Modernising government budget operations: Case studies from Europe

1. Modernising government budget operations:Case studies from Europe Lewis Hawke World Bank The Exchange Abu Dhabi, UAE May 13-15, 2013

2. About the presentation… • Why should we modernise government budget operations? • How to do it • Selected case studies from Europe • Integrated strategic planning and budgeting (Albania) • Medium term budget framework (Russia) • Performance based budgeting (Austria) • Fiscal responsibility arrangements (Serbia)

3. Modernising government budget operations Making budget operations fit the needs of modern government: • Sustainable finances • Cost effective results • Efficient management of resources

4. How are operations modernised?

5. Case studies

6. Integrated Strategic Planning and Budgeting (Albania)

7. Integrated Strategic Planning and Budgeting (Albania) National Strategy for Development & Integration 22 Sectors 17 cross cutting strategies EU Integration Plan (Stablisation and Association Agreement) Medium Term Budget Framework Performance based monitoring and reporting

8. Albania Integrated Planning: Institutions and processes EU Integration Strategy (SAA) Program Management Teams Sector Strategy National Strategy (NSDI) MTBP Line Ministries Coordination Units Department of Strategies and Donor Coordination Ministry of Finance Ministry of EU Integration Council of Ministers EU Delegation Parliament

9. Albania Integrated Planning:Strengths and Challenges

10. Medium Term Budget Framework (Russian Federation)

11. Medium Term Budget Framework (Russian Federation) • Highlights: • 3 year budget approval • rolling annual revisions (covers 100% Federal, 61% GG) • In-year flexibility, end-year rollover • 10% discretionary items, 5% mandatory items • Fiscal rules • total deficit, non-oil deficit, wealth fund transfers • Program budgets • Sovereign Wealth Funds • Reserve Fund and National Welfare Fund

12. Expenditure limits Room for new policy proposals Investment objects Existing expenditures Register of existing expenditures Long-term earmarked expenditure programs State Arms program Public sector pay &fringe benefits, military pay and allowance Pensions and benefits (Public liabilities) 2013 2014 2015 2016 2017 2018 2019 3-year budget

13. Impact of reforms

14. Performance based budgeting (Austria)

15. Performance based budgeting (Austria)

16. Performance based budgeting (Austria)

17. Performance based budgeting (Austria)

18. Performance based budgeting (Austria)

19. Fiscal responsibility arrangements (Serbia)

20. Fiscal Responsibility Arrangements (Serbia) Revised Budget Law 2010 • NEWFiscal responsibility principles • NEWFiscal strategy • NEWFiscal targets for debt and deficits • NEWFiscal Council • Revisedbudget calendar • Revisedaccounting and reporting • Revisedinternal audit and control

21. Fiscal Responsibility Arrangements (Serbia) • Fiscal principles • Separate roles of central and local government • Fairness – intergenerational welfare • Accountability for fiscal sustainability • Stability – avoid rapid change over time • Transparency of non-security information • Responsible fiscal risk management

22. Fiscal Responsibility Arrangements (Serbia) • Fiscalstrategy report • Mid-term projects for macroeconomic and fiscal aggregates • Objectives and guidelines for fiscal policy • Report on tax policy, including tax expenditures • Overview of priority areas for financing • Mid-term expenditure framework and consolidated budget • Fiscal implications of structural reforms • Assessment and quantification of risks and potential liabilities • Public debt management strategy • Opinion of Fiscal Council on the strategy report • Opinion of the National Bank of Serbia • Progress report on implementation for previous year • Overview of transfers from central to local government

23. Fiscal Responsibility Arrangements (Serbia) • Fiscal rules • Medium term annual fiscal deficit should not exceed 1% GDP • Formula-based calculation of medium term GDP and required deficit designed to achieve anti-cyclical fiscal deficit for the budget year • Transitional arrangements to reduce annual deficit (4%) gradually • General government debt shall not exceed than 45% GDP • Government must prepare plan to reduce excess debt level. • Fiscal Council provides opinion to Parliament before budget vote • Local government deficit rule • expenditure not exceed revenues by 10% each year, MoF control • Exceptional circumstances deviation permitted

24. Fiscal Responsibility Arrangements (Serbia) • Fiscal council • Independent body appointed by Parliament • Council chairperson and members proposed by Republic President, Minister of Finance and Governor of National Bank. • Reports directly to Parliament • Report on: • Opinion on national draft Fiscal Strategy report • Draft annual budget law • Final accounts • fiscal impact of other laws and amendments • Provide advice to government on fiscal policy and management of public finances • All reports published • Six year terms • No political affiliations or other employment permitted

25. Fiscal Responsibility Arrangements (Serbia) • Results since 2010 • Fiscal Strategy Reports prepared and reviewed by Fiscal Council • Deficits have exceeded 1% GDP • General Government debt as exceeded 45% GDP • Local governments have met deficit targets • Fiscal Council has been a vocal advocate for fiscal responsibility

26. Key lessons • Modernisation involves broad-based, long-term reform • Fundamental change is a slow process • BUT positive outcomes do happen, sometimes unexpectedly • Changing information, processes and structures are not sufficient • Change in behaviour and culture are necessary • Behaviouralchange is difficult and takes time • The crucial ingredients are demand for, and effective use of, the modernised operations