The International Consortium on Governmental Financial Management (ICGFM) maintains this public financial management blog. The focus is on PFM reform in emerging countries by addressing issues such as transparency, integrated financial management information systems, international donor funding, auditing, cash management, procurement, public private partnerships
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Showing posts with label aid effectiveness. Show all posts
Showing posts with label aid effectiveness. Show all posts
Clement Ncuti, Budget Advisor, Rwanda, described the challenges facing the government in aid effectiveness at the ICGFM Winter Conference. These included:
Human and institutional capacities
Predictability because of aid conditionality
High transaction costs
Requests for unstructured data from donors
Lack of alignment with government priorities
Mr. Ncuti described the Rwanda aid effectiveness policy. He warned that the challenge is to implement the policy. Lessons were learned to improve the effectiveness of the policy after implementation. Aid effectiveness must be country driven in order to be successful.
The aid effectiveness policy goals of the Government of Rwanda are:
Use of reliable country systems
Alignment to national priorities
Strengthening local capacities
More predictable aid
Untied aid
Use of common arrangements
Results-oriented frameworks
Mutual accountability
Mr. Ncuti described the institutional framework in Rwanda for aid policy implementation. He described the criteria for placing aid on budget and the process of aligning aid to country priorities. Medium Term Expenditure Framework (MTEF) is used in the creation of budgets. The Government of Rwanda uses the Development Assistance Database (DAD) and an in-house Integrated Financial Management Information System. These systems are not integrated.
The key lesson learned, according to Mr. Ncuti is the need for mainstreaming of an Aid Policy requires extensive input and ownership over the policy from across government at both technical and political levels
Tithokoze Samuel, Principal Budget Officer, Ministry of Finance, Malawi, describes the financial management systems in use at the ICGFM Winter Conference. She described the Integrated Financial Management System (IFMIS), use of Treasury Single Account (TSA) and expenditure management.
Ms. Samuel described the limitations of the IFMIS. Many transactions are not controlled by the IFMIS including domestic revenues, domestic debt, external loan, donor projects, payments at the council level. This information is uploaded from other information systems, although the data transfer tends to be a month late.
Ms. Samuel described the footprint of donor aid in Malawi. She described the use of the Aid Management Platform. The Government Chart of Accounts tracks donor support in the budget. However, she pointed out, donors have many different unique codes. She described the four Chart of Accounts segments and the donor codes. She pointed out that getting disbursement information from donors is delayed, yet the IFMIS is real-time. She described the difficulties matching information from the IFMIS and the AMP.
Ms. Samuel hopes that donors can be encouraged to use the IFMIS for disbursements in order to get real-time effective data. The Government COA demands a lot of detail that promotes transparency and accountability, she concluded. It is imperative that cooperating partners not using country expenditure system be encouraged to do so as this reduces time required to produce expenditure reports. She stated that it is possible to track all donor financed projects in the budget and the corresponding expenditures if country systems used.
Aaron Batten, Economist, Ministry of Finance, Malawi, described why aid should be managed at the country level. He described the aid profile of Malawi including funds that are on-treasury, on-budget and on-plan.
Mr. Batten described the problems associated with low technical capacity while managing data from multiple donors within the budget cycle. The Government of Malawi had only ad-hoc information from donors with at least half of the information unavailable to the government. This undermined the budget cycle. He described the process of implementing the Aid Management Platform (AMP) to coordinate aid with the country budget cycle. The biggest challenge was to establish consistent and timely donor reporting to the government.
Mr. Batten described the advantages of using an aid management system in Malawi. Malawi was able to tailor data standards to meet country needs. Donor funds are integrated at aggregate levels, but execution by the government is at a more detailed level. He showed some of the codes.
Mr. Batten found that timely and frequent aid information from donors is more important than accuracy for effective budget control and management. Unless aid information is given to recipients in a very timely manner it is often not very useful for budget control. The Government of Malawi accepts that some of the data may be inaccurate that will need to be fixed later.
Malawi changes classifications and modernizes functions. Therefore, systems much support this type of country level of dynamism according to Mr. Batten. Data needs and priorities change and donors need to be flexible. He concluded that donors need to be responsive and accountable at the country level to enable public financial management reform. The task for recipients is to utilize this information in a way that improves public financial management.
A survey of ICGFM attendees found that almost 1/3 of countries receive no aid information from donors.
The ODI studied whether budgetary classifications, in the Chart of Accounts, used in developing countries could be consistent with an aid standards. The study examined any common ground amoung budgetary classifications.
Mr. Moon pointed out that large amounts of aid can disrupt the accountability cycle in developing countries. ODI studied information at the donor and country level. 14 countries were selected. The study examined the OECD/DACCRS and COFOG classifications.
