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Public Financial Management Reforms

Public Financial Management Reforms. Trends and lessons. Istanbul June 6, 2005. Bill Dorotinsky The World Bank. Three Objectives of Public Expenditure Management Systems. Macrofiscal discipline and stability Avoid public finance crises Support economic growth and stability

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Public Financial Management Reforms

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  1. Public Financial Management Reforms Trends and lessons Istanbul June 6, 2005 Bill Dorotinsky The World Bank

  2. Three Objectives of Public Expenditure Management Systems • Macrofiscal discipline and stability • Avoid public finance crises • Support economic growth and stability • Strategic allocation of resources • Match government policy with programs, objectives • Technical efficiency • Getting the most from each lira spent

  3. Popular Reforms Reforms generally try to change incentives to better meet objectives by changing rules, roles and information

  4. Recent trends • Fragmenting MoF • Separate debt agency • Separate procurement function • Separate treasury • Separate budget • Separate revenue authority • Separate planning and policy processes (persistent state rather than trend) • All tend to weaken the MoF • Effect on financial management unclear • Frequently done to improve pay or improve independence

  5. Longer-term Trends • Changing role of MoF, central budget office • Control to monitoring/oversight • Policy analysis and development over excessive budget detail • Shifting authority towards line ministries • Emphasizing training and guidance • Performance over compliance • Analysis of emerging issues, problems, and health of decision-making and finance system • Integration of planning into budget process • Integration of capital and recurrent budgets

  6. “Benchmarking” Recent McKinsey Study looked at 7 dimensions of 7 country Finance Ministries • Australia, Brazil, Malaysia, Singapore, Thailand, UK, US • All had taken steps to ‘empower’ line ministries and professional managers • All had made substantial efforts to strengthen external audit • All had taken measures to move away from input budgeting towards performance or output budgets • Most had taken measures to improve transparency of processes and information Source: Transforming MOF: Organizational Recommendations and Implementation. Confidential report to Indonesian Ministry of Finance. June 18, 2003.

  7. “Benchmarking” (continued) • Six had made substantial effort to separate policy development and oversight from implementation • All had taken strong measures to consolidate similar functions, especially cash and debt management • Most had taken some measures towards greater checks and balances to MoF functions Source: Transforming MOF: Organizational Recommendations and Implementation. Confidential report to Indonesian Ministry of Finance. June 18, 2003.

  8. Broad Lessons • How reform undertaken, organized matters • Stakeholder, user involvement • Clear change sought, clear problem to fix • Measureable results • Focused objectives • Proper sequencing • MTEFs fail if accounting, execution weak • Too many reforms at one time tend to fail • Narrow reforms, well sequenced, may have more impact than comprehensive, government-wide reforms

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