77728 1 v2 Public Financial Management Performance Report Vice President: Axel van Trotsenburg Country Director: Annette Dixon Sector Director: Sudhir Shetty Country Manager: Kanthan Shankar Sector Manager: Mathew Verghis Task Team Leader: Robert R. Taliercio 2 Public Financial Management Performance Report 1 CURRENCY EQUIVALENTS March 16, 2013 1 US Dollar = 872.49 Myanmar Kyat 1 Kyat (MMK) = 0.0012 US Dollar (USD) FISCAL YEAR April 1 – March 31 Abbreviations and Acronyms ADB - Asian Development Bank MOH - Ministry of Health AG - Auditor General MOHA- - Ministry of Home Affairs General GAD Administration Department ASEAN - Association of Southeast Asian Nations MOU - Memorandum of Understanding AusAID - Australian Agency for International MNPED - Ministry of National Planning and Development Economic Development BD - Budget Department MP - Member of Parliament BOT - Build-Operate-Transfer NGO - Non-Governmental Organization CBM - Central Bank of Myanmar OA - Other Account CCTO - Company Circle Tax Office OAG - Office of the Auditor General CD - Customs Department ODA - Official Development Assistance COFOG - Classification of the Functions of Government PA - Provisional Actual DFID - Department for International Development PAC - Public Accounts Committee EITI - Extractive Industries Transparency Initiative PC - Planning Commission FC - Financial Commission PEFA - Public Expenditure and Financial Accountability FERD - Foreign Economic Relations Department PFM - Public Financial Management FR - Financial Regulations PI - Performance Indicator GDP - Gross Domestic Product PPP - Public-Private Partnerships GFS - Government Finance Statistics PR - Performance Report GFSM - Government Finance Statistics Manual R&D - Research and Development GIR - General Index Registration RAT - Revenue Appellate Tribunal GRF - General Reserve Fund RE - Revised Estimate HS - Harmonized Systems SAO - State Administrative Organizations ICT - Information and Communications Technology SDR - Special Drawing Rights IMF - International Monetary Fund SEE - State Economic Enterprises INGO - International Non-Governmental Organization SFA - State Funds Account INTOSAI - International Organization of Supreme Audit SNG - Sub-National Government Institutions IPSAS - International Public Sector Accounting SORC - Special Orders for Rapid Clearance Standards IRD - Internal Revenue Department SPDC - State Peace and Development Council MEB - Myanmar Economic Bank TIN - Tax Identification Number MFR - Ministry of Finance and Revenue TWG - Technical Working Group MIC - Myanmar Investment Commission UNDP - United Nations Development Program MOD - Ministry of Defense UNICEF - United Nations Childrens Fund MOGE - Myanmar Oil and Gas Enterprise Contents Summary Assessment........................................................................................................................................................ 7 1. Introduction................................................................................................................................................................ 17 1.1 Objective............................................................................................................................................................17 1.2 Process of preparing the PFM-PR.................................................................................................................. 17 2. Country Background Information.......................................................................................................................... 19 2.1 Description of economic situation.................................................................................................................19 2.2 Description of budgetary outcomes.............................................................................................................. 21 2.3 Description of legal and institutional framework for PFM........................................................................ 25 3. Assessment of the PFM Systems, Processes, and Institutions.......................................................................... 28 3.1 Credibility of the budget................................................................................................................................. 28 3.2. Comprehensiveness and transparency.........................................................................................................37 3.3 Policy-based budgeting................................................................................................................................... 51 3.4 Predictability and control in budget execution............................................................................................ 56 3.5 Accounting, recording, and reporting........................................................................................................... 80 3.6. External scrutiny and audit.............................................................................................................................88 3.7 Donor practices................................................................................................................................................. 