PACIFIC ISLANDS FORUM SECRETARIAT FEMM BIENNIAL STOCKTAKE 2012

Transcription

1 PACIFIC ISLANDS FORUM SECRETARIAT PIFS(12)FEMK.05 FORUM ECONOMIC MINISTERS MEETING Tarawa, Kiribati 2-4 July 2012 SESSION 2 FEMM BIENNIAL STOCKTAKE 2012 The attached paper, prepared by the Forum Secretariat, provides a commentary based on survey responses received from Forum Island Countries on the status of the implementation of FEMM decisions in four key reform areas, since the last Stocktake was prepared in 2010, for the consideration of Ministers.

2 BRIEFING PAPER FEMM BIENNIAL STOCKTAKE 2012 [PIFS(12)FEMK.05] Purpose The paper provides a commentary based on survey responses received from Forum Island Countries (FICs) on the status of the implementation of FEMM decisions in four key reform areas, since the last Stocktake was prepared in 2010, for the consideration of Ministers. Background 2. The Biennial Stocktake provides an update on FICs implementation of previous FEMM commitments on accountability, economic reforms, financial sector reforms, and public enterprise. Refer to Annex 1 for details of related FEMM commitments. 3. The last Stocktake was presented to Ministers at the 2010 FEMM. This paper comprises the subsequent biennial update for consideration of Ministers, and briefly examines progress based on updates provided by members, with the 2006 Stocktake results providing a benchmark as all 14 FICs responded that year. 4. Upon consideration of the 2010 Stocktake, Economic Ministers noted that the earlier Biennial Stocktake recommendations remained valid, and reaffirmed their commitment for continued efforts at the national level to progress towards full implementation. Economic Ministers, at FEMM 2010, also acknowledged the work of development partner agencies, through regional and national level activities, and encouraged further development partner support to implement priorities identified by the 2006, 2008 and 2010 FEMM Stocktake reports (reflected in Annex 2). 5. Survey questionnaires remain the primary method for obtaining Members feedback, and the Stocktake summary draws on responses provided. Members were only expected to provide responses if significant developments had taken place during the period under review. Only three FICs provided feedback this year, and the assessment below captures feedback provided. 6. However, non-provision of FIC response to the questionnaires does not necessarily mean that progress is not being made. Secondary sources of information suggest reform efforts in FICs remain ongoing. The Stocktake reports are meant to provide regional reform trends rather than FIC specific progress. As such, with limited number of FICs providing feedback in response to the survey questionnaire, assessment of regional trends is difficult to accurately determine given that reconciliation with secondary information is difficult without feedback from FICs. 2

3 7. For the purpose of this Stocktake, given that the majority of FICs have not reported, and noting that FICs were only expected to provide updates should significant progress be made, as in the past, it can be assumed that conclusions from the 2006, 2008 and 2010 Stocktake reports remain valid, together with the associated past FEMM decisions. Issues Good Governance 8. The FEMM good governance decisions encompass the Ministerial adoption of the Forum Eight Principles of Accountability in 1997, with some recognition that reform measures contribute not only to the achievement of accountability and good governance, but also to effective and efficient fiscal management and policy. Achieving these goals require a transparent framework for public financial management that can be monitored and understood by oversight bodies such as the Parliament, and also by the general public. 9. As highlighted in the 2006, 2008 and 2010 Stocktake reports, the status of implementation of the accountability principles, on average, across the region was as follows: Status of implementation Fully implemented Mostly implemented Partially implemented Requires considerable further effort to achieve implementation Principle Principle 8 (Central Banks) Principle 2 (Auditing of government entities) Principle 3 (Loans and guarantees) Principle 6 (Public accounts / expenditure committees) Principle 4 (Public sector contracts) Principle 7 (Ombudsman and Auditor General) Principle 1 (Budget processes) Principle 5 (Enforcement of financial regulations) 10. Updates provided indicate progress with timeliness of audited government accounts. One FIC indicated possible reinstatement of public accounts committee and another FIC reviewed its Public Finance and Audit Act to include transparent financial reporting requirements. Economic Reforms 11. FEMM identified four areas as requiring attention in order for the implementation of economic reforms to be effective. The FEMM guidelines in these areas do not assess the economic reform policies themselves, recognising the need for country specific 3

