G O V E R N M E N T – D E V E L O P M E N T P A R T N E R S R O U N D T A B L E

S A N A ’ A , D E C E M B E R 1 8 T H 2 0 1 3

J E A N - M A R C L E P A I N

E U P F M S P E C I A L I S T

J L E P A I N @ Y A H O O . F R

W W W . S L I D E S H A R E . N E T / J E A N M A R C L E P A I N /

Action Plan for Public Finance Management Reforms

Part 1

Objectives and Content of the Action Plan

Why the Action Plan is strategically Important

The political stability of the country requires new economic policies which cannot be implemented without efficient PFM mechanisms.

Restoration of macroeconomic stability requires sound fiscal policy that cannot be put in place without strengthening revenue collection and an adequate expenditure planning.

Resolution of the liquidity crisis cannot be achieved only through external budget assistance. It requires important structural PFM reforms and improvement in budget

execution procedures.

Methodology

This Action Plan is made of the compilation of several plans:

MOF sector plans + Revenue Authority, Custom Authority and Finance Institute

COCA Action Plan

High Tender Board Action Plan

Harmonization Plan (joint plan MOF-MOPIC)

MOLA Fiscal Decentralisation Plan

Matrix of existing projects financed by development partners

Key Objectives of the Action Plan

Accelerate implementation of the Transitional

Programme for Stabilisation and Development

Restore fiscal sustainability and budget credibility

Prepare for fiscal decentralisation

Strengthen controls and enhance accountability

Characteristics of the Action Plan

Two year interim strategy (2014-2015)

Focus on ‘quick-wins’ and efficiency issues

New planning phase starting in 2015 to deal with more structural issues such as revision of the legal framework after PFM assessment (PER , PEFA or other);

Attention given to reform sequencing

Structure of the Action Plan

A. Restoring fiscal sustainability and strengthening the budget formulation process

B. Strengthening revenue mobilization and revenue management

C. Enhancing Control and Accountability

D. Developing capacity and expanding role of the Finance Institute

E. Strengthening risk management, public debt management and development of the financial sector

F. Implementing fiscal decentralisation

G. Institutional reforms and medium term planning

Part 2

Fiscal Policy and Budget Credibility

Key Components of the Action Plan

Integration of fiscal policy with budget formulation

Budget integration

Revenue mobilisation strategy and revenue management

Roadmap for fiscal decentralisation

Revised chart of accounts, budget classification in line with budget integration and development of new accounting rules

Enhancement of internal and external controls (COCA)

Preparation for structural reforms

(1) Integration of Fiscal Policy in Budget Formulation -Baseline-

Medium Term Macro-economic Framework (MTMF) and Medium Term Fiscal Framework (MTFF) are prepared since 2008 but are not integrated in budget formulation.

No unity of fiscal policy: use of different aggregates and indicators across different agencies resulting in a lack of consensus on fiscal policy.

Lack of clarity of role between MOF and MOPIC

No consensus on revenue forecasting due to the use of different methodology in different agencies

No binding fiscal policy declarations

No Medium Term Budget Framework (MTBF) or fiscal envelopes

Integration of Fiscal Policy in Budget Formulation -Actions to be taken-

Harmonization of aggregates and indicators across all agencies

Clarification of role between MOF and MOPIC

Revision of legal and regulatory framework to integrate MTFF in budget formulation

Strengthening capacity in MOF Planning Department

Development of new methodologies for revenue forecasting and fiscal analysis

Reaching Fiscal Sustainability

Potential decline in oil revenues (need a consensus) Assessing revenue mobilisation potential Dealing with tax holidays Phasing out energy subsidies Rationalizing state-owned enterprise management Facing new fiscal challenges (fiscal decentralisation, poverty

reduction strategy, employment development, etc.)

→ Defining medium term path toward fiscal sustainability based on a Medium Term Fiscal Sustainability Study

(2) Budget Integration

1. Operational budget

2. Investment Budget

3. Subsidy Budget

4. Economic Unit Budget

5. Other off-budget fiscal activities

Integration Between Operational and Investment Budgets

Harmonisation Plan:

Aligning Public Investment Plans (PIP) on the Transitional Programme for Stabilisation and Development;

Defining a realistic fiscal envelope for investment based on the MTFF;

Aligning budget on PIP;

Introducing Public Investment Management (PIM) methodology to monitor the complete investment life cycle;

Improve investment projects’ documentation;

Define strict criteria for investment projects’ budget financing;

Remove from budget non-performing projects;

Integrate systematically maintenance cost in operational budget through specific commitments.

