APPENDIX I: SEQUENCING PUBLIC FINANCIAL MANAGEMENT REFORMS
Under the heading Getting the Basics Right, Professor Allen Schick advanced the following proposals for prioritization and sequencing in public financial management during a presentation to World Bank Staff in March 1998.
Foster an environment that supports and demands performance before introducing performance or outcome budgeting.
Control inputs before seeking to control outputs.
Account for cash before accounting for accruals.
Establish external controls before introducing internal control.
Establish internal control before introducing managerial accountability.
Operate a reliable accounting system before installing an integrated financial management system.
Budget for work to be done before budgeting for results to be achieved.
Enforce formal contracts in the market sector before introducing performance contracts in the public sector.
Have effective financial auditing before moving to performance auditing.
Adopt and implement predictable budgets before insisting that managers efficiently use the resources entrusted to them.
The Pacific island countries discussed in this paper are those receiving technical assistance from the Pacific Financial Technical Assistance Centre (PFTAC), a multi-donor institution in Suva, Fiji for which the IMF is the Executing Agency. The PICs assisted by PFTAC include: Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Republic of the Marshall Islands, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tokelau, Tonga, Tuvalu, and Vanuatu. With the exception of Tokelau, these countries are also members of the Pacific Islands Forum, a regional organization representing through its Secretariat in Fiji the interests of PICs in international fora and fostering cooperation among its members (which also include Australia and New Zealand).
The FEMMs bring together the Ministers of Finance of the Forum countries and all principal international organizations and bilateral donors active in the region. The meetings are the most important venue for discussing economic and financial reform issues and developing cooperation agreements and other policy commitments of PICs.
Following this commitment by Ministers to the objectives of the Code, the Pacific Financial Technical Assistance Centre has assisted PICs with the assessment of compliance and development of reform agendas.
Under accrual accounting, financial transactions of government are accounted when the transaction occurs, regardless of the timing of the related cash receipt or payment. Accrual accounting permits the assessment of the full costs of an operation and gives a simultaneous picture of changes (and stocks) of public sector assets and liabilities. Accrual accounting also provides a comprehensive picture of government liabilities (including payments arrears) and permits the establishment of realistic budgets through an assessment of future impacts of current policy decisions.
Output budgeting is an advanced form of performance budgeting under which budgetary appropriations are linked to specific outputs of ministries or government departments and agencies. The definition of outputs in turn permits the establishment of well-defined contracts for delivery as well as a tight evaluation of results, both of which are expected to increase effectiveness and efficiency of budgetary operations.