budget transparency in the kingdom of lesotho: the roles of pfm reform and public outreach

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Budget Transparency in theBudget Transparency in the

Kingdom of Lesotho: The Roles of Kingdom of Lesotho: The Roles of

PFM Reform and Public OutreachPFM Reform and Public Outreach

ICGFM 25th Annual International ConferenceMiami, Florida USA

May 15-20, 2011



OverviewOverview

Country Background

PFM Reform ± Budgeting Processes

PFM Reform ± Integrated Financial System

Promoting Transparency with Enhanced BudgetInformation

Lessons Learned and Next Steps

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Country BackgroundCountry BackgroundMs. Sheryl KellyMs. Sheryl Kelly

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Country Background

General

An enclave withinSouth Africa knownas ³The MountainKingdom´

Lowest elevation is4,600 feet

About the size of Belgium

Population =1.9 million

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Country Background

Political

Constitutional monarchy Established as British protectorate in 1868

Gained independence in 1966

Bicameral Parliament, with a 33-member Senate and

120-member National Assembly Cabinet is comprised of Prime Minister and

Ministers/Assistant Ministers from the 19 ministries

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Country Background

Economic

Manufacturing (textiles and clothing) Royalties from water transfers to South Africa

Diamond mining

Agriculture

Miners¶ remittances

Construction

Southern African Customs Union (SACU) revenues

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Country Background

Budget

27 Ministries and Offices FY 2010/11 Recurrent Budget = M7.4 billion (US$1

billion):

22% to Ministry of Education and Training

11% to Ministry of Health and Social Welfare 11% to Ministry of Finance and Development Planning

(student scholarships)

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Country Background

Budget

FY 2010/11 Capital Budget = M3.6 billion (US$ 491million)

About half is government-funded:

11% to Ministry of Public Works and Transport

8% to Ministry of Local Government and Chieftainship 7% to Ministry of Health and Social Welfare

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Country BackgroundPFM Reform PFM Programme commenced in January 2005

Funded by several donors, including the European Union(EU), UK Department for International Development(DFID), Irish Aid, World Bank, and African DevelopmentBank

Seven Areas of Focus:1. Strengthened macroeconomic analysis and forecasting

linked to fiscal policy, budget performance and monitoring

2. Integrated planning and budgeting systems

3. Modern procurement systems

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Country BackgroundPFM Reform Seven Areas of Focus:

4. Modern integrated accounting, revenue and expendituremanagement systems5. Strong independent oversight bodies and mechanisms6. Information to facilitate effective Cabinet participation in the

budget process7. Enhanced capacity within Ministry of Finance and

Development Planning (MFDP) to support and sustainreform

More on those areas related to budget processes

and systems«

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PFM Reform Budget ProcessesBudget Processes Enhanced through Implementation of a

Medium Term Expenditure Framework (MTEF)

MTEF: General Overview

Medium Term Fiscal Framework (MTFF)

Budget Framework Papers

Programme Budgeting

Successes to Date

Issues Currently Being Addressed

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PFM Reform Budget ProcessesMedium Term Expenditure Framework (MTEF) Introduced in 2005 to improve planning and budgeting

processes. Prior to implementation: Incremental approach to budget preparation

Input focused budget

Annual budgets

Ceilings set without consultation with stakeholders

No link between planning and budget

Limited integration between recurrent and capital budgets

Weak linkage between government objectives and allocationof resources

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PFM Reform Budget ProcessesMedium Term Expenditure Framework (MTEF)

Implementation Strategy:

Establishment of MTEF Task Team

Selection and training of MTEF Facilitators

Establishment of Cabinet Budget Committee

Formation of ministry Budget Committees

Pilot approach using six ministries, which were selected onthe basis of ministry size and prior experience with results-based reporting

Subsequent phase-in of non-pilots, which continues today

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MTEF Process Followed by Lesotho:



PFM Reform Budget Processes

Medium Term Expenditure Framework (MTEF)

Medium Term Fiscal Framework (MTFF)

Implemented in 2007

Includes three-year macroeconomic revenue andexpenditure projections, which are used in setting overallbudget ceilings

Reflects the impacts of government policies on the nationalbudget

Comprised of data from four Macro Accounts

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PFM Reform Budget ProcessesMedium Term Expenditure Framework (MTEF):

Budget Framework Papers (BFP¶s) Used in the setting of ministry ceilings

Ideally, ministries whose functions are more relevant togovernment priorities receive a larger share of the totalfunding

Current format includes: ministry objectives linked tonational planning documents; service delivery issues;key performance indicators; and costing of newfunding/savings proposals

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PFM Reform Budget ProcessesMedium Term Expenditure Framework (MTEF) Programme Budgeting:

Programme-based budgeting introduced in 2007 Financial/budget system lacked the needed functionality at

the time

Various approaches attempted, with some being toocomplex and creating confusion; activity-based budgeting asa method for producing programme-based estimates was

particularly problematic Approach was simplified in 2010, and focus was narrowed

to five pilot ministries

Implementation was successful and will be reflected in theFY 2011/12 budget

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Successes to Date:

