Rethinking Public Financial Management and Budgeting … · Rethinking Public Financial Management...

Rethinking Public Financial Management and Budgeting in Greece: Time to Reboot?

Rethinking Public Financial Management and Budgeting in Greece: Time to Reboot?

An Integrated Approach to Governance

Efi Vraniali, Hellenic Observatory, LSE 1

Triggers for PFM reformTriggers for PFM reform

Political

• Legitimacy• Decline in public’s

trust of government • Transparency of

government actions

Managerial

• Fiscal crisis ↔ EU and sound financial governance

• Effectiveness and efficiency of public expenditure

• Government Accountability

General overview of Greek fiscal aggregates between 1996 - 2008


Efi Vraniali, Hellenic Observatory, LSE

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Getting out of the red or

learning to “do more with less”


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The Budget Cycle

6Efi Vraniali, Hellenic Observatory, LSE

Modernising PFM System In Greece : changing the “Rules of the Game”

Modernising PFM System In Greece : changing the “Rules of the Game”

1. Elaborating a new framework for the budget formulation

2. Reshaping the execution of the budget

3. Reconfiguring payroll management

4. Reorienting control and accountability

5. Modernising the legal framework


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Modernising PFM System In GreeceModernising PFM System In Greece







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New framework for budget formulation: a more strategic approach


• Forecasting and Macro-eco assumptions

- use of more “prudent” economic assumptions

- creation of an independent fiscal institution


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Budgetary developments in countries with and without independent fiscal institutions (1995-2005)

Budgetary developments in countries with and without independent fiscal institutions (1995-2005)



• Medium-term planning

- introduction of a three year rolling framework

- multi-year budgeting


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Index measuring the quality of medium-term budgetary frameworks in the EU Member States, 2008

Index measuring the quality of medium-term budgetary frameworks in the EU Member States, 2008



• Fiscal sustainability and hard constraint on expenditure

- introduction of top-down budgeting

- avoiding distinction between ordinary and investment

budget

- reprioritizing expenditure: zero-based budgeting/value

for money approach


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New framework for budget formulation: a more transparent and comprehensive orientation


• Enhancing operational efficiency :

- more attention on general government

- abolition of extra-budgetary funds (Law 3697/2008)

- impact of tax expenditure: fiscal leakage

- input orientation vs program budgeting


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Program budgeting

1. To identify and clarify goals and objectives of

government spending

2. To monitor operational performance through

performance indicators, relating to inputs, outputs or

outcomes of a program

1. To identify and clarify goals and objectives of

government spending

2. To monitor operational performance through

performance indicators, relating to inputs, outputs or

outcomes of a program

• Inputs: resources to produce outputs,

(expenditure or resources, as in n.of employees)

• Outputs: products and services produced directly by a program or activity (eg n.of drivers charged with exceeding legal alcohol limit)

• Outcomes: economic and social changes by a policy measure, program or activity(eg decline in drunk driving)

• Inputs: resources to produce outputs,

(expenditure or resources, as in n.of employees)

• Outputs: products and services produced directly by a program or activity (eg n.of drivers charged with exceeding legal alcohol limit)

• Outcomes: economic and social changes by a policy measure, program or activity(eg decline in drunk driving)

Comparative presentation of existing and new budgeting systems



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New budget classification New budget classification

• Functional classification: to categorize expenditure according to

purposes and objectives for which they are intended (eg education,

social security), independent of government’s organizational

structure

• Economic classification: to identify the type of expenditure incurred

(eg salaries, goods, interest payments)

- in accordance with accounting system

• Administrative classification:

- to identify the entity responsible for managing the public funds

(eg ministry of education, hospitals, schools)

- to determine responsibilities for main blocks of public expenditure

and for day-to-day administration of the budget




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• Reducing the number of line items from 14,000 to 1,000

• Program budget 2008 comprising:

- 12 functions - 73 programs


- 12 functions - 80 programs - 710 actions


- 13 functions - 92 programs - 605 actions


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• Enhancing legitimacy :

- new role of Parliament and Standing Committee on Economic Affairs (constitutional revision 2008)


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Reshaping the execution of the budget: the need for a systems approach to governance

Reshaping the execution of the budget: the need for a systems approach to governance

• Remapping the organizational design of the Ministry of

Finance

- two new units: Budget and Accounting Reform

- new role of central budget office

• Enhancing coordination and collaborative networks


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The multiplicity of PFM role players and PFM relationships


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Reshaping the execution of the budget: a lever for reallocation and re-engineering


• Introducing commitment controls / obligation to make a future payment - overall expenditure control framework/ avoiding accumulation ofpayment arrears

• commitment appropriations: - commitment approp. authorizes signature of contract- cash approp. authorizes payment of contractor, ceilings over disbursements


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• Active cash management

- Treasury Single Account

- better coordination between revenue-collecting

agencies and the treasury

- closer link between cash management, expenditure

commitments and debt management

- seasonality of cash inflows with management process-revenue/expenditure


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• Optimizing the use of information in the budget process: improving conservation and dissemination of fiscal information

- quality of data

- comprehensiveness

- publicity (proliferation of reports)


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• Optimizing the use of information in the budget process: improving presentation and exploitation of fiscal information

- accounting system: from cash basis to accruals (transactions recognized when legal obligation born, regardless of timing of cash receipts and payments)

- modern IT systems: real-time integration of information into the system


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Why adopt Accrual Accounting?Why adopt Accrual Accounting?


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Reconfiguring payroll managementReconfiguring payroll management

• Tighter link between personnel database – list of

budgeted positions and individual personal records

• Avoiding organizational dualism: personnel management

offices and Ministry of Finance

• Better use of IT

• Introducing personnel expenditure ceilings at the budget

preparation stage


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Reorienting control and accountabilityReorienting control and accountability

• Strengthening internal audit :- from ex ante centralized controls to ex post audit- Law No 3492/2006 on internal audit in Greece

• Refocusing external audit :- Court of Audit: from traditional compliance controls to assessment of efficiency and effectiveness- Parliament: new role for the Special Standing Committee - enhanced cooperation between them


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Modern Control FrameworkModern Control Framework








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Modernising the legal frameworkModernising the legal framework

• Enshrining modern principles of PFM :- “code of budgetary discipline and stability”- principle of budgetary sincerity- strengthening transparency and accountability

• Considering the development of fiscal rules :- complementary to the SGP- regarding budget balance, debt, expenditure, revenue- strong rules, legal framework, nature of body monitoring respect, enforcement mechanisms, media visibility


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Development of fiscal rules in the EUDevelopment of fiscal rules in the EU


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PFM Paradigm ShiftPFM Paradigm Shift


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Reduction of Greek deficit, SGP 2010General government deficit as % of GDP, 2008-2010


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Reduction of Greek debt, SGP 2010General government debt as % of GDP, 2008-2013


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Sequencing and pacing of reformSequencing and pacing of reform

• A crisis can make it easier to adopt a deficit reduction

plan

• Fiscal consolidations biased towards spending cuts

• Deficit reduction plan phased in

• Involvement of the public, agencies and other

stakeholders

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