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Governments around the world are facing increasing constraints on their resources, but they must provide better public services. At the same time, there are increasing concerns about mismanagement of funds, lack of transparency, and prevalence of corruption. As part of the efforts to tackle these challenges, the World Bank is supporting countries in modernizing their public financial management (PFM) and implementing financial management information systems (FMIS).

A recently released World Bank Operational Guidance Note provides policymakers with operational guidance on how to ensure that FMIS projects better achieve the desired improvements in PFM outcomes while contributing to good governance. It draws on an extensive body of diagnostic and analytical work and more importantly, the lessons learned from FMIS implementation in more than 80 countries over the last 30 years.

Given its extensive coverage of the three phases of FMIS projects, i.e. the diagnostic, systems development life cycle, and coverage and utilization phases, the Note can be used by policymakers and practitioners to develop their strategies for any stage of FMIS implementation. It includes detailed guidance on how to avoid mistakes in procurement and contract management. It also discusses the potential use of disruptive technologies to maximize returns on existing investments.

Here are some key messages:

An adequate diagnosis of all aspects of budget management – not just accounting and reporting – is fundamental. This review should be undertaken to identify the needs that the system is intended to address before procuring and implementing a new FMIS.

The policy and institutional framework under which FMIS will operate is very important. The effectiveness of an FMIS as a budget management tool depends on its technical robustness as well as the policy and institutional environment, including a comprehensive single treasury account and the accompanying banking arrangements for government funds. It also depends on an appropriate budget classification structure and financial regulations that ensure budgetary compliance. According to the 2016 World Development Report on Digital Dividends, FMIS also needs analog complements to make them effective and protect against downside risks.

Strong government commitment must be sustained throughout the process. This can be fostered through well-designed project management structures, complemented with adequate considerations for training and change management.

System design should be cognizant of larger budget management issues and follow functional and business process requirements of government. System designs that follow predominantly technical considerations will be less effective in solving budget management problems. System implementation strategies should strategically take a phased approach rather than simultaneously implementing a wide set of functionalities that may overstretch client capacity. A modular approach can be more cost-effective, and could prioritize budget execution and reporting to achieve significant progress on budgetary control and cash management.

Transaction processing through FMIS needs to be comprehensive to ensure credible and complete information for financial operations and management reporting. The benefits from an FMIS pertain only to transactions processed through it.

It is important to understand the transaction ecosystem. While ultimately all transactions should be processed through FMIS, first targeting high-value transactions in system deployment will strengthen fiscal discipline. The following principles could help achieve ample coverage (and expenditure control):

All transactions generated at the central Ministry of Finance such as fiscal transfers, subsidies, and debt service payments, should be processed through FMIS;
All payroll and civil service pension payments calculated by a central system should be processed through FMIS (these would likely constitute some 30-40% of the total budget);
All payments from line ministries or spending units above the transaction threshold should be processed through FMIS
While low-value payments should also be processed through FMIS, they can be disbursed through innovative FinTech products such as mobile money or smart cards.

Accountability and budget compliance are necessary for FMIS to be effective in managing public expenditures. This requires significant political commitment to overcome resistance from vested interests.

Governments can take advantage of disruptive technologies and FMIS innovations. There are tremendous opportunities to deploy technologies such as cloud computing, big data, and machine learning, and robotic process automation to improve budget management. When adopting disruptive technologies, it is important to follow good GovTech principles, such as: a citizen-centric approach, and whole-of-government approach rather than ministry-specific solutions.









Topics

Governance
Macroeconomics and Fiscal Management









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GovTech
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https://www.linkedin.com/in/edward-olowo-okere-00838585/

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Ed Olowo-Okere
Senior Advisor in the Equitable Growth, Finance, and Institutions (EFI) Vice Presidency at the World Bank.
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Dr Mitrajeet D.MARAYE


September 11, 2020

That appears to be an excellent tool to improve on good governance in the affairs of government and what is more important is total transparency. It is most important for governments to implement a clear legal requirement to ensure "effective FREEDOM OF INFORMATION". Unfortunately in many developing countries opacity in the affairs of governments and state owned enterprises is a major source of corruption throughout the system.

