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The World Bank
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
The World Bank
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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PREM Public Sector Governance 3
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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PREM Public Sector Governance 4
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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PREM Public Sector Governance 5
Budget and Policy Execution System in Hungary (1999)
The World Bank
PREM Public Sector Governance 6
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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PREM Public Sector Governance 7
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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PREM Public Sector Governance 8
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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PREM Public Sector Governance 9
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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PREM Public Sector Governance 10
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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PREM Public Sector Governance 11
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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PREM Public Sector Governance 12
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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PREM Public Sector Governance 13
Additional information is available on the Public Expenditure website:http://www1.worldbank.org/publicsector/pe/index.cfm
Q&A