Supporting country institution building: reform successes and monitoring progress

1. Supporting country institution building: reform successes and monitoring progress Odo Tevi Governor Reserve Bank of Vanuatu

2. Brief History • Vanuatu gained independence in 1980 • 1991 onwards divisions within the ruling party – party divided – instability era – public financial mismanagement • Economy is small and economic growth was a challenge • Macroeconomic stability achieved

3. Public Financial Reform • 1997 adopted comprehensive reforms –focus also on public financial management • 1998 National Planning Office was moved to Ministry of Finance – integrate planning and budget • Budget approach changed from line budget to Program budget – all ministries budget based on programs and activities

4. Cont’d • PFEM Act 1998 – i) states Gov’t responsibility; 2) accountability arrangements & compliance; 3) financial & economic reports • Treasury and Budget Unit set up – coordinate the design and execution of the budget process - first time a non-political control had been set up on Gov’t finances • Ministerial Budget Committee set up – advise the COM on the national budget

5. Cont’d • MFEM Institutional Project – supported by AusAID – Dept. Finance • Team Leader & 3 advisors – budget, accounting and FMIS • Local counterparts provided by Gov’t • GFS drawn up according to IMF standards & Gov’t accounts reconciled.

6. Cont’d • Macroeconomic frame work for budget established • A new Financial Management Information System established • Skills transfer were successful to local counterparts • Budget deficit reduced and last 2 years surpluses

7. Cont’d • IMF (PFTAC) – review fiscal accounts and confirmed compliance with international standards • PEFA assessments – Generally good esp. in relation to MFEM Strengthening Project Areas. i) credibility of the budget (aggregate level) & expenditure composition good; ii) policy based budget – clear budget calendar; executive and Parliament involved but need to develop multi-year perspective on financial planning

8. Cont’d • Iv) predictability and control in budget generally good v) Accounting, recording and recording good – financial accounts prepared on accrual basis and in accordance with international standards and vi) external scrutiny and audit needs to be improved • PEFA done every years and progress against used for conditions for future aid support

9. Why Successful? • Reforms implemented in other areas • Experts have developing country experience quickly and ability to adapt to local culture • Strong political support and leadership • Continuous independent review of the Project – esp. whether it achieve its milestones • Strong technical local counterparts – transfer skills easy and interaction with counterparts is good • Innovative use of “learning agreements”

10. Cont’d • Long-term vs. short-term – cannot achieve strengthening overnight • Establishing a good relationship with the central bank • Coordination with donors is good but donor harmonisation still a challenge

11. Conclusion • Economy performing well – per capita income rising • Turn around in public financial management – budget surpluses • MFEM Strengthening Project successful but donor harmonisation still a challenge • PEFA – Recommendations needs to be implmented • Key - understanding local culture, building good relationships and having a strong leadership support