Government at a Glance

Government at a Glance

Latin America and the Caribbean 2014: Towards Innovative Public Financial Management You do not have access to this content

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Author(s):
OECD, IDB
21 Aug 2014
Pages:
148
ISBN:
9789264209480 (PDF) ;9789264209473(print)
http://dx.doi.org/10.1787/9789264209480-en

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Latin American and Caribbean Government at a Glance offers a dashboard of more than 30 indicators to help decision makers and citizens analyze and benchmark government performance both within the LAC region and compared to the OECD countries. The publication focuses in four broad areas: budgeting practices; public sector pay and employment; public procurement and public finances. Furthermore, the policy chapter deepens in the budgetary and fiscal innovations which have taken place for the LAC region in the past years.

Despite the fact that the LAC region has not been so badly affected by the recent Global and Financial crisis, the Latin American an Carribbean Government at a Glance argues that governments need to be more inclusive, transparent, receptive and efficient. For that, they need to improve among other budgetary, employment and procurement practices, as well as increase the transparency levels.

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  • Foreword

    This first edition of Government at a Glance: Latin America and the Caribbean 2014: Towards Innovative Public Financial Management provides internationally comparable data on government activities and their results for the LAC region. By showcasing a dashboard of key indicators it is aimed at helping policy makers and citizens analyse the relative performance of governments and, when possible, benchmark against OECD member countries. The 31 indicators cover key aspects of public financial management and governance, such as public finance and economics, public employment and pay, budgeting practices and procedures and public procurement.

  • Preface

    Today, Latin America and the Caribbean (LAC) is one of the most dynamic regions in the world. Rapidly evolving economies and societies bring new challenges to governments. Both citizens and businesses expect better services, more efficient delivery, greater transparency, more social inclusion, and less corruption, among other things; therefore, governments in the region must adapt to meet these new demands. While the economic and social challenges facing the different countries in the region vary greatly, the overall objectives of more effective public governance within a sound fiscal framework are common to all. The starting point for improving public governance is the ability to accurately benchmark government activity and performance. This first edition of Government at a Glance: Latin America and the Caribbean 2014: Towards Innovative Public Financial Management enriches the series of this OECD flagship publication by providing internationally comparable data on government resources and processes for the LAC region.

  • Executive summary

    Despite the recent financial and economic crisis, Latin America and the Caribbean (LAC) countries have experienced economic growth. The positive economic performance has been driven in part by important structural reforms intended to contribute to the prudent management of public finances, and by the commodities boom in the last decade. Among others, these factors have afforded many LAC countries the opportunity to strengthen their fiscal positions, enhancing their resilience to negative economic shocks.

  • Reader's guide

    In order to accurately interpret the data included in the Government at a Glance: Latin America and the Caribbean 2014: Towards Innovative Public Financial Management, readers need to be familiar with the following methodological considerations that cut across a number of indicators. The standard format for the presentation of indicators is on two pages. The first page contains text that explains the relevance of the topic and highlights some of the major differences observed across LAC countries. Furthermore, when data are comparable, the OECD averages are considered as an additional benchmark. It is followed by a Methodology and definitions section, which describes the data sources and provides important information necessary to interpret the data. Closing the first page is the Further reading section, which lists useful background literature providing context to the data displayed. The second page showcases the data. These figures show current levels and, where possible, trends over time. A Glossary of the main definitions of the publication can be found in the final chapter of the book.

  • Introduction

    The main objective of the Government at a Glance series is to provide reliable, internationally comparable data on government activities and their results in OECD member countries. By broadening the scope to other regions of the world, in particular to Latin America and the Caribbean, the publication allows LAC countries to benchmark their governments’ performance within the region and in relation to the OECD. In addition, it allows governments to track their own and international developments over time, and provides evidence to their public policy making.

  • Fiscal and budget innovations and the commodities boom in LAC countries: A winning decade?

    Latin America and the Caribbean (LAC) countries have struggled for more than three decades with economic volatility, financial crises, and difficulties to maintain credible fiscal policy frameworks. Throughout the 1980s, a period often referred to as the lost decade, many countries in the region defaulted on their high debt due to a host of issues, including rising interest rates, skyrocketing oil prices and a deterioration of exchange rates. As a result, inflation increased, income dropped and unemployment soared, generating problems that affected the region for many years.

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  • Expand / Collapse Hide / Show all Abstracts Public finance and economics

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    • General government revenues

      Governments raise revenues to finance the provision of goods and services and to fulfil their redistributive role both within and across generations. The amount of revenues collected is determined by multiple factors such as government policies, political institutions, the stage of economic and social development, and internal and external macroeconomic conditions.