93 4. Government Reform Process................................................................................................................................... 96 Table 1: Public Sector Accounts.................................................................................................................................... 19 Table 2: Myanmar: Selected Economic Indicators, 2009–12...................................................................................... 19 Table 3: Consolidated Government Fiscal Outcomes, as Percent of GDP, 2009-121/............................................. 22 Table 4: Actual Budgetary Outcomes, by Sectors, as Percent of Total, 2009-121/...................................................23 Table 5: Actual Budgetary Outcomes, by Economic Classification, as Percent of Total, 2009-121/......................24 Table 6: Comparison of Budget Estimates to Actuals (Primary Expenditure, Kyat millions)............................. 30 Table 7: Comparison of Budgeted and Actual Expenditure (Kyat, billions)..........................................................32 Table 8: Comparison of Budget Estimates against Actual Primary Expenditure 1/..............................................33 Table 9: Domestic Revenue Out-Turn Compared To Original Approved Budget................................................. 35 Table 10: Other Accounts: Deposits and Withdrawals at the Union and State/Region Levels, April-June 2012 (Kyat, bln).......................................................................................................................................................... 43 Summary of Key Steps in the Budget Process Used in FY2012.................................................................52 Table 11: Arrears collection, major taxes, 2009-2011....................................................................................................64 Table 12: Dates of Budget Law Approval and Sanction Issuances, FY2009-10 – FY2012/13.................................. 67 Table 13: Table 14: Dates of Supplementary Budget Law Approval and Sanction Issuance, FY2009-10 – FY2011-12.......68 2 Public Financial Management Performance Report 3 Box 1: The Impact of Exchange Rate Distortions..........................................................................................................29 Box 2: Managing ODA in Myanmar – Some current partner practices.................................................................... 93 Annex 1: Variance in Spending: Budgets vs. Actuals, FY2008-2009 – FY2010-2011.............................................. 102 Annex 2: List of Donors Active between 2006 and 2011............................................................................................ 105 Annex 3: Sources of Information..................................................................................................................................106 Foreword and Acknowledgements Department; Dr. Wah Wah Maung, Deputry Director General for Project Appraisal and Progress Reporting The World Bank Public Expenditure and Financial Department; Mr. Khin Maung Latt, Director, Planning Accountability assessment team1 would like to express Department; Ms. Soe Sintwin, Assistant Director for its gratitude to the Government for its warm hospitality Planning Department. and courtesy extended throughout the preparation of this report, and for the extensive data sharing and In the Parliament the team would like to express its candid discussions on all issues covered in the report. appreciation to H. E. U Thu Rein Zaw, Member of The Government provided all the data and information Parliament and Chairman of the Public Accounts requested by the team and patiently guided the Committee; Mr. Thinn Maung, Dr. Tin Latt, and Mr. team in understanding Myanmar’s public financial Thein Oo, Members of the Parliamentary Commission management systems. Moreover, all mission discussions for Assessment of Legal Affairs and Special Issues; and were characterized by openness, transparency, and other members of the Public Accounts Committee who commitment to mutual understanding. The Government took the time to meet with the PEFA team. repeatedly emphasized its commitment to PFM reform and its keen desire to strengthen governance and public In the Office of the Auditor General, of the Union, the sector outcomes in the service of more rapid socio- team would like to thank H. E. Mr. Lun Maung, former economic development. Auditor General; Mr. Myo Myint, Deputy Auditor General; Ms. Khin San Oo, Director General; Ms. Aye In the Ministry of Finance and Revenue the team Aye Mu and Ms. Naing Thet Oo, Deputy Directors would like to especially thank H.E. Mr. Win Shein, General. Union Minister for Finance and Revenue; H.E. Dr. Lin Aung, Deputy Minister for Finance and Revenue In the Central Bank of Myanmar, the team would like to (Co-Chairperson of the PEFA Steering Committee); thank Mr. Nay Aye, Deputy Governor; Mr. Win Hteik, Mr. Than Nyein, Governor, Central Bank of Myanmar Board Secretary; Mr. Maung Maung, Director; Ms. (CBM); Mr. Muang Muang Win, Director General, Than Than Swe, Deputy Director; Mr. Kyaw Win Tiin, Budget Department (Chairperson of the PEFA Technical Director for Currency Department; Ms. Khin Sandar, Committee); Ms. Khin Lay Myint, Deputy Director and Ms. Nwe Ni