Reform Trends in OECD Member countries

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Reform Trends in OECD Member countries
Warsaw, 8 February 2005

• Jón R. Blöndal
• Deputy Head of Division
• Budgeting and Management Division

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Agenda

• Introduce the SBO
• Reform trends in OECD countries

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The SBO

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The Working Party ofSenior Budget Officials

• Founded in 1980
• One of the most senior bodies within the
  OECD.
• Forum of senior officials
• Research and analysis

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The SBO Mandate

• to improve the effectiveness and efficiency of
  resource allocation and management in the
  public sector
• addresses the entire budget cycle, including
  budget formulation, budget approval (role of the
  legislature), budget implementation
  (management, organizational structure), and
  audit.
• co-operates with non-Members in order to share
  the results of its work

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SBO Subsidiary Networks

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SBO Regional Networks

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Research and Analysis

• Holistic reviews of individual Member countries
  budgeting systems
• Comparative analysis of specific budgetary issues
  across Member countries
• Comprehensive database of budgeting practices in
  Member countries

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Reform Trends

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Key reforms

• Medium-term expenditure frameworks
• Economic assumptions
• Top-down budgeting techniques
• Relaxing input controls
• Performance and results
• Accruals
• Budget transparency
• .

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Medium-term expenditure frameworks

• Very few Member countries do this well
• A separate track for MTEF and annual budget
• New MTEF prepared each year
• Objectives
• Setting of fiscal objectives
• Baselines
• Reconciling the two
• Common design features
• Same level of detail as budget
• Generally 3 years beyond the budget

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Medium-term expenditure frameworks (2)

• Benefits
• Enhances credibility
• Enables managers to plan better
• Risks
• Can lock in expenditures hampers annual
  reallocation
• Real vs. nominal
• Economic assumptions

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Economic Assumptions

• By far, the most significant fiscal risk
• Risk management strategies
• Full disclosure
• Sensitivity analysis
• Comparison with private forecasters
• Independent boards
• Prudency factors
• Canada
• The Netherlands

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Top-Down Budgeting Techniques

• One of the most successful reforms in Member
  countries
• Transition is generally difficult (trust is a
  prerequisite)
• Benefits
• Budget reflects political prioritization
• Reduces game-playing
• Internal reallocations less auto increases
• Information Asymmetry
• Ownership of Actions

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Top-Down Budgeting Techniques (2)

• Each minister is his own finance minister
• One minister responsible for each allocation
• Inter-ministerial (joint) allocations do not work
• Level of detail of top-down allocations
• One allocation for all activities?
• Separate allocation for mandatory and
  discretionary expenditure?
• Separate allocation for operating, transfers and
  capital expenditures?
• Specific programs should not be ring-fenced

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Relaxing input controls

• Deregulation in the Public Sector
• Merging line-items in budgets
• Reforming central management controls
• Ministries and agencies organizational model
• Heads of ministry/agency in best position
• to manage resources effectively
  efficiently
• Strong pre-conditions required
• Fully functioning input system already in place
• Robust system of internal controls and audit
• Professional civil service

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Performance and Results

• Quid Pro Quo for Increased Flexibility
• New form of accountability, but generally lagging
• Key Issues
• Some activities more easily measured than others
• Outcomes versus outputs
• What gets measured, gets managed
  (comprehensiveness)
• What impact on annual budget allocations?
• Information Overload
• Lack of interest by ministers and
  parliamentarians
• Reliability and Consistency
• Targets

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Accruals

• No consensus in Member countries
• Financial reporting versus budgeting
• Selected transactions only
• The political matching principle impact of
  parliament
• Treatment of Unique Assets and Liabilities
• Heritage, Military, Infrastructure Assets
• Social Insurance Programs
• Valuation Methodology
• Accounting Standards-Setting

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Budget transparency

• Three key elements
• Timely release of budget data
• Effective Role for the Legislature
• Effective Role for Civil Society
• OECD Best Practices for Budget Transparency

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Conclusion

• Budget reforms is a journey, not a destination
• Too fast vs. too slow

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For further information

• www.oecd.org/gov/budget
• OECD Journal on Budgeting
• jon.blondal_at_oecd.org