 50 countries and enables self-assessments. The tool analyzes elements of public financial management such as budgets and controls because of the impact on the procurement process. It also integrates with PEFA assessments. It is a qualitative assessment rather than a performance assessment.

The OECD/DAC tool covers four pillars:
  • I – Legislative and Regulatory Framework
  • II – Institutional Framework/Management
  • III – Operations and Market Practices
  • IV – Integrity and Transparency

Ms. Bigart described the 12 indicators and 54 sub-indicators.

She cautioned about poor procurement practices including not paying vendors on time. This increases the cost because vendors recognize the long payment cycles. Some governments start projects without sufficient budgets. This causes projects to be abandoned. Budget and procurement systems should be integrated.

Ms. Bigart pointed out some other poor practices including lax contract administration and no delegation of procurement responsibility. The private sector and civil society should be enabled to question government procurements.

Lessons learned from the use of the OECD/DAC benchmarking tool includes:

  • The tool is useful and relatively easy to use
  • Standardization through the tool creates need to use flexibly in a given country – may require some customization and interpretation
  • Some indicators will require adjustment after experience from over 40 countries
  • Use of the tool is an input to a process so scoring is not as important as the information learned
  • Results of any benchmarking exercise needs to be more clearly linked to other tools like PEFA
  • Reform strategy must be integrated and prioritized on the basis of overall public sector management and public financial management strategy

Public Procurement during Financial Crisis

Pamela Bigart from the World Bank is passionate about public procurement. Ms. Bigart described the trends of public procurement during the financial crisis at the 23rd Annual ICGFM Conference.

Ms. Bigart stated that public procurement represents 10% to 15% of GDP in many countries. Procurement can range as high as 70% of government budgets. She indicated that governments are trying to invest more in infrastructure and to stretch budgets to do more with the current financial crisis. Making procurement more efficient translates to obtaining more value for money.

Ms. Bigart indicated that most public procurement systems focus on rule compliance. She noted that the purpose of procurement is to achieve a net service delivery.

Ms. Bigat described how public procurement increases business confidence and acts as a vehicle for foreign investment. These companies often partner with local companies to help build capacity. However, many countries are developing trade restrictions. She noted that the United States has been using a "buy American" program. Some countries are not following trade agreements. Although trade preferences sounds like a good idea, it is not sustainable in the long term. Companies that have an advantage within a country are often unable to compete globally.

Ms. Bigart described the difficulties in calculating value for money. The World Bank has had difficulty finding appropriate measurements. Most public procurement tends to focus on the initial cost and whether the cost is competitive.

Procurement officers are often viewed as clerical staff who insist on running to the rules. This can often result in delays to important and critical services. Emergency situations mean that organizations like the World Bank needs to lend more quickly and be much more flexible in rules in order to achieve service results.

Many systems are focusing less on the input side such paying for goods, works or services, to a focus on the service delivery side, according to Ms. Bigart. Focusing on results often brings in the community to determine the quality of service delivery.

Ms. Bigart says that the private sector capacity needs to be built in order to support public procurement. Many countries have transitioned from a command to a market economy. In these economies there was no notion of procurement, only public investment. Governments can help the private sector to develop. She emphasized that competition creates efficiencies and enables companies to complete globally.

Ms. Bigart described how Public Private Partnerships (PPPs) can enable building private sector capacity. She believes that this reduces the burden on the government to raise money. Many countries do not have an appropriate legal structure to handle PPPs.

A fair, open, and transparent public procurement environment is required to achieve competitive proposals, according to Ms. Bigart. Good governance encourages more companies to bid on public tenders. She advocates publishing procurement information and procurement rules as a quick win. This information should be user friendly.

Many countries are opening up their budget information that helps the private sector to understand future procurement opportunities, according to Ms. Bigart. It is a good and early source of information for the private sector.

Ms. Bigart says that investments in procurement technology such as publishing tenders has resulted in better service delivery, even in countries under stress. Data collected with procurement technology can provide analytical insight to improve procurement processes. Management and automated controls assist in providing sound and efficient systems. She advocates the integration of procurement and government financial management technology. Controls enable governments to manage to the budget and be able to pay vendors on a timely basis.

Lessons learned from public procurement include:
  • Procurement is linked as part of Public Financial Management reform
  • Procurement reform costs money and takes time
  • Some reforms can deliver results in the short term
    Reform cannot be effective if isolated from broader public sector management and financial management reform
  • Reforms require long term commitment to achieve sustainable results

Ms. Bigart described "pork barrel politics", earmarks and "road to nowhere" as examples of politicians resisting procurement reform in the United States. She completed her discussion about how procurement has improved in countries under stress like Liberia and Sierra Leone. Public procurement systems can contribute to recovering faster from the global economic crisis.

Thursday, May 21, 2009

PEFA Assessment Workshops

Frans Ronsholt, Head of the PEFA Secretariat and Franck Bessette, PFM Expert at the PEFA Secretariat lead ICGFM delegates in a workshop about Public Financial Management performance assessments. A case study was introduced.

The Secretariat provides training material and a comprehensive performance measurement framework document on the PEFA web site.

Mr. Ronsholt provided an overview of the PEFA framework, the reasons behind it and what it can accomplish. He suggested that PEFA assessments do not identify root causes of poor assessments nor does it evaluate policy. Mr Ronsholt says the trend to self assessment is a good sign, but that 3rd party scrutiny is very helpful.

PEFA Case Study on Tracking Performance Progress over Time

ICGFM, PEFA, Public Expenditure Financial Accountability. Frank Besette, Frans Ronsholt

Taller sobre la aplicación del Marco de Referencia para la Medición del Desempeño en Materia de GFP

Estudio de caso PEFA- Seguimiento del desempeño a lo largo del tiempo

Atelier sur l’utilisation du Cadre de mesure de la performance de la gestion des finances publiques

Government Fiscal Risks: Sources, Disclosure and Management

Ricardo Velloso of the International Monetary Fund says that countries were growing so fast that risk was not analyzed as it should. Mr. Velloso described the sources, discloure and management for fiscal risks at the 23rd Annual ICGFM Conference in Miami.

Mr. Velloso mentioned that the current financial crisis has brought more interest in managing risks. Many countries were experiencing such high growth that there was not a signficant effort to manage risk.

Mr. Velloso said that fiscal risks could be defined as deviations of fiscal outturns (deficits, debt/GDP) from expectations at the time of the budget and/or other fiscal forecasts.

The IMF World Economic Outlook has shown a broad deviation in debt to GDP ratios. Deviations are larger in emerging economies. Mr. Velloso suggests that there are two categories of major risks: macroencomic shocks and contingent liabilities. Sources of macroeconomic shocks include real GDP growth, inflation, commodity prices, and interest and exchange rates. Contingent liabilities are obligations triggered by uncertain events and can be:

  • Explicit: defined by law or contract, such as debt guarantees.
  • Implicit: arising from government ownership of SOEs, expectations that the government will provide assistance such as depositors in event of bank failures.

Mr. Velloso says there there is often more incentive in government to hide risk. Yet there are many important benefits to dsiclose this rick. This can increase confidence and reduce uncertainty for investors and taxpayers. He conclused that there is a trend, internationally, toward greater disclosure.

Mr. Velloso warned that governments must recognize that a narrow definition of the budget does not cover other affects. The IMF is advocating that governments accumulate risks in a single document or statement. He warned that Public Private Partnerships, State-Owned Enterprises and Sub-national governments tend to provide additional risk profiles.

Additional material on this subject is available from Mr. Velloso's posting on the IMF PFM blog.