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This applies both to that archaic idea of precise Keynesian demand management and also the more recent Modern Monetary Theory. They don't work because: Official figures have confirmed the UK economy went into recession at the end of last year, after the latest estimate found it had contracted in the last two quarters of 2023.In a blow to the government's economic standing, the Office for National Statistics (ONS) said the economy, measured by gross domestic product (GDP) shrank by 0.3% in the last three months of the year, unrevised from an earlier estimate.That archaic Keynesianism would suggest that back this time last year - about - the government should have increased the deficit. Spent more - easy enough - or reduced taxation - Hah! - in order to use fiscal policy to boost the economy. MMT has a slightly different prescription, keep printing money until the economy runs hot then tax back the excess money creation causing any inflation. We've now the reliable figures giving us the policy we should have followed a year after whatever it is we should have done. That means that the GDP figures cannot be used as a guide to policy, obviously - we've not a time machine to go back and change policy now that we know, do we? Hayek wins again that is. We simply do not gather information in time and in detail sufficient to be able to manage the economy in any detail. Yes, obviously, 10% changes in GDP - in either direction - mean action should be taken and we'd have other guides to that happening other than these GDP figures too. But given that Hayek does win again we've simply not the information flow to be able to follow that dream of that detailed macroeconomic management. This leaves us with getting the microeconomics right - incentives and so on - and then seeing what happens. Which is, as we've long said, about the only form of economic planning we can do that actually works.

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Two more thoughts:1) In the SBV debacle, many of my colleagues and friends jump to the conclusion, we should just mark all assets to market and forget about this "hold to maturity" business.Not so fast. Like all imperfect patches, there is some logic to it. Suppose you have a $100 payment that you have to make in 10 years. To cover that payment, you buy a $100 face value Treasury zero coupon bond. Done, zero risk. Now interest rates rise. The value of your asset has fallen in value! It's only worth, say, $90! Are you underwater? No, because when the time comes, you still will have exactly $100 to make the needed payment. You will quickly answer, well, mark both assets and liabilities to market. The $100 payment is now also worth $90, so marking both sides to market would reveal no change. But there is a lot of unneeded volatility here. And in most cases, the $100 payment is not tradeable on a market, while the $100 asset is. So now, you're going to be balancing marking to market vs. marking to model. Add the regulator's and many participant's distrust of market prices, which are always seemingly "illiquid," "distressed," in a state of "fire sale," "dysfunctional," and so forth. Add the pointlessness of it all. In this situation we all know that you can make the payment in 10 years. Lock it up and ignore it. Call the asset "hold to maturity." Of course, suppose the point of that asset is to make sure that depositors with $100 accounts can always get their money back by selling the asset. Well, now we have Silicon Valley Bank. Hence the imperfect fudge of current accounting and regulation rules. "Hold to maturity" assets don't get marked to market, and indeed there are penalties for selling them to meet current needs. Lots of "liquidity" and other rules are supposed to make sure there are adequate short run liabilities to stop a run. Those were of course completely absent in SBV's case -- a truly spectacular failure of elementary regulation. In short, mark to market makes sense to assess if a bank can make its payments and avoid failure tomorrow. Hold to maturity makes a bit of sense to assess if a bank can make its payments and avoid failure years from now, when both long term assets and long term liabilities come due. That is, if it survives that long. 2) There is a lot of criticism of SBV bank management and board for being underinvested in risk management and over invested in lobbying, political connections, donations to politically popular causes, and so forth. Ex post, their choice of managerial investments looks brilliant! What brought in the millions to stem a run, I ask you? In today's highly political banking system, they made optimal choices. To an economist, many puzzling actions are just an optimal answer to a different question. Update: Ok, I went too far with that one. Management are out, shareholders wiped out. I'll stick with the idea that uninsured depositors did a great job of monitoring -- they monitored that the bank had the political chops to demand and get a bailout of uninsured depositors! From a correspondent: "It seems to me now that SVB was really a money market fund with the addition of a bit of equity and breaking all the SEC asset and liquidity rules that MMFs are subject to. " Or, it was really a mutual fund (money market funds with $1 values can't invest in long term bonds, long term bond funds must have floating NAV) that was violating rules on floating NAV! 

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