4 reform decisions, but rather the framework and processes used to operationalise them. The areas of attention are: the process of design and implementation; undertaking of social impact assessments; use of consultative/participatory processes; and the statistical underpinning of the reforms. 12. As highlighted in the 2006, 2008 and 2010 Stocktake reports, the status of implementation of the economic reforms guidelines, on average, across the region was as follows: Status of implementation Mostly implemented Requires considerable further effort to achieve implementation Principle Design and Implementation Social Impact Assessments Consultative/Participatory Processes Statistical Underpinning 13. Previous Stocktake responses have highlighted that economic reform programmes in FICs had been instituted along a spectrum of conditions, ranging from a response to an economic crisis through to being implemented during a period of strong economic growth. These differences in the implementing environment had a significant impact on the degree to which the programmes have been prioritised, sequenced, paced to domestic capacities, and implemented with clear lines of accountability these being the four elements of design and implementation emphasised as necessary by FEMM. 14. One FIC noted reviewing its national development strategy to include a matrix for reform actions aimed at strengthening public finance management. Financial Sector Reforms 15. FEMM guidelines for financial sector reforms are grouped into three areas: the design and sequencing of reform; the principles upon which financial sector reform is based; and the framework for monitoring progress. All FICs have embarked upon programmes of financial sector reform, to varying degrees. 16. As highlighted in the 2006, 2008, 2010 Stocktake reports, the status of implementation of the financial sector reforms guidelines, on average, across the region was as follows: Status of implementation Mostly implemented Partially Implemented Principle Design and Implementation Financial Reform Principles Monitoring 4

5 17. The last Stocktake highlighted a variable rate of implementation across all three areas under review, with the majority of FICs having mostly implemented the design and sequencing and financial reform guidelines, and only partially implemented the framework for monitoring guideline. 18. Two FICs reported the recent enactment of banking and banking supervision laws in compliance with internationally accepted standards. Implementation challenges are expected given the relative complexity of the legislation adopted. Public Enterprise Reform 19. The principles on public enterprises were established by FEMM in 2005, and include overarching policy framework, corporate governance provisions, monitoring, and regulatory arrangements. As highlighted in the 2010 Stocktake report, the status of implementation of the public enterprise principles, on average, across the region was as follows: Status of implementation Mostly implemented Partially Implemented Requires considerable further effort to achieve implementation Principle Principle 2 (Good Corporate Governance) Principle 5 (Contestability) Principle 1 (Public Enterprise Policy) Principle 3 (Non-Commercial Functions) Principle 7 (Monitoring) Principle 4 (Separation of Ownership and Regulatory Roles) Principle 6 (Competitive Neutrality) 20. Updates received indicate that the status of implementation, on the whole, remains as reported in However, anecdotal evidence suggests that FICs have progressed in various aspects of public enterprise reforms. For example, developing a public enterprises policy/ regulations and laws appear to have been implemented in a number of FICs since the 2010 Stocktake. General Observations 21. As in previous Stocktakes, the most common constraint appears to be lack of technical capacity. The lack of financial resources, limited human resources, and in some cases political will, were the additional constraints highlighted. 22. Based on the updates provided by Members, it appears that previous Stocktake findings still apply. As such, and as noted by FEMM 2010, this implies that FICs have progressed most in the implementation of the Forum Eight Principles of Accountability, with implementation of the FEMM principles relating to financial and economic reforms appearing to progress well, although the least implementation seems to have occurred in the progress towards best practice principles for public enterprises. 5

6 23. Decisions taken by FEMM (captured in Annex 2), based on the findings of the 2006, 2008 and 2010 Biennial FEMM Stocktake reports, remain valid, and need ongoing development partner support for further implementation. 24. To further improve implementation progress, a whole of government approach and coordination will be required. This also requires better coordination of development partner activities (by FICs as well as amongst development partners) particularly on the provision of timely financial support, and effective technical assistance, to help progress the priority economic reforms in FICs. Pacific Islands Forum Secretariat, Suva. 31 May

