1. 1 Budget Execution Course – Opening Session 3 November, 2003 Overview Comments by David Shand OPCFM

2. 2 Does the budget matter ? Just a pro-forma exercise rather than a key mechanism for determining government priorities and planning service delivery? A political and technical document ? Need for budget ownership – ministers, heads of department and program managers – not just MOF and finance staff The three (or four) levels of objectives of PFM systems. Budget execution must assist in achieving these objectives aggregate fiscal control (usually functions OK) strategic resource allocation (more problematical) operational efficiency (also problematical) (external transparency)

3. 3 What level of PFM “sophistication” is appropriate for a developing country ? But problems may reflect lack of incentives for good budget execution rather than lack of capacity. Formal rules versus informal rules. What are the incentives for compliance or non-compliance ? Avoiding just “technical” fixes – institutional issues. To what extent are donors and their requirements part of the problem ? E.g. project ring-fencing, funding uncertainty To what extent can we improve budget execution (PFM generally) in isolation from overall public sector reform?

4. 4 Budget preparation and execution issues are inextricably linked. Problems in budget execution may arise from problems in budget preparation. (It is hard to effectively implement a badly constructed budget) For example: scope of the budget – extra-budgetary funds ? realism of both revenues and expenditures – can the budget be implemented? budget preparation dialogue – do ministries understand how much they have been allocated and for what purposes ? basis of accounting – does it follow the budget ? how devolved is the budget ?

5. 5 Different basis of budget measurement or point of control obligations (commitments) cash payments costs Different systems (anglophone, francophone) may use a different point of control. Importance of a common basis of budgeting and accounting (both classification and measurement) to monitor and report budget execution – surprising how often they diverge (accountants isolated from the budget office)

6. 6 Importance of internal (self) controls. This concept is not understood in some countries – rather (external) inspections and audits Importance of good fiscal reporting – timely reliable information based on international standards – which ? A major deficiency Getting value from audit institutions - fixing systems before fixing audit, avoid a “gotcha” approach, add to the credibility of financial statements. But to what extent is there political or public interest in the past? Getting value from legislative review. To what extent can legislature amend the budget ? Legislatures may be part of the problem ? Is there much interest in past events?