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This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Fiscal Affairs Department (FAD) courses. Any reuse requires the permission of the IMF and FAD. Module PFM and Fiscal Policy Design Public Financial Management (PFMx) 03

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Page 1: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Fiscal Affairs Department (FAD) courses.Any reuse requires the permission of the IMF and FAD.

Module

PFM and Fiscal Policy Design

Public Financial Management (PFMx)03

Page 2: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

A Tool to Deliver Fiscal Policy Objectives and Outcomes

Page 3: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Role of the International Monetary Fund (IMF)

SurveillanceandOversight

56%

Lending15%

CapacityDevelopment

29%

SurveillanceandOversight

Lending

CapacityDevelopment

Shareofactivitiesbycost.(Fiscalyear2016)

Source:IMFOfficeofBudgetandPlanning.Note.TheIMF’sfinancialyearisMay1throughApril30.

Page 4: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

IMF Public Financial Management Technical Assistance

Page 5: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

PFM Technical Assistance in Article IV Reports – Nigeria

Page 6: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Role of the International Monetary Fund (IMF)

SurveillanceandOversight

56%

Lending15%

CapacityDevelopment

29%

SurveillanceandOversight

Lending

CapacityDevelopment

Shareofactivitiesbycost.(Fiscalyear2016)

Source:IMFOfficeofBudgetandPlanning.Note.TheIMF’sfinancialyearisMay1throughApril30.

Page 7: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

An Example – Jordan

External Shock Impact Result

Imports of fuel cost more

Public debt increases

Increase in fuel prices

Increase in losses of state-owned electricity company (NEPCO)

More government guaranteed debt and transfers to NEPCO

Page 8: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

FiscalPolicy

Howpoliciesshouldbedesigned

Whattodo Howtodo

PublicFinancial

Management

Howpoliciesshouldbeimplemented

HighcapacityintheMoF

Page 9: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Coverage of the Public Sector

Page 10: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Coverage of the Public Sector

Source: IMF Fiscal Transparency Evaluations.

BudgetaryCentral

Government

SocialSecurity

ExtrabudgetaryCentral

Government

SubnationalGovernment

GeneralGovernment

PublicCorporations

Finland(2013)

Guatemala(2014)

28.8 13.4

19.8 2.2

–– 2.0

24.1 2.9

58.1 17.5

14.2 1.6

PublicSector

GeneralGovernment

PublicCorporations

PublicFinancial

Corporations

PublicNon-financialCorporations

StateGovernments

CentralGovernment

LocalGovernments

SocialSecurity

BudgetaryCentral

Government

ExtrabudgetaryCentral

Government

Page 11: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Coverage of the Public Sector

GUATEMALA (2014)FINLAND (2013)

Reported

Not Reported

Source: IMF Fiscal Transparency Evaluations.

Page 12: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

An Example – Jordan

External Shock Impact Result

Imports of fuel cost more

Public debt increases

Increase in fuel prices

Increase in losses of state-owned electricity company (NEPCO)

More government guaranteed debt and transfers to NEPCO

Coverage

Page 13: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Coverage

Important because:

Fiscal policy is carried out by different levels of government

Budget allocations need to be made in a comprehensive manner

Partial coverage is a source of fiscal risk

Page 14: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 15: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 16: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Anticipating Fiscal Risks

60

70

80

90

100

110

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Spring2016

Spring2007

37%ofGDP

AdvancedEconomies:PublicDebt,2007-2016.(PercentofGDP)

Source:IMF.

Page 17: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 18: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 19: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 20: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Fiscal Costs of Contingent Liabilities

Source: IMF Fiscal Monitor Database; and IMF estimates

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Fisc

al C

osts

(Per

cent

of G

DP)

YearLegal Natural Disaster(s) Other SOEs + PPPs Subnational Government

Page 21: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Fiscal Costs of Contingent Liabilities

Source: IMF Fiscal Monitor Database; and IMF estimates

0

10

20

30

40

50

60

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Fisc

al C

osts

(Per

cent

of G

DP)

YearFinancial Sector Legal Natural Disaster(s) Other SOEs + PPPs Subnational Government

Indonesia

Algeria

IcelandThailand

Ireland

TurkeyKorea

Greece

Page 22: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 23: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

An Example – Jordan

External Shock Impact Result

Imports of fuel cost more

Public debt increases

Increase in fuel prices

Increase in losses of state-owned electricity company (NEPCO)

More government guaranteed debt and transfers to NEPCO

Page 24: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 25: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

IdentifyingandAnalyzing

Source: Where does the source oftheriskreside?

Incidence: What is the probablity of risk?

Page 26: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

IdentifyingandAnalyzing

Source: Where does the source oftheriskreside?

