Budget Transparency in the Kingdom of Lesotho: The Roles of PFM Reform and Public Outreach

ICGFM 25th Annual International ConferenceMiami, Florida USA

May 15-20, 2011

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Overview Country Background

PFM Reform – Budgeting Processes

PFM Reform – Integrated Financial System

Promoting Transparency with Enhanced Budget Information

Lessons Learned and Next Steps

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Country BackgroundMs. Sheryl Kelly

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Country BackgroundGeneral

An enclave within South Africa known as “The Mountain Kingdom”

Lowest elevation is 4,600 feet

About the size of Belgium

Population = 1.9 million

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Country BackgroundPolitical

Constitutional monarchy Established as British protectorate in 1868 Gained independence in 1966 Bicameral Parliament, with a 33-member Senate and

120-member National Assembly Cabinet is comprised of Prime Minister and

Ministers/Assistant Ministers from the 19 ministries

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Country BackgroundEconomic

Manufacturing (textiles and clothing) Royalties from water transfers to South Africa Diamond mining Agriculture Miners’ remittances Construction Southern African Customs Union (SACU) revenues

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Country BackgroundBudget

27 Ministries and Offices FY 2010/11 Recurrent Budget = M7.4 billion (US$1

billion): 22% to Ministry of Education and Training 11% to Ministry of Health and Social Welfare 11% to Ministry of Finance and Development Planning

(student scholarships)

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Country BackgroundBudget

FY 2010/11 Capital Budget = M3.6 billion (US$ 491 million)

About half is government-funded: 11% to Ministry of Public Works and Transport 8% to Ministry of Local Government and Chieftainship 7% to Ministry of Health and Social Welfare

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Country BackgroundPFM Reform

PFM Programme commenced in January 2005 Funded by several donors, including the European Union

(EU), UK Department for International Development (DFID), Irish Aid, World Bank, and African Development Bank

Seven Areas of Focus:1. Strengthened macroeconomic analysis and forecasting

linked to fiscal policy, budget performance and monitoring

2. Integrated planning and budgeting systems

3. Modern procurement systems

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Country BackgroundPFM Reform

Seven Areas of Focus:

4. Modern integrated accounting, revenue and expenditure management systems

5. Strong independent oversight bodies and mechanisms6. Information to facilitate effective Cabinet participation in the

budget process7. Enhanced capacity within Ministry of Finance and

Development Planning (MFDP) to support and sustain reform

More on those areas related to budget processes and systems…

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PFM Reform – Budgeting ProcessesMs. ‘Mapalo Grace Moejane

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PFM Reform – Budget Processes Budget Processes Enhanced through Implementation of a

Medium Term Expenditure Framework (MTEF)

MTEF:

General Overview

Medium Term Fiscal Framework (MTFF)

Budget Framework Papers

Programme Budgeting

Successes to Date

Issues Currently Being Addressed

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PFM Reform – Budget ProcessesMedium Term Expenditure Framework (MTEF)

Introduced in 2005 to improve planning and budgeting processes. Prior to implementation: Incremental approach to budget preparation Input focused budget Annual budgets Ceilings set without consultation with stakeholders No link between planning and budget Limited integration between recurrent and capital budgets Weak linkage between government objectives and allocation

of resources

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PFM Reform – Budget ProcessesMedium Term Expenditure Framework (MTEF)

Implementation Strategy: Establishment of MTEF Task Team Selection and training of MTEF Facilitators Establishment of Cabinet Budget Committee Formation of ministry Budget Committees Pilot approach using six ministries, which were selected

on the basis of ministry size and prior experience with results-based reporting

Subsequent phase-in of non-pilots, which continues today

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MTEF Process Followed by Lesotho:

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PFM Reform – Budget ProcessesMedium Term Expenditure Framework (MTEF)

Medium Term Fiscal Framework (MTFF) Implemented in 2007 Includes three-year macroeconomic revenue and

expenditure projections, which are used in setting overall budget ceilings

Reflects the impacts of government policies on the national budget

Comprised of data from four Macro Accounts

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PFM Reform – Budget ProcessesMedium Term Expenditure Framework (MTEF):

Budget Framework Papers (BFP’s) Used in the setting of ministry ceilings Ideally, ministries whose functions are more relevant to

government priorities receive a larger share of the total funding

Current format includes: ministry objectives linked to national planning documents; service delivery issues; key performance indicators; and costing of new funding/savings proposals

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PFM Reform – Budget ProcessesMedium Term Expenditure Framework (MTEF)

Programme Budgeting: Programme-based budgeting introduced in 2007 Financial/budget system lacked the needed functionality at the

time Various approaches attempted, with some being too complex and

creating confusion; activity-based budgeting as a method for producing programme-based estimates was particularly problematic

Approach was simplified in 2010, and focus was narrowed to five pilot ministries

Implementation was successful and will be reflected in the FY 2011/12 budget

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PFM Reform – Budget ProcessesMedium Term Expenditure Framework (MTEF)

