Public Expenditure Management Applications Bill Dorotinsky PREM public

Public Expenditure Management: Applications Bill Dorotinsky, PREM public sector group The World Bank PEAM Course March 21, 2005

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

Above-thewaterline observation 100 clinics, but only 70 operating Exploring problems WHY? Budget not comprehensive 10 built with donor funds, donor funds off-budget Budget fragmented 10 built with domestic funds, capital budget separate Cash triage 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” The World Bank Line ministry gets flexible resource pool And what can be done about it? Local staff seek higher PIU pay

HIPC expenditure tracking assessment’s 15 indicators, benchmarks of PEM system capabilities Budget Management Benchmark Description Comprehensiveness 1. Composition of the budget entity Formulation 2. Limitations to use of off-budget transactions 3. Reliability of budget as guide to outturn 4. Data on donor financing Meets GFS definition of general government Extra (or off) budget expenditure is not substantial Level and composition of outturn is "quite close" to budget Both capital and current donor funded expenditures included Classification 5. Classification of budget transactions 6. Identification of poverty-reducing expenditure Functional and/or program information provided Identified through use of classification system (e. g. , a virtual poverty fund) Projection 7. Quality of multi-year expenditure projections Projections are integrated into budget formulation Internal Control Execution 8. Level of payment arrears 9. Quality of internal audit 10. Use of tracking surveys Low-level of arrears accumulated Internal audit function (whether effective or not) Tracking used on regular basis Reconciliation 11. Quality of fiscal/banking data reconciliation Reconciliation of fiscal and monetary data carried out on routine basis Reporting 12. Timeliness of internal budget reports Monthly expenditure reports provided within four weeks of end of month 13. Classification used for budget tracking Timely functional reporting derived from classification system Final Audited Accounts 14. Timeliness of accounts closure 15. Timeliness of final audited accounts The World Bank Accounts closed within two months of year end Audited accounts presented to legislature within one year

Relative need for upgrading PEM Systems 15 Agreed Assessment (8) Number of Benchmarks met 9 Benin (8) Burkina Faso (9) Chad (8) Guyana (8) Honduras (8) Mali (8) Rwanda (8) Tanzania (8) Uganda (9) Little Upgrading Required Some Upgrading Required Bolivia (5) Cameroon (4) Ethiopia (6) Gambia, The (5) Ghana (1) Guinea (5) Madagascar (7) Malawi (7) Mauritania (7) Mozambique (5) Nicaragua (5) Niger (3) Sao Tome & Principe (4) Senegal (4) Zambia (3) Substantial Upgrading Required Source: “Actions to Strengthen the Tracking of Poverty Related Public Spending in Heavily Indebted Poor Countries (HIPCs), World Bank and IMF, March 22, 2002. See http: //www. worldbank. org/hipc-review/tracking. pdf The World Bank

The results indicated the need to improve basic aspects of PEM systems (Percent of countries not meeting each benchmark) 100% Note: Based on 24 countries’ Final Assessments Fiscal & monetary data reconciled Month reports 3 4 5 6 7 8 9 10 11 12 Formulation Execution Audited accounts to legislature within 1 year Regular tracking 2 Accounts closed within two months of y/e Quality of internal audit (effective or not) 0% Benchmark number: 1 Low level of arrears 10% Projections integrated into budg. formulation 20% Pov. Red. Exp. Identified 30% Classification of budget 40% Data on donor financing 50% Outturn close? 60% Extra (off) budget expend. 70% Meets GFS definition of general government 80% Timely functional reporting from class system 90% 13 14 15 Reporting Source: “Actions to Strengthen the Tracking of Poverty Related Public Spending in Heavily Indebted Poor Countries (HIPCs), World Bank and IMF, March 22, 2002. See http: //www. worldbank. org/hipc-review/tracking. pdf The World Bank

Why hasn’t there been more progress? Unhelpful donor practices Inadequate sequencing of reforms, due to donor pressure or difficulties for government to determine the path of reforms Fragmented approach to reforms and limited leadership in government -- PRSP and PEM reforms separate Limited monitoring of progress, mainly concentrated on inputs -> did not allow lessons learning and did not encourage focus on results on the ground Capacity constraints Technical reform versus systemic/institutional change BUT realism important on achievable pace of change The World Bank

The Way Forward: A Strengthened Approach 1. A country-led agenda – including a PFM reform strategy and action plan 2. A donor coordinated program of support – coordinated, coherent, multi-year program of PFM work that supports and is aligned with the government’s PFM strategy 3. A shared information pool – a common framework and information set for measuring and monitoring results over time The World Bank

What’s different ? What we don’t want A Strengthened Approach Government reform strategy influenced by ad-hoc donors requests encourages a fragmented approach to PFM reforms A government-led reform strategy, supported by a coordinated program of work by donors, facilitates an integrated and sequenced reform process. Donor 2 Donor 3 External audit Government-led PFM Reform Strategy Procurement Budget preparation Donor 1 Bank The World Donor 4 Treasury reforms Coordinated program of support by donors

Operationalizing in Bank Proposed Recent Situation • Corporate Mandate – 3 -core diagnostic products • Three networks operating independently The World Bank • Country-owned PFM reform strategy – Flexible ESW to support reform implementation, capacity-building • Knowledge mandate (understanding of institutional environment into which Bank funds flow) tied to operational needs – Country team determines form • PFM Performance framework to monitor progress • Country PFM team bridging networks and donors, planning and doing work – Each country team needs to plan according to country need first, broad knowledge mandate second • Country-level donor-client coordination • More anchor support on lesson learning, reform approaches, PFM issues