Government financial management: issues and country studies

es and Country i»tu___ Issues

Edited by A. P r e m c h a n d

GOVERNMENT FINANCIAL

MANAGEMENT

Issues and Country Studies

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

GOVERNMENT FINANCIAL

MANAGEMENT

Issues and Country Studies

Edited by A. Premchand

IN TERN A TIO N AL M O N ETARY FU N D

Washington, D.C.

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

© 1990 In tern ation al M on etary Fund

Library of Congress Cataloging-in-Publication Data

Government financial management : issues and country studies/(ed.)

A. Premchand.

p. cm.

Includes bibliographical references.

ISBN 1-55775-149-8

1. Budget— Case studies— Congresses. 2. Finance, Public— Case

studies— Congresses. 3. Finance, Public— Accounting— Case studies—

Congresses. I. Premchand, A., 1933-

HJ2043.G68 1990

350. 72-dc20

Price: USS21.50

Address orders to:

International Monetary Fund, Publication Services

700 19th Street, N.W., Washington, D.C. 20431, U.S.A.

Telephone: (202) 623-7430

Telefax: (202) 623-7491

Cable: Interfund

90-41275

CIP

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

Prefatory Note

Government financial management represents an area in which there

are developments taking place all the time. The situations described

in Part II containing country and regional studies reflect by and large

the position in mid-1989. While every effort has been made to update the

studies, it is not unlikely that, in a few cases, events have overtaken

the description provided in the papers.

Any publication of this type involves the crucial assistance of several

individuals. The editor is indebted in particular to the contributors, who

have been most cooperative in preparing and, where necessary, in

revising the papers included here.

Mrs. Yoke Kum Hee persevered cheerfully in typing various drafts

and in preparing the final manuscript; Mrs. Elin Knotter of the Editorial

Division provided assistance in seeing the book through publication.

Her vigilant eye and keen understanding proved valuable assets.

Mr. Philip Torsani of the Graphics Section designed the cover.

The opinions expressed in the following pages are those of the authors

and do not in any way reflect or represent those of the International

Monetary Fund or the organizations with which the contributors are

associated.

v

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

List of Contributors *

Donald Axelrod

Rifaat K. Basanti

Hema R. De Zoysa

Jack Diamond

Kenneth M. Dye

Alicja Jaruga

Gert Jonsson

Michael Keating

Turan S. Kivanq

Andrew Likierman

Professor Emeritus, Rockefeller College

State University of New York, Albany

Economist, Fiscal Affairs Department

International Monetary Fund

Washington, DG.

Deputy Division Chief, Budget and

Expenditure Control Division, Fiscal Affairs

Department, International Monetary Fund

Washington, DG.

Senior Economist, Fiscal Affairs

Department, International Monetary Fund

Washington, D.C.

Auditor General of Canada, Ottawa

Professor of Accounting

Universytet Lodzki, Lodz

Assistant Auditor General

The National Audit Bureau, Stockholm

Permanent Secretary

Department of Finance, Canberra

Consultant, Fiscal Affairs Department

International Monetary Fund

Washington, D.C.

Professor of Accounting

London Business School, London

* The titles and affiliations listed for contributors are those they had at the time the papers

were prepared.

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

viii ■ LIST OF CONTRIBUTORS

Paul W. McDonald

Ron Points

A. Premchand

David Rosalky

D. Swarup

Allen Schick

Elmer B. Staats

Tang Yunwei

Vito Tanzi

Wang Song Nian

James P. Wesberry, Jr.

Director, Australian Department of Finance

Regional Office, Washington, D.C.

Director of Governmental Accounting

Office of Government Services

Price Waterhouse, Washington, D.C.

Assistant Director, Fiscal Affairs Department

International Monetary Fund

Washington, D.C.

First Secretary

Department of Finance, Canberra

Director of Audit, Office of the

Comptroller & Auditor General

of India, New Delhi

Professor of Public Policy

University of Maryland, Maryland

Comptroller General of the United

States (Retired)

Washington, D.C.

Faculty, Shanghai University of

Finance and Economics

Shanghai

Director, Fiscal Affairs Department

International Monetary Fund

Washington, D.C.

Vice-President, Shanghai University of

Finance and Economics

Shanghai

Senior Financial Management Advisor,

U.S. Agency for International

Development, Washington, D.C.

