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
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3. Popular Reforms
Reforms generally try to change incentives to better meet objectives
by changing rules, roles and information
Macrofiscal Strategic Operational
Discipline Allocation Efficiency
MTEF √ √ √
Performance, Program budgeting √ √
IFMIS, automation √ √
Fiscal Responsibility Laws √
Treasury Single Account √ √
Budget classification, chart of account √ √
Reporting/ Transparency √ √ √
Procurement √
Internal control/audit √
External audit √ √
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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
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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
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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.
The World Bank Confidential report to Indonesian Ministry of Finance. June 18, 2003.
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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.
The World Bank Confidential report to Indonesian Ministry of Finance. June 18, 2003.
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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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