Requirements for budget documemts within the context of fiscal transparency with a special emphasis on the pre-budget statement

1. Workshop on Medium-term Budget Frameworks
Accra, 2 – 6 June 2014
MTBF Budget Documentation and the
Pre-Budget Statement

2. Outline
I. Definition and types of budget documents
II. IMF New Code of Fiscal Transparency
III. Budget documentation through the MTBF
cycle
IV. Budget documentation and fiscal
transparency
V. The Pre-Budget Statement
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3. I. Definition and Types of
Budget Document

4. Documentation and Transparency
• Documentation: for the sake of decision
process tracking and accountability
• Transparency: for the sake of public
information including:
– General public through the media
– Investors and rating agencies
– Development partners
– International institutions for the sake of international
comparisons
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5. Documentation: definition
“All documentation published at or around the
time of the annual budget including the
budget book, budget estimates, fiscal
strategies, medium-term budget frameworks,
fiscal risk statements, finance or estimates
bills, long-term public finance reports, and
the budget, finance, or appropriation act.”
(IMF 2013)
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6. Transparency: definition
“Budget transparency is defined as the full
disclosure of all relevant fiscal information in
a timely and systematic manner, and
openness about policy intentions,
formulation and implementation.”
(OECD)
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7. Who defines documentation requirements
and transparency criteria?
• OECD for quality of information norms
• The IMF (Code of Good Practice on Fiscal Transparency,
Guide on Resource Revenue Transparency, Reports on the
Observance of Standards and Codes)
• World Bank + IMF + EU for PEFA criteria (Public
Expenditure Financial Accountability Report)
• EU for budget support requirements
• Open Budget Initiative for the Open Budget Index
(OBI)
• Lima Declaration and INTOSAI for audit disclosure
requirements
• Regional organizations (ECOWAS, CEMAC, etc.)
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8. II. IMF New Code of Fiscal
Transparency

9. Reasons for a new Code
• Impact of the 2009 financial crisis
• Changes in accounting practices and new
accounting standards
• New tools for monitoring compliance with standards
were introduced
– Multilateral: Fiscal and Data ROSCs, GDDS/SDDS, & PEFA
– Regional: Eurostat, WAEMU & CEMAC harmonization of fiscal reporting
– Civil Society: Open Budget Survey and Index, GIFT Principles
• Importance taken by contingent liabilities
• Weaknesses in the existing Code and ROSC
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10. Weaknesses in the existing Code and
ROSC
• Code & ROSC evaluate clarity of reporting procedures not
quality of reports
– Code’s 4 “Pillars” reinforce focus on formal laws, institutions, and processes
i. Clarity of Roles and Responsibility
ii. Open Budget Processes
iii. Public Availability of Information
iv. Assurances of integrity
– ROSCs pay too little attention to the content of fiscal reports themselves
• Code & ROSC adopt a “one-size-fits-all” approach to evaluating
countries
– Do not take into account different levels of institutional capacity
– Do not provide milestones to full compliance with international standards
– Make it difficult to benchmark against comparator countries
• ROSC assessments tended to be exhaustive rather than risk-
based
– Place equal weight on all elements of the Code
– Difficult to judge relative seriousness of different fiscal reporting gaps
– Include a large number of unprioritized recommendations 10

11. Objectives of the revision
1. Emphasize the quality and reliability of published information
rather than clarity of reporting procedures
2. Update the principles and practices to reflect the lessons of the
recent crisis
3. Align the principles and practices with relevant international
standards (GFSM 2001, IPSAS, OECD Principles, PEFA)
4. Provide countries with a set of achievable milestones on the
way towards full compliance with international standards
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12. The new budget transparency agenda
• Fiscal Transparency Code
– Submitted to IMF Board in April 2014
• Fiscal Transparency Evaluations
– 8 pilot FTEs already conducted: Costa Rica, Bolivia, Ireland,
Mozambique, Philippines, Romania, Russia and Portugal
– 5 FTEs planned during May 2014-April 2015
– Work with East African Community to strengthen national fiscal
reporting and surveillance ahead of monetary union
• Fiscal Transparency Guidance
– Fiscal Transparency Manual (April 2015)
– Guide on Natural Resource Revenue Transparency (Sept 2015)
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13. 13
III. Budget Documents and
Transparency Requirements

14. The eight mandatory fiscal documents
1. The Pre-Budget Statement
2. The Executive’s Budget Proposal
3. The Enacted Budget
4. The Citizen Budget
5. In-Year Reports
6. The Mid-Year Review
7. The Year-End Report
8. The Audit Report
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15. I. Budget Documentation: Definition and
types
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Doc Description
PBS Pre-Budget Statement: Provides
information that links government policies
and budgets and typically sets forth the
broad parameters that will define the budget
proposal that is presented to the legislature.
EBP Executive’s Budget Proposal: Presents
the government plans to raise revenues
through taxes and other sources and spend
these monies to support its priorities, thus
transforming policy goals into action.
EB Enacted Budget: The legal instrument
authorizing the executive to raise revenues,
make expenditures, and incur debt.