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

Contents

Prefatory Note

List of Contributors

Introduction

A. Premchand

Part I— Issues

1 Fiscal Policy for Growth and Stability in Developing

Countries: Selected Issues

Vito Tanzi

2 Management of Public Money: Issues in Government

Financial Management

A. Premchand

3 Why the Deficit Persists as a Budget Problem: Role of

Political Institutions

Allen Schick

4 Role of Public Expenditure Management in Structural

Adjustment Programs

Rifaat K. Basanti

5 Rolling Expenditure Plans: Australian Experience and

Prognosis

Michael Keating and David Rosalky

6 Expenditure Controls: Institutional and Operational

Issues

A. Premchand

7 Government Accounting: Promise and Performance

Elmer B. Staats

8 Cash Management

Hema R. De Zoysa

ix

v

vii

1

15

28

38

53

72

98

128

135

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

X . CONTENTS

9 Measuring Efficiency in Government: Techniques

and Experience

Jack Diamond

1 0 Value for Money: Toward Improved Organizational

Functioning

Kenneth M. Dye

11 The Judicial Power of the Purse: How the Courts Interpret

Budget Laws

Donald Axelrod

Part II— Country Studies

1 2 Results-Oriented Management: Australian Public Sector

Financial Management, Accounting, and Budgeting Reform

in the 1980s

Paul W. McDonald

13 The Canadian Experience

Staff o f Office of Auditor General o f Canada

1 4 Budgetary Accounting in China

Wang Song Nian and Tang Yunwei

1 5 India: Developments in Government Accounting and

Financial Management

D. Swarup

1 6 Government Accounting in Poland

Alicja ]aruga

1 7 Government Accounting in Sweden

Cert ¡onsson

1 8 Turkish Government Accounting and Financial

Management System

Turan S. Kivam;

1 9 Government Accounting in the United Kingdom

Andrew Likierman

20 Recent Developments in Accounting and Financial

Management in the United States

Ron Points

21 Government Accounting and Financial Management in

Latin American Countries

lames P. Wesberry, Jr.

142

167

177

191

217

233

249

263

275

292

307

326

345

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

Introduction

A. P R E M C H A N D

T

his book is the result of a combination of two projects. The first

project was a Sem inar on Budgeting and Expenditure Control

organized periodically by the International Monetary Fund to meet

the requirements of senior officials of its member countries. The first

part of the book represents the papers contributed to the seminar that

was conducted in Novem ber-December 1989 at Fund headquarters in

Washington, D .c .

The second part of the book was organized as a separate project to

complement some of the editor's previous work. Professor Jesse

Burkhead and the editor organized a symposium of country studies

during 1983-84, which was published in Comparative International

Budgeting and Finance (New Brunswick, New Jersey: Transaction

Books, 1984). Since then, a need was recognized to supplement it

with country studies specifically devoted to the recent developments

in government accounting and financial management. Accordingly,

countries representing the diverse systems (British Commonwealth,

French, centrally planned economies, Nordic, and Latin American)

were selected, and authors were requested to contribute papers. To

facilitate comparisons, a framework was outlined to the authors; the

studies included in this book reflect that framework.

The need for studies on budgeting and on related issues in individ￾ual countries can hardly be overemphasized. Public sector manage￾ment in general, and public expenditure management in particular

have been under stress, and their capabilities are increasingly under

scrutiny. This concern is only natural in a context in which it is recog￾nized that the success of macroeconomic policies depends to a very

substantial extent not merely on the mix of policies and their timing

and phasing of implementation but also on the attention and effort

devoted to improving microeconomic aspects. It is essential that fiscal

m anagement machinery be adequately prepared and responsive to

the changing requirements of macroeconomic policies. In considering

both these aspects, policymakers and administrators in government

1

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

2 . A. PREMCHAND

evince considerable interest in ascertaining the experience of other

countries in facing the issues and the lessons of experience. This book

attempts to provide a discussion of the issues, as well as the experi￾ence, and is offered as an aid to public discussion of subjects with a

vital bearing on the effective functioning of the public sector institu￾tions. Traditionally, budgeting, as a discipline, tended to be associ￾ated more with economics and public administration, whereas finan￾cial management has its roots in accounting. Notwithstanding the

considerable interdependence between the two, they have been

treated, regrettably, as separate, and thus the unique features of gov￾ernments and public institutions have been ignored. For the purposes

of this book, a broader view of financial managem ent has been taken,

and it includes budgeting, expenditure control, accounting, and fi￾nancial reporting.