Tun, Deputy Assistant Directors. General; Ms. Nwe Nwe Win, Mr. Zaw Naing, Ms. Si Si Pyone, Ms. Tin Tin Ohn, Ms. Ni Ni Swe, Ms. Theingi In the Myanmar Economic Bank (MEB), the team would Oo, Ms. Thida Tun, Directors in the Budget Department; like to extend thanks to Mr. Kyaw Kyaw, Mr. Hla Myint Ms. Kyi Kyi Win, Ms. Lwin Lwin Khaing, Ms. Naw Aung, Mr. Myint Oo, Mr. Than Lwin Oo, General Wilmar Oo, Ms. Phyu Phyu Soe, Ms. San Thida, Managers; Ms. Sint Sint Aung, Mr. Win Naing Oo Assistant Directors; Ms. Maymi Ko Lin, Ms. Yin Min Deputy General Managers; and Mr. Thu Ra, Assistant Htwe, Mr. Naung Win, Staff Officers; Mr. Zeya Kyi General Manager. Nyunt, Director, Internal Revenue Department (IRD); Ms. Mya Mya Oo, Deputy Director, Internal Revenue The team would like also extend its sincere appreciation Department; Ms. Min Min Hmoo, Staff Officer, Internal to officials from the Ministry of Health, Ministry of Revenue Department; Mr. Ye Myint, Deputy Director, Education, Ministry of Construction, Ministry of Energy, Customs Department. and the several state economic enterprises, especially the Myanmar Oil and Gas Enterprise, who provided In the Ministry of National Planning and Economic valuable information and met regularly with the PEFA Development the team would like to extend sincere team to discuss issues and challenges faced by front thanks to H. E. Prof. Dr. Kan Zaw, Union Minister line managers as related to the management of public for National Planning and Economic Development; H. finances. E. Prof. Dr. Khin San Yee, Deputy Minister for National Planning and Economic Development (Co-Chairperson The team also extends its gratitude to the United of the PEFA Steering Commiittee); Mr. Tun Tun Naing, Kingdom’s Department for International Development Director General for the Central Statistical Organization; (DFID) for providing financial support for the report and Ms. Win Myint, Deputy Director General for Planning to Mr. Declan Magee, in particular, for liaising with the team. In addition the team thanks the peer reviewers – Mr. 1 Rob Taliercio (Lead Economist and Task Team Leader), Shabih Ali Mo- Adrian Fozzard, Mr. Sanjay Vani, and Mr. Phil Sinnett – hib (Senior Economist, Co-Task Team Leader), Khwima Nthara (Senior Country Economist), Doug Addison (Senior Economist), Miki Matsuura for very helpful constructive comments on earlier drafts. (Public Sector Specialist), Peter Brooke (Consultant), Robert Boothe (Public Sector Specialist), and Tuan Minh Le (Senior Public Sector Spe- cialist). 4 Public Financial Management Performance Report 5 Summary Assessment Table Overall Dimensions Score i. ii. iii. iv. A. PFM OUT TURNS: Credibility of the Budget PI-1. Aggregate expenditure out-turn compared to original approved C C budget PI-2. Composition of expenditure out-turn compared to original approved D+ D A budget PI-3. Aggregate revenue out-turn compared to original approved budget B B PI-4. Stock and monitoring of expenditure payment arrears N/R N/R D B. KEY CROSS CUTTING ISSUES: Comprehensiveness and Transparency PI-5. Classification of the budget D D PI-6. Comprehensiveness of information included in budget documentation D D PI-7. Extent of unreported government operations D+ D C PI-8. Transparency of inter-governmental fiscal relations D D D N/A PI-9. Oversight of aggregate fiscal risk from other public sector entities C C N/A PI-10. Public access to key fiscal information D D C. BUDGET CYCLE (i) Policy-based Budgeting PI-11. Orderliness and participation in the annual budget process C+ C D A PI-12. Multi-year perspective in fiscal planning, expenditure policy and D+ D B D D budgeting (ii) Predictability and Control in Budget Execution PI-13. Transparency of taxpayer obligations and liabilities C+ C B C PI-14. Effectiveness of measures for taxpayer registration and tax assessment D+ D C D PI-15. Effectiveness in collection of tax payments D+ D A C PI-16. Predictability in the availability of funds for commitment of D+ D A A expenditures PI-17. Recording and management of cash balances, debt and guarantees C+ C C B PI-18. Effectiveness of payroll controls D+ D B C D PI-19. Competition, value for money and controls in procurement D D D D D PI-20. Effectiveness of internal controls for non-salary expenditure D+ D D B PI-21. Effectiveness of internal audit D+ D D C (iii) Accounting Recording and Reporting PI-22. Timeliness and regularity of accounts reconciliation C+ D A PI-23. Availability of information on resources received by service delivery D D units PI-24. Quality and timeliness of in-year budget reports C C C C PI-25 Quality and timeliness of annual financial statements D+ C A D (iv) External Scrutiny and Audit PI-26. Scope, nature and follow-up of external audit C+ C N/A B PI-27. Legislative scrutiny of the annual budget law N/A N/A N/A N/A N/A PI-28. Legislative scrutiny of external audit reports N/A N/A N/A N/A D. DONOR PRACTICES D1. Predictability of direct budget support N/A D2. Donor financial information provided for budgeting and reporting on D D D project/ program aid D3. Proportion of aid that is managed by use of national procedures D D Note: “Not Rated� (N/R) is used when adequate evidence is not available; “Not Applicable� (N/A) is used when a new system or process has not yet been in place for at least a full