    • General government tax revenues

      During the past two decades, LAC countries made significant progress in the area of taxation. They increased tax collection, strengthened tax administrations and attempted to curb rampant tax evasion. As a consequence, taxes as a share of GDP increased more in the region than anywhere else in the world (Corbacho, Fretes and Lora, 2013). Furthermore, revenue increases have taken place across all tax sources, and tax administrations continue to grow stronger as a result of greater technical and budgetary autonomy.

    • Efficiency of tax administration

      National tax administrations collect domestic taxes, providing governments with the resources to fund public programmes and deliver goods and services. They also interpret and enforce tax policy, and in some cases administer local taxes. Besides core tax collection functions, in almost two-thirds of LAC countries studied, tax administrations also oversee customs administration. Furthermore, in Argentina, Brazil and Peru they administer contributions to social security. Of the tax administrations with available information, 60% are independent or autonomous bodies, while the rest are entities within the Ministry of Finance.

    • General government expenditures

      Governments provide goods and services, redistribute income and pursue economic development objectives, while trying to allocate resources efficiently and effectively. Government spending as a share of GDP is a good proxy indicator of government size. Macroeconomic conditions, fiscal policy and political decisions based on citizen demands all affect how much government spends and invests. Nevertheless, the size of government does not necessarily reflect its performance.

    • Revenues and expenditures structure by level of government

      Central, state and local governments vary in terms of their ability to levy taxes and collect social contributions, depending on economic, institutional and social factors. Different government levels also share responsibility for financing public goods and services. Greater flexibility might promote economic efficiency as local governments would have better information about the needs and preferences of the population, and thus could better tailor services. Additionally, local-level service provision could strengthen sub-national governments’ fiscal responsibilities.

    • Government investment spending

      Governments invest in infrastructure in order to increase social welfare and improve productivity and competitiveness. Governments can invest in roads and railroads, in expanding telecommunication systems, in improving electrical power networks, and in increasing the number of schools and hospitals. In addition, governments can also invest in research to improve the health care system, or in education and training, to give some examples. Overall, government investment is a critical factor for long-term growth and can also attract foreign direct investment. Historically, infrastructure investment has been low in LAC countries compared to other advanced and emerging economies as a result of institutional constraints and limited access to long-term financing.

    • General government balance and debt

      A country’s fiscal balance is the difference between government revenues and expenditures. There are multiple factors that affect it, such as economic fluctuations, demographic trends that could put pressure on health care and pensions spending, and temporary limits or expansions of public spending. Governments may also choose to incur short-term deficits in order to promote long-term growth.

    • Special feature: Fiscal revenues from non-renewable natural resources in Latin America

      On average, the LAC region grew at 3.5% between 2001 and 2011, a positive performance given the 2007-09 global financial crisis. This was in part driven by a commodities boom, thanks to increasing demand from other developing countries, such as China, which contributed to high prices and thus to GDP growth. Many LAC countries also introduced fiscal reforms that increased the state’s share of natural resource during 2003-08 boom period. Some LAC countries, particularly those with important mining sectors, have also introduced other appropriation mechanisms, including royalties and specific taxes, in order to guarantee that minimum payments are made for the resources.

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  • Expand / Collapse Hide / Show all Abstracts Public employment and pay

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    • Public sector employment

      Governments are key providers of goods and services to citizens. They depend to a significant extent on public sector employees to fulfil their obligations. As a result, the proportion of the labour force working for the government is one indicator of how public services are delivered, and may also have implications for the quality and cost of service delivery.

    • Women in general government

      Female labour participation has increased greatly among LAC countries in the past two decades. Nevertheless, gender gaps in the labour market persist, particularly in Central American countries. In addition to potential economic growth, a strong female labour force has complex welfare implications. For example, higher female labour force participation will increase the need for supplementary care, for both children and the elderly, but it also increases the contributions to the pensions systems.

    • Women in politics

      Increasing female participation in politics offers multiple benefits to developing countries, where the empowerment of women has the potential to increase economic and social well-being. Greater representation of women in politics may lead to the promotion of better gender equality and may improve the quality and responsiveness of public policy by focusing attention on issues such as equal pay, work-life balance and gender violence.

    • Compensation of senior managers

      To maximise value and quality of public goods and services, the public sector should seek to have highly qualified staff to fulfil government responsibilities. The level of compensation is one indicator of the attractiveness of public sector positions and the ability of governments to retain the most qualified people. Although compensation for senior managers represents a small share of public expenditures, it holds a symbolic value as it provides an incentive framework for staff who have a leading role in government policy making and execution, and whose appointment is done under particular conditions.

    • Compensation of middle managers

      Middle managers fulfil an essential role in public administrations as they are located between senior managers and professionals. They are crucial for the co-ordination between high-level mandates and the execution of policies and projects. Furthermore, they are in charge of implementing human resource management reforms, and building trust and social dialogue with all public employees. D3 managers provide leadership and management to teams of professionals within their particular areas. They establish and manage budgets, control expenditure and ensure the efficient use of resources. D4 managers formulate and administer policy advice and control selection, training and performance of staff.

