Fabián David Quirós AlvarezGeneral Sub-Director of the National Budget

Ministry of the TreasuryCosta Rica

December, 2008

Contents:

I. The budgetary process in Costa Rica

II. Primary innovations and advances in Financial Management:

- result-oriented Budget : Methodology for planning and evaluation.

- National system of Public Investment - Multi-year Budget and Base-Line Budget - Follow-up on budget execution

III. Over-all View: The challenges.

I. The Budgetary Process in Costa RicaI. The Budgetary Process in Costa Rica

Levels of Approval

Central Government Budgetary Law approved by the Legislative Assembly

Decentralized Entities Budgets approved by the General Comptroller’s Office of the Republic

The Budgetary Process in Costa RicaThe Budgetary Process in Costa Rica

FORMULATIONFORMULATION

CONTROLCONTROLAND ASSESSMENT AND ASSESSMENT

EXECUTIONEXECUTION

APPROVALAPPROVAL

STAGES OF THE BUDGETARY PROCESS

II. II. Primary Innovations and Advances in Financial Management

New Methodology for Budget New Methodology for Budget Planning-AssessmentPlanning-Assessment

Changes in Budgeting: Orientation toward Results

• Advances in the strategic analysis of planning and in orientation toward results:– Setting institutional priorities– Strategic objectives– Indicators of results, and– Multi-year goals.

• Pilot plans for strengthening the budget process toward results: synergy and complementarity of international technical cooperation (BID-PRODEV and Treasury Deparatment of the United States of America)

BID/PRODEV – BID/PRODEV – TREASURYTREASURY

METHODOLOGICAL METHODOLOGICAL COMPONENTSCOMPONENTS

I.I. Budgetary Planning

II. Monitoring and Assessment

III. Accountability

National Development Plan

Planning by Sectors

Budgetary Planning with focus on results

System of Management indicators and results

Assessment of Results

Report on the Annual Assessment of the

Results of Management

•Planning 2007 •Planning 2008 onward

•Instituctonal •Institucional

•Mission •Mission

•Vision

•Institutional Policies •Institutional Priorities

•Budgetary Programs

•Amount %

•Goals for Institutional Improvement •Strategic Institutional Goals

•Indicators of Results

•Program •Program

•Mission •Mission

•Products •Products

•I Half. II Half. •Users Beneficiaries

• Product Goals. Product Goals

•Goals for Improvement •Strategic Goals of the Program

•Relevant Management Goals

•Performance Indicators •Indicors of Performance and Management

•Type Formula Real Projected Goal •Type Formula Result Source of Data 2007-2011

According to the latest Statement of the General Comptroller’s According to the latest Statement of the General Comptroller’s Office of the Republic:Office of the Republic:

•“…•Improvements in budgetary planning and assessment after 2008 •Technical and methodological approaches for strategic sectorial and institutional planning (May, 2008), establish a gradual process of defining indicators of management and results of public agencies.”

Año Tipo de Indicador Institución

2008 Eficiencia, eficacia, economía, calidad MAG, MEP, MINSA, MSP, MINHAC, MOPTCONAVI, PANI, IDA, AYA, INA

2009 De resultados MAG, MEP, MINSA, MSP, MINHAC, MOPTCONAVI, PANI, IDA, AYA, INA

2009-2010 Dos indicadores de cada tipo excepto resultados Todas las instituciones

2011 Todos los tipos de indicadores Todas las instituciones

• Dynamism is seen in the number of indicators from the different ministries, suggesting a process of improvement.

• There are indicators of efficiency, effectiveness, economy, quality, and management.

• A tendency remains favoring indicators of effectiveness at the cost of indicators of economy (.7%), quality (2.4%) and efficiency (1.2%).

The General Comptroller’s Office of the Republic in its Technical The General Comptroller’s Office of the Republic in its Technical Report on the Budget for 2009 recognizes that:Report on the Budget for 2009 recognizes that:

NATIONAL SYSTEM OF PUBLIC INVESTMENT (SNIP)NATIONAL SYSTEM OF PUBLIC INVESTMENT (SNIP)

NATIONAL SYSTEM OF PUBLIC INVESTMENT (SNIP)NATIONAL SYSTEM OF PUBLIC INVESTMENT (SNIP)

“LA GACETA No. 162 of Friday, August 22, 2008Nº 34694-PLAN-H

DECREE:Regulation for the Constitution and Functioning of the National

System of Public Investment

Artícle 1—On Location. The National System of Public Investment is part of the National System for Planning and its implementation and operation will be the responsibility of the Ministry of National Planning and Economic Policy, with the objective of achieving optimum utilization of public funds for meeting government objectives, tied to the principles of economy, efficiency, effectiveness, gradualness and quality of the investment. El Sistema

…..

