IMF Publishes New Paper on the Importance of Budget Institutions

Last week, the IMF’s Fiscal Affairs Department published a Board Paper on Budget Institutions in G-20 Countries. In this context budget institutions are defined as the structures, rules, and procedures that govern the formulation, approval, and execution of government budgets. These institutions include arrangements for understanding the government’s fiscal position, developing a credible consolidation plan, and implementing that plan through the budget process.

This paper is interesting to CEF member countries for a number of reasons. Firstly, it builds on work that was carried out by FAD in a recent working paper on budget institutions in South East European countries*; secondly, it offers further evidence that the strength of budget institutions is important in achieving successful fiscal outcomes; and thirdly, the research behind the paper will be used as the basis for CEF’s design of future courses to be delivered in close collaboration with the Fiscal Affairs Department’s technical assistance advisors in our ongoing efforts to develop capacity in fiscal institutions in South East Europe.

The paper (i) identifies a set of institutions that support the planning and delivery of successful fiscal consolidations, (ii) reviews G-20 countries progress in strengthening these institutions since the crisis; (iii) analyzes the contribution of these institutions to G-20 countries’ post-crisis fiscal performance; and (iv) makes recommendations for further institutional reform across the G-20. The main paper is accompanied by a supplement which provides evaluations of the state of each G-20 country’s budget institutions.

The paper’s key findings include, that G-20 countries with stronger budget institutions overall have tended to plan and deliver more fiscal adjustment in the wake of the crisis. Countries with comprehensive fiscal reporting, forecasting, and risk disclosure seemed to have a better understanding of their post-crisis fiscal position and prospects. Those with more credible medium-term frameworks, performance budgeting systems, and intergovernmental fiscal arrangements were quicker to announce their adjustment plans and better at protecting public investment within those plans. Finally, countries with more unified and disciplined budget processes tended to more effectively implement their plans.

* Olden, Brian, Duncan Last, Sami Yläoutinen, and Carla Sateriale, 2012, “Fiscal Consolidation in Southeast European Countries: The Role of Budget Institutions,” IMF Working Paper 12/113 (Washington: International Monetary Fund).