BAC KG RO U N D TO THE SEM IN A R

In announcing the first seminar on budgeting and expenditure con￾trol in 1980, it was noted that "num erous problems are being encoun￾tered in public expenditure planning, in the formulation and execu￾tion of governm ent budgets, and in administering expenditure

controls." The announcement further noted that "althou gh many

countries have acted to strengthen budgetary and expenditure con￾trol systems, progress has been uneven and difficulties persist. There

is a need for a more precise identification of problem areas, assess￾ment of their magnitude, and a discussion of possible solutions and

their usefulness in specific situations." To a substantial extent, this

statement holds good today and, while providing the continuing ra￾tionale for the seminars, also underlines the need for more attention

to be devoted to some of these areas so that viable fiscal policies can

be pursued. Some of the problems that were prevalent at the end of

the 1970s and early 1980s have been successfully addressed. How'-

ever, some continue, and m eanwhile, new ones have emerged. More￾over, some new techniques that were envisaged as solutions to the

problems then prevalent have since becom e problems in their own

right and are now being addressed. The changes in the size and

structure of the public sector, on the one hand, and the continuing

budgetary strains, together with emerging demands on public re￾sources, on the other, are contributing to an intensive discussion on

the need to scrutinize critically the m ethods in use for recognizing the

resource constraint and internalizing it in governm ent operations and

for raising public sector efficiency in general. This debate emphasizes

the need to identify the forces of change and to establish an analytical

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

Introduction • 3

framework to review the policy and technical responses to those

changes and to develop principles and criteria for evaluating those

responses.

ISSUES AND O PTIO N S IN THE EARLY 1980s

The secular growth in expenditures and the accompanying policy

implications have generally received considerable attention, and mea￾sures were taken to mobilize additional revenues or to reduce expen￾diture growth. But these efforts have not been entirely successful,

and along with a variety of other factors—such as pressures for main￾taining political, social, and economic comm itm ents—this failure has

led a number of countries to follow permissive fiscal policies. The

experience indicated the need for more comprehensive efforts to mo￾bilize additional revenues, to reduce expenditure growth, and to

strengthen the institutions, systems, techniques, and operational

procedures of fiscal m anagem ent. But in considering the steps

needed to improve budgeting and expenditure control, five options

appear to have been available.

First, there were those who argued that what was needed was not a

strengthening of control mechanisms but a reduction in the size of the

government. This view, however, was more philosophical in nature

and even where there was a reduction in the size or in the rate of

growth of the size, there was a continuing need for greater attention

to control. Indeed, such attention tended to become more important

as hopes were raised by the new mechanisms introduced as a part of

this effort.

Second, the nature of the control itself was debated. It was recog￾nized that the exercise of conventional control in terms of minutiae

was not effective, nor was the idea of adding too many layers of

control—interpreted not in terms of review of policies but in terms of

verification—meaningful. Over the years, a gradual movement away

from the candle-ends approach to financial control has occurred. In￾stead, a growing em phasis on planning and m anagem ent has

emerged. But even as this approach did not yield the results ex￾pected, the issue was raised whether more would be gained by re￾turning to earlier practices. It appeared to be an option between plan￾ning on the one hand and technical control on the other. In reality,

however, no option existed, because a planning system that does not

recognize the control implications has little value, as does a control

system that is devoid of planning.

Third, the issue was raised of whether the problems—present and

future—should be solved by introducing new techniques or by a more

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

4 . A. PREMCHAND

effective functioning of existing controls. Here, again, the choice was

dependent on an objective assessm ent of the strengths and weak￾nesses of the existing machinery.

Fourth, the question whether the controls should be centralized or

decentralized arose. What was more efficacious—a powerful central

agency or a coordinated functioning of central and spending agen￾cies, with the latter being given some degree of autonomy and re￾sponsibility? If controls were centralized during periods of acute fi￾nancial stringency, should they be relaxed during periods of relative

improvement? If controls were decentralized, what safeguards w ere

needed so that central agencies could discharge their own responsi￾bilities? These matters were not ones for which universally acceptable

solutions could be considered. Rather, they were aspects that needed

to be determined in the context of a country's own administrative

traditions, economic context, and related factors.

Fifth, there was a choice in terms of the goals of a budget—between

accountability and economic m anagement. Although these two as￾pects w'ere ascribed as being independent or mutually exclusive, in

reality they were always symbiotic and could not be considered in

isolation.

TREND S AND EVALUATIO N

Countries made their own choices within the broad framework de￾scribed above. Their responses were both structural and technique

oriented. In contrast to the experience of the mid-1960s and the de￾cade of the 1970s, the em phasis was not so much on formulating

complex systems as on formulating pragmatic responses to selected

aspects. Strengthening the existing systems rather than totally replac￾ing them occurred, and often them es that were a part of the land￾scape of the 1950s were revived. Such a selective strengthening

seemed only natural as several improvements of a systemic nature

were made in the 1950s and 1960s. It appeared prudent to build on

the existing foundation. The new phase of improvements covered, as

in previous decades, a wide area. In structural terms, budget classifi￾cations were refined and new classifications were introduced to show

the full implications of proposed outlays. Som e governm ents gave up

the traditional distinction between current and capital budgets, while

others that had never had a capital budget began to explore the ad￾vantages and feasibility of introducing one. There were more at￾tempts to measure and contain costs, although the efforts to measure

and enhance productivity in governm ent did not yield any quick

results. New techniques were introduced to understand the expendi￾ture profiles of spending agencies and distinctions were made be￾Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

