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PREM Public Sector Governance 1

Public Expenditure Public Expenditure Management: Management:

An IntroductionAn Introduction

Presented to:Presented to:

PREM – WBI Core Course onPublic Sector Governance &Anticorruption

Presented by:Presented by:

Bill DorotinskyPREM Public Sector Grouphttp://www1.worldbank.org/publicsector/pe/index.cfm

February 14-17, 2005February 14-17, 2005

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PREM Public Sector Governance 2

Outline

• What is Public Expenditure Management?• What institutions matter?• Process: Expenditure Management Cycle• Organizations, Systems• Three- objectives

• Applications– Rules– Roles– Information

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What institutions matter?

• Formal and Informal Rules– Laws and regulations

• Constitutions , fiscal, budget, procurement, civil service, special funds, sector laws, public enterprises, mandatory spending

• Process– Policy

– Planning

– Financial/resource management

• Organizations and their roles• Information

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Planningsystem

Medium termplans, e.g. three

year rolling plans

Annual budgetsDevelopment,recurrent and

revenue

Fund releaseprocedure, e.g...

warranting

Accounting forrevenue andexpenditure

Public expenditurereview Institutions

Reports andfinancial statements

Audit system

Project monitoring

Projectappraisal

Resourceallocation

Liquidity

managem

ent

Expen

ditur

e

contr

ol

Monitoring

& controlling

Post eventreview

Accountability

Expenditurereview

Financial management system boundaries

Source: Adapted from Integrated Financial Management. Michael Parry, International Management Consultants Limited. Training Workshop on Government Budgeting in Developing Countries. THE UNITED NATIONS. December 1997.

Expenditure Management Cycle

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Budget and Policy Execution System in Hungary (1999)

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Three Objectives of Public Expenditure Management

Systems• Macrofiscal discipline and stability

– Support economic growth and stability (and reduce poverty)

– Avoid public finance crises

• Strategic allocation of resources– Match government policy with programs, objectives

• And assure social safety nets, and promote growth

• Technical efficiency– Getting the most from each zloty spent

• And just delivering core services

Framework

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Rules and OutcomesTable 2: Provisions for spending in the event no budget is enacted prior to the fiscal year, by system of government Non-OECD OECD Presidential

(8) Parliamentary

(5) Presidential

(3) Parliamentary

(23) Executive’s budget takes effect

38 % 20 % - 17 %

Previous year’s budget takes effect

50 % 80 % - 26 %

Legislature must vote other measures

- - 33 % 39 %

Executive falls, new elections held

- - - 4 %

Other (including no provisions)

12 % - 66 % 13 %

Source: World Bank – OECD budget procedures database at http://ocde/dyndns.org/

Application

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Informal RulesDominican Republic Budget Deviation, 1996-2000

Identifying sources of weakness for further investigation

Identifying incentives at work

0%

100%

200%

300%

400%

500%

600%

Congreso

Nac

ional

Presi

denci

a

Fuerza

s Arm

adas

Relac

iones

Ext

erio

res

Finan

zas

Deporte

s

Trab

ajo

Agricultu

ra

Indust

ria y

Com

erci

o

Turis

mo

Poder J

udicia

l

Junta

Cen

tral E

lect

oral

Source: Dominican Republic PER 2003, background data

Application

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Dominican Republic

1979-86 1987-96 1997-2000Partido del Presidente PRD PRSC PLDPresidencia de la República 2.09 7.35 2.53 Interior y Policía 1.06 1.00 1.06 Fuerzas Armadas 1.06 0.86 0.97 Finanzas 1.94 0.54 1.06 Secretaría de Estado de Educación y Cultura 0.96 0.86 0.95 Salud Pública 0.87 0.68 0.78 Agricultura 0.82 0.35 0.76 Obras Públicas 0.98 0.44 0.88 Otros 1.19 1.13 1.08

Budget Deviation (ratio of executed to approved budget)

Identifying trends for transparency

Source: Dominican Republic PER 2003, background data

Application

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Roles and InformationRepublic budget revenues have performed closely to budget estimates, owing in large part to ZOP efficiency in revenue collection. Between 1995 and 2001, actual revenues collected averaged 99 % of planned levels. (This excludes own revenues and other off-budget revenues.)

 

Republic expenditures have been less successfully contained. Between 1996 and 2001, actual Republic expenditures averaged 106 % of planned expenditures, with the variation growing to 119 % for 200 and 117 % for 2001.

 

The Pension Fund has run a deficit in five of seven years between 1995 and 2001. The Health Fund has run a deficit in three of the last seven years, broke-even in three years, and had a surplus one year. The financing gaps requiring Republic Budget or other nonsocial contribution support has been increasing.Source: Serbia and Montenegro PEIR 2003, Volume III Montenegro

Application

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InformationTechnical efficiency

In terms of technical efficiency, as with the Federal and Republic of Serbia systems reviewed in Volume 1, we have no detailed numbers on costs per unit of service delivered, or comparative procurement costs. However, a proxy measure is variation in aggregate budget position.

 

For 2000, the wage bill variation from approved budget, by budget users, was 15 percent, ranging from a high of 42 % above budget for the Ministry of Justice to a low of 54 % below budget for the Customs Service.

AveragePersonnel Expenses 7%Materials -2%Investments 3%Special Purpose -20%Economic Intervention 16%Grants and social benefits -1%Other 319%

Table 1. Average variation, approved versus executed budgets, by position,

1996-2000

Source: Ministry of Finance, Republic of Montenegro

This degree of volatility in funding levels undermines effective program implementation. Budget users cannot plan in advance, focus on program effectiveness, efficiency, or improved productivity, if they are spending most of their time battling arrears or having no funds to operate their program.

Source: Serbia and Montenegro PEIR 2003, Volume III Montenegro

Application

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100 clinics,but only 70 operating

10 built with donor funds, donor funds off-budget

Budget not comprehensive

10 built with domestic funds, capital budget

separate

Budget fragmented

10 funded in budget, but no cash allocated

to operate

Cash triage

Donor ring-fencing for “accountability”

Line ministry gets flexible resource pool

Local staff seek higher PIU pay

Above-the-waterline observation

WHY?

Weak budget law Too rigid budget execution Low public pay

WHY?

WHY?

And what can be done about it?

Exploringproblems

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Additional information is available on the Public Expenditure website:http://www1.worldbank.org/publicsector/pe/index.cfm

Q&A