1. Budget Transparency in the Kingdom of Lesotho: The Roles of PFM Reform and Public Outreach ICGFM 25th Annual International Conference Miami, Florida USA May 15-20, 2011

3. PFM Reform – Budgeting Processes

4. PFM Reform – Integrated Financial System

5. Promoting Transparency with Enhanced Budget Information

6. Lessons Learned and Next Steps2

7. Country BackgroundMs. Sheryl Kelly 3

9. An enclave within South Africa known as “The Mountain Kingdom”

10. Lowest elevation is 4,600 feet

11. About the size of Belgium

12. Population = 1.9 million4

14. Constitutional monarchy

15. Established as British protectorate in 1868

16. Gained independence in 1966

17. Bicameral Parliament, with a 33-member Senate and 120-member National Assembly

18. Cabinet is comprised of Prime Minister and Ministers/Assistant Ministers from the 19 ministries5

20. Manufacturing (textiles and clothing)

21. Royalties from water transfers to South Africa

22. Diamond mining

23. Agriculture

24. Miners’ remittances

25. Construction

26. Southern African Customs Union (SACU) revenues6

28. 27 Ministries and Offices

29. FY 2010/11 Recurrent Budget = M7.4 billion (US$1 billion):

30. 22% to Ministry of Education and Training

31. 11% to Ministry of Health and Social Welfare

32. 11% to Ministry of Finance and Development Planning (student scholarships)7

34. FY 2010/11 Capital Budget = M3.6 billion (US$ 491 million)

35. About half is government-funded:

36. 11% to Ministry of Public Works and Transport

37. 8% to Ministry of Local Government and Chieftainship

38. 7% to Ministry of Health and Social Welfare8

40. PFM Programme commenced in January 2005

41. Funded by several donors, including the European Union (EU), UK Department for International Development (DFID), Irish Aid, World Bank, and African Development Bank

42. Seven Areas of Focus:Strengthened macroeconomic analysis and forecasting linked to fiscal policy, budget performance and monitoring Integrated planning and budgeting systems Modern procurement systems 9

44. Seven Areas of Focus:Modern integrated accounting, revenue and expenditure management systems Strong independent oversight bodies and mechanisms Information to facilitate effective Cabinet participation in the budget process Enhanced capacity within Ministry of Finance and Development Planning (MFDP) to support and sustain reform More on those areas related to budget processes and systems… 10

45. PFM Reform – Budgeting ProcessesMs. ‘Mapalo Grace Moejane 11

47. MTEF:

48. General Overview

49. Medium Term Fiscal Framework (MTFF)

50. Budget Framework Papers

51. Programme Budgeting

52. Successes to Date

53. Issues Currently Being Addressed12

55. Introduced in 2005 to improve planning and budgeting processes. Prior to implementation:

56. Incremental approach to budget preparation

57. Input focused budget

58. Annual budgets

59. Ceilings set without consultation with stakeholders

60. No link between planning and budget

61. Limited integration between recurrent and capital budgets

62. Weak linkage between government objectives and allocation of resources13

64. Implementation Strategy:

65. Establishment of MTEF Task Team

66. Selection and training of MTEF Facilitators

67. Establishment of Cabinet Budget Committee

68. Formation of ministry Budget Committees

69. Pilot approach using six ministries, which were selected on the basis of ministry size and prior experience with results-based reporting

70. Subsequent phase-in of non-pilots, which continues today14

71. 15 MTEF Process Followed by Lesotho:

73. Medium Term Fiscal Framework (MTFF)

74. Implemented in 2007

75. Includes three-year macroeconomic revenue and expenditure projections, which are used in setting overall budget ceilings

76. Reflects the impacts of government policies on the national budget

77. Comprised of data from four Macro Accounts16

79. Budget Framework Papers (BFP’s)

80. Used in the setting of ministry ceilings

81. Ideally, ministries whose functions are more relevant to government priorities receive a larger share of the total funding

82. Current format includes: ministry objectives linked to national planning documents; service delivery issues; key performance indicators; and costing of new funding/savings proposals17

84. Programme Budgeting:

85. Programme-based budgeting introduced in 2007

86. Financial/budget system lacked the needed functionality at the time

87. Various approaches attempted, with some being too complex and creating confusion; activity-based budgeting as a method for producing programme-based estimates was particularly problematic

