Winter 2008 Conference, WashingtonWinter 2008 Conference, Washington

Country Perspectives on Advancing Country Perspectives on Advancing Public Financial Management Reform-Public Financial Management Reform-

What Really WorksWhat Really Works

PFM REFORM LANDSCAPEPFM REFORM LANDSCAPE Anita Angelovska-BeAnita Angelovska-Bežžoskaoska

National Bank of Republic of National Bank of Republic of MacedoniaMacedonia

ContentContent •Objectives of the PFM reforms;Objectives of the PFM reforms;•Budget Planning Reforms:Budget Planning Reforms:

main features; andmain features; andimplementation problems.implementation problems.

•Budget Execution Reforms:Budget Execution Reforms:main features; andmain features; and

implementation problems.implementation problems.•Requirements for successful Requirements for successful reforms;reforms;•Conclusion.Conclusion.

Objectives of the PFM Objectives of the PFM reformsreforms

Three main objectives of the PFM Three main objectives of the PFM system:system:

fiscal control;fiscal control; strategic allocation of resources; andstrategic allocation of resources; and efficient and effective use of public efficient and effective use of public

resources.resources.

Is there a trade off among Is there a trade off among the objectives?the objectives?

Short-run against long-run perspective;Short-run against long-run perspective;

Priorities at different stages of development;Priorities at different stages of development;

Gradual approach:Gradual approach: fiscal control;fiscal control; fiscal control + strategic allocation of resources; fiscal control + strategic allocation of resources; fiscal control + strategic allocation of resources fiscal control + strategic allocation of resources

+ efficient and effective use of resources.+ efficient and effective use of resources.

Budget preparation reformsBudget preparation reformsMain features:Main features:

focus on focus on resultsresults (output /outcome) rather than (output /outcome) rather than inputs;inputs;

higher degree of higher degree of flexibilityflexibility for budget for budget managers in line ministries (consolidation of line managers in line ministries (consolidation of line items, reallocations, end-of-the-year flexibility);items, reallocations, end-of-the-year flexibility);

higher higher responsibilityresponsibility focused on results focused on results (performance measurement);(performance measurement);

medium-term perspectivemedium-term perspective (greater certainty (greater certainty about the availability of funds and longer-term about the availability of funds and longer-term view on fiscal position);view on fiscal position);

transparency and accountabilitytransparency and accountability..

Budget preparation reformsBudget preparation reforms

Implementation problemsImplementation problems::

weak political support by the government;weak political support by the government;absorption capacity at the spending units level limited;absorption capacity at the spending units level limited; ˝big-bang˝ approach;˝big-bang˝ approach; reluctance for broadening the coverage of the budget reluctance for broadening the coverage of the budget

document (off-budget funds); document (off-budget funds); pro-forma program budgeting;pro-forma program budgeting;unclear definition of strategic priorities;unclear definition of strategic priorities;

Budget Execution ReformsBudget Execution Reforms Main features:Main features:

improvingimproving cash management (min. cash management (min. borrow. cost and maximize return);borrow. cost and maximize return);

introducing comprehensive introducing comprehensive TSATSA in order to: in order to: improve cash management;improve cash management; enhance control and monitoring; andenhance control and monitoring; and improve reporting and transparency;improve reporting and transparency;

improving improving financial planning and financial planning and forecasting;forecasting;

Budget Execution ReformsBudget Execution Reforms

Main features (cont.):Main features (cont.):

controlling all stages of expenditures controlling all stages of expenditures (commitment control) (commitment control) in order to:in order to:

prevent arrears;prevent arrears; support budget planning; andsupport budget planning; and support cash management.support cash management.

introducing higher introducing higher flexibilityflexibility in the use of in the use of resources on a line-item level;resources on a line-item level;

improving improving payment system payment system infrastructure.infrastructure.

Budget Execution ReformsBudget Execution Reforms

Implementation problems:Implementation problems:

reluctance of spending units to give up own accounts reluctance of spending units to give up own accounts for introduction of TSA;for introduction of TSA;

reluctance of executing expenditures financed by reluctance of executing expenditures financed by special revenues through the TSA;special revenues through the TSA;

specific requirements by donor institutions (managing specific requirements by donor institutions (managing foreign aid);foreign aid);

weak coordination of budget preparation and budget weak coordination of budget preparation and budget execution reforms, as well as accounting and reporting execution reforms, as well as accounting and reporting reforms;reforms;

Budget Execution ReformsBudget Execution Reforms

Implementation problems (cont.):Implementation problems (cont.):

weak coordination with monetary policy;weak coordination with monetary policy;limited cash management operations due limited cash management operations due

to macroeconomic constraints;to macroeconomic constraints;difficulties in keeping up with the difficulties in keeping up with the

increased workload ;increased workload ;lack of training of the spending units.lack of training of the spending units.

Requirements for Requirements for successful reformssuccessful reforms

capacity of administration to manage capacity of administration to manage reform:reform: improved capacity at the central level;improved capacity at the central level; strengthened capacity of the spending unitsstrengthened capacity of the spending units

political support by government; political support by government; sufficient internal control mechanisms;sufficient internal control mechanisms; appropriate legal framework;appropriate legal framework;

Requirements for Requirements for successful reforms (cont.)successful reforms (cont.)

appropriately sequenced reforms;appropriately sequenced reforms; strong coordination of foreign donors;strong coordination of foreign donors; external TA if internal capacity is external TA if internal capacity is

insufficientinsufficient

is also helpful;is also helpful; structural conditionality in IMF structural conditionality in IMF

programs.programs.

Thank you for your attentionThank you for your attention..

AngelovskaBA@nbrm.gov.mkAngelovskaBA@nbrm.gov.mk