The study focused on the organization and function codes for government charts of accounts. The study uncovered significant similarities among countries however there were limitations in the CRS and COFOG standards. Mr. Moon described some of the budget classification problems such as in the case of where police is found in the Chart of Accounts. He found that the classifications of health functions were inconsistent in the study.
Mr. Moon described the similarities found with the creation of a "spine" classification that could form the basis of a standard. He concluded that interfacing information on aid with budget systems will be country specific.
In this section we review some recent publications which may be of interest to readers of the Journal. We would be pleased to receive reviews and suggestions of other resources which we should refer to in future issues.
This note summarizes the main similarities and differences in approach and coverage of fiscal ROSCs and PEFA assessments. These are two approaches used by international bodies to assess the quality public financial management in governments, especially those in the Global South. A fiscal ROSC differs from a PEFA assessment in focusing particularly on transparency and accountability aspects of PFM systems, grouped under four pillars:
clarity of roles and responsibilities for PFM within government;
open budget processes, covering all PFM-related processes of government;
public availability of information, specifying the kinds of PFM information that should be accessible to the public; and
finally, assurances of integrity, covering issues of data quality as well as the need for and quality of external scrutiny of PFM information.
A PEFA assessment focuses primarily on the extent to which PFM systems and procedures deliver efficient and effective outcomes in the six critical areas. It covers fiscal transparency issues insofar as they affect PFM effectiveness. The emphasis is on the budget process itself, particularly in respect of the main PEFA indicator set, although PEFA assessments also include some description of the legal framework for fiscal management, reforms being undertaken, and public access to key information. PEFA assessments have also focused predominantly on low- and middle-income countries, while fiscal ROSCs have also been carried out in a substantial number of high-income countries.
Rising public health care spending remains a problem in virtually all OECD and EU member countries. As a consequence, there is growing interest in policies that will ease this pressure through improved health system performance. This report examines selected policies that may help countries better achieve the goal of improved health system efficiency and thus better value for money. Drawing on multinational data sets and case studies, it examines a range policy instruments. These include: the role of competition in health markets; the scope for improving care coordination; better pharmaceutical pricing policies; greater quality control supported by stronger information and communication technology in health care; and increased cost sharing.
This national study from the UK Audit Commission builds on the work done for the World Class Financial Management, especially financial governance and leadership, financial planning, and finance for decision making. The study will review how councils develop and use strategic financial planning tools and will help them to improve strategic financial management and links to the planning of services and other interventions. It will examine the costs and benefits of strategic financial planning, determine which approaches, if any, offer most benefits and identify the key principles of effective strategic financial and risk management.
Public Private Partnerships (PPPs) have spread from the UK to many countries, but there is increasing evidence that they may not provide value for money and the alternatives are not adequately researched. UK Ministers do not have strong evidence to show that PPPs offer the best value for money, UK government auditors have warned. In evidence prepared for a parliamentary inquiry in November 2009, the National Audit Office warned: ‘Our view is that private finance can deliver benefits, but it is not suitable at any price or in every circumstance.’ The NAO paper noted that ‘assessing the pros and cons of alternative procurement routes is especially important in the recession’. Rising costs of private finance since the credit crunch had ‘implications for their value for money’. The paper added: ‘We have yet to come across truly robust and systematic evaluation of the use of private finance built into PPPs at either a project or programme level’ – evidence that committee chair Lord Vallance described as ‘quite unequivocal’. Systems to collect comparable data from projects using different procurement routes were ‘not in place’, the paper said. ‘Unless such systems are established, together with robust evaluation of the overall whole-life costs of alternative forms of procurement, government cannot satisfy itself that private finance represents the best VFM option.’ In Nigeria the government has also seen PPPs as an important way of acquiring public investment, but again recently suffered a set-back. Plans to concession airports to private investors in a public private partnership appear to have been abandoned due to opposition from the trade unions.
Greater Aid Transparency: crucial for aid effectiveness, ODI Project Briefings 35, London: ODI Samuel Moon and Tim Williamson (January 2010) www.odi.org.uk/resources/details.asp?id=4673
This paper sets out and explores the link between donor aid and recipient country budgets, and the role greater transparency about aid can play in improving budget transparency, the quality of budgetary decisions, and accountability systems. The paper goes on to explore how current initiatives to improve aid transparency can best support better budgets and accountability in aid dependent countries. These efforts provide an important opportunity to enhance the effectiveness of both the recipient governments’ own spending and the aid they receive from donors. It concludes that publishing better information on aid requires compatibility with recipients’ budgeting and planning systems. The research findings suggest that recipient budgets bear many similarities, but this is not reflected in current formats for reporting aid. Finally, it concludes that the poorest countries will lose out if donors do not publish aid information that is easy to link with recipient government budget systems.