88. Approach was simplified in 2010, and focus was narrowed to five pilot ministries

89. Implementation was successful and will be reflected in the FY 2011/12 budget18

91. Successes to Date:

92. Strengthened macroeconomic forecasting capability

93. Budgeting approach changing from an input-based incremental approach to a results-oriented approach

94. Budget horizon has been expanded from one year to three years

95. Recurrent and capital budgets are being integrated

96. Stronger linkage being developed between government objectives and resource allocation through programme budgeting implementation19

98. Successes to Date:

99. Ministry preparation of Budget Framework Papers has made resource allocation decisions (setting of ceilings) more transparent

100. More budget information now available to Cabinet for making informed decisions

101. More involvement by Cabinet in the budget process as a result of the establishment of the Cabinet Budget Committee

102. Expenditure implications of new policies are better quantified20

104. Initial Challenges:

105. Lack of government ownership of the reform

106. Limited number of MTEF Facilitators, and limited training for these Facilitators

107. Training material for ministries too complex, training period insufficient, and poor attendance at trainings

108. Confusion over MTEF elements/concepts21

110. Issues currently being addressed:

111. “Reform Fatigue”

112. MTEF interpreted as a tool for increasing ministerial budgets

113. Quality of BFP data needs to be enhanced

114. Focus remains on first year of three-year budget

115. MTFF impacted by time lags in updating, as well as revenue data availability in IFMIS22

116. PFM Reform – Integrated Financial SystemMr. KekeletsoMosala 23

118. Existing Regulatory Framework

119. IFMIS implementation

120. Accompanying Reforms

121. Sustainability24

123. GoLFIS shortcomings:

124. Back office payables system, maintained by the Treasury Department and not available to the ministries

125. Marred by errors and omissions, with users able to override controls

126. Ex post entry of transactions for Sub Accountancies and foreign missions led to lengthy delays in production of public accounts 25

128. Limited Chart of Accounts prevented the following:

129. Integration of capital and recurrent budgets

130. Compliance with international standards

131. Comprehensive reporting on budget execution

132. Budget entries on both a cost centre and programme basis26

134. Manual vote books were maintained by ministries:

135. used to control commitment but not kept up to date

136. controls easily by-passed and not reconciled with GoLFIS

137. Allowed commitments without available funds

138. Budgets prepared on spreadsheets27

140. Finance Order of 1988 – based on centralised accountability model, with Accountant General responsible for compiling Public Accounts

141. No responsibility of ministries to report to Parliament on use of funds appropriated

142. Updated framework required to implement modernized financial processes28

144. In 2006, a process was initiated to implement an Integrated Financial Management Information System (IFMIS)

145. Underpinning of PFM reform efforts

146. Formal project management methodology used to manage scope, budget, expectations and risks throughout implementation

147. Required establishment of a modern technical platform

148. System delivered to whole of government within 16 months29

150. Revised organisational structure to reflect new business processes

151. Re-skilling of Accounting staff across government

152. New regulatory framework to govern and underpin new business processes

153. New Chart of Accounts to exploit reporting capabilities of the IFMIS and bring reporting into compliance with international standards

154. New Chart of Accounts also provides more flexibility for the integration of recurrent and capital budgets and the entry of budgets on both a cost centre and programme basis30

156. Implementation achieved but sustainability now the challenge:

157. Retention of skilled staff

158. Ongoing training capability to ensure minimum competency levels for users

159. Ability to support the system and manage upgrades (outsourcing where necessary)

160. Demand-side – use of reporting capabilities to inform financial management

161. Adequate budget provisions to maintain system capability – life cycle replacement of equipment31

162. Promoting Transparency with Enhanced Budget InformationMr. Tom Mpeta 32

164. Dissemination of this information has also improved

165. All have contributed to enhanced budget transparency:

166. MTEF

167. Performance oriented Budget Book

168. Information made available on MFDP web site

169. Public outreach efforts33

171. More transparent methodologies for estimating medium-term revenues through the implementation of the MTFF

172. A transparent and evidence-based bidding process for budget resources by ministries through the use of Budget Framework Papers; also, more information available to Cabinet for decision making

173. Integration of recurrent and capital budgets reflect full cost of projects and, ultimately, the delivery of programme outputs34