Successes to Date: Strengthened macroeconomic forecasting capability Budgeting approach changing from an input-based

incremental approach to a results-oriented approach Budget horizon has been expanded from one year to

three years Recurrent and capital budgets are being integrated Stronger linkage being developed between government

objectives and resource allocation through programme budgeting implementation

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PFM Reform – Budget ProcessesMedium Term Expenditure Framework (MTEF)

Successes to Date: Ministry preparation of Budget Framework Papers has

made resource allocation decisions (setting of ceilings) more transparent

More budget information now available to Cabinet for making informed decisions

More involvement by Cabinet in the budget process as a result of the establishment of the Cabinet Budget Committee

Expenditure implications of new policies are better quantified

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PFM Reform – Budget ProcessesMedium Term Expenditure Framework (MTEF)

Initial Challenges: Lack of government ownership of the reform Limited number of MTEF Facilitators, and limited

training for these Facilitators Training material for ministries too complex, training

period insufficient, and poor attendance at trainings Confusion over MTEF elements/concepts

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PFM Reform – Budget ProcessesMedium Term Expenditure Framework (MTEF)

Issues currently being addressed: “Reform Fatigue” MTEF interpreted as a tool for increasing ministerial

budgets Quality of BFP data needs to be enhanced Focus remains on first year of three-year budget MTFF impacted by time lags in updating, as well as

revenue data availability in IFMIS

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PFM Reform – Integrated Financial System

Mr. Kekeletso Mosala

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PFM Reform – Integrated Financial SystemGoLFIS (Government of Lesotho Financial

Information System)Existing Regulatory FrameworkIFMIS implementationAccompanying ReformsSustainability

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PFM Reform – Integrated Financial SystemGoLFIS (Government of Lesotho Financial

Information System) was previous financial system GoLFIS shortcomings:

Back office payables system, maintained by the Treasury Department and not available to the ministries

Marred by errors and omissions, with users able to override controls

Ex post entry of transactions for Sub Accountancies and foreign missions led to lengthy delays in production of public accounts

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PFM Reform – Integrated Financial SystemGoLFIS shortcomings:

Limited Chart of Accounts prevented the following: Integration of capital and recurrent budgets Compliance with international standards Comprehensive reporting on budget execution Budget entries on both a cost centre and programme

basis

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PFM Reform – Integrated Financial SystemGoLFIS shortcomings:

Manual vote books were maintained by ministries: used to control commitment but not kept up to date controls easily by-passed and not reconciled with

GoLFIS Allowed commitments without available funds

Budgets prepared on spreadsheets

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PFM Reform – Integrated Financial SystemExisting Regulatory Framework:

Finance Order of 1988 – based on centralised accountability model, with Accountant General responsible for compiling Public Accounts

No responsibility of ministries to report to Parliament on use of funds appropriated

Updated framework required to implement modernized financial processes

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PFM Reform – Integrated Financial System IFMIS Implementation:

In 2006, a process was initiated to implement an Integrated Financial Management Information System (IFMIS)

Underpinning of PFM reform efforts Formal project management methodology used to

manage scope, budget, expectations and risks throughout implementation

Required establishment of a modern technical platform System delivered to whole of government within 16

months

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PFM Reform – Integrated Financial SystemAccompanying Reforms:

Revised organisational structure to reflect new business processes

Re-skilling of Accounting staff across government New regulatory framework to govern and underpin new

business processes New Chart of Accounts to exploit reporting capabilities of the

IFMIS and bring reporting into compliance with international standards

New Chart of Accounts also provides more flexibility for the integration of recurrent and capital budgets and the entry of budgets on both a cost centre and programme basis

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PFM Reform – Integrated Financial SystemSustainability:

Implementation achieved but sustainability now the challenge: Retention of skilled staff Ongoing training capability to ensure minimum competency

levels for users Ability to support the system and manage upgrades

(outsourcing where necessary) Demand-side – use of reporting capabilities to inform

financial management Adequate budget provisions to maintain system capability –

life cycle replacement of equipment

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Promoting Transparency with Enhanced Budget Information

Mr. Tom Mpeta

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Promoting TransparencyAs a result of PFM reform efforts just highlighted,

significant improvements have been made to budget data and documentation

Dissemination of this information has also improvedAll have contributed to enhanced budget

transparency: MTEF Performance oriented Budget Book Information made available on MFDP web site Public outreach efforts

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Promoting TransparencyMTEF:

More transparent methodologies for estimating medium-term revenues through the implementation of the MTFF

A transparent and evidence-based bidding process for budget resources by ministries through the use of Budget Framework Papers; also, more information available to Cabinet for decision making

Integration of recurrent and capital budgets reflect full cost of projects and, ultimately, the delivery of programme outputs

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Promoting TransparencyMTEF:

