Liberia – Duke University Program Legal Framework for PFM

1. Liberia – Duke University ProgramLegal Framework for PFM Duncan Last Public Financial Management Division March 4, 2011

2. OUTLINE OF PRESENTATION • Features of the PFM legal framework • Typical timetable of an Integrated PFM System • Liberia’s PFM Law • Discussion

3. I. Features of the PFM legal framework: Main Elements of the PFM System • Macro-Fiscal Policy • Accounting • & Audit • Roles, Responsibilities& Oversight • Budgeting • Treasury Management

4. I. Features of the PFM legal framework: Key documents • An integrated PFM Law • Key principles, processes and deadlines • Coverage, roles and responsibilities • Subsidiary/specialized laws • Procurement, external audit • Regulations • Detailed processes and responsibilities • Instructions/manuals … • Specialized guidance for practitioners • Sanctions and penal code

5. I. Features of the PFM legal framework: Outline of an Integrated PFM Law Main Parts Key Sections Cabinet Secretary/Finance & Principal Secretary/Treasury Accountant General, Accounting Officers, County Treasurers, Rev. Collectors Internal Auditor General, Internal Auditors, Audit Committees Auditor General & Controller of the Budget Parliament, Parliamentary Budget Office, County Assemblies • I. Roles & Responsibilities Principles/rules: Stability, sustainability, responsibility Content & presentation of fiscal strategy Reporting of fiscal performance Enforcement & escape clause • II. Macro-Fiscal Policy Principles: Comprehensiveness, annuality, specificity Calendar for budget preparation & approval Budget policy statement & budget documents Unit of appropriation and virement & carryover rules In year reporting, contingency reserve, supplementary & excess vote • III. Budgeting Principles: Unity, efficiency, timeliness Treasury Single Account, banking arrangements & cash management Authority to commit & spend public funds Borrowing, guarantees, lending, on-lending & sale of assets • IV. Treasury Management Principles: Transparency, integrity, accountability Coverage, standards & timetable for production of accounts External audit & timetable for production of audit reports Scrutiny, timetable for completion of scrutiny & follow-up • V. Accounting • & Audit Local governments SAGAs, AGAs, EBFs and fund accounts State- & local government-owned enterprises Other investments and PPPs • VI. Special Provisions • VII. Sanctions & Transition Sanctions & penalties Transitional arrangements & laws to repeal

6. I. Features of the PFM legal framework: “Good Practice” in Macro-Fiscal Frameworks Timing Element Content Principles of fiscal management Fiscal rule (numerical / procedural) Escape clause • Fiscal Rule • or FRL Permanent 3-5 Year macroeconomic forecast 3-5 Year fiscal forecast Fiscal risk analysis Medium-term fiscal target • Medium-term Fiscal Strategy FY - 6 mo 3-Year expenditure ceiling 3-Year ministerial allocations Contingency & planning margins Performance indicators/targets • Medium-term Expenditure Framework FY - 6 mo Budget Orientation Debate Scrutinize macro forecast Vote MT fiscal target Vote expenditure ceiling Fiscal Council FY - 5 mo Updated 3-5 Year MTFS & MTEF Explanation of changes from MTFS/MTEF Detailed annual appropriations • Annual Budget FY - 3 mo 6

7. I. Features of the PFM legal framework: Formulating and regulating the budget • Budget classifications – chart of accounts • Comprehensiveness – inclusion of all revenues and donor funds • Unit of appropriation • Structure of the budget • For completing the annual performance review of the budget • For issuing the MTEF and budget preparation circulars • For submission of budget documents to Cabinet and the Legislature • For Parliament to adopt the budget • Key dates in the Calendar • Fiscal policy/strategy documents • Estimates of revenue and expenditure • Annexes to the budget • Appropriation bill • Budget Documents • Supplementary Budgets • When and how often these can be done • In-year responses to changed circumstances (e.g. higher revenues) • Limiting appropriation virements that can be done by the executive • Regulating levels of authority within virementlimits • Allowing for a contingency reserve to cover shortfalls • Virements and Contingencies • Regulating ability to commit through allotments • Annual Work, Procurement and Cash Flow plans • Commitment control • Appropriation control • Regulating in-year spending • Mid-year reviews – scope, purpose, and implications for budget/appropriations • Annual budget performance reviews • Budget Reviews

