With increasing frequency, the IMF has assisted middle-income countries, especially emerging economies, in adopting the types of budget reforms that have been introduced in many Organization for Economic Cooperation and Development (OECD) countries - reforms that emphasize performance and results achieved from the use of public resources. This paper examines the experience of OECD countries in introducing such reforms and assesses whether the same reform strategy be applied to non-OECD countries. It examines how emerging economies should begin such reforms, and how they should be sequenced thereafter. Based on a thorough review of the technical assistance provided by the IMF's Fiscal Affairs Department (FAD) to middle-income countries, this paper will be useful to policymakers and administrators in emerging economies who are contemplating such reforms.
Mr. Desmond Lachman, Mr. Ramana Ramaswamy, Mr. J. H. Green, Mr. Robert P. Hagemann, and Mr. Adam Bennett
Sweden's economy in the early 1990s has been characterized by a deep recession, high unemployment, a ballooning public sector budgete deficit, and a decline in the value of the currency- developments that have raised questions about the country's capacity to sustain its comprehensive welfare state. This study provides an analysis of recent economic developments in a longer-term context and assesses their implications for future policies.
This Selected Issues and Analytical Note on Finland discusses the potential spillovers to Finland from various shocks associated with cross-country interlinkages. The note provides an overview of the trade and financial linkages, assesses the impact of global fiscal consolidation on Finland via trade links, quantifies dynamic contributions from external sources to growth, and uses these contributions to forecast the potential loss to Finnish GDP from a growth slowdown in other European countries; and analyzes the potential impact from the banking sector or sovereign stress.
This paper analyzes the IMF’s Convention for Settlement of Investment Disputes. In March 1965, the Executive Directors of the IMF approved a Convention for submission to governments, together with a report commenting on the Convention’s principal features. The Convention establishes the International Centre for Settlement of Investment Disputes as an autonomous international institution “to provide facilities for conciliation and arbitration of investment disputes.” It will “provide facilities,” because the Centre will not itself engage in conciliation or arbitration activities.
Among the major challenges faced by transitional and emerging market economies is the need to adjust institutions to function in an increasingly market-oriented and global environment. Among the reforms that middle-income countries have looked to emulate are the budget reforms that have been introduced in OECD member countries since the 1980s. These reforms have reoriented budgeting from the traditional focus on inputs to a new focus on the results derived from these inputs. This latter focus has often been termed performance or results-based budgeting. However, the resulting budget systems embody more than a change in the process of budgeting. They reflect a fundamental change in budget management, away from traditional, centralized control systems to more decentralized management models.
Sweden’s macroeconomic performance in the early 1990s differed in a number of fundamental respects from its performance during most of the postwar period. Distinctive features of macroeconomic developments in the early 1990s included the deepest and longest economic recession since the 1930s; a rise in the overall unemployment rate to levels substantially above those previously experienced by the country; a ballooning in the public sector’s overall budget deficit to an extent rarely encountered in member countries of the Organization for Economic Cooperation and Development (OECD); and a decline in the value of the currency to levels even below those reached immediately after Sweden’s 1981-82 devaluations. As has increasingly been recognized in Sweden, these macro-economic developments raise questions about the country’s capacity to sustain the comprehensive welfare state that has evolved in the postwar period. The purpose of this study is to provide a detailed analysis of recent developments in Sweden in a longer-term context, and to assess their implications for future policy choices.
After almost a decade of expansion in the 1980s, the Swedish economy entered into a deep recession beginning in the first quarter of 1990. The cumulative decline in output during this recession, which lasted a full three years, was around 7 ½ percent. This makes the recent recession the longest and deepest since the 1930s. Moreover, it contrasts sharply with the previous recession of 1980-81, which lasted barely one year and during which output declined by only about 2 ¾ percent (Chart 2-1). Since the second quarter of 1993, a significant, albeit unbalanced, recovery has been under way, driven in the initial stages primarily by a major strengthening of the external sector.
This section examines the process of budget system reform required to move from traditional, centralized input-oriented systems to more modern, devolved, performance-based systems. It identifies a strategy based on recent attempts at this reform in emerging market economies and stresses the required sequencing of steps in this process. The strategy outlined involves a three-pronged approach, requiring measures first to increase the flexibility in the agency operating environment, then to provide more certain resourcing for spending agencies, and finally to exert pressure on agencies to improve their performance. This section stresses the need to progress on all three fronts simultaneously and to base these reforms on a firm platform of agency management skills. It highlights the need to attain some basic PEM thresholds in the area of restructuring the budget and its classification system, to improve the accounting system, to develop a financial management information system (FMIS), and to strengthen internal financial management skills. At the same time, it explains that it may also be necessary to introduce changes to the institutional and regulatory framework in which budget managers operate.
Many emerging economies are trying to improve their budget processes and move to performance-based budgeting modeled on OECD-type reforms. This section first presents a brief historical perspective of these reforms by reviewing the evolution of the “new” performance budgeting model being applied in industrial countries. It identifies the main components of this budget management model as a means to determine the challenges facing emerging economies when converting their existing budget systems to this model. This review highlights the critical importance of a good program basis for budgeting, which is not easy and typically requires four important reform elements to be in place. First, any existing program structure must be set in the wider context of strategic budget planning. Second, such strategic planning should be anchored on a medium-term budget framework. Third, this usually implies redesigning and refining existing program structures. Fourth, and perhaps most difficult, a new system of accountability and budget incentives needs to be introduced. For emerging economies, these four elements should be viewed as the prerequisites for a successful introduction of performance budgeting.