Strengthened macroeconomic forecasting capability Budgeting approach changing from an input-based

incremental approach to a results-oriented approach

Budget horizon has been expanded from one year to

three years Recurrent and capital budgets are being integrated

Stronger linkage being developed between governmentobjectives and resource allocation through programmebudgeting implementation

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PFM Reform Budget ProcessesMedium Term Expenditure Framework (MTEF) Successes to Date:

Ministry preparation of Budget Framework Papers hasmade resource allocation decisions (setting of ceilings)more transparent

More budget information now available to Cabinet for making informed decisions

More involvement by Cabinet in the budget process asa result of the establishment of the Cabinet BudgetCommittee

Expenditure implications of new policies are better quantified

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Initial Challenges: Lack of government ownership of the reform

Limited number of MTEF Facilitators, and limitedtraining for these Facilitators

Training material for ministries too complex, training

period insufficient, and poor attendance at trainings Confusion over MTEF elements/concepts

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Issues currently being addressed:

³Reform Fatigue´

MTEF interpreted as a tool for increasing ministerialbudgets

Quality of BFP data needs to be enhanced

Focus remains on first year of three-year budget

MTFF impacted by time lags in updating, as well asrevenue data availability in IFMIS

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PFM ReformPFM Reform

Integrated Financial SystemIntegrated Financial SystemMr.Mr. KekeletsoKekeletso MosalaMosala

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PFM Reform Integrated Financial System

GoLFIS (Government of Lesotho FinancialInformation System)

Existing Regulatory Framework

IFMIS implementation

Accompanying Reforms

Sustainability

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PFM Reform Integrated Financial SystemGoLFIS (Government of Lesotho Financial

Information System) was previous financial system

GoLFIS shortcomings: Back office payables system, maintained by the

Treasury Department and not available to theministries

Marred by errors and omissions, with users able tooverride controls

Ex post entry of transactions for Sub Accountanciesand foreign missions led to lengthy delays inproduction of public accounts

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GoLFIS shortcomings:

Limited Chart of Accounts prevented the following:

Integration of capital and recurrent budgets

Compliance with international standards

Comprehensive reporting on budget execution

Budget entries on both a cost centre and programme

basis

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GoLFIS shortcomings:

Manual vote books were maintained by ministries:

used to control commitment but not kept up to date

controls easily by-passed and not reconciled withGoLFIS

Allowed commitments without available funds

Budgets prepared on spreadsheets

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Existing Regulatory Framework:

Finance Order of 1988 ± based on centralised

accountability model, with Accountant Generalresponsible for compiling Public Accounts

No responsibility of ministries to report to Parliamenton use of funds appropriated

Updated framework required to implementmodernized financial processes

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PFM Reform Integrated Financial System IFMIS Implementation: In 2006, a process was initiated to implement an

Integrated Financial Management Information System(IFMIS)

Underpinning of PFM reform efforts

Formal project management methodology used tomanage scope, budget, expectations and risks

throughout implementation Required establishment of a modern technical platform

System delivered to whole of government within 16months

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PFM Reform Integrated Financial System Accompanying Reforms: Revised organisational structure to reflect new business

processes Re-skilling of Accounting staff across government New regulatory framework to govern and underpin new

business processes New Chart of Accounts to exploit reporting capabilities of

the IFMIS and bring reporting into compliance withinternational standards

New Chart of Accounts also provides more flexibility for the integration of recurrent and capital budgets and theentry of budgets on both a cost centre and programmebasis

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PFM Reform Integrated Financial SystemSustainability: Implementation achieved but sustainability now the

challenge: Retention of skilled staff

Ongoing training capability to ensure minimum competencylevels for users

Ability to support the system and manage upgrades

(outsourcing where necessary) Demand-side ± use of reporting capabilities to inform

financial management

Adequate budget provisions to maintain system capability ±life cycle replacement of equipment

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Promoting Transparency withPromoting Transparency withEnhanced Budget InformationEnhanced Budget Information

Mr. TomMr. Tom MpetaMpeta

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Promoting Transparency As a result of PFM reform efforts just highlighted,

significant improvements have been made to budget

data and documentationDissemination of this information has also improved

All have contributed to enhanced budget transparency:

MTEF

Performance oriented Budget Book

Information made available on MFDP web site

Public outreach efforts

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Promoting Transparency

MTEF: More transparent methodologies for estimating

medium-term revenues through the implementation of the MTFF

A transparent and evidence-based bidding process for budget resources by ministries through the use of

Budget Framework Papers; also, more informationavailable to Cabinet for decision making

Integration of recurrent and capital budgets reflect fullcost of projects and, ultimately, the delivery of programme outputs

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MTEF:

Greater transparency in funding of government prioritiesthrough Programme Budgeting implementation:

Budgets traditionally prepared using cost centre structure,which generally represents a ministry¶s administrative structure