fiscal year. 6 Public Financial Management Performance Report 7 Summary Assessment practices have also resulted in a deconcentration of PFM policy functions from the President’s Office 1. The Public Financial Management Performance to the Ministry of Finance and Revenue (MFR) and Report (PFM-PR) is the first comprehensive the Ministry of National Planning and Economic review of Myanmar’s PFM system. There is no Development (MNPED), respectively. recent history of development partner engagement on PFM reform and little had been understood 4. An additional set of important PFM reforms are about the status of the Government’s PFM also in train. In particular, proposals are being reform agenda. The objective of this report is to developed to make the Central Bank of Myanmar provide the first comprehensive assessment of (CBM) independent and to separate out the Myanmar’s PFM system, based on the Public functions that it currently performs on public Expenditure and Financial Accountability (PEFA) finance management. State Economic Enterprises PFM Performance Measurement Framework. The (SEEs) are being given greater financial autonomy report aims principally to establish an objective and are now allowed to keep part of their profits, baseline measure of current PFM conditions, but they are also required to fund most of their highlighting areas of absolute and relative strength own working capital requirements. Some SEEs and weakness. The assessment, and the associated are being privatized or otherwise being fully dialogue, provides support to the Government in exposed to market forces. The previous practice setting its reform priorities. of accounting for foreign exchange transaction at the official rate is being abandoned with exchange 2. At the same time it should be noted that the rate unification. Government is in the process of undertaking a major political and economic reform program, with i. Integrated Assessment of Public Financial major implications for public financial management Management Performance and broader public sector management. The new reformist Government, sworn in on March 30th, Credibility of the budget 2011, immediately embarked on a range of political and economic reforms aimed at attaining national 5. Budget credibility in recent years has been low, reconciliation, good governance, and economic with the exception of revenue out-turns where development. Key economic reforms include credibility is higher. Deviations in recent years adoption of a more liberal exchange rate policy, between aggregate expenditure out-turn and the relaxation of trade restrictions, rationalization of approved budgets have been large and growing, tax rates, and fiscal decentralization. increasing from 8.7 percent of approved spending in 2008-09 to 20.2 percent in 2010-11. Much but 3. With regard to management of public finances, not all of this can be traced to adjustments made there have been two major catalysts for reforms in the annual revised budget. In recent years, since 2011. First, the operationalization of the revenues have generally been somewhat higher Parliament and establishment of the Public than expected. Compositional expenditure Accounts Committee and the Planning and deviations have been substantial, and often Finance Committee have resulted in enhanced exceed the deviations in total spending. Use external scrutiny and oversight over the budget of the contingency reserve was not a factor in by the Parliament, while the public airing of compositional deviations. In this context, it is budget debates on the national television and also worth noting that all deviations would have the publication of the budget law in national been higher had the exchange rate used by the newspapers has enhanced budget transparency. government been the same as the exchange rate Second, the constitutional requirement for used by the private sector. The issue of payments separation of regional and state budgets from in arrears could not be assessed due to lack of legal the Union has required rapid deconcentration definition of arrears and lack of a central arrears of budgeting and planning functions to support monitoring system. bottom up planning and budgeting processes in states and regions. In order to coordinate Comprehensiveness and transparency state/region budgets with the Union budget, the Government has also established the 6. The budget and oversight of fiscal risk are not Financial Commission and the National Planning comprehensive. Nor is fiscal and budgetary Commission. The new planning and budgeting information generally available to the public. There are currently a number of limitations in the classification of budget information, as well as transfers. Moreover, states/regions may and do missing types of information in budget documents request supplementary budget allocations. These themselves and a large amount of unreported features make for an inter-governmental fiscal government operations, which together mean that system that is not transparent and that impedes budgetary and fiscal information is highly limited. sound budget planning. Myanmar’s budget classification system, which is the backbone of its fiscal accounts, is not fully 9. One of the likely consequences of a fiscal system in consistent with modern