7 ANNEX 1 FORUM EIGHT PRINCIPLES OF ACCOUNTABILITY Principle 1: Budget processes, including multi-year frameworks, to ensure Parliament/Congress is sufficiently informed to understand the longer term implications of appropriation decisions. To be fully understandable, the budget needs to present all the details of budget performance including the results of audits and other evaluations, and the assessed impact including on the key objectives previously specified for major programs (showing estimates where final figures are not available). The budget presentation papers also need to include forecasts of the key budget figures for the next two years together with the details of the assumptions on which they are based and the policy objectives they are meant to serve. Existing commitments should be distinguished from new policies. Budget data, including revenue, grant and expenditure data, should be presented in a way that follows international practice and allows international comparisons. Budgetary processes, including the full involvement of ministers, need to be directed specifically at the generation of good estimates which are properly aligned with policy and program output intentions. In keeping the management of budget implementation under review during the course of the year, the government should give the legislature and the public timely reports as the year proceeds, as well as at year's end, which contain all of the details of actual budget performance which are needed for a full understanding of any impacts of deviations from the original budget policy intentions and estimates (using revised estimates where actual figures and results cannot be obtained). Government operations should be subject to audit reports. Principle 2 Principle 3 The accounts of governments, state-owned enterprises and statutory corporations to be promptly and fully audited, and the audit reports published where they can be read by the general public. State-owned enterprises should be subject to the full force of the accounting, reporting, disclosure, and other relevant requirements of a modern regulatory framework for corporate governance adjusted to the circumstances of small island countries as appropriate. Loan agreements or guarantees entered into by governments to be presented to Parliament/Congress, with sufficient information to enable Parliament/Congress to understand the longer term implications. The principle should be enshrined in the law. Presentations to the Parliament/ Congress should be timely. 7

8 Principle 4 Principle 5 Principle 6 Principle 7 Principle 8 All government and public sector contracts to be openly advertised, competitively awarded, administered and publicly reported. The award of contracts should be reported publicly and immediately. The principle should be enshrined in the law. Contravention of financial regulations to be promptly disciplined. The principal and subordinate laws and instructions governing fiscal and financial management should be comprehensive, up-to-date and workable. Administration of the legal framework governing fiscal and financial management should be active and vigorous. Ethical standards of behaviour for public servants should be clear and well publicised. There should be ready public access to the administrative laws governing access to government benefits, the application of taxes, duties, and charges, etc., which should be as specific as possible and which should limit the exercise of discretion by public servants and other holders of public office to the minimum compatible with good administration. The exercise of discretion in public administration should be guided by clear, published criteria. Public Accounts/Expenditure Committees of Parliament/Congress to be empowered to require disclosure. Auditor General and Ombudsman to be provided with adequate fiscal resources and independent reporting rights to Parliament/Congress. The principle of statutory independence should be applied to the public auditor and the ombudsman. The law which provides for the appointment and tenure of the public auditor, and the ombudsman, and which deals with their functions, operations and resourcing, should accord with international best practice in specifying the independent functions they are to perform and fully protecting their performance from being compromised. The law should specify the right of the two office holders to unimpeded access to the Parliament/ Congress where the office holder has grounds for believing that independence might be coming under threat. Central bank with statutory responsibility for non-partisan monitoring and advice, and regular and independent publication of informative reports. 8