Greater transparency in funding of government priorities through Programme Budgeting implementation: Budgets traditionally prepared using cost centre structure,

which generally represents a ministry’s administrative structure The cost centre structure does not always align well with

ministry objectives/outputs; therefore, difficult to align with overall government priorities

The new programme structure being designed based on government priorities, which will present a clearer picture of the resources allocated to support these priorities

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Promoting TransparencyBetter Access to Ministry Performance Data through

New Budget Book Budget Book contained only budget data by economic

classification, no other supporting information Budget Book currently being piloted has ministry descriptions

and performance information: Ministerial Vision, Mission Statement, Objectives Primary challenges and how they are being addressed Primary achievements Performance indicators by programme Combined recurrent/capital budget by programme and sub-

programme

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Promoting Transparency Example of performance information provided in new

Budget Book:

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Promoting Transparency Information made available on MFDP web site

www.finance.gov.ls (some published as a result of donor requirements): Budget Book Budget Speeches Budget Guidelines Budget Framework Papers Circulars and Notices MFDP Reform Initiatives (IFMIS, MTEF, Procurement,

etc.)

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Promoting TransparencyPublic Outreach Efforts to Disseminate Budget Information

and Obtain Stakeholder Input: Major public outreach event occurs every year as the

Honourable Minister of Finance and Development Planning tables the Budget Estimates before Parliament for approval. During this time, the Budget Estimates are broadly distributed to the citizens:Honourable Minister participates in media events and meetings

with the business community to explain the budgetBudget Teams from MFDP are assigned to travel to each of the

Districts of Lesotho to conduct public forums with stakeholders in the Districts:

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Promoting TransparencyPublic Outreach Efforts:

♦ These meetings are attended by people from different sectors, including farmers, business community, Non-Governmental Organizations (NGOs), as well as public servants from different government departments in the Districts

♦ In these forums, the stakeholders have opportunities to inquire about the current Budget Estimates and to learn about progress made from the funding of projects/ initiatives under previous budgets

♦ The stakeholders are also given an opportunity to provide their own input, including the identification of priority requirements and recommendations for future year budgets

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Promoting TransparencyPublic Outreach Efforts:

♦ Budget Teams then report back to the Honourable Minister on the stakeholder input

♦ These meetings are very effective because they aid in identifying public priority areas for resource allocation

♦ The following pictures were taken by the Budget Teams to help justify the priority requirements and recommendations of the stakeholders, as well as to document progress on previously funded projects/ initiatives:

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Public Priority Area – Bridge Construction:

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Documenting Progress on BridgeConstruction Project:

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Final Outcome – Strategic Allocation of Resources Based on National Priorities:

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Public Priority Area – School Construction:

Supports Lesotho’s Primary Education Priorities for 2011/12, which include increasing access, efficiency, and equity of education

through construction of primary school classrooms and toilet blocks in the remote areas of Lesotho

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Next Steps and Lessons LearnedMs. Sheryl Kelly

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Next Steps and Lessons LearnedPFM reform initiatives related to budgeting have

resulted in a number of successes thus farThese have been accompanied by a host of

challenges, some resolved and others still being addressed

Good foundation now in place for both ongoing and future initiatives – a result of introduction of MTEF, as well IFMIS implementation

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Next Steps and Lessons LearnedNext Steps

Revise Budget Framework Paper template to enhance value/relevance and allow for a programme orientation

Develop template for a consolidated Budget Framework Paper and make publicly available

Require the ministry preparation of comprehensive and defensible budget requests for the indicative, or planning, years of the budget horizon

Strengthen usage of Budget Module in IFMIS, particularly for budget development

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Next Steps and Lessons LearnedNext Steps

Roll out programme budgeting to remaining ministries using a phased approach

Incorporate performance data for all ministries into the Budget Book

Enhance quality of ministry performance monitoring systems

Ensure strong linkage between ministry programmes and Lesotho’s National Strategic Development Plan (currently being drafted)

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Next Steps and Lessons LearnedLessons Learned

Reform initiatives should be country-specific (not one-size-fits-all)

Initiatives should be designed such that they avoid unnecessary complexity and compliment existing institutional and human and physical resource capacities in the ministries

Initiatives must be properly sequenced, and donors should ensure that support for initiatives is well coordinated with other contributing donor partners

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Next Steps and Lessons LearnedLessons Learned

Financial and payroll system functionality must be considered well in advance of implementing any reforms that are dependent upon these systems

New systems may be implemented, but, if staff are not adequately trained, they many undermine the effectiveness and sustainability of the systems

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Next Steps and Lessons LearnedLessons Learned

Exposure to budget concepts and basic knowledge of the budget process can enhance citizens’ ability to effectively monitor government performance and accountability of taxpayer money

Government ownership of PFM reforms is required for long-term sustainability, with Ministries of Finance leading the initiatives, carefully guiding the design and implementation, and ensuring sufficient capacity to fully support the line ministries

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Comments/Questions?