Posted by Eivind Tanberg
The sixth meeting of senior budget officials from Asian countries took place in Bangkok on February 12 – 13, 2009. The meeting was organized by the OECD secretariat in collaboration with Thailand’s Budget Bureau. It was co-chaired by the Permanent Secretary of the Australian Finance Department, Mr. Ian Watt, and the national Budget Director of Thailand, Mr. Bandhoon Supakavanich.
14 countries were represented at the meeting. These included Australia, Bangladesh, Cambodia, China, Chinese Taipei, Indonesia, Japan, Korea, Malaysia, Philippines, Sri Lanka, Thailand, Timor Leste and Vietnam. In addition, staff from the World Bank and the IMF attended. None of the of the Pacific Island states were present at the meeting, but IMF’s regional advisor for these countries, Mr. Suhas Joshi, participated in the meeting and presented their perspectives on some of the issues under discussion.
Regional developments
As customary at OECD budget officials meetings, there was an initial tour-de-table where the countries presented recent developments and current issues in each country. Naturally, this focused heavily on the international financial crisis and the steps countries were taking to address the crisis. The broad elements of the approaches are quite similar in different countries: they are introducing fiscal stimulus packages, which aim to be as timely, targeted and temporary as possible, combined with measures to strengthen the banking sector. Many countries pointed to the fact that the IMF had adjusted its estimates for the world economy downwards on several occasions, and indicated that similar revisions were taking place within the countries.
In terms of budget reforms, most of the countries at the meeting indicated that they were engaged in efforts to strengthen medium-term and performance-oriented budgeting. While countries also mentioned other ongoing reform work, it seems that countries in the region are making a strong push to make progress in these quite advanced budget reforms. However, discussions with the country teams indicated that many of them are facing challenges in these reform efforts. These challenges are very similar to the ones identified by other countries involved in such reforms. It is difficult to develop out-year estimates that are credible and have sizable impacts on next year’s budget process. Performance budget efforts typically focus on establishing a program classification and identifying some basic indicators. Many country delegations indicated that it proved difficult to establish valid and reliable indicators, to monitor these systematically, and to ensure that they were reflected in budget decisions.
Country budget reviews
The budget system review for Indonesia indicated that there have been significant improvements in budget management following the economic and political crisis in the late 1990s. According to an OECD report, important achievements include a new legislative framework, unification of current and capital budgets, reduction in off-budget activities and rapid decentralization. The report also identifies a number of areas for further improvements. The separation of planning and budgeting between two separate institutions poses challenges for coordination. The budget is very detailed, with more than 20.000 line items. This makes budget management cumbersome and undermines efforts to strengthen the focus on performance. The OECD report advises that introduction of accrual accounting, which is envisaged in the Treasury law, should not be a priority at this stage.
The budget review of Australia led to a very interesting discussion about how to apply and update budget reforms. The report highlighted two “myths” about budgeting in Australia: accrual budgeting and outcome budgeting. Accrual budgeting is largely notional. The actual focus of budget deliberations is on cash budgets, and there is little difference between cash and accrual fiscal results. And, while budgets are appropriated to broad outcomes, the focus of budget deliberations is on programs and activities. The Permanent Secretary of the Australian Finance department indicated that accrual budgeting might have been a mistake in their case, because the Australian federal government is responsible for very few assets. This is largely a state responsibility. He stated that Australia was considering moving away from accrual appropriations in favor of cash appropriations. The Permanent Secretary also indicated that Australia probably would continue to appropriate funds to outcomes, but that they were strengthening program presentations and reporting in the budget.
Both the Australian delegation and the OECD team suggested that the most important budget reform in Australia had been the development of the forward estimates system. When asked which lessons other countries could draw from their experience, the Australian delegation emphasized the importance of a measured, step-by-step approach to budget reforms. While they believed that accrual accounting and budgeting were valid long-term objectives for most Asian countries, many of whom are major asset owners; the first priority should be to have a solid cash-based system. The technical challenges of introducing accrual accounting, in particular the need for experienced accountants, was also highlighted.
Other issues
The OECD is currently preparing a report on the use of long-term fiscal projections in the budget process. It is important to identify long-term fiscal developments and fiscal risks, to quantify the potential impacts of these and to develop appropriate policy responses, in order to ensure the credibility and sustainability of fiscal policies. Such projections are also relevant for low and middle-income countries, where they may clarify the context for the short- and medium-term policy debate, for instance in transition economies and in countries in fiscal crises, and help develop more realistic development and poverty-reduction strategies. Norway and Timor Leste are two countries that have some experience in using long-term fiscal projections for policy development.
There was an interesting discussion on budgeting for natural disasters. The OECD is preparing a paper which suggests that there may be an important role for private insurance or for state-managed quasi-insurance in this regard. Most countries at the meeting suggested that the annual budget should include provisions for “expected” natural disasters. While individual events are almost impossible to foresee, it is often possible to make a reasonable estimate for the disaster-related costs during the year. However, for particularly large events, such as the 2005 Tsunami, supplementary appropriations will be needed.
Further information
The papers presented at the meeting will become available on the OECD Budget Division website (http://www.oecd.org/document/43/0,3343,en_2649_34119_1832235_1_1_1_1,00.html#Regional_SBO_networks) and in the OECD Journal of Budgeting (http://www.oecd.org/document/14/0,3343,en_2649_34119_2074062_1_1_1_1,00.html).
