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Contemporary Challenges in Managing Public Expenditures. Allen Schick Training Course on Public Expenditure Analysis and Management The World Bank January 13, 2004. FOUR BASIC REFORM OBJECTIVES. MAINTAIN FISCAL DISCIPLINE
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Training Course on Public Expenditure Analysis and Management
The World BankJanuary 13, 2004
MAINTAIN FISCAL DISCIPLINE
PROMOTE EFFECTIVE ALLOCATION OF RESOURCES WITHIN AND BETWEEN SECTORS
IMPROVE EFFICIENCY IN THE PROVISION OF SERVICES
BUILD MODERN BUDGET AND FINANCIAL MANAGEMENT CAPACITY
MAINTAIN FISCAL DISCIPLINE
PROMOTE EFFECTIVE ALLOCATION
IMPROVE SERVICE EFFICIENCY
MODERN FINANCIAL MANAGEMENT
FISCAL DISCIPLINE Budget totals should be the result of explicit, enforced decisions: they should not merely accommodate spending demands. The totals should be set before spending decisions are made, they should be enforced during implementation of the budget, and should be sustainable over the medium-term and beyond.
EFFICIENT ALLOCATION Expenditure decisions should be based on government priorities and on evidence concerning the effectiveness of public programs. Budgeting should facilitate reallocation from lesser to higher priorities and from less to more effective programs.
EFFICIENT OPERATIONS/ Agencies should provide services at a cost that achieves
SERVICES ongoing efficiency gains. Public services should be accessible to citizens and responsive to their needs and should be provided in a fair, courteous manner agencies should be operated in ways that give managers incentives to be efficient in using human and financial resources.
RULES Limits on total spending are set before sectoral spending bids are considered. Total spending must be consistent with these limits. The limits are set for the medium-term (3-5 years) and budget decisions are made within a multiyear framework.
ROLES A strong Finance Ministry (or Cabinet Committee) enforces the fiscal aggregates in budget negotiations with spending departments and in cabinet actions. During implementation of the budget, the Finance Ministry may intervene to assure that the fiscal aggregates are maintained.
INFORMATION A medium-term expenditure framework (MTEF) provides a baseline for measuring the budgetary impacts of proposed or approved policy changes. During implementation, actual spending is monitored to assure compliance with the aggregates.
INCENTIVES Fiscal Rules and outcomes are transparent, and breaches carry political costs. When they work, the rules are politicians with determination to take stringent measures that uphold the fiscal aggregates.
RULES Spending limits are established for each sector or Ministry: Ministers are encouraged to reallocate within these limits. Proposed reallocations must be based on evaluation of programs and/or performance measures.
ROLES Government through the cabinet or other organ defines priorities and objectives, and makes sectoral allocations within a medium-term framework. Sectoral ministers have authority to reallocate within their areas of responsibility, subject to review by cabinet or parliament.
INFORMATION Ministers and managers generate or review data on the actual or expected effectiveness of programs, as well as on social conditions and outcomes. They also consider information on the future spending impacts of authorized and proposed budget decisions.
INCENTIVES Sectoral ministers have broader scope to reallocate within their portfolios, with less risk that doing so would cause them to lose resources.
RULES Operating costs are cash-limited, but managers have broad discretion in using these resources and in providing services. Operating costs are reduced by a percentage equal to all or a portion of projected efficiency gains.
ROLES Managerial responsibility is devolved to managers who have flexibility in organizing operations and delivering services but are accountable for their performance.
INFORMATION Outputs are specified in advance and actual outputs are compared to targets. Costs are allocated to the activities responsible for them. Information on financial and organizational performance is published in annual reports and other documents.
INCENTIVES Managers can use savings to improve services and may carryover unused operating funds to the next fiscal year. In some cases, a portion of their pay is based on performance.
Expenditures should be based on government priorities and on the effectiveness of public programs. The budget system should create conditions and incentives that facilitate reallocation from lesser to higher priorities and from less to more effective programs.
In all countries:
When increments are available:
When the budget is tight:
Constraints or budget totals must be hard so that government cannot avoid reallocation by spending, taxing, or borrowing more.
Constrains budget allocation for 3-5 years ahead and establishes framework within which allocations and reallocations are considered.
Government establishes realistic priorities/objectives along with policies/programs to implement its strategy.
Reallocations Between Sectors
Strong leadership at top of government including prime minister, finance minister, or cabinet. Central organs concentrate on strategic matters, and devolve expenditure details to sectoral ministers and program managers.
Reallocations Within Sectors
Made by sectoral ministers subject to review by government.
Budget Baseline (Forward Estimates)
Projections of future revenue and spending assuming no change in current policy; including increases and decreases, previously agreed by government as changes to the baseline, and adjustments for changes in economic conditions.
Measurement of Policy Changes
Process by which the future budgetary impacts of proposed or agreed policy changes are measured in reference the budget baseline.
Systemic review of program effectiveness and process for feeding evaluations into budget decisions.
Quantitative and (in some cases) qualitative measures of program impacts on society; comparison of planned and actual outcomes.