Artícle 5—On specific objectives.. The SNIP has the following specific objectives: a)  Succeed in assuring that public monies intended for public investment yield the greatest economic-social and environmental benefit to the country. b)  Implementation of an integral system of analysis, follow-up, and assessment of public investment, following the life cycle of projects. c)  Plan public investment and manage it efficiently.d)  Provide sufficient quality information for making decisions about investments. e)  Strengthen the ability of the entire public sector in the formulation and planning of public investment, as well as in the socio-economic, environmental, and risk management for disasters, and physical and financial execution of investment projects. f)   Facilitate annual and multi-year planning of public investment. g)  Mantain an up-to-date inventory of all public investment projects.”

MULTI-YEAR BUDGET AND BASE-LINE BUDGETMULTI-YEAR BUDGET AND BASE-LINE BUDGET

Multi-Year Fiscal ScenariosMulti-Year Fiscal Scenarios

In the 2008 budget, for first time, there were multi-year In the 2008 budget, for first time, there were multi-year fiscal scenarios fiscal scenarios → with different projections of expenditures → with different projections of expenditures and income for the central government. and income for the central government.

• The Ministry of the Treasury has developed a model of macro-economic consistency among the different variables associated with the Costa Rican economy, in order to be able to have an analysis structure at the time of generating multi-year scenario indicators.

• COMPONENTS OF THE MODEL

– Mid-term trends of the real sector.

– Monetary and Exchange Aspects.

– Fiscal Performance and Debt Dynamics.

– Consistency of the External Sector.

Multi-Year Fiscal ScenariosMulti-Year Fiscal Scenarios

BID/PRODEV –BID/PRODEV –TESOROTESORO

Other Income 93,664 83,580 106,525 121,677 138,154 % PIB 0.58% 0.5% 0.5% 0.5% 0.5%

% Crec -10.8% 27.5% 14.2% 13.5%

TOTAL EXPENDITURES 2,584,971 3,231,110 3,690,702 4,205,688 4,746,158 % PIB 16.1% 17.5% 17.3% 17.3% 17.2%

Ministry of Education 830,169 1,116,042 1,278,299 1,460,119 1,657,844

Pensions 374,745 463,468 528,354 602,323 686,648Remunerations (excludes MEP and the Judicial Branch)261,558 352,302 413,517 471,409 532,692

Salares 220,286 300,904 346,039 394,485 445,768Social Contributions 41,273 51,399 67,478 76,925 86,925

Judicial Branch 168,392 209,798 228,110 265,416 309,522

CCSS 41,054 54,239 63,915 73,006 82,892

CONAVI 89,432 101,796 116,111 129,689 143,776

Municipalities and IFAM 53,111 35,530 41,188 47,046 53,417

PANI 6,319 7,982 8,700 9,396 10,054

FODESAF 10,908 12,570 18,030 20,594 23,383

Non-contributory Regimen 40,439 46,785 50,996 55,075 58,931

Others 349,992 439,436 519,430 581,252 639,700

PRIMARY EXPENDITURES 2,226,119 2,839,949 3,266,648 3,715,326 4,198,859 % PIB 13.8% 15.4% 15.3% 15.3% 15.2%

% Crec 27.6% 15.0% 13.7% 13.0%

PRIMARY RESULTS 283,197 93,290 120,843 153,990 194,428 % PIB 1.8% 0.5% 0.6% 0.6% 0.7%

% Crec 2.3% 1.8% 1.5% 1.2% 1.1%

Interest Internal Debt 266,561 311,696 350,586 422,033 484,867

External Debt 92,291 79,465 73,468 68,329 62,432

Total 358,852 391,162 424,054 490,362 547,299 % PIB 2.2% 2.1% 2.0% 2.0% 2.0%

FINANCIAL RESULT -75,655 -297,871 -303,211 -336,372 -352,871 % PIB -0.5% -1.6% -1.4% -1.4% -1.3%

* Scenario 1 supposes maintaining a similar trend in income growth, without any variation in assignment of expenses.

Calculation of the Blanchard Primary Gap 2008 2009 2010 2011 2012

Implicit interest rate 9.7% 9.5% 9.2% 9.6% 10.0%Rate of inflation 14.2% 10.0% 9.0% 8.0% 7.0%Implicit real interest rate -4.0% -0.4% 0.2% 1.5% 2.8%Rate of potential growth 4.5% 4.5% 4.5% 4.5% 4.5%Debt / GDP (%) 23.0% 22.3% 21.5% 20.9% 19.9%Primary Surplus to stabilize the debt (PS)* -1.9% -1.1% -0.9% -0.6% -0.3%Primary Surplus (PS) 1.8% 0.5% 0.6% 0.6% 0.7%Primary Gap -3.7% -1.6% -1.5% -1.3% -1.0%

Scenario 1*

Multi-annual Budgetary Scenarios, 2009-2012Millions of colons and percentages

Multi-Year Fiscal Scenarios Multi-Year Fiscal Scenarios

– For 2009 an update is presented of the scenarios for projected fiscal income and expenditures, first presented in 2008 and include projections. This document includes projections up to 2012.