Publish What You Pay (PWYP) is a global civil society coalition that helps citizens of resource-rich developing countries hold their governments accountable for the management of revenues from the oil, gas and mining industries. Natural resource revenues are an important source of income for governments of over 50 developing countries. When properly managed these revenues should serve as a basis for poverty reduction, economic growth and development rather than exacerbating corruption, conflict and social divisiveness. The PWYP coalition was founded in 2002 by a small, ad hoc group of London-based NGO representatives to tackle the ‘resource curse’ by campaigning for greater transparency and accountability in the management of revenues from the oil, gas and mining industries. Since then, the PWYP coalition has grown to become a global network comprised of community organisations, international NGOs and faith-based groups in more than 70 countries. The report discusses the origins and evolution of PWYP from 2002 to 2007. It also assesses the effectiveness of PWYP’s advocacy and policy endeavours and examines how the Coalition has operated internationally. In this sense, the report is not only a narrative of PWYP’s history and accomplishments, but a practical tool to shine a light on the strengths and challenges which face a global civil society coalition.
Carbon Trading: How it works and why it fails Oscar Reyes and Tamra Gilbertson (November 2009) Dag Hammarskjöld Foundation http://www.tni.org/carbon-trade-fails
Carbon trading lies at the centre of global climate policy and is projected to become one of the world’s largest commodities markets, yet it has a disastrous track record since its adoption as part of the Kyoto Protocol. This book outlines the limitations of an approach to tackling climate change which redefines the problem to fit the assumptions of neoliberal economics. It demonstrates that the EU Emissions Trading Scheme, the world’s largest carbon market, has consistently failed to cap emissions, while the UN’s Clean Development Mechanism (CDM) routinely favours environmentally ineffective and socially unjust projects. This is illustrated with case studies of CDM projects in Brazil, Indonesia, India and Thailand. The UN climate talks in Copenhagen discussed ways to expand the trading experiment, but the evidence suggests it should be abandoned. From subsidy shifting to regulation, there is a plethora of ways forward without carbon trading – but there are no short cuts around situated local knowledge and political organising if climate change is to be addressed in a just and fair manner. This accessible, well-researched book provides a devastating critique of both the theory and practice of carbon trading.
"There has been miserably slow progress in increasing domestic revenue in low-income countries since the 1990s. In order to find out why, this publication draws on an extensive analysis of disaggregated revenue data for low-income countries in sub-Saharan Africa, South and Southeast Asia, and Central Asia. Based on this analysis, it is contended that the reigning 'tax consensus' has placed an inordinate emphasis on boosting domestic indirect taxes, and the value added tax (VAT) in particular. These taxes cover domestic goods and services in the formal sector. At the same time, the 'consensus' has advocated eliminating import taxes (in order to liberalise trade) and lowering tax rates on corporate profits (in order to compete with other rate-cutting countries). Consequently, trade taxes have been particularly hard hit while increases in direct taxes, which cover mainly personal income and corporate profits, have generally been anaemic. Overall revenue has ended up stagnating because of the resultant reliance on boosting revenue from only one major component, i.e., taxes on domestic goods and services. The pre-eminent instrument for this purpose has been the VAT, which has replaced sales taxes (as well as import duties) in many countries.
ActionAid UK has published a report, Accounting for Poverty, to underpin its tax campaign. The report draws together a wide range of sources, some familiar and some new, to make the case for tax justice and development. One new contribution is ActionAid’s calculation that, if every developing country were able to achieve tax revenues equivalent to just 15% of national income (the OECD average is 37%, while Bangladesh raises just 8%) $198 billion per year of new money would be available to fight poverty in the poorest countries.
A Study on Gap Analysis of Indian Government Accounting with International Standards Government Accounting Standards Advisory Board (November 2008) http://www.gasab.gov.in/pdf/Gap_Analysis.pdf The Cash Basis International Public Sector Accounting Standard (IPSAS) may be the international standards for public sector accounting, but it cannot claim to represent best practice as it appears that not a single country has implemented this standard since it was first issued in 2003. The key problem appears to be the mandatory requirement to produce consolidated accounts which should include all controlled entities (including government companies, business enterprises and all parastatal organisations). Many countries have decided that this is not practically possible, is too onerous or would produce misleading information. This includes a number of governments who would otherwise like to have implemented the Cash IPSAS including India, Malaysia, Mongolia, Ghana, Uganda and Malta. This publication reviews the experience of the Government of India in comparing its approach to financial reporting to that outlined in the Cash Basis International Public Sector Accounting Standard. India is attempting to adopt this standard, but it does not accept some of the Standard’s key requirements, for example, the consolidation of government business enterprises and the disclosure of third party payments. On the first issue, the document actively argues against providing such a consolidation. “Though this is fundamental requirement of Cash IPSAS” it says, “it is likely to cause more distortion than bringing in clarity in the financial statements of government” (page 9). It is hope that the current review of the Cash Basis IPSAS will result in the development of a more practical standard which most governments which are not experimenting with the accrual basis will be able to use. However, what is really needed is some extensive research to identify current best practices in public sector accounting and to codify this. We need to develop international standards, from the bottom up, based on existing good practice not on pre-conceived ideas borrowed from the private sector.