16. 16
Doc Description
CB Citizens Budget: A nontechnical
presentation to enable broad public
understanding of a government’s plans for
raising revenues and spending public funds
in order to achieve policy goals.
IYR In-Year Reports: Periodic (monthly or
quarterly) measures of the trends in actual
revenues, expenditures, and debt, which
allow for comparisons with the budget
figures and adjustments.
MYR Mid-Year Review: An overview of the
budget’s effects at the midpoint of a budget
year and discusses any changes in
economic assumptions that affect approved
budget policies.

17. 17
Doc Description
YER Year-End Report: Information comparing
the actual budget execution relative to the
Enacted Budget.
AR Audit Report: Independent evaluation of
the government’s accounts by the country’s
supreme audit institution. It typically
assesses whether the executive has raised
revenues and spent monies in line with the
authorized budget, and whether the
government’s accounts
of its revenues and expenses are accurate
and provide a reliable picture of the fiscal
situation.

18. IV. Budget Documentation
Through the MTBF Cycle

19. MTBF Cycle
Legislature
Cabinet
MoF
and
MoPEA
MDAs
(SWGs)
Q1-Q2 Q3 Q4
Update MTBF
BCC(1)
MT expenditure priorities
and strategic budget
allocations
Agreed
MTBF and
PBS
Cabinet approves
MTBF and PBS
BCC
(2)
Annual
detailed
expenditure
priorities
MTFF and MTBF
update (PBS)
(Detailed Budget)
Cabinet
approve
Submiss
ion to
LEG
Approve macro
fiscal targets
(MTFF) and (BOP)
Strategic Phase Operational Phase
1
2
3
4
5
7
9
6
8
10Recommendation on
MTFF/MTBF

20. IV. Fiscal Transparency
Assessment

21. The Open Budget Initiative
• The International Budget Partnership was created in
1997 between the Center on Budget Priority and
Policy and a number of stakeholders with the
objective of promoting budget transparency.
• The Open Budget Initiative was launched in 2006
with the support of the British Government.
• The objective was to launch the Open Budget Survey
that evaluates whether governments give the public
access to budget information and opportunities to
participate in the budget process at the national
level.
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22. The Open Budget Survey
• Conducted every two years since 2006, last
survey made in 2012 and published in
January 2013;
• Number of assessments: 100 countries
representing more than half of the world
population.
• Number of countries fulfilling transparency
requirements: 33
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23. 23
BUDGET TRANSPARENCY INDEX
2006 2008 2010 2012
Cabo Verde NA NA NA NA
Gambia NA NA NA NA
Ghana 42 52 54 50
Liberia NA 30 40 53
Nigeria 20 19 18 16
Sierra Leone NA NA NA 39

24. Methodology
• Questionnaire with 125 questions
• Scoring from ‘a’ to ‘d’
a = 100 b = 67
c = 33 d = 0
e indicates that the question cannot be answered
• 95 governments were invited to give
comments; 41 have submitted their answers
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25. V. The Pre-Budget Statement

26. Key Characteristics
Component Purpose
Link to National Development
Pan
• Specific policy priorities/cost drivers to
deliver long term goals
Forecast of the economy • Growth projections and major drivers of
growth to help guide fiscal policy
Fiscal policy objectives and
trends
• Budget Deficit/GDP
• Expenditure implications
MTBF • Expenditure breakdown by sector
(broadly consistent with GFS)
• Expenditure priorities and results
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27. The five key components of a PBS
1. Government’s assessment of the
macroeconomic situation and rationales for
underlying assumptions
o Influence of the international environment
o Growth forecast
o Main macroeconomic indicators
o Employment forecast
o Interest rate forecast
o Vulnerability of endogenous and exogenous
chocks
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28. The five key components of a PBS
2. Long and medium term objectives of the
Government’s economic and fiscal policy
o Government’s planed actions to support its economic and
fiscal policy
o Deficit/Surplus evolution over the medium and long term
o Civil service staffing numbers and their evolution
3. Economic and fiscal strategy by sector
o Sectorial policies broad orientations
o Quantitative and qualitative objectives by sector
o Sector ceilings on the basis of functional and economic
classification
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29. The five key components of a PBS
4. Revenue forecasting by broad categories
o Main taxes
o Non tax revenues
o Grants
5. New policy initiatives that might impact
Government’s future fiscal position
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30. Benefits in the MTBF Budget Cycle
– locks in resources within the budget year –
makes it more difficult for last minute requests
– Strengthens internal management by
Incorporating bottom up plans by M&As
– Brings Parliament into the budget cycle early to
avoid late disruption
– Links MTBF to annual budget
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31. Conclusion
• Pre Budget Statements play a crucial role in decision
making
• They form the main output of the strategic budget phase to
guide medium term expenditure ceilings
• They can be improved in most African countries by using
sector classifications and strengthening forward estimates
• They form part of a spectrum of strategic and operational
budget documents to aid transparency and accountability
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32. Group Exercise – prepare a template for a
Pre-budget statement
• Review the Pre-budget statement from
South Africa and compare the content with
the examples from the AFS countries
• Generate a template for presentation for
the key components of a pre-budget
statement in your country . Use the
outline and template to guide you.
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33. References
• http://survey.internationalbudget.org/
• IMF (2013): FISCAL TRANSPARENCY
CODE (Consultation Draft of July 1, 2013)
• IMF (2007): GUIDE ON RESOURCE
REVENUE TRANSPARENCY
• OECD Best Practices for Budget
Transparency (2002)
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