Public Financial Management (PFMx)

Module 03

PFM and Fiscal Policy Design

This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Fiscal Affairs Department (FAD) courses.
Any reuse requires the permission of the IMF and FAD.
A Tool to Deliver Fiscal Policy Objectives and Outcomes
Role of the International Monetary Fund (IMF)

Share of activities by cost.

(Fiscal year 2016)

Capacity Surveillance and

Development Oversight
29% 56%

Surveillance and Oversight

Lending Lending
15%
Capacity Development

Source: IMF Office of Budget and Planning.

Note. The IMF’s financial year is May 1 through April 30.
IMF Public Financial Management Technical Assistance
PFM Technical Assistance in Article IV Reports – Nigeria
Role of the International Monetary Fund (IMF)

Share of activities by cost.

(Fiscal year 2016)

Capacity Surveillance and

Development Oversight
29% 56%

Surveillance and Oversight

Lending Lending
15%
Capacity Development

Source: IMF Office of Budget and Planning.

Note. The IMF’s financial year is May 1 through April 30.
An Example – Jordan

External
Impact Result
Shock

Increase in More
losses of government
Increase in Imports of state-owned guaranteed debt Public debt
fuel prices fuel cost more electricity and transfers to increases
company NEPCO
(NEPCO)
 Public
Fiscal
Financial
Policy
Management

What to do How to do

High capacity
in the MoF

How policies How policies

should be should be
designed implemented
Coverage of the Public Sector
Coverage of the Public Sector

Finland Guatemala
(2013) (2014)

Budgetary
Budgetary
Central Central 28.8 13.4
Government Government
Central
Government
Social
Social Security 19.8 2.2
General Security
Government State
Governments
Extrabudgetary Extrabudgetary
Central Central – – 2.0
Government
Local Government
Public Sector Governments

Subnational
24.1 2.9
Public Government
Non-financial
Public Corporations
Corporations
General
Public 58.1 17.5
Government
Financial
Corporations

Public
14.2 1.6
Corporations
Source: IMF Fiscal Transparency Evaluations.
Coverage of the Public Sector

FINLAND (2013) GUATEMALA (2014)

Reported

Not Reported

Source: IMF Fiscal Transparency Evaluations.

An Example – Jordan

External
Impact Result
Shock

Increase in More
losses of government
Increase in Imports of state-owned guaranteed debt Public debt
fuel prices fuel cost more electricity and transfers to increases
company NEPCO
(NEPCO)

Coverage
Coverage

Important because:

Fiscal policy is carried out by different levels of government

Budget allocations need to be made in a comprehensive

manner

Partial coverage is a source of fiscal risk

Anticipating Fiscal Risks

Advanced Economies: Public Debt, 2007-2016.

(Percent of GDP)
110
Spring 2016
100

90
37% of GDP
80

70 Spring 2007

60
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: IMF.
Fiscal Costs of Contingent Liabilities

60

50
Fiscal Costs (Percent of GDP)

40

30

20

10

0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Year
Legal Natural Disaster(s) Other SOEs + PPPs Subnational Government

Source: IMF Fiscal Monitor Database; and IMF estimates

Fiscal Costs of Contingent Liabilities

60
Indonesia

50
Fiscal Costs (Percent of GDP)

Algeria
Thailand Iceland
40
Ireland

Korea Turkey
30

Greece
20

10

0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Year
Financial Sector Legal Natural Disaster(s) Other SOEs + PPPs Subnational Government

Source: IMF Fiscal Monitor Database; and IMF estimates

An Example – Jordan

External
Impact Result
Shock

Increase in More
losses of government
Increase in Imports of state-owned guaranteed debt Public debt
fuel prices fuel cost more electricity and transfers to increases
company NEPCO
(NEPCO)
 Identifying and Analyzing

Source: Where does the Incidence: What is the

source of the risk reside? probablity of risk?
 Identifying and Analyzing

Source: Where does the Incidence: What is the

source of the risk reside? probablity of risk?

