1. Public Expenditure Management: Applications
Bill Dorotinsky,
PREM public sector group
PEAM Course
March 21, 2005

2. Dominican Republic Budget Deviation, 1996-2000
Application
Informal Rules
Dominican Republic Budget Deviation,
Identifying sources of weakness for further investigation
Identifying incentives at work
Source: Dominican Republic PER 2003, background data

3. Exploring problems Above-the-waterline observation WHY? WHY? WHY?
100 clinics,
but only 70 operating
WHY?
Budget not comprehensive
Budget fragmented
Cash triage
10 built with
donor funds,
donor funds
off-budget
10 built with
domestic funds,
capital budget
separate
10 funded in
budget, but no
cash allocated
to operate
WHY?
Weak budget law
Too rigid budget execution
Low public pay
WHY?
Donor ring-fencing
for “accountability”
Line ministry gets
flexible resource pool
Local staff seek
higher PIU pay
And what can be done about it?

4. Benchmark Description Final Audited Accounts
HIPC expenditure tracking assessment’s 15 indicators, benchmarks of PEM system capabilities
Benchmark Description
Meets GFS definition of general government
Extra (or off) budget expenditure is not substantial
Level and composition of outturn is "quite close" to budget
Both capital and current donor funded expenditures included
Functional and/or program information provided
Identified through use of classification system
(e.g., a virtual poverty fund)
Projections are integrated into budget formulation
Low-level of arrears accumulated
Internal audit function (whether effective or not)
Tracking used on regular basis
Reconciliation of fiscal and monetary data carried out
on routine basis
Monthly expenditure reports provided within four weeks of
end of month
Timely functional reporting derived from classification system
Accounts closed within two months of year end
Audited accounts presented to legislature within one year
Comprehensiveness
1. Composition of the budget entity
2. Limitations to use of off-budget transactions
3. Reliability of budget as guide to outturn
4. Data on donor financing
Classification
5. Classification of budget transactions
6. Identification of poverty-reducing expenditure
Projection
7. Quality of multi-year expenditure projections
Internal Control
8. Level of payment arrears
9. Quality of internal audit
10. Use of tracking surveys
Reconciliation
11. Quality of fiscal/banking data reconciliation
Reporting
12. Timeliness of internal budget reports
13. Classification used for budget tracking
Final Audited Accounts
14. Timeliness of accounts closure
15. Timeliness of final audited accounts
Formulation
Execution
Budget Management

5. Relative need for upgrading PEM Systems15
Agreed Assessment
(8) Number of Benchmarks met
Bolivia (5)
Cameroon (4)
Ethiopia (6)
Gambia, The (5)
Ghana (1)
Guinea (5)
Madagascar (7)
Malawi (7)
Mauritania (7)
Mozambique (5)
Nicaragua (5)
Niger (3)
Sao Tome &
Principe (4)
Senegal (4)
Zambia (3) 9
Benin (8)
Burkina Faso (9)
Chad (8)
Guyana (8)
Honduras (8)
Mali (8)
Rwanda (8)
Tanzania (8)
Uganda (9)
Little Upgrading
Required
Some Upgrading
Required
Substantial Upgrading
Required
Source: “Actions to Strengthen the Tracking of Poverty Related Public Spending in Heavily Indebted Poor Countries (HIPCs), World Bank and IMF, March 22, See

6. The results indicated the need to improve basic aspects of PEM systems
(Percent of countries not meeting each benchmark)
100%
Note: Based on 24 countries’ Final Assessments
90%
80%
70%
60%
50%
Meets GFS definition of general government
40%
Timely functional reporting from class system
Audited accounts to legislature within 1 year
Projections integrated into budg. formulation
Quality of internal audit (effective or not)
Accounts closed within two months of y/e
30%
Fiscal & monetary data reconciled
20%
Extra (off) budget expend.
Data on donor financing
Pov. Red. Exp. Identified
Classification of budget
Low level of arrears
Regular tracking
Outturn close?
Month reports
10% 0%
Benchmark number: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Formulation
Execution
Reporting
Source: “Actions to Strengthen the Tracking of Poverty Related Public Spending in Heavily Indebted Poor Countries (HIPCs), World Bank and IMF, March 22, See

7. Why hasn’t there been more progress?
Unhelpful donor practices
Inadequate sequencing of reforms, due to donor pressure or difficulties for government to determine the path of reforms
Fragmented approach to reforms and limited leadership in government
-- PRSP and PEM reforms separate
Limited monitoring of progress, mainly concentrated on inputs -> did not allow lessons learning and did not encourage focus on results on the ground
Capacity constraints
Technical reform versus systemic/institutional change
BUT realism important on achievable pace of change

8. The Way Forward: A Strengthened Approach
A country-led agenda – including a PFM reform strategy and action plan
A donor coordinated program of support – coordinated, coherent, multi-year program of PFM work that supports and is aligned with the government’s PFM strategy
A shared information pool – a common framework and information set for measuring and monitoring results over time

9. Government-led PFM Reform Strategy
What’s different ?
What we don’t want
Government reform strategy influenced by ad-hoc donors requests encourages a fragmented approach to PFM reforms
A Strengthened Approach
A government-led reform strategy, supported by a coordinated program of work by donors, facilitates an integrated and sequenced reform process.
Donor 2
Donor 3
Government-led PFM Reform Strategy
External audit
Procurement
Donor 4
Budget preparation
Coordinated program of support by donors
Treasury reforms
Donor 1

10. Operationalizing in Bank
Proposed
Recent Situation
Country-owned PFM reform strategy
Flexible ESW to support reform implementation, capacity-building
Knowledge mandate (understanding of institutional environment into which Bank funds flow) tied to operational needs
Country team determines form
PFM Performance framework to monitor progress
Country PFM team bridging networks and donors, planning and doing work
Each country team needs to plan according to country need first, broad knowledge mandate second
Country-level donor-client coordination
More anchor support on lesson learning, reform approaches, PFM issues
Corporate Mandate
3-core diagnostic products
Three networks operating independently
Currently have product focus