ST 1 APG FORUM ON LOCAL FINANCE MANAGEMENT

ST 1 APG FORUM ON LOCAL FINANCE MANAGEMENT 7 -8 May 2015, Lombok, Republic of Indonesia Camila Vammalle Economist/Policy Analyst OECD, Public Budgeting and Expenditure Division Public Governance and Regional Development Directorate

What is the OECD? • The OECD is an international institution based in Paris, which gathers 34 countries engaged with democracy and open economies, in order to foster a sustainable economic development 2

The OECD aims to help building a “stronger, cleaner and fairer world” • Does not give or lend money, so its studies do not contain any type of conditionality • Produces international statistics, carries out comparative analysis of public policies, organises meetings and workshops, publishes about 250 reports per year on economic and public policy issues • It provides a platform to compare policy experiences, seeking answers to common problems, identify good practices and coordinate domestic and international policies of its members

The OECD is structured as a government, with Directorates mirroring Ministries

Main messages of this presentation • SNGs are key economic players – Responsible for large shares and important areas of public spending • But they have a limited room of manoeuver to adjust their fiscal situation – Small revenue autonomy – Constrained expenditures • And they were hardly hit by recent crisis – Participated in stimulus plans, then in consolidation efforts • Ensuring they have effective public financial management tools is therefore essential – In particular, budgeting is an essential tool – And the recent OECD Recommendation on budgetary governance can be a useful reference for SNGs

SNGs are important actors in key sectors SNG CG 100% 80% 60% 40% 20% 0% public investment public spending SNG public revenues public debt • SNGs represent on average 62% of public investment, 31% of public spending, 20% of public revenues and 14% of public debt in OECD countries CG • And they are key players in important spending areas (housing, environment, education, social protection). Housing and Community. . . Environment protection Recreation, Culture and Religion Education Economic Affairs Health Public order and safety Social Protection 0% 20% 40% 60% 80% 100% Source: OECD National Accounts and OECD Fiscal Decentralisation database 6

SNGs have little room for manoeuvre for adjusting their financial situation • SNG autonomy to increase revenues is usually limited • An important share of SNG expenditure is mandatory and very difficult to cut 1. 2. 3. • A large share of their spending is in critical sectors. Some SNG expenditures are expected to rise due to demographic factors Rules and standards of SNG expenditure are often dictated by higher levels of government Fiscal rules often constrain SNGs room of manoeuvre SNG expenditure by function in OECD countries Others (Env+housing +recreation+ public order+others) 36% Economic affairs 14% Education 24% Health 10% Social protection 16% Source: OECD National Accounts and OECD Fiscal Decentralisation Database 7

SNGs finances were hardly hit by financial crisis Evolution of SNG Revenues (EU, 2000 -13) • SNG tax revenues fell during crisis (2008 -2011), but transfers were increased so that total revenues remained stable. Evolution of SNG Expenditure (EU, 2000 -13) • During first phase of the crisis (2008 -09), SNGs participated in stimulus plans, and investment was sustained. • Since 2010, SNGs participate in fiscal consolidation plans. The main adjustment variable has been public investment • Social benefits soard during crisis

In such a context, it is essential for SNGs to have sound public financial management practices, and in particular, good budgeting practices Supports: transparency, integrity, openness, participation, accountability, strategic approach Prioritisation and implementation of government objectives Shows how resources are raised and allocated Turning plans into realities Budget Contract between citizens and states 9

Recent trends in budgetary frameworks in OECD countries • • Annual PF Management Identifying savings Financial inputs Bottom-up Fiscal transparency Budget institution • Budget process Multi-annual Strategic planning Policy instrument Performance Top-down, fiscal targets Fiscal risks, resilience Other institutions citizens Public governance

The OECD Recommendation on Budgetary Governance apply both to CGs and SNGs 1. Manage budgets within clear, credible and predictable limits for fiscal policy 2. Closely align budgets with the medium-term strategic priorities of government 3. Design the capital budgeting framework in order to meet national development needs in a cost-effective and coherent manner 4. Ensure that budget documents and data are open, transparent and accessible 5. Provide for an inclusive, participative and realistic debate on budgetary choices 6. Present a comprehensive, accurate and reliable account of the public finances 7. Actively plan, manage and monitor budget execution 8. Ensure that performance, evaluation & value for money are integral to the budget process 9. Identify, assess and manage prudently longer-term sustainability and other fiscal risks 10. Promote the integrity and quality of budgetary forecasts, fiscal plans and budgetary implementation through rigorous, independent quality assurance including independent audit

THANK YOU! Camila. vammalle@oecd. org http: //www. oecd. org/governance/budgeting/