Continuous: regular Discrete: occurring

Endogenous Exogenous
events irregularly
 Identifying and Analyzing

Source: Where does the Incidence: What is the

source of the risk reside? probablity of risk?

Continuous: regular Discrete: occurring

Endogenous Exogenous
events irregularly
An Example – Jordan

External
Impact Result
Shock

Increase in More
losses of government
Increase in Imports of state-owned guaranteed debt Public debt
fuel prices fuel cost more electricity and transfers to increases
company NEPCO
(NEPCO)

Diversification Tariff Risk

Efficiency gains
of fuel supply adjustments Mitigation
Big screen shot.
I am not sure we can open the
fiscal risk statement
Definition of Public Corporations
Public Corporations

Classified as:
A separate entity by law

Generate profit or other financial gain

Set up for market production

Controlled by government
Scope of Public Corporations

Transport Utilities Other

Airlines Electricity Postal services

Ports Water Natural Resource

companies

Railways Telecommunications
Monitoring Public Corporations is important

Public Corporations: Market value

(Percent of GNI)
50%
40%
30%
20%
10%
0%

Belgium
China

Norway
Russia

India

Poland

France

Korea

Greece

United Kingdom

Austria

Japan

Italy
Turkey

Ireland

Germany
Czech Republic

Indonesia

Finland

Sweden
Brazil

Switzerland

South Africa

United States
Source: Kowalski, P.; M. Büge; M. Sztajerowska; M. Egeland. 2013. OECD Trade Policy Paper 147. Note:
Data from Forbes Global 2000 are year 2011; and data for GNI are year 2010.
Public Corporations account for large share of the economy

Number of State-owned enterprises

(Average 2012-14)
Poland
Sweden
Bulgaria
Romania
Croatia
Slovenia
Latvia
Czech Republic
Hungary
Estonia
Lithuania
Slovakia

0 500 1000 1500 2000 2500

Source: U. Böwer, IMF Working Paper.
Public Corporations account for large share of the economy

Share of State-owned enterprises in the economy

(Percent of total; annual average 2012-2014)
9
Output Employment
8
7
6
5
4
3
2
1
0
Bulgaria Croatia Czech Estonia Hungary Latvia Lithuania Poland Romania Slovakia Slovenia Sweden
Republic

Source: U. Böwer, IMF Working Paper.

Note. Healthcare sector is excluded
Public corporations impose economic and fiscal costs

Average cost per energy sector employee, 2012-14.

(Cost per state-owned enterprise employee in percent of cost in private firms.)
Estonia
Latvia
Bulgaria
Slovenia
Czech Republic
Slovakia
Croatia
Hungary
Sweden
Romania
Poland

0 50 100 150 200 250

Source: U. Böwer, IMF Working Paper.
Public Corporations can increase Public Debt

Contingent liabilities (outside General Government)

(Percent of GDP)
100
90 2013
80 2014
70
60 2015
50
40
30
20
10
0
Slovakia Lithuania Estonia Romania Croatia Czech Bulgaria Hungary Latvia Poland Sweden Slovenia
Republic
Source: Eurostat.
Monitoring Public Corporations

Ensures that Public Corporations are not a mechanism:

§ for circumventing traditional fiscal controls; and

§ a conduit for financial misconduct.

Effective Oversight of Public Corporations
Effective Oversight of Public Corporations
Effective Oversight of Public Corporations
Effective Oversight of Public Corporations
Effective Oversight of Public Corporations
 Public
Fiscal
Financial
Policy
Management

What to do How to do

High capacity
in the MoF

How policies How policies

should be should be
designed implemented
An Example – Jordan

External
Impact Result
Shock

Increase in More
losses of government
Increase in Imports of state-owned guaranteed debt Public debt
fuel prices fuel cost more electricity and transfers to increases
company NEPCO
(NEPCO)

Diversification Tariff Risk

Efficiency gains
of fuel supply adjustments Mitigation