Gender Budgeting: Practical Implementation Handbook Sheila Quinn (2009) http://blog-pfm.imf.org/files/gender-budgeting-practical-implementation-handbook.pdf The book’s focus is “to act as a guide to the practice of gender budgeting." It is, however, not really suited for those who have no prior knowledge of gender budgeting; there are many other publications which articulate the rationale for, the background of, and the history of gender budgeting, and a sample of these are listed toward the end of the handbook in the resources section. The handbook assumes an understanding of gender budgeting, of the objectives of a gender equality strategy, of the ways in which gender inequality manifests itself, of the need for structural change in order to tackle unintentional gender bias, and of the basics of gender mainstreaming as a strategy to address gender equality. Gender budgeting, as a tool of gender mainstreaming, cannot be implemented without a grasp of these fundamentals. Gender budget pilot initiatives have over the years brought about a new and deeper understanding of gender issues. Adopting a gender budgeting strategy requires prior experience in addressing gender equality. The chapter, "How to do Gender Budgeting" starts by discussing the type of experience and conditions that need to be in place in order to engage with gender budgeting. The temptation in using this handbook might be to skip these sub-sections and move ahead to the text dealing with specific tools and approaches. There is a considerable demand for specific tools, for the ABC of what to do, so to speak. However, the fundamentals cannot be by-passed or short-circuited. This is particularly the case if the practice of gender budgeting is to move beyond an analytic exercise to a mainstreaming strategy. The experience of many practitioners is that, since the tools need to be adapted, it is most important to focus on developing an approach based on local circumstances. The actual tools of analysis, of reformulation, and of mainstreaming will emerge when the goal has been identified.
What are the real risks of adopting accrual accounting? Many conference presentations, journal articles and books extol the virtues and benefits of the public sector adopting accrual accounting, but few provide any real evidence of the actual experience. Two audit reports from the Auditor General of the Cayman Islands provide a brutally frank and honest account of what can go wrong. In July 2008, the Auditor General, Dan Duguay, issued a special report, “describing a very grim assessment of the state of financial accountability reporting throughout the Cayman Islands Government”. Ten years after the Cayman Islands agreed to adopt accrual accounting, the first accrual accounts were 2.5 years late and the Auditor General found the “current situation deplorable” and he believed that “the legislative assembly has lost control of the public purse”. In the second report, issued in April 2010, the Auditor General concluded that, “the state of financial accountability reporting has gotten worse in the two years since I last reported on this matter”. Despite the Government spending an additional $1 million in the last fiscal year to address the problem, the Auditor General assessed these efforts as being, “too limited and therefore; insufficient to address the situation”. He concluded his second report by saying, “I believe this situation has become a national crisis that could lead to tremendous consequences for the Cayman Islands Government if not addressed immediately”. The Cayman Islands are not a poor country, the per capita income is one of the highest in the world and, as it is a tax haven and financial services centre, there are many qualified accountants available locally. If the introduction of accrual accounting can go so horribly wrong in the Cayman Islands, imagine what could happen in the many developing countries where accrual accounting is still actively being promoted for the public sector. The next time you hear a speaker listing the many benefits claimed for accrual accounting ask what the actual evidence is from the few countries which have adopted this approach. The objective and authoritative studies, from the UK for example, suggest that the costs are significant and that the actual benefits are minimal. Now we have reports from the Cayman Islands of the very real risks involved of adopting this approach to public sector accounting. The first report of the Auditor General on the State of Financial Accountability Reporting (July 2008) in the Cayman Islands Government is available from http://tinyurl.com/accrualcayman1 The second report of the Auditor General of the Cayman Islands, issued in April 2010, is available from http://tinyurl.com/accrualcayman2
Results of an attendee poll at the 22nd ICGFM Conference show limited knowledge of the existence and processes of the Millennium Challenge Corporation (MCC).
Tom Kelly of the MCC admits that the mandate and processes are complex and that no one has been able to create a simple "elevator pitch".
Dr.Kelly points out that MCC cannot give enough money away to make an impact by itself. For example, the Philippines received more direct private aid in a year than the entire MCC budget. The MCC focuses on policy improvement to achieve economic growth.
MCC uses 17 different indicators in 3 categories to evaluate policy. The indicators are generated from outside the MCC from organizations that are not funded by the MCC creating an objective model. Although inprecise, Dr. Kelly suggested that the expression in a scorecard method has received significant currency in countries. For example, scorecard results are often used by business to determine whether to invest in countries.
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