Improving the management of public finances

 

Sustainable public finance is a major governance challenge for MENA and OECD countries alike. Many countries are launching reforms in financial governance. Chapter 3 notes that there are two interrelated and ambitious reform strands in public finance for most countries in the MENA region: i) adopting a mediumterm expenditure framework (MTEF) and a programme structure for the expenditures budget; and ii) using a performance budgeting framework for designing and carrying out improvements in service delivery and targeting. The chapter presents a global view of these reforms, and focuses on four case studies to show how reform initiatives have progressed from plan to realisation.

 

The new regional Public Finance Training Institute (PFTI) in Egypt is mobilising regional and international technical resources to support MENA countries modernising their financial governance systems. Implementing such changes is very demanding on civil servants, who have to ensure continuity while putting in place and fine-tuning new structures, methods and concepts. The PFTI combines national and regional perspectives to deal with key constraints to financial management initiatives region-wide, such as the scarcity of adequately trained personnel and the need to expand capacity at all levels.

 

Eliminating oil and food subsidies in Jordan between 2004 and 2008 enabled the country to address the great fiscal pressure imposed by continuous increases in subsidised distribution programmes. This approach gradually phased out almost all petroleum product subsidies and a proportion of food subsidies by 2008. To mitigate the effects of eliminating subsidies, compensatory measures were designed to increase salaries for all government employees, ensure direct cash payment to non-government workers or pensioners with low incomes, increase the payment to the beneficiaries of the National Aid Fund and hold the price of bread constant.

Morocco is well advanced on its ambitious and comprehensive budget reform. Its objective has been to put in place a complete set of financial governance institutions and practices in keeping with the highest international standards. The overriding theme is performance budgeting and management to increase the quality of services and lower their costs. This reform involves a transition to a programmatic medium-term expenditure framework (MTEF), giving ministries more autonomy in managing budgetary allocations, modernising expenditure controls (emphasising ex post over ex ante controls to give increased flexibility to managers and more accountability for specific and controllable results), and a budgetary information system.

Switching to a dynamic debt management system has enabled Tunisia to ensure fiscal sustainability. Tunisia’s external debt had reached 38.9% of debt in 2003. This prompted the country to identify ways to reduce and manage the ensuing risks and costs. The reformed management system enables the government to avoid uncertainties and to maintain the rigorous expenditure control which has become the country’s hallmark. Based in part on this achievement, the Davos Forum’s World Report on competitiveness ranked Tunisia second in the Arab world and Africa based on its good management of public expenditure. The key elements put in place by this reform are: i) a complete data bank providing  transparent information on all aspects of public debt which are relevant to risks and opportunities (interest rates, scheduling, lenders, currencies); and ii) the creation within the Ministry of Finance of the General Directorate for Public Debt Management and Financial Co-operation, which became the central focus for all debt management responsibilities.