classification structures. as much flux as Myanmar’s is a probable increase The formal presentation of the budget as contained in the amount of fiscal risk. In addition to the in the Union Budget Law consists of a limited sweeping changes that have taken place at the amount of information, though great progress was political and constitutional level, many material made in FY2012/13 in making the Union Budget changes have also been made in the operations Law public. of state economic enterprises (SEEs) and sub- national governments. These major systemic 7. Budget comprehensiveness and transparency are changes increase the likelihood of fiscal risk for affected by the significant level of unreported four main reasons. First, the internal control government operations, which means that the environment is still relatively weak. For example, budget law presents a quite limited fiscal picture in the internal audit function is only now being terms of central government revenue, expenditure, established in line ministries and the capacity in and financing. In Myanmar ’s case there is a SEEs varies. Second, the central oversight function high degree of extra-budgetary expenditure is narrow and underdeveloped. Third, there is a that is not included in fiscal reports while, at lack of a strategic approach to public financial the same time, there is limited information on management, with central oversight agency development partner-funded projects included engagement focusing more on low value processes in fiscal reports. There is extensive use of “Other and less on analysis of results and impact. Lastly, Accounts,� which are essentially accounts held public fiscal information is quite limited, reducing by ministries and SEEs in the Myanmar Economic the chances of meaningful public engagement on Bank (MEB) for management of their own-source these issues. Moreover, a consolidated report on revenues. FY2011/12 data from MEB and the total fiscal risk from the point of view of the Union Budget Department show total Other Account Government is not produced. The lack of such an receipts of 2.54 trillion kyat, which is 44 percent analysis leaves the Government open to potentially of total budgeted revenue, and expenditures of significant blind spots (for example, as pertains to 2.26 trillion, which represents 28 percent of total operational losses, payment arrears, or possibly budgeted expenditure. On the external financing even debt defaults). Another source of fiscal risk side, the picture is also mixed. Though complete emanates from possible contingent liabilities from income/expenditure information is included in public-private partnerships (PPPs). fiscal reports for all loan financed projects, it appears that only some information on about 50 Policy-based budgeting percent (by value) of grant financed projects is also included. 10. The budget process in Myanmar is largely guided by prior practice. Although officials 8. Another important consideration from the have clearly defined roles and understand their perspective of transparency and comprehensiveness responsibilities well, there is incomplete guidance is the treatment of the intergovernmental fiscal in existing laws and regulations. For the period system, which has been in a period of flux under review, ministry spending proposals were since the new constitution. In operational terms generally made independently of any central the assignment of functions and finances is coordination regarding future resource availability evolving. Like with many other budgetary or constraints. Macroeconomic forecasts are not process indicators, the system is not yet fully routinely shared with the line ministries nor are formed because this is the first full fiscal year in they used to help determine aggregate expenditure which the new system is being implemented. The ceilings for current and future years. Major assessment shows that the system for allocating policy decisions or options are not required to resources to states/regions is neither rules-based be fully costed in terms of estimates of forward nor transparent, and that states/regions do not expenditures and are not required to be described receive timely, reliable information on their in sector strategy documents. 8 Public Financial Management Performance Report 9 11. The Union budget process is decentralized, can be cumbersome and time consuming, with the SAOs and line ministries setting their adding to difficulties in managing budget own budgetary ceilings and devising their own execution, although these procedures are under expenditure proposals. Budget proposals are reconsideration. organized along administrative lines, by ministry and department, rather than by programs, 14. However, the lack of systematic and comprehensive activities, or outputs. The Budget Department (BD) commitment/discharging recording in most of the Ministry of Finance and Revenue (MFR) is spending bodies leaves them vulnerable in responsible for collating and consolidating the predicting and controlling the flow of payments recurrent budget. It is also responsible for the in a cash based budgeting system. Payments may foreign exchange budget which was still in place bunch or get carried over to another period or in 2012 despite the steps taken toward exchange