Introduction • 5

tween "running co sts" and "o th e rs." Forward estimates in terms of

rolling expenditure planning became a common feature, although

critical comments have more recently been made on "current services

baseline" budgeting. It is now viewed in some quarters as having

"unfortunate and misleading effects" and a "curious wonderland

quality" because it treats some spending programs as "im m ortal"

and "inflation as an acceptable given." Budget deficits began to be

analyzed in more detail, and now, at least 15 concepts of deficit are

used for various analytical and operational purposes. Concerted ef￾forts were also made to improve the management aspects of govern￾ment programs, and similar efforts were and are being made to ex￾pand the application of electronic data processing and to reap the full

benefits of these systems.

These efforts were neither universal nor uniform but indicate in

broad terms their range. The issue is whether they were successful,

whether they had a durable impact on the systems of budgeting and

expenditure control, and whether the general goals of these systems

are being better achieved now than before. While the importance of

these issues cannot be denied, no systematic evaluation framework to

reach answers on these vital matters yet exists. This is not to say,

however, that there has been no evaluation. Quite the contrary. But

most evaluations appear to reflect the immediate concerns of those

evaluating and were often narrow in scope. Moreover, in some cases,

it was too early to evaluate the new efforts as they were still being

made.

CURRENT PRO BLEM S

A quick analysis of international experience suggests several prob￾lems. Certain broad features of these problems may be noted in terms

of six categories: (a) economy and the budget; (b) annual budget

making; (c) targeting and tracking; (d) management improvement; (e)

austerity m anagement; and (f) approaches to expenditure control.

Recent experience clearly indicates that the budget has, of neces￾sity, become more complex, reflecting the size and diversity of gov￾ernment operations. These features of government and the recent

fiscal trends have emphasized the need to consider more explicitly

the linkages between the economy and the budget and to provide for

mechanisms that equip the fiscal machinery to deal with the volatility

in the economy. While a good deal of progress has been made in

formulating economic scenarios and in providing for contingency

mechanisms, progress is still necessary on bringing revenue and ex￾penditure planning together, improving allocations for public invest￾ment, relating manpower controls to expenditure programs, and

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn

6 . A. PREMCHAND

dealing with inflation. In some countries, budgeting continues to be

an accounting exercise more concerned with the increment over the

previous year's accruals and its distribution, thereby turning the im￾plementation phase into an exercise in coping with the realities that

were not recognized in the formulation phase.

Annual budget making, it is felt in certain quarters, is becom ing an

increasingly fruitless exercise. Flexibility is hampered by previous

commitments, and the time-consuming process, while contributing

to greater expectations and an apparent ability for more effective

management, appears to have belied hopes. The argument for bien￾nial budgeting—controversial in itself—is gaining ground. At least

one industrial country has decided to move to a three-year allocation

system under which about one third of government activities would

be brought annually under more intensive scrutiny to achieve econo￾mies, and thus cover the whole governm ent in a three-year period.

While the benefits of a biennial or a triennial system remain to be fully

demonstrated, the problems of annual budget making appear to be

self evident.

Budget is a framework intended to give coherence to what the

government does and why. As an integral part of this framework,

targets are set, and in effect each estimate, whether of revenue or of

expenditure, is in itself a target whose attainment, or the failure to

attain it, has an impact on other aspects of governm ent work and on

the economy. During budget implementation, a tracking network is

needed to ensure that targets are being attained, or, if difficulties

arise, that alternative strategies are being formulated. However, most

tracking systems in government, including those in some industrial

countries (as attested to by the country studies included in this vol￾ume), appear to need improvement. Reporting is still designed osten￾sibly for what is described as accountability purposes and not for the

uses of the fiscal policymaker. Fiscal reports are generally incomplete,

produced with inordinate delays, and in a form ill suited to the deci￾sion makers. This view has to be tempered by a recognition of the

experience of several countries where more comprehensive reports

are being obtained speedily, owing largely to the installation of elec￾tronic data processing machinery. The problem of the tracking system

is that it has not been fully oriented to the needs of economic manage￾ment, and doubts remain whether it has ably served accountability.

Improvement of m anagement is still nascent. M easurem ent of the

cost of programs remains largely unfulfilled. Although it was ex￾pected that a switch to the double-entry bookkeeping system would

promote a greater awareness of cost aspects and a facility for com put￾ing costs, they have not yet been achieved. Even in those countries

that have moved to double-entry systems, accounting is used as a

Số hóa bởi Trung tâm Học liệu – ĐH TN http://www.lrc-tnu.edu.vn