175. Greater transparency in funding of government priorities through Programme Budgeting implementation:

176. Budgets traditionally prepared using cost centre structure, which generally represents a ministry’s administrative structure

177. The cost centre structure does not always align well with ministry objectives/outputs; therefore, difficult to align with overall government priorities

178. The new programme structure being designed based on government priorities, which will present a clearer picture of the resources allocated to support these priorities 35

180. Budget Book contained only budget data by economic classification, no other supporting information

181. Budget Book currently being piloted has ministry descriptions and performance information:

182. Ministerial Vision, Mission Statement, Objectives

183. Primary challenges and how they are being addressed

184. Primary achievements

185. Performance indicators by programme

186. Combined recurrent/capital budget by programme and sub-programme36

188. Budget Book

189. Budget Speeches

190. Budget Guidelines

191. Budget Framework Papers

192. Circulars and Notices

193. MFDP Reform Initiatives (IFMIS, MTEF, Procurement, etc.)38

195. Major public outreach event occurs every year as the Honourable Minister of Finance and Development Planning tables the Budget Estimates before Parliament for approval. During this time, the Budget Estimates are broadly distributed to the citizens:

196. Honourable Minister participates in media events and meetings with the business community to explain the budget

197. Budget Teams from MFDP are assigned to travel to each of the Districts of Lesotho to conduct public forums with stakeholders in the Districts:39

199. These meetings are attended by people from different sectors, including farmers, business community, Non-Governmental Organizations (NGOs), as well as public servants from different government departments in the Districts

200. In these forums, the stakeholders have opportunities to inquire about the current Budget Estimates and to learn about progress made from the funding of projects/ initiatives under previous budgets

201. The stakeholders are also given an opportunity to provide their own input, including the identification of priority requirements and recommendations for future year budgets40

203. Budget Teams then report back to the Honourable Minister on the stakeholder input

204. These meetings are very effective because they aid in identifying public priority areas for resource allocation

205. The following pictures were taken by the Budget Teams to help justify the priority requirements and recommendations of the stakeholders, as well as to document progress on previously funded projects/ initiatives:41

206. 42 Public Priority Area – Bridge Construction:

207. 43 Documenting Progress on Bridge Construction Project:

208. 44 Final Outcome – Strategic Allocation of Resources Based on National Priorities:

209. 45 Public Priority Area – School Construction: Supports Lesotho’s Primary Education Priorities for 2011/12, which include increasing access, efficiency, and equity of education through construction of primary school classrooms and toilet blocks in the remote areas of Lesotho

210. Next Steps and Lessons LearnedMs. Sheryl Kelly 46

212. These have been accompanied by a host of challenges, some resolved and others still being addressed

213. Good foundation now in place for both ongoing and future initiatives – a result of introduction of MTEF, as well IFMIS implementation47

215. Revise Budget Framework Paper template to enhance value/relevance and allow for a programme orientation

216. Develop template for a consolidated Budget Framework Paper and make publicly available

217. Require the ministry preparation of comprehensive and defensible budget requests for the indicative, or planning, years of the budget horizon

218. Strengthen usage of Budget Module in IFMIS, particularly for budget development48

220. Roll out programme budgeting to remaining ministries using a phased approach

221. Incorporate performance data for all ministries into the Budget Book

222. Enhance quality of ministry performance monitoring systems

223. Ensure strong linkage between ministry programmes and Lesotho’s National Strategic Development Plan (currently being drafted) 49

225. Reform initiatives should be country-specific (not one-size-fits-all)

226. Initiatives should be designed such that they avoid unnecessary complexity and compliment existing institutional and human and physical resource capacities in the ministries

227. Initiatives must be properly sequenced, and donors should ensure that support for initiatives is well coordinated with other contributing donor partners50

229. Financial and payroll system functionality must be considered well in advance of implementing any reforms that are dependent upon these systems

230. New systems may be implemented, but, if staff are not adequately trained, they many undermine the effectiveness and sustainability of the systems 51

232. Exposure to budget concepts and basic knowledge of the budget process can enhance citizens’ ability to effectively monitor government performance and accountability of taxpayer money

233. Government ownership of PFM reforms is required for long-term sustainability, with Ministries of Finance leading the initiatives, carefully guiding the design and implementation, and ensuring sufficient capacity to fully support the line ministries52

234. Comments/Questions? 53