OECD Budget Review of Portugal: Main Findings 7 th Annual Meeting of Latin American Senior Budget Officials Santiago, Chile. January 26-29, 2009 Teresa Curristine Budgeting and Public Expenditures Division Public Governance Directorate, OECD 1
Structure of Presentation 1. General Overview 2. Budget Formulation 3. Parliamentary approval 4. Budget Execution 5. Performance Budgeting 2
Part 1: General Overview 3
General Overview History of structural budget deficits Since 2005 impressive fundamental structural reforms Reduced budget deficit from 6.1% of GDP to 2.6% in 2007 Need to continue with reform programme 4
Figure 1.1 Fiscal balances in Portugal and other euro area countries as per cent of GDP Source: OECD, Economic Outlook No 78; Analytical database. 5
Challenges Ahead Currently, weakening economic conditions Improving fiscal discipline and public sector efficiency and effectiveness Improving economic growth Maintaining momentum for structural reforms 6
Part 2: Budget Formulation 7
Key Features One year budgeting viewpoint Issues with overly optimistic economic assumptions Limited analytical capacity of Budget Directorate (DGO) Very detailed input orientation Little performance information will change with new budget law Reforms in progress 8
Recommendations A comprehensive medium term expenditure framework An expenditure rule promotes greater discipline An independent panel to review macroeconomic assumptions DGO role shift from detailed control of budget execution to more global oversight and analysis. DGO Programme Review staff 9
Part 2: Role of Parliament 10
Key Features Legally strong role for Parliament in budget process but in practice it is limited due to party discipline. Unlimited powers to amend budget proposals, in practice from 2006-2008 on average amendments only impacted less than o.1% of total expenditure. Parliament only has 45 days to discuss the budget Within Parliament lead role played by Committee for Budget and Finance Expanding capacity and expertise with creation of special unit (UTAO) 11
Recommendations Extend period for debating the budget to at least three months Committee for Budget and Finance more focused on aggregates - give sectoral committees larger oversight role Increase independence and resources of unit Engage parliament in programme budget reform 12
Part 4: Budget execution and accounts 13
Key Features Overly detailed and inefficient control process Extensive focus on ensuring the legality and propriety of expenditure Very extensive use of ex ante control Budget and General State accounts on cash basis. 1997 Official Public Accounting plan to implement accrual basis accounting. Recent reforms include introduction of financial controllers in each ministry 14
Recommendations Streamline financial management comprehensive review of system. Give ministries primary responsibility for budget execution and programme management.- Each minister his own Minister of Finance Before delegation necessary accountability structures should be in place own budget office under supervision of Financial controllers and GPEARI office in each ministry. Give implementation of accrual accounting higher priority Have a clear public accounting rules about whether or not public entities are part of the government sector 15
Part 5: Performance budgeting 16
Key Features Programme budget by 2010 is a very ambitious time frame Challenging for all OECD countries for Portugal Big shift from very detailed input control to a delegated budget system based on performance results. Performance information limited in terms of quantity and quality. Exception Health Lack of capacity of ministry of finance and line ministries Around 4-5 years for full implementation Large reform package the opportunity to redesign the whole system and produce coherent reforms Late starter but can learn lessons from other OECD countries experiences 17
Recommendations Performance budgeting initiative overarching reform Sequenced approach: following three stages. 1. Developing a programme budget and a medium term expenditure framework 2. Developing performance information and the supporting systems 3. Integrating performance information into the budgetary decision making processes. Central leadership and coordination of reform efforts Engage line ministries and ministers in the reform process Engage politicians in the reform process and in the performance dialogue 18
Conclusion Improving fiscal discipline MTEF, Independent review of economic assumptions, expenditure rules., Improving efficiency and effectiveness- Unrealistic timetable for performance budgeting reform must be introduced in sequenced approach Accountability structures in place before delegation of responsibilities Increased flexibility matched with accountability Each minister becomes own minister of finance Ministry of Finance becomes the keeper of rules 19
Conclusion Impressive progress to date with public sector reforms Essential that reforms continue and are fully implemented in practice. Continued political support is vital 20