Integration of subsidies in the General Budget

Subsidies should be treated as a budget-line item, not as a sub-budget;

Volume of subsidies should be determined through the MTFF in direct relation to fiscal capacity;

A plan should be developed to phase out gradually energy subsidies while deploying a social safety net.

Integration of the Economic Unit Budget -Baseline-

Economic Unit Budget nearly as big as the General Budget;

Definition of “economic unit” is vague. It includes potential direct budget users such as hospitals, and non-budget users such as state-owned-enterprises, as well as other parastatal entities.

Some economic units (E.U.) should be considered as part of the private sector but have staff on the State payroll;

The Economic Unit Budget does not trace flows from other budgets (operational expenditure, investments and subsidies).

Consequence of the lack of integration

General budget does not encompass all state fiscal activities (lack of comprehensiveness).

Status of a number of parastatal funds not included in the Economic Unit Budget is unclear

The State is bearing fiscal risk on state-owned enterprises through implicit and explicit guarantees. The resulting volume of contingent liabilities is not known but is high enough to threaten the fiscal stability of the country.

Profit from SOEs is not treated as direct revenue for the State as it transits through the Economic Unit Budget;

State control on economic units is weak.

Action considered

Assessment of E.U. to define typology and determine which unit should be integrated in the general budget and which unit should be excluded.

Revision of budget classification and chart of accounts according to the new typology.

Transformation of the Economic Unit Department into a State-Owned Enterprise Department (after 2015)

Drafting of new legislation and regulation for the management of SOEs, parastatal funds and other parastatal entities not included in the general budget;

Development of a risk management system to assess and track fiscal risks resulting from E.U. Activities + risk mitigation strategy.

Part 3

Revenue Mobilisation Strategy

Characteristic of the Revenue Mobilisation Strategy

The revenue mobilisation strategy is essentially based on improving revenue management;

Revision of the tax policy, especially in relation to tax exemption and tax holidays;

Tax policy and tax administration reforms will be closely linked;

Importance of capacity development;

Necessity of developing local revenue representing only 6% of State resources

Improving Tax Management

Computerisation is necessary to centralise data and develop efficient procedures;

Focus on improving tax compliance and reducing tax evasion and leakage;

Development of forecasting capacity in liaison with MOF Planning Department (MTFF) to harmonize methodologies;

Development of the tax analysis capacity base on risk management;

Development communication strategy to develop tax awareness

Improving Custom Management

Upgrading existing ASYCUDA system

Expanding database to include more information regarding good prices, transport costs, market conditions, etc.

Establishing anti-smuggling unit

Enhancing customs investigations and risk management system

Part 4

Fiscal Decentralisation

General Principles

Fiscal decentralisation policy should be prepared ahead of Constitution in order to ensure that principal of fiscal decentralisation are fiscally sustainable.

Whatever is the form of the new Constitution, a substantial amount of fiscal decentralisation will be introduced.

Fiscal decentralisation is relatively independent from political and administrative decentralization.

Planned Actions

1. Linking fiscal decentralization to budget policy, planning, and budget through a Fiscal Decentralization Strategy Paper

2. Preparing concept note on different options for a system of intergovernmental transfers

3. Reengineering the budget execution process in line with fiscal decentralization

4. Developing new legal and regulatory framework for fiscal decentralization

5. Developing revenue and expenditure management capacity at the sub-national level

Fiscal Decentralisation Study

Assess existing imbalance in existing transfers at the sub-national level to measure additional fiscal needs for correcting measures

Assess tax base and existing tax resource in each province;

Measure existing gap between responsibility and expenditure assignment and existing fiscal resources and transfers at the sub-national level.

Identify potential changes that can be made in the revenue and expenditure assignment.

Prepare recommendations based on different options for a formula-based intergovernmental transfer system.

Part 5

The Way Forward beyond 2015

PFM Reforms after 2015

Planning for the period 2016-2020 should start in 2015.

It should be based on a PFM Assessment facilitated by development partners (PER, PEFA or other)

It will require a more substantial effort than the 2014-2015 Action Plan and more technical assistance will be needed to ensure support to the different sectors.

Putting reforms of the PFM system on tract requires developing a vision of the future system with a time horizon of 10 to 15 years, and being ready for structural reforms such as the introduction of a new PFM Law, Revision of the tax code, introduction of a system of intergovernmental transfers, etc.

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