Supporting country institution building: reform successes and monitoring progress Odo Tevi Governor Reserve Bank of Vanuatu

Brief History Vanuatu gained independence in onwards divisions within the ruling party – party divided – instability era – public financial mismanagement Economy is small and economic growth was a challenge Macroeconomic stability achieved

Public Financial Reform 1997 adopted comprehensive reforms – focus also on public financial management 1998 National Planning Office was moved to Ministry of Finance – integrate planning and budget Budget approach changed from line budget to Program budget – all ministries budget based on programs and activities

Cont’d PFEM Act 1998 – i) states Gov’t responsibility; 2) accountability arrangements & compliance; 3) financial & economic reports Treasury and Budget Unit set up – coordinate the design and execution of the budget process - first time a non-political control had been set up on Gov’t finances Ministerial Budget Committee set up – advise the COM on the national budget

Cont’d MFEM Institutional Project – supported by AusAID – Dept. Finance Team Leader & 3 advisors – budget, accounting and FMIS Local counterparts provided by Gov’t GFS drawn up according to IMF standards & Gov’t accounts reconciled.

Cont’d Macroeconomic frame work for budget established A new Financial Management Information System established Skills transfer were successful to local counterparts Budget deficit reduced and last 2 years surpluses

Cont’d IMF (PFTAC) – review fiscal accounts and confirmed compliance with international standards PEFA assessments – Generally good esp. in relation to MFEM Strengthening Project Areas. i) credibility of the budget (aggregate level) & expenditure composition good; ii) policy based budget – clear budget calendar; executive and Parliament involved but need to develop multi- year perspective on financial planning

Cont’d Iv) predictability and control in budget generally good v) Accounting, recording and recording good – financial accounts prepared on accrual basis and in accordance with international standards and vi) external scrutiny and audit needs to be improved PEFA done every years and progress against used for conditions for future aid support

Why Successful? Reforms implemented in other areas Experts have developing country experience quickly and ability to adapt to local culture Strong political support and leadership Continuous independent review of the Project – esp. whether it achieve its milestones Strong technical local counterparts – transfer skills easy and interaction with counterparts is good Innovative use of “learning agreements”

Cont’d Long-term vs. short-term – cannot achieve strengthening overnight Establishing a good relationship with the central bank Coordination with donors is good but donor harmonisation still a challenge

Conclusion Economy performing well – per capita income rising Turn around in public financial management – budget surpluses MFEM Strengthening Project successful but donor harmonisation still a challenge PEFA – Recommendations needs to be implmented Key - understanding local culture, building good relationships and having a strong leadership support