Transcript The Top-Down Budgeting Process: Nuts and Bolts - e-PBO

Fiscal Risk Analysis
Third Annual Global Netw ork of Parliamentary
Budget Officers
Mostafa Askari
Ottawa, June 11, 2015
Outline
1
• Sources of fiscal risks
2
• Changes in economic context
3
• Links between economic context and fiscal risks
4
• How to analyse economic risks
5
• Unanticipated non-economic events
6
• Budget mismanagement
7
• How to minimize fiscal risks
Sources of Fiscal Risks
Changes in economic
context
Unanticipated events
Budget mismanagement
Changes in Economic Context
Unanticipated international
developments
Unanticipated domestic
developments
Biased economic forecasts
Links between economic context and fiscal risks
Income
profits
Revenues
• GDP
Expenses
• GDP
• Unemployment rate
• Inflation
• Interest rates
Cons.
Tax base
How to analyse economic risks?
Assess historical performance of the forecast- forecast
errors
Prepare a fan chart –probabilistic assessment of
forecast error and bias
Prepare your own forecast
Prepare what if scenarios based on alternative
economic developments
Forecast errors
Average Error in Forecasting Real GDP Growth, 2000-2007
(Actual –Forecast)
1
0.5
0
-0.5
-1
-1.5
-2
-2.5
Source: International Monetary Fund
Fan Charts
Unanticipated non-economic events
Natural
disasters
Conflicts and
wars
Can’t analyse risks but can
assess if budget has
provisions
Budget mismanagement
Revenues
• collection problems
Expenses
• Over spending by line ministries
• Cost overruns of programs
Key Questions on Budget Mismanagement
Are there large tax gaps?
Are there clear , enforceable expenditure
ceiling targets?
Are there institutional arrangements that
prevent line ministries from over spending?
Have programs been costed properly with
credible risk analysis?
How to minimize fiscal risks?
A medium-term budget framework
A credible, balanced risk macroeconomic forecast
A top-down budget process
Expenditure ceilings / fiscal anchors
Institutional arrangements and laws
Transparent and comprehensive reporting
Medium-term Budget Framework
Institutional
arrangements and
rules
BottomUp
Final Decision
by MOF and PM
TopDown