1. Reform Trends in OECD Member countries
Warsaw, 8 February 2005
Jón R. Blöndal
Deputy Head of Division
Budgeting and Management Division

2. Introduce the SBO Reform trends in OECD countries
Agenda
Introduce the SBO
Reform trends in OECD countries

3. The SBO

4. The Working Party of Senior Budget Officials
Founded in 1980
“One of the most senior bodies within the OECD.”
Forum of senior officials
Research and analysis

5. The SBO Mandate
“to improve the effectiveness and efficiency of resource allocation and management in the public sector”
“addresses the entire budget cycle, including budget formulation, budget approval (role of the legislature), budget implementation (management, organizational structure), and audit.”
“co-operates with non-Members in order to share the results of its work”

6. SBO Subsidiary Networks

7. SBO Regional Networks

8. Research and Analysis
Holistic reviews of individual Member countries’ budgeting systems
Comparative analysis of specific budgetary issues across Member countries
Comprehensive database of budgeting practices in Member countries

9. Reform Trends

10. Key reforms Medium-term expenditure frameworks Economic assumptions
Top-down budgeting techniques
Relaxing input controls
Performance and results
Accruals
Budget transparency .

11. Medium-term expenditure frameworks
Very few Member countries do this well
A separate track for MTEF and annual budget
New MTEF prepared each year
Objectives
Setting of fiscal objectives
Baselines
Reconciling the two
Common design features
Same level of detail as budget
Generally 3 years beyond the budget

12. Medium-term expenditure frameworks (2)
Benefits
Enhances credibility
Enables managers to plan better
Risks
Can lock in expenditures – hampers annual reallocation
Real vs. nominal
Economic assumptions

13. Economic Assumptions By far, the most significant fiscal risk
Risk management strategies
Full disclosure
Sensitivity analysis
Comparison with private forecasters
Independent boards
“Prudency factors”
Canada
The Netherlands

14. Top-Down Budgeting Techniques
One of the most successful reforms in Member countries
Transition is generally difficult (trust is a prerequisite)
Benefits
Budget reflects political prioritization
Reduces game-playing
Internal reallocations; less “auto” increases
Information Asymmetry
“Ownership” of Actions

15. Top-Down Budgeting Techniques (2)
“Each minister is his own finance minister”
One minister responsible for each allocation
Inter-ministerial (joint) allocations do not work
Level of detail of top-down allocations
One allocation for all activities?
Separate allocation for mandatory and discretionary expenditure?
Separate allocation for operating, transfers and capital expenditures?
Specific programs should not be “ring-fenced”

16. Relaxing input controls
“Deregulation” in the Public Sector
Merging line-items in budgets
Reforming central management controls
Ministries and agencies organizational model
Heads of ministry/agency in best position
to manage resources effectively & efficiently
Strong pre-conditions required
Fully functioning input system already in place
Robust system of internal controls and audit
Professional civil service

17. Performance and Results
“Quid Pro Quo” for Increased Flexibility
New form of accountability, but generally lagging
Key Issues
Some activities more easily measured than others
Outcomes versus outputs
“What gets measured, gets managed” (comprehensiveness)
What impact on annual budget allocations?
Information Overload
Lack of interest by ministers and parliamentarians
Reliability and Consistency
Targets

18. Accruals No consensus in Member countries
Financial reporting versus budgeting
Selected transactions only
The political “matching principle”; impact of parliament
Treatment of Unique Assets and Liabilities
Heritage, Military, Infrastructure Assets
Social Insurance Programs
Valuation Methodology
Accounting Standards-Setting

19. Budget transparency Three key elements
Timely release of budget data
Effective Role for the Legislature
Effective Role for Civil Society
OECD Best Practices for Budget Transparency

20. Conclusion Budget reforms is a journey, not a destination
Too fast vs. too slow

21. For further information
OECD Journal on Budgeting