Supporting country institution building: reform successes and monitoring progress

Odo Tevi

Governor

Reserve Bank of Vanuatu

Brief History

• Vanuatu gained independence in 1980

• 1991 onwards divisions within the ruling party – party divided – instability era – public financial mismanagement

• Economy is small and economic growth was a challenge

• Macroeconomic stability achieved

Public Financial Reform

• 1997 adopted comprehensive reforms –focus also on public financial management

• 1998 National Planning Office was moved to Ministry of Finance – integrate planning and budget

• Budget approach changed from line budget to Program budget – all ministries budget based on programs and activities

Cont’d

• PFEM Act 1998 – i) states Gov’t responsibility; 2) accountability arrangements & compliance; 3) financial & economic reports

• Treasury and Budget Unit set up – coordinate the design and execution of the budget process - first time a non-political control had been set up on Gov’t finances

• Ministerial Budget Committee set up – advise the COM on the national budget

Cont’d

• MFEM Institutional Project – supported by AusAID – Dept. Finance

• Team Leader & 3 advisors – budget, accounting and FMIS

• Local counterparts provided by Gov’t

• GFS drawn up according to IMF standards & Gov’t accounts reconciled.

Cont’d

• Macroeconomic frame work for budget established

• A new Financial Management Information System established

• Skills transfer were successful to local counterparts

• Budget deficit reduced and last 2 years surpluses

Cont’d

• IMF (PFTAC) – review fiscal accounts and confirmed compliance with international standards

• PEFA assessments – Generally good esp. in relation to MFEM Strengthening Project Areas. i) credibility of the budget (aggregate level) & expenditure composition good; ii) policy based budget – clear budget calendar; executive and Parliament involved but need to develop multi-year perspective on financial planning

Cont’d

• Iv) predictability and control in budget generally good v) Accounting, recording and recording good – financial accounts prepared on accrual basis and in accordance with international standards and vi) external scrutiny and audit needs to be improved

• PEFA done every years and progress against used for conditions for future aid support

Why Successful?

• Reforms implemented in other areas • Experts have developing country experience

quickly and ability to adapt to local culture• Strong political support and leadership• Continuous independent review of the Project –

esp. whether it achieve its milestones• Strong technical local counterparts – transfer

skills easy and interaction with counterparts is good

• Innovative use of “learning agreements”

Cont’d

• Long-term vs. short-term – cannot achieve strengthening overnight

• Establishing a good relationship with the central bank

• Coordination with donors is good but donor harmonisation still a challenge

Conclusion

• Economy performing well – per capita income rising• Turn around in public financial management – budget

surpluses • MFEM Strengthening Project successful but donor

harmonisation still a challenge• PEFA – Recommendations needs to be implmented• Key - understanding local culture, building good

relationships and having a strong leadership support