8. I. Features of the PFM legal framework: “Good Practice” in treasury management Objective: To facilitate the efficient execution of the budget • Annual cash flow plans based on line ministry work plans and procurement plans, aligned to achievable revenue inflows • In-year rolling cash flow plans with daily projections for next month, aligned with macro-economic and fiscal conditions • Minimized idle cash and optimized borrowing Timely availability of resources through • Annual deficit borrowing optimized against annual cash flow plans and market conditions • In-year liquidity borrowing and short-term investments of surplus cash aligned with cash flow plans • Mix of instruments for optimal liquidity management Harmonized cash & debt management supported by • Comprehensive commitment control system which informs on future spending and reserves funds • Timely recording of invoices and standard payment terms • Banking arrangements that support treasury control of cash • Adequate and timely information on budget execution Robust budget execution Result: Credible Budget, Value for Money, Effective Service Delivery

9. I. Features of the PFM legal framework: Oversight of Borrowing and Guarantees • Regulating borrowing • Suitability of terms and conditions • Limits on borrowing and guarantees: • annual limits, borrowing for capital purposes only • In-year Liquidity borrowing • Procedures • Approval process: • Central government, local government, SOEs • Forecasting debt • Sustainability

10. I. Features of the PFM legal framework: UniversalPrinciples in Accounting and Audit • Fiscal Transparency • Timeliness of reports • Comprehensiveness of Coverage • Access to published information • Compliance to standards • Credibility and integrity • Accountability • Subject to public scrutiny

11. I. Features of the PFM legal framework: The reporting entities Public Sector General Government Public Corporations MDA1 Non-Financial State OwnedEnterprises National Government MDA2 MDAn Financial Corporations County Governments County Owned Enterprises

12. I. Features of the PFM legal framework: Comprehensiveness of Reports Reporting Entities • Accounting Offices (MDAs) • Revenue and expenditures • Assets & liabilities • Outputs • Consolidated “whole of national government” • County governments • Aggregated “whole of general government” • State/County owned enterprises • Financial corporations • Non-financial corporations Transactions & Balances • Recurrent revenues and expenditures • Classified expenditures • Funding inflows/outflows • Donor transactions • Financial assets & liabilities • Fixed assets • Contingent liabilities • Special Funds • Off-Budget transactions

13. I. Features of the PFM legal framework: Fiscal relations with county governments • Common PFM system and procedures for all governments • Additional fiscal relations to be regulated • Integrating counties within the common national policy framework • Managing the share of resources between levels of government • Controlling sub-national borrowing • Reporting and consolidation • Temporary financial arrangements in case of problems within a county

14. I. Features of the PFM legal framework: Regulating Agencies and Funds • PFM legal framework to apply to them • However, some degree of autonomy • Harmonized fiscal years • Reporting to both MoF and parent ministry • Performance contracting • Regular review of relevance of institution to current policy • No borrowing

15. I. Features of the PFM legal framework: SOEs – Degree of influenceIntegration into fiscal management Inclusion in Fiscal Statistics Inclusion in Fiscal Rules Most countries UK & NZ Monitoring Control Contingent liabilities in Fiscal Risk Statements Gains / losses included in Ministerial budgets Controls on investment & borrowing

16. I. Features of the PFM legal framework: Principles related to sanctions regime • The sanctions regime should provide for : • Institutional (public agencies/entities) sanctions; and • Personal (public officials with specific public financial management responsibilities) sanctions. • The regime should set forth different categories of sanctions: • Administrative and disciplinary • Civil • Criminal • Political • The regime should include a credible institutional framework for the enforcement of the applicable sanctions

17. II. Typical timetable of an integrated PFMsystem

18. III. The Legal Framework in LiberiaThe PFM Act of 2009

19. III. The Legal Framework in LiberiaThe accompanying regulations 24 parts and 329 regulations

20. III. The Legal Framework in LiberiaAreas of on-going focus • Implementing the Law • For some areas, implementation expected over time - MTEF, TSA, internal audit, coverage of SOEs… • New institutional arrangements • Integrated accounting function • Strengthening implementation in line ministries • Capacities in planning, budgeting, procurement, internal audit, and accounting • Improved awareness of the legal framework • Ministry and agency level accounting manuals • Challenges

21. IV. Discussion What are your areas of concern within the legal framework?