The cost centre structure does not always align well with

ministry objectives/outputs; therefore, difficult to align withoverall government priorities

The new programme structure being designed based ongovernment priorities, which will present a clearer picture of theresources allocated to support these priorities

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Better Access to Ministry Performance Data throughNew Budget Book Budget Book contained only budget data by economic

classification, no other supporting information

Budget Book currently being piloted has ministry descriptionsand performance information: Ministerial Vision, Mission Statement, Objectives

Primary challenges and how they are being addressed Primary achievements

Performance indicators by programme

Combined recurrent/capital budget by programme and sub-programme

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Example of performance information provided in newBudget Book:




Information made available on MFDP web sitewww.finance.gov.ls (some published as a result of

donor requirements): Budget Book

Budget Speeches

Budget Guidelines

Budget Framework Papers Circulars and Notices

MFDP Reform Initiatives (IFMIS, MTEF, Procurement,etc.)

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Promoting TransparencyPublic Outreach Efforts to Disseminate Budget

Information and Obtain Stakeholder Input: Major public outreach event occurs every year as the

Honourable Minister of Finance and DevelopmentPlanning tables the Budget Estimates before Parliamentfor approval. During this time, the Budget Estimates arebroadly distributed to the citizens: Honourable Minister participates in media events and

meetings with the business community to explain thebudget Budget Teams from MFDP are assigned to travel to each of

the Districts of Lesotho to conduct public forums withstakeholders in the Districts:

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Promoting TransparencyPublic Outreach Efforts:

These meetings are attended by people from different sectors,

including farmers, business community, Non-GovernmentalOrganizations (NGOs), as well as public servants from differentgovernment departments in the Districts

In these forums, the stakeholders have opportunities to inquireabout the current Budget Estimates and to learn about progressmade from the funding of projects/ initiatives under previous

budgets

The stakeholders are also given an opportunity to provide their own input, including the identification of priority requirementsand recommendations for future year budgets

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Promoting TransparencyPublic Outreach Efforts:

Budget Teams then report back to the Honourable

Minister on the stakeholder input These meetings are very effective because they aid in

identifying public priority areas for resource allocation

The following pictures were taken by the Budget Teams tohelp justify the priority requirements and

recommendations of the stakeholders, as well as todocument progress on previously funded projects/initiatives:

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Public Priority Area ± Bridge Construction:



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Final Outcome ± Strategic Allocation of Resources Based on National Priorities:



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Public Priority Area ± School Construction:

Supports Lesotho¶s Primary Education Priorities for 2011/12, which

include increasing access, efficiency, and equity of educationthrough construction of primary school classrooms and toilet blocks

in the remote areas of Lesotho



N

ext Steps and Lessons LearnedN

ext Steps and Lessons LearnedMs. Sheryl KellyMs. Sheryl Kelly

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Next Steps and Lessons Learned

PFM reform initiatives related to budgeting haveresulted in a number of successes thus far

These have been accompanied by a host of challenges, some resolved and others still beingaddressed

Good foundation now in place for both ongoing andfuture initiatives ± a result of introduction of MTEF,as well IFMIS implementation

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Next Steps

Revise Budget Framework Paper template to enhance

value/relevance and allow for a programme orientation Develop template for a consolidated Budget Framework

Paper and make publicly available

Require the ministry preparation of comprehensive and

defensible budget requests for the indicative, or planning,years of the budget horizon

Strengthen usage of Budget Module in IFMIS, particularlyfor budget development

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Next Steps

Roll out programme budgeting to remaining ministries

using a phased approach Incorporate performance data for all ministries into the

Budget Book

Enhance quality of ministry performance monitoring

systems Ensure strong linkage between ministry programmes and

Lesotho¶s National Strategic Development Plan (currentlybeing drafted)

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Next Steps and Lessons LearnedLessons Learned

Reform initiatives should be country-specific (not one-

size-fits-all) Initiatives should be designed such that they avoid

unnecessary complexity and compliment existinginstitutional and human and physical resource capacities

in the ministries Initiatives must be properly sequenced, and donors

should ensure that support for initiatives is wellcoordinated with other contributing donor partners

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Next Steps and Lessons LearnedLessons Learned

Financial and payroll system functionality must be

considered well in advance of implementing anyreforms that are dependent upon these systems

New systems may be implemented, but, if staff arenot adequately trained, they many undermine the

effectiveness and sustainability of the systems

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Next Steps and Lessons LearnedLessons Learned Exposure to budget concepts and basic knowledge

of the budget process can enhance citizens¶ ability toeffectively monitor government performance andaccountability of taxpayer money

Government ownership of PFM reforms is requiredfor long-term sustainability, with Ministries of Financeleading the initiatives, carefully guiding the designand implementation, and ensuring sufficient capacityto fully support the line ministries

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Comments/Questions?Comments/Questions?

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budget transparency in the kingdom of lesotho: the roles of pfm reform and public outreach

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