9 ANNEX 1 (CONTINUED) PRINCIPLES FOR THE GOVERNANCE AND MANAGEMENT OF PUBLIC ENTERPRISES 1. Develop a coherent and holistic public enterprises policy. This policy should include objectives in ownership and management, community service obligations, regulation, performance monitoring, and impact assessment of reforms, amongst others. 2. Strengthen adherence to principles of good corporate governance. This would include clearly stated roles and responsibilities for shareholders, boards and management. These corporate governance principles could be supported through capacity building of skill levels of Board members. The usage of OECD and PECC guidelines of corporate governance was encouraged by FEMM 2003 and these could provide models. 3. A transparent approach to identifying and funding community service obligations (non-commercial functions) demanded of public enterprises should be developed to ensure public enterprises operate on a sustainable commercial basis. This should be inclusive of their identification, costing, and transparent funding by government including, where possible, separating commercial and non-commercial activities. 4. There should be a clear separation of the ownership role of Government from its regulatory role. Recognizing the limited skilled human resources the regulatory role could be centralised nationally or even (sub) regionally. 5. Increase the contestability of the market to promote ownership systems suitable to the objectives of the public enterprise and to improve efficiency. Mechanisms such as performance benchmarking/contracts, transparent and competitive bidding processes, etc, could be used. 6. Competitive neutrality should be maintained between state owned companies and the private sector. This would need to encompass equitable treatment of the public sector and private sector through avoiding discriminatory tax regimes, provision of subsidised capital and procurement restrictions. 7. The monitoring of both financial performance and service quality should, wherever possible, be against appropriate national and international benchmarks. 9

10 ANNEX 2 SELECTED 2006, 2008 AND 2010 FEMM DECISIONS BASED ON BIENNIAL STOCKTAKES 1. Ministers noted that FICs have progressed the furthest in the implementation of the Forum Eight Principles of Accountability. The implementation of the FEMM principles relating to financial and economic reforms appear to be progressing well, although Ministers noted that the least implementation has occurred in the progress towards best practice principles for public enterprises. 2. Ministers noted that member countries consistently highlighted the shortage of technical skills as the most common constraint to the implementation of FEMM commitments in every area under review. The Small Island States (SIS) emphasised insufficient levels of human resources as a consistent critical barrier to implementation. 3. In noting the overall progress on the principles, Ministers: Good Governance (a) (b) (c) (d) renewed their commitment for the implementation of an effective accounting system, in cognisance of capacity constraints, which is capable of providing relevant and accurate information for decision makers throughout the multi-year budget process in a timely fashion; recognised the vital role Public Accounts/Expenditure Committees play in sound financial management and urge efforts to raise their effectiveness; and recognised the need for improved mechanisms for systematic audit followup and the increased timeliness of audit reports. recognised the need to promote access to official information for strengthening transparency and accountability. Economic Reform (e) (f) prioritised as a matter of urgency the upgrading of their statistical offices and agreed that options for greater regional assistance with statistical functions; and agreed that economic reforms be approached in a pragmatic manner, cognisant of domestic capacities, ensuring that stakeholder consultation mechanisms are operational, and formulating a roadmap for implementing the reforms. 10

11 Financial Sector Reform (g) (h) recognised that prudential regulation and supervision of the financial sector, in its broadest sense, remains problematic in SIS members; and reaffirmed the commitment to implement financial sector reforms and requested the relevant regional organisations and development partners for continued support through the provision of financial and technical assistance needs. Public Enterprises Reform (i) (j) (k) (l) recognised the need to develop a coherent and holistic policy towards public enterprises which should touch upon objectives in ownership and management, community service obligations, regulation, performance monitoring, and impact assessment of reforms, amongst others; acknowledged the primary role of government in the public enterprises sector as the establishment and administration of appropriate regulatory systems and agreed to explore options for better management of limited skilled human resources including centralised national and regional mechanisms; reaffirmed the commitment to adopt a standard approach to community service obligations (CSOs) demanded of public enterprises, with the assistance of donor partners, and drawing on the experiences of other FICs in the management of CSOs; and recognised that monitoring of both financial performance and service quality of public enterprises against appropriate national and international benchmarks needs to be strengthened. 4. Ministers placed continued emphasis on capacity building both in terms of transferable technical skills and management processes to support the implementation of reform endeavours as endorsed by FEMM. Ministers also promoted wider consultation in policy matters, and encouraged the timely production of economic and social statistics to support better outcomes. 5. Ministers reaffirmed commitment for continued efforts at the national level to progress towards full implementation of the Forum Eight Principles of Accountability. 6. Ministers encouraged members to use their Stocktake responses as a basis to approach development partners for technical and financial assistance with implementation. 11