Workshop on Medium-term Budget FrameworksAccra, 2 – 6 June 2014

Session Number 4.3, Thursday 5 June, 11.45Jean-Marc Lepain, AFW2 Regional Advisor

MTBF Budget Documentation and the Pre-Budget Statement

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Outline

I. Definition and types of budget documents

II. IMF New Code of Fiscal Transparency

III. Budget documentation through the MTBF cycle

IV. Budget documentation and fiscal transparency

V. The Pre-Budget Statement

I. Definition and Types of Budget Document

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Documentation and Transparency

• Documentation: for the sake of decision process tracking and accountability

• Transparency: for the sake of public information including:

– General public through the media– Investors and rating agencies– Development partners– International institutions for the sake of international

comparisons

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Documentation: definition

“All documentation published at or around the time of the annual budget including the budget book, budget estimates, fiscal strategies, medium-term budget frameworks, fiscal risk statements, finance or estimates bills, long-term public finance reports, and the budget, finance, or appropriation act.” (IMF 2013)

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Transparency: definition

“Budget transparency is defined as the full disclosure of all relevant fiscal information in a timely and systematic manner, and openness about policy intentions, formulation and implementation.”

(OECD)

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Who defines documentation requirements and transparency criteria?

• OECD for quality of information norms• The IMF (Code of Good Practice on Fiscal Transparency,

Guide on Resource Revenue Transparency, Reports on the

Observance of Standards and Codes)• World Bank + IMF + EU for PEFA criteria (Public

Expenditure Financial Accountability Report) • EU for budget support requirements • Open Budget Initiative for the Open Budget Index

(OBI)• Lima Declaration and INTOSAI for audit disclosure

requirements• Regional organizations (ECOWAS, CEMAC, etc.)

II. IMF New Code of Fiscal Transparency

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Reasons for a new Code

• Impact of the 2009 financial crisis• Changes in accounting practices and new

accounting standards• New tools for monitoring compliance with standards

were introduced– Multilateral: Fiscal and Data ROSCs, GDDS/SDDS, & PEFA– Regional: Eurostat, WAEMU & CEMAC harmonization of fiscal reporting– Civil Society: Open Budget Survey and Index, GIFT Principles

• Importance taken by contingent liabilities

• Weaknesses in the existing Code and ROSC

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Weaknesses in the existing Code and ROSC

• Code & ROSC evaluate clarity of reporting procedures not quality of reports– Code’s 4 “Pillars” reinforce focus on formal laws, institutions, and processes

i. Clarity of Roles and Responsibilityii. Open Budget Processesiii. Public Availability of Informationiv. Assurances of integrity

– ROSCs pay too little attention to the content of fiscal reports themselves

• Code & ROSC adopt a “one-size-fits-all” approach to evaluating countries– Do not take into account different levels of institutional capacity– Do not provide milestones to full compliance with international standards– Make it difficult to benchmark against comparator countries

• ROSC assessments tended to be exhaustive rather than risk-based– Place equal weight on all elements of the Code – Difficult to judge relative seriousness of different fiscal reporting gaps– Include a large number of unprioritized recommendations

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Objectives of the revision

1. Emphasize the quality and reliability of published information rather than clarity of reporting procedures

2. Update the principles and practices to reflect the lessons of the recent crisis

3. Align the principles and practices with relevant international standards (GFSM 2001, IPSAS, OECD Principles, PEFA)

4. Provide countries with a set of achievable milestones on the way towards full compliance with international standards

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The new budget transparency agenda

• Fiscal Transparency Code– Submitted to IMF Board in April 2014

• Fiscal Transparency Evaluations– 8 pilot FTEs already conducted: Costa Rica, Bolivia, Ireland,

Mozambique, Philippines, Romania, Russia and Portugal– 5 FTEs planned during May 2014-April 2015– Work with East African Community to strengthen national fiscal

reporting and surveillance ahead of monetary union

• Fiscal Transparency Guidance– Fiscal Transparency Manual (April 2015)– Guide on Natural Resource Revenue Transparency (Sept 2015)

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III. Budget Documents and

Transparency Requirements

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The eight mandatory fiscal documents

1. The Pre-Budget Statement

2. The Executive’s Budget Proposal

3. The Enacted Budget

4. The Citizen Budget

5. In-Year Reports

6. The Mid-Year Review

7. The Year-End Report

8. The Audit Report

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I. Budget Documentation: Definition and types

Doc Description PBS Pre-Budget Statement: Provides

information that links government policies and budgets and typically sets forth the broad parameters that will define the budget proposal that is presented to the legislature.

EBP Executive’s Budget Proposal: Presents the government plans to raise revenues through taxes and other sources and spend these monies to support its priorities, thus transforming policy goals into action.

EB Enacted Budget: The legal instrument authorizing the executive to raise revenues, make expenditures, and incur debt.

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Doc Description CB Citizens Budget: A nontechnical

presentation to enable broad public understanding of a government’s plans for raising revenues and spending public funds in order to achieve policy goals.

