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
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
General overview of Greek fiscal aggregates between 1996 - 2008
Efi Vraniali, Hellenic Observatory, LSE
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General overview of Greek fiscal aggregates between 1996 - 2008
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”
Efi Vraniali, Hellenic Observatory, LSE
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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
Efi Vraniali, Hellenic Observatory, LSE
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Modernising PFM System In GreeceModernising PFM System In Greece
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
Efi Vraniali, Hellenic Observatory, LSE
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New framework for budget formulation: a more strategic approach
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)
New framework for budget formulation: a more strategic approach
New framework for budget formulation: a more strategic approach
• Medium-term planning
- introduction of a three year rolling framework
- multi-year budgeting
Efi Vraniali, Hellenic Observatory, LSE
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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
New framework for budget formulation: a more strategic approach
New framework for budget formulation: a more strategic approach
• 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
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
Comparative presentation of existing and new budgeting systems
Efi Vraniali, Hellenic Observatory, LSE
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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
Comparative presentation of existing and new budgeting systems
Comparative presentation of existing and new budgeting systems
Efi Vraniali, Hellenic Observatory, LSE
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Comparative presentation of existing and new budgeting systems
Comparative presentation of existing and new budgeting systems
Efi Vraniali, Hellenic Observatory, LSE
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Comparative presentation of existing and new budgeting systems
Comparative presentation of existing and new budgeting systems
• Reducing the number of line items from 14,000 to 1,000
• Program budget 2008 comprising:
- 12 functions - 73 programs
• Program budget 2009 comprising:
- 12 functions - 80 programs - 710 actions
• Program budget 2010 comprising:
- 13 functions - 92 programs - 605 actions
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New framework for budget formulation: a more transparent and comprehensive orientation
New framework for budget formulation: a more transparent and comprehensive orientation
• Enhancing legitimacy :
- new role of Parliament and Standing Committee on Economic Affairs (constitutional revision 2008)
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Modernising PFM System In GreeceModernising PFM System In Greece
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
Efi Vraniali, Hellenic Observatory, LSE
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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
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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Reshaping the execution of the budget: a lever for reallocation and re-engineering
Reshaping the execution of the budget: a lever for reallocation and re-engineering
• 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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Reshaping the execution of the budget: a lever for reallocation and re-engineering
Reshaping the execution of the budget: a lever for reallocation and re-engineering
• 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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Reshaping the execution of the budget: a lever for reallocation and re-engineering
Reshaping the execution of the budget: a lever for reallocation and re-engineering
• 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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Modernising PFM System In GreeceModernising PFM System In Greece
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
Efi Vraniali, Hellenic Observatory, LSE
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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
Efi Vraniali, Hellenic Observatory, LSE
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Modernising PFM System In GreeceModernising PFM System In Greece
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
Efi Vraniali, Hellenic Observatory, LSE
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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
Efi Vraniali, Hellenic Observatory, LSE
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Modern Control FrameworkModern Control Framework
Modernising PFM System In GreeceModernising PFM System In Greece
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
Efi Vraniali, Hellenic Observatory, LSE
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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
Efi Vraniali, Hellenic Observatory, LSE
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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