    • Compensation of professionals in central government

      The management of professionals in central government represents a key task for human resources units in ministries and departments. Professionals, narrowly defined as both economists and policy analysts, play a critical role in a government’s decision-making processes by contributing analytical skills to the assessment of policy choices and allocations based on evidence. Senior and junior professionals do not hold managerial responsibilities (beyond managing a team of maximum three individuals).

    • Compensation of secretarial staff in central government

      In LAC countries, compensation of secretarial staff in the central government shows the lowest cross-country variation among the different central government occupations (for information on the definitions and functions of this position see ).

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  • Expand / Collapse Hide / Show all Abstracts Budgeting practices and procedures

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    • Fiscal rules

      During the last decade, several LAC countries have implemented fiscal responsibility laws to improve the sustainability and transparency of fiscal policy, and to increase macroeconomic stability. As part of this, some countries have implemented fiscal rules that place long-term restrictions on fiscal policy through explicit numeric limits on fiscal aggregates. Fiscal rules typically cover revenue, expenditure, budget balance or debt. They are meant to be observable and permanent, irrespective of changes in government.

    • Medium-term expenditure framework

      Along with fiscal responsibility laws, some LAC countries have implemented medium-term expenditure frameworks (MTEFs) as a way of linking the budgetary process to broad fiscal policy goals beyond the annual budgetary cycle. MTEFs allow authorities to adopt broad budget aggregates and detailed expenditure plans, typically spanning three to five years including the budgeted fiscal year, and combine prescriptive yearly ceilings and descriptive forward estimates. Expenditure estimates based on sector strategies and estimated costs form the baseline for future budgets, while a macro-fiscal framework establishes expenditure ceilings for future spending.

    • Executive budget flexibility

      As governments begin to focus on performance as the basis of budget allocation decisions, the role of public managers at the line ministry and agency level becomes increasingly relevant. Delegating authority to managers regarding the allocation of funds within their own budget envelopes could lead to more effective public spending, as agency heads may be in the best position to choose the most efficient mix of inputs to carry out the institutional mission. This is expected to lead to the adoption of more comprehensive approaches to annual and multi-annual planning. Further, making expectations clear and resources available to line ministries can facilitate budget accountability. Spending flexibility can also play a major role in light of changing economic conditions and political priorities.

    • Performance budgeting

      Performance budgeting allows countries to systematically incorporate performance data into the budget process and many LAC countries have begun to adopt it. The implementation of performance budgeting requires adopting financial management information systems that facilitate the collection of performance data, adjusting the budget process to incorporate the information into budget allocations, establishing appropriate incentives at the management level and developing institutional capacity to carry out the process.

    • Budget transparency

      The national budget is one of the main policy documents issued by governments. It is a tool for understanding government priorities and policy objectives, as well as how the executive branch plans to manage public finances. Budget transparency, as defined by the OECD, is the full disclosure of relevant fiscal information in a timely and systematic manner. Although countries might have different budget reporting systems, increasing the level of transparency throughout the budget process (preparation, approval, execution and audit) is essential for upholding public sector integrity and increasing the participation of citizens and non-government organisations in the budgetary process. Openness and transparency can ultimately lead to better public sector performance by facilitating citizen monitoring of governments and minimising the inappropriate and inefficient use of public resources.

    • Legislative capacity to ensure transparency in the budget process

      The legislature plays a crucial role in the budgetary process. The presentation of the budget and related documentation in legislature is normally the first opportunity for public scrutiny of a government’s priorities, thus it becomes an essential component for transparency and public financial accountability. To meaningfully engage in the budget process, rather than simply serving as a rubber stamp, legislatures require reliable, unbiased information as well as strong analytical capacity. This support can result in different institutional arrangements, for instance specialised budget research units within congress/parliament, or independent congressional/parliamentary budget offices (PBOs). Furthermore, among OECD member countries, the establishment of fiscal councils has become quite common.

    • Earmarked funds

      Budget earmarks set aside a percentage of government funds, which can be estimated as a share of GDP for specific sectors such as health, education or defence, and are established by the constitution, or by primary or secondary legislation. Their purpose is to pre-commit a percentage of government spending to specific sectors. In the wake of the recent economic and financial crisis, earmarked funds have become increasingly relevant as governments seek to improve the efficiency and effectiveness of public spending. Furthermore, many LAC countries pre-assign a certain percentage of total expenditures as transfers to regions as a means to deepen the decentralisation processes.

    • Accounting

      Accounting standards used by governments can provide differing figures, which in turn can result in varying estimates of their fiscal position. Governments use two main types of accounting basis: cash flow and accrual.