IYR In-Year Reports: Periodic (monthly or quarterly) measures of the trends in actual revenues, expenditures, and debt, which allow for comparisons with the budget figures and adjustments.

MYR Mid-Year Review: An overview of the budget’s effects at the midpoint of a budget year and discusses any changes in economic assumptions that affect approved budget policies.

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Doc Description YER Year-End Report: Information comparing

the actual budget execution relative to the Enacted Budget.

AR Audit Report: Independent evaluation of the government’s accounts by the country’s supreme audit institution. It typically assesses whether the executive has raised revenues and spent monies in line with the authorized budget, and whether the government’s accounts of its revenues and expenses are accurate and provide a reliable picture of the fiscal situation.

IV. Budget Documentation Through the MTBF Cycle

MTBF Cycle

Legislature

Cabinet

MoF and MoPEA

MDAs (SWGs)

Q1-Q2 Q3 Q4

Update MTBF BCC(1)

MT expenditure priorities and strategic budget allocations

Agreed MTBF and PBS

Cabinet approves MTBF and PBS

BCC (2)

Annual detailed expenditure priorities

MTFF and MTBF update (PBS) (Detailed Budget)

Cabinet approve

Submission to LEG

Approve macro fiscal targets (MTFF) and (BOP)

Strategic Phase Operational Phase

1

2

3

4

5

79

6

8

10Recommendation on MTFF/MTBF

IV. Fiscal Transparency Assessment

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The Open Budget Initiative

• The International Budget Partnership was created in 1997 between the Center on Budget Priority and Policy and a number of stakeholders with the objective of promoting budget transparency.

• The Open Budget Initiative was launched in 2006 with the support of the British Government.

• The objective was to launch the Open Budget Survey that evaluates whether governments give the public access to budget information and opportunities to participate in the budget process at the national level.

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The Open Budget Survey

• Conducted every two years since 2006, last survey made in 2012 and published in January 2013;

• Number of assessments: 100 countries representing more than half of the world population.

• Number of countries fulfilling transparency requirements: 33

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BUDGET TRANSPARENCY INDEX

           2006 2008 2010 2012                Cabo Verde NA NA NA NAGambia NA NA NA NAGhana 42 52 54 50Liberia NA 30 40 53Nigeria 20 19 18 16Sierra Leone NA NA NA 39        

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Methodology

• Questionnaire with 125 questions

• Scoring from ‘a’ to ‘d’

a = 100 b = 67

c = 33 d = 0

e indicates that the question cannot be answered

• 95 governments were invited to give comments; 41 have submitted their answers

V. The Pre-Budget Statement

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Key Characteristics

Component Purpose

Link to National Development Pan

• Specific policy priorities/cost drivers to deliver long term goals

Forecast of the economy • Growth projections and major drivers of growth to help guide fiscal policy

Fiscal policy objectives and trends

• Budget Deficit/GDP• Expenditure implications

MTBF • Expenditure breakdown by sector (broadly consistent with GFS)

• Expenditure priorities and results

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The five key components of a PBS

1. Government’s assessment of the macroeconomic situation and rationales for underlying assumptions

o Influence of the international environmento Growth forecasto Main macroeconomic indicators o Employment forecasto Interest rate forecasto Vulnerability of endogenous and exogenous

chocks

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The five key components of a PBS

2. Long and medium term objectives of the Government’s economic and fiscal policy

o Government’s planed actions to support its economic and fiscal policy

o Deficit/Surplus evolution over the medium and long termo Civil service staffing numbers and their evolution

3. Economic and fiscal strategy by sectoro Sectorial policies broad orientations o Quantitative and qualitative objectives by sectoro Sector ceilings on the basis of functional and economic

classification

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The five key components of a PBS

4. Revenue forecasting by broad categorieso Main taxeso Non tax revenueso Grants

5. New policy initiatives that might impact Government’s future fiscal position

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Benefits in the MTBF Budget Cycle

– locks in resources within the budget year – makes it more difficult for last minute requests

– Strengthens internal management by Incorporating bottom up plans by M&As

– Brings Parliament into the budget cycle early to avoid late disruption

– Links MTBF to annual budget

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Conclusion

• Pre Budget Statements play a crucial role in decision making

• They form the main output of the strategic budget phase to guide medium term expenditure ceilings

• They can be improved in most African countries by using sector classifications and strengthening forward estimates

• They form part of a spectrum of strategic and operational budget documents to aid transparency and accountability

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Group Exercise – prepare a template for a Pre-budget statement

• Review the Pre-budget statement from South Africa and compare the content with the examples from the AFS countries

• Generate a template for presentation for the key components of a pre-budget statement in your country . Use the outline and template to guide you.

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References

• http://survey.internationalbudget.org/• IMF (2013): FISCAL TRANSPARENCY

CODE (Consultation Draft of July 1, 2013)• IMF (2007): GUIDE ON RESOURCE

REVENUE TRANSPARENCY• OECD Best Practices for Budget

Transparency (2002)