Table 2.6 Three reform priorities for improving fiscal discipline
|1 Strengthening macrofiscal forecasting||Strengthening macrofiscal forecasting is identified as the most important reform because of the consistent, significant variations in budget outturns and composition. These variations have led to continuous reallocations across expenditure items, cash rationing, and the inability of ministries to plan their expenditures with any certainty|
|2 Implementing cash-flow forecasting||The second priority follows from the first, insofar as ministries need to plan for their cash allocations, based on realistic budgets, in accordance with their program needs.|
|3 Updating budget processes and procedures||The third priority, updating budget processes and procedures, is recognized as an essential reform initiative to support decision making in prioritizing budget allocations and strengthening adherence to both aggregate and ministerial budget allocations.|
Identify potential constraints to reform
WHAT ARE THE CONSTRAINTS TO REFORM?
Based on the prioritized list of reform initiatives identified in stage 4, the government, in consultation with other stakeholders (including technical experts and decision makers at both the executive and political level), should next identify potential impediments to successfully implementing reform and possible measures to mitigate the impact of those impediments. A checklist of risks arising from the various sources can be formulated to guide the design of reform. In some cases, the constraints of a particular initiative may be so great that they cannot be resolved in the short or medium term, in which case it may be advisable for the government not to engage in a specific reform at that point in time.
It is generally recognized that nontechnical factors play an important role in PFM performance. Such factors can vary significantly between countries and over time. Addressing these factors as part of PFM reform requires political and bureaucratic commitment, learning new skills, and accepting organizational change. As with sequencing and prioritization, the approach to identifying technical and nontechnical constraints will vary depending on the context.
Table 2.7 describes common constraints to implementing reforms, including nontechnical factors, and suggests ways to mitigate them.