    • Reporting

      The budget is arguably the government’s key policy document as it contains important information regarding government policies and priorities, in both the medium and the short-term. The budget also provides a glimpse into the country’s finances, and may disclose information on government expectations for economic performance. The disclosure of this information to the public is, therefore, essential for fiscal transparency. Budget reports, such as mid-year and year-end reports, are important documents that governments produce and disclose in order to inform citizens of the budget execution.

    • Internal audit

      Internal auditing (IA) constitutes a key part of the public financial management system and can be carried out at different levels within the government. By providing senior management with independent evaluation and counsel to improve internal control, internal audit increases value for money and strengthens accountability. Furthermore, internal audit is a critical component of government control systems, with the external function audit carried out by supreme audit institutions (SAI). Although SAIs and internal auditors carry out differing tasks according to clearly defined roles, they collectively promote good governance through the promotion of transparency and accountability for the use of public resources. More specifically, however, internal auditors carry out the first review of the quality of budget, financial and accounting information, concerning the extent to which organisations have achieved previously established objectives, while SAIs have the responsibility of evaluating the effectiveness of the internal audit function. Internal audit units are subordinate to the head of the entity within which they reside, but are organisationally and functionally independent.

    • Public-private partnerships

      Public-private partnerships (PPPs) are long-term contractual agreements between the government and a private sector partner, regarding the delivery and funding of infrastructure and public services, in which project risks are shared. In most cases, the private partner is responsible for the design, construction, financing, operation, management and delivery of the public service, while the government provides payment for the delivery of infrastructure and services.

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  • Expand / Collapse Hide / Show all Abstracts Public procurement

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    • Public procurement spending

      Governments purchase a significant variety of goods and services in order to improve citizen welfare and pursue specific social and economic objectives. Public procurement, the means by which governments and state-owned enterprises conduct purchases from private providers, is a key economic activity and accounts for a large percentage of GDP in most LAC and OECD member countries. Information on procurement is essential to improve value for money, avoid mismanagement of public resources, and increase the overall quality of government services.

    • Transparency in procurement

      Many LAC countries have sought to reform their procurement processes in recent years with the goal of making them more efficient and transparent. These reforms aim to tackle corruption and collusion, which pose serious problems in LAC countries, produce distortions to fair competition and waste taxpayer resources through unjustified high prices or low quality of procured goods and services. Beyond these challenges, reforms aim to increase access to procurement opportunities for bidders, potentially increasing public resources savings via strengthened competition. To boost transparency, many governments have increased the amount of publicly available procurement information and improved the quality of the information itself.

    • Anti-corruption measures in public procurement

      Given the high amounts and volume of public contracts, the cost of corruption or mismanagement of public resources can be very high. Transparency International estimates that damage from corruption normally ranges from 10% to 25% of the contract value worldwide. Considering that public procurement transactions represent up to 20% of GDP in LAC, the potential savings from reducing corruption in procurement are substantial. In addition, corruption in public procurement processes can dissuade honest bidders, reduce competition and erode citizens’ trust in government.

    • E-procurement

      Governments in LAC use E-procurement as a way to improve the effectiveness of the public sector and contribute to the modernisation of the state. E-procurement, defined as the use of information and communication technologies in public procurement, facilitates access to public tenders, increases competition and enhances transparency.

    • Special feature: Sustainable public procurement

      Several governments in LAC have turned their attention towards sustainable public procurement. By incorporating social, economic and environmental elements into the procurement process, governments are able to pursue social objectives, such as inclusion of ethnic minorities, and achieve environmental goals such energy savings and the reduction of the carbon footprint.

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  • Expand / Collapse Hide / Show all Abstracts Annexes

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    • Methodology and additional notes on compensation of government employees

      Compensation plays an important role in both attracting and motivating qualified workers in the public sector. In 2010, the OECD launched a database, updated in 2012, on compensation levels for typical occupations in central government in core ministries that contributes to a better understanding of the salary structures and pay levels in the public sector. In 2013, this survey was sent to LAC countries, for the first time. In addition to Mexico and Chile, OECD member countries, seven new countries replied: Argentina, Brazil, Colombia, Costa Rica, Panama, Paraguay and Peru.

    • Composite indexes budget practices

      This edition of Government at a Glance: Latin America and the Caribbean 2014 includes two composite indexes related to budgetary practices: the use of a medium-term perspective in the budget process and the use of a performance budgeting system. Data used for the construction of the composites are derived from the 2013 OECD Survey on Budget Practices and Procedures and the 2013 OECD Survey on Performance Budgeting. Survey respondents were predominantly senior officials in the Ministry of Finance.

    • Contextual factors

      This section provides data on administrative and institutional features of each country, including: the composition and electoral system of the legislature, the structure of the executive branch, the division of power between one central and several regional or local governments, and key characteristics of the judicial system. It also provides basic data on population and GDP for 2011 and data on the number of municipalities, provinces, states and/or regions.

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