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Public Expenditure Management: An Introduction

Public Expenditure Management: An Introduction. Presented by: Bill Dorotinsky PREM Public Sector Group http://www1.worldbank.org/publicsector/pe/index.cfm. Presented to: PREM – WBI Core Course on Public Sector Governance & Anticorruption. February 14-17, 2005. Outline.

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Public Expenditure Management: An Introduction

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  1. Public Expenditure Management: An Introduction Presented by: Bill Dorotinsky PREM Public Sector Group http://www1.worldbank.org/publicsector/pe/index.cfm Presented to: PREM – WBI Core Course on Public Sector Governance & Anticorruption February 14-17, 2005

  2. Outline • What is Public Expenditure Management? • What institutions matter? • Process: Expenditure Management Cycle • Organizations, Systems • Three- objectives • Applications • Rules • Roles • Information

  3. What institutions matter? • Formal and Informal Rules • Laws and regulations • Constitutions , fiscal, budget, procurement, civil service, special funds, sector laws, public enterprises, mandatory spending • Process • Policy • Planning • Financial/resource management • Organizations and their roles • Information

  4. Expenditure Management Cycle Financial management system boundaries Project Resource Annual budgets Medium term appraisal allocation Development, Planning plans, e.g. three recurrent and system year rolling plans revenue Expenditure Liquidity management review Public expenditure Institutions review Fund release procedure, e.g... warranting Accountability Expenditure Project monitoring control Audit system Post event Accounting for Monitoring review revenue and & controlling expenditure Reports and financial statements Source: Adapted from Integrated Financial Management.Michael Parry, International Management Consultants Limited.Training Workshop on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997.

  5. Budget and Policy Execution System in Hungary (1999)

  6. Framework Three Objectives of Public Expenditure Management Systems • Macrofiscal discipline and stability • Support economic growth and stability (and reduce poverty) • Avoid public finance crises • Strategic allocation of resources • Match government policy with programs, objectives • And assure social safety nets, and promote growth • Technical efficiency • Getting the most from each zloty spent • And just delivering core services

  7. Application Rules and Outcomes Source: World Bank – OECD budget procedures database athttp://ocde/dyndns.org/

  8. Application Informal Rules Dominican Republic Budget Deviation, 1996-2000 Identifying sources of weakness for further investigation Identifying incentives at work Source: Dominican Republic PER 2003, background data

  9. Application Dominican Republic Budget Deviation (ratio of executed to approved budget) Identifying trends for transparency Source: Dominican Republic PER 2003, background data

  10. Application Roles and Information Republic budget revenues have performed closely to budget estimates, owing in large part to ZOP efficiency in revenue collection. Between 1995 and 2001, actual revenues collected averaged 99 % of planned levels. (This excludes own revenues and other off-budget revenues.) Republic expenditures have been less successfully contained. Between 1996 and 2001, actual Republic expenditures averaged 106 % of planned expenditures, with the variation growing to 119 % for 200 and 117 % for 2001. The Pension Fund has run a deficit in five of seven years between 1995 and 2001. The Health Fund has run a deficit in three of the last seven years, broke-even in three years, and had a surplus one year. The financing gaps requiring Republic Budget or other nonsocial contribution support has been increasing. Source: Serbia and Montenegro PEIR 2003, Volume III Montenegro

  11. Application Information Technical efficiency In terms of technical efficiency, as with the Federal and Republic of Serbia systems reviewed in Volume 1, we have no detailed numbers on costs per unit of service delivered, or comparative procurement costs. However, a proxy measure is variation in aggregate budget position. For 2000, the wage bill variation from approved budget, by budget users, was 15 percent, ranging from a high of 42 % above budget for the Ministry of Justice to a low of 54 % below budget for the Customs Service. This degree of volatility in funding levels undermines effective program implementation. Budget users cannot plan in advance, focus on program effectiveness, efficiency, or improved productivity, if they are spending most of their time battling arrears or having no funds to operate their program. Source: Serbia and Montenegro PEIR 2003, Volume III Montenegro

  12. Above-the-waterline observation 100 clinics, but only 70 operating Exploringproblems WHY? Budget not comprehensive Budget fragmented Cash triage 10 built with donor funds, donor funds off-budget 10 built with domestic funds, capital budget separate 10 funded in budget, but no cash allocated to operate WHY? Weak budget law Too rigid budget execution Low public pay WHY? Donor ring-fencing for “accountability” Line ministry gets flexible resource pool Local staff seek higher PIU pay And what can be done about it?

  13. Q&A Additional information is available on the Public Expenditure website: http://www1.worldbank.org/publicsector/pe/index.cfm

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