Incidence: What is the probablity of risk?

Endogenous Exogenous Continuous:regularevents

Discrete:occurringirregularly

Page 27: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

IdentifyingandAnalyzing

Source: Where does the source oftheriskreside?

Incidence: What is the probablity of risk?

Endogenous Exogenous Continuous:regularevents

Discrete:occurringirregularly

Page 28: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 29: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 30: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 31: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 32: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 33: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 34: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

An Example – Jordan

Risk MitigationEfficiency gainsTariff

adjustmentsDiversification of fuel supply

External Shock Impact Result

Imports of fuel cost more

Public debt increases

Increase in fuel prices

Increase in losses of state-owned electricity company (NEPCO)

More government guaranteed debt and transfers to NEPCO

Page 35: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan
Page 36: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Bigscreenshot.

Page 37: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Iamnotsurewecanopenthefiscalriskstatement

Page 38: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Definition of Public Corporations

Page 39: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Public Corporations

Classified as:

A separate entity by law

Generate profit or other financial gain

Set up for market production

Controlled by government

Page 40: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Scope of Public Corporations

Airlines

Ports

Electricity Postal services

Natural Resource companies

TelecommunicationsRailways

Water

Transport Utilities Other

Page 41: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Monitoring Public Corporations is important

PublicCorporations:Marketvalue(PercentofGNI)

Source:Kowalski,P.;M.Büge;M.Sztajerowska;M.Egeland.2013.OECDTradePolicyPaper147.Note:DatafromForbesGlobal2000areyear2011;anddataforGNIareyear2010.

0%

10%

20%

30%

40%

50%

China

Russia

Norw

ay

India

Brazil

Poland

CzechRe

public

Indo

nesia

Finland

Sweden

France

Switzerland

Korea

Greece

Unite

dKingdo

m

Austria

Belgium

SouthAfrica

Japan

Turkey

Unite

dStates

Ireland

Germ

any

Italy

Page 42: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

0 500 1000 1500 2000 2500

SlovakiaLithuaniaEstoniaHungary

CzechRepublicLatvia

SloveniaCroatia

RomaniaBulgariaSwedenPoland

NumberofState-owned enterprises(Average2012-14)

Source:U.Böwer,IMFWorkingPaper.

Public Corporations account for large share of the economy

Page 43: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Public Corporations account for large share of the economy

Source:U.Böwer,IMFWorkingPaper.Note.Healthcaresectorisexcluded

0123456789

Bulgaria Croatia CzechRepublic

Estonia Hungary Latvia Lithuania Poland Romania Slovakia Slovenia Sweden

Output Employment

ShareofState-ownedenterprisesintheeconomy(Percentoftotal;annualaverage2012-2014)

Page 44: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Public corporations impose economic and fiscal costs

Source:U.Böwer,IMFWorkingPaper.

0 50 100 150 200 250

PolandRomaniaSwedenHungaryCroatiaSlovakia

CzechRepublicSloveniaBulgariaLatvia

Estonia

Averagecostperenergysectoremployee,2012-14.(Costperstate-ownedenterprise employeeinpercentofcostinprivatefirms.)

Page 45: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Public Corporations can increase Public Debt

Source:Eurostat.

0102030405060708090

100

Slovakia Lithuania Estonia Romania Croatia CzechRepublic

Bulgaria Hungary Latvia Poland Sweden Slovenia

2013

2014

2015

Contingentliabilities(outsideGeneralGovernment)(PercentofGDP)

Page 46: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Monitoring Public Corporations

Ensures that Public Corporations are not a mechanism:

§ for circumventing traditional fiscal controls; and

§ a conduit for financial misconduct.

Page 47: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Effective Oversight of Public Corporations

Page 48: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Effective Oversight of Public Corporations

Page 49: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Effective Oversight of Public Corporations

Page 50: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Effective Oversight of Public Corporations

Page 51: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

Effective Oversight of Public Corporations

Page 52: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

FiscalPolicy

Howpoliciesshouldbedesigned

Whattodo Howtodo

PublicFinancial

Management

Howpoliciesshouldbeimplemented

HighcapacityintheMoF

Page 53: Public Financial Management (PFMx) Module 03Fiscal year 2016) Source: IMF Office of Budget and Planning. Note. The IMF’s financial year is May 1 through April 30. An Example –Jordan

An Example – Jordan

Risk MitigationEfficiency gainsTariff

adjustmentsDiversification of fuel supply

External Shock Impact Result

Imports of fuel cost more

Public debt increases

Increase in fuel prices

Increase in losses of state-owned electricity company (NEPCO)

More government guaranteed debt and transfers to NEPCO


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