– The Ministry of the Treasury has continued working on the study of this topic through on-going work in assessment and improvment, and has reviewed the experiences and orientations that other countries have carried out and within the legal structure that governs us.

Multi-Year Fiscal ScenariosMulti-Year Fiscal Scenarios

Budget estimates are published for the medium term by the CentralGovernment, which will be developed through the “Base-Line” Concept

“Base-Line” will reflect future income and expenditures and the results in terms of deficit/surplus by continuing existing government policies and programs and applicable law.

The “Base-Line” is a technical exercise and a neutral measure to determine the fiscal path of the government and measure the impact of alternate policy proposals.

Base-Line: It is an automatic pilot that sets the fiscal pathBase-Line: It is an automatic pilot that sets the fiscal path

• New program of oversight for the year 2008, which includes aspects of operational audit as well as compliance.

• Better coordination and communication between the areas of budgetary execution and formulation.

• Greater openness on the part of the ministers and oversight entities.

Follow-up and Oversight of Budget Execution

III. Overall Vision: The Challenges III. Overall Vision: The Challenges

Countries According to their GpR Development

Level of Development Countries

Advanced Brazil, Chile, Colombia, Mexico

Medium Argentina, Bolivia, Barbados,

Costa RicaCosta Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Peru, Dominican Republic, Trinidad and Tobago, Uruguay

Low Beliz, Haiti, Paraguay, Surinam

PRODEV Pentagon for COSTA RICAPRODEV Pentagon for COSTA RICA

3,2

1,5

3,22,4

3,0

2,4

1,5

2,52,0

1,70

1

2

3

4

5

1

2

34

5

Puntaje País Promedio Región Max

Planificación estratégica

Presupuesto por resultados

G. Financiera, Auditoría,

Adquisiciones

Gestión ProgramasProyectos

Monitoreo y Evaluación

RESULT-ORIENTED BUDGET RESULT-ORIENTED BUDGET

• Assure support from above, participation from below o

• Generate demand (A two-way street)

• Determine realistic expectations and understand the necessary complementary gradualness and know how to wait

• Coordinate and bring the actors into agreement: improving conversation with other actors in the process: external control and political control

RESULT-ORIENTED BUDGETRESULT-ORIENTED BUDGET

• Attempt to make the assessment go beyond the retelling of achieved physical goals and management, and reflect the substantial results of institutional management, especially benefits to the population.

• Few and simple rules: Report in a simple way to citizens on the use and application of funds, respecting the committed goals and results obtained.

• Continue working directly with those responsible for programs and formalize commitments with work plans.

• Expand assistance to other ministeries and go beyond performance indicators.

NATIONAL SYSTEM OF PUBLIC INVESTMENT (SNIP)NATIONAL SYSTEM OF PUBLIC INVESTMENT (SNIP)

• MIDEPLAN has information on the public investment projects of 69 institutions.

• Up to the present date, it has not issued a National Plan of Public Investment for 2008-2010.

• It is important that the allocation of resources in the budget for investment projects be available before 2011, but it is also necessary to refine SNIP and make it more precise.

•Strengthen the competence of human resources assigned to management and to the agencies. •Need to have an oversight manual that documents its policies and procedures and a program of oversight. •Exchange reports on oversight with auditing units and the General Comptroller’s Office: implement oversight software applications.

Follow-up and Oversight of Budget Execution

• Advance to a fiscal strategy document that will discuss the

macro-economic situation and fiscal direction for the medium term and will include an analysis on the sustainability of the debt.

• The document will include base-line estimates of income, expenditures, and the deficit/surplus for the budget year (2010) and the following three years of planning.

• Periodical publications on multi-year estimates for each ministry of the central government in accordance with the programmatic classification of the budget.

• Guarantee, so far as possible, its simplicity and transparency

Multi-Year Budget and Base-Line

Need for a Cost System for Goods and Public Services

•Accountability of public servants and politicians

•Control (to prevent abuses and fraud)

•Correct use of funds

•Continuous improvement

Need for a Cost System for Goods and Public Services

Information about costs – necessary for:•Detailed knowledge to meet goals

•Financial information

•Budget preparation (study of alternatives)

•Surveillance of efficiency

•Transparency

•Control and assessment

ADVANCING TO MANAGEMENT FOR RESULTS ADVANCING TO MANAGEMENT FOR RESULTS CONTRIBUTES TO GOVERNABILITY AND CONTRIBUTES TO GOVERNABILITY AND

STRENGTHENS THE LIFE OF DEMOCRACYSTRENGTHENS THE LIFE OF DEMOCRACY

Fabián David Quirós AlvarezGeneral Sub-Director of the National Budget

Ministry of the TreasuryCosta Rica

December, 2008