year in an unpredictable way causing additional rate unification in 2012. The Ministry of National budget management pressures. Furthermore, Planning and Economic Development (MNPED) the large scale and late timing of supplementary is responsible for collating and consolidating budget approvals made in recent years has meant the capital budget. It also reviews all investment that provision to address additional pressures or proposals prior to entry into the budget. The to tackle new initiatives has not been certain until process is hierarchical with five levels of scrutiny the final few months of the year. before the draft budget is submitted to the Parliament for debate and eventual adoption 15. Although cash shortages that cause disruption in immediately prior to the start of the next fiscal the flow of payments have been avoided in recent year. Toward the end of the fiscal year, the years, this has been partly achieved by the Central authorities devise an “improved� set of budget Bank of Myanmar (CBM) stepping in to buy estimates which are presented to parliament for Treasury Bills when necessary, thereby, in effect, approval in the form of a supplemental budget. monetizing any cash shortfalls, but also adding to The supplemental budget and the budget for the inflationary pressures. next year are submitted almost simultaneously. The result is that Members of Parliament (MPs) are 16. The Financial Regulations (FRs), and their related essentially presented with two budgets for their instructions, the OoSa and HtaSa, dealing with consideration: an improved budget for the fiscal transaction control and reporting, are somewhat year coming to a close and a new budget for the out of date (last revised in 1986 in the case of FRs). impending new fiscal year. The financial regulations are recognized as being substantially out of date. As such, they do not fully Predictability and control in budget execution reflect current practice other than in a general way. In addition, there are even older regulations used 12. Spending bodies have a reasonable degree of that deal with specific issues and situations; some predictability about the resources available to of these go back to the 1950s. Their legal status them in terms of the original budget assigned to is unclear although they continue to be used as them for each year. Quarterly limits on spending the basis for practice. The finance department are set for recurrent spending (although not in each spending body appears to play a key for capital), but the spending bodies set these role in deciding which mix of rules is adopted limits themselves based on the phasing of their within its organization. The arrangements are expenditure plans. They do face the risk that if they thus somewhat ad hoc, differing from ministry do not spend these quarterly limits, the unused to ministry. Moreover, the regulations are open balance will be removed from their budgets for to interpretation by financial management the year as a whole. But they are in a position to officials and it is not clear the regulations are well manage that risk by, in the first place, avoiding understood throughout ministries and states/ overestimating and then seeking increases in the regions. limits later in the quarter if necessary. 17. But the emphasis is on the controlled processing 13. Payment processes are not overelaborated and of transactions and the avoidance of overspending payments can be made efficiently through the of budget provision rather than broader network of MEB branches with a minimum accountability for the effective use of resources. of delay and without centralized vetting from The lack of linkage between plans and budgets MFR. Transactions involving foreign currency means that expected results are not clearly defined. remain more constrained. The processes required Classification and reporting systems are focused weaknesses in the compliance management on identifying the spending unit and the nature system, and high values of on-going arrears of the input rather than the objectives of the and considerable administrative negotiation expenditure or what it is intended to achieve. surrounding the handling of those arrears. Partly as a result, tax collection has remained very low, 18. The system of delegation of powers to spending at around 3-4 percent of GDP, in recent years. agencies is occurring without the necessary There is also a lack of assurance with regard to the assurances in place. The lack of centrally defined operation of tax collection systems. Although there standards in areas such as payroll management have been some improvements in the legal basis of and procurement do not ensure that the processes taxation, a comprehensive, modern system of laws implemented at the level of the spending bodies and regulations is still yet to emerge. Taxpayer observe at least minimum procedures and controls. registration is weak and fragmented. There is no In many cases, these minimum requirements are central guidance on planning the auditing and either not defined or the current status of old investigation of taxpayers, which often occur at regulations is not clear. For example, procurement the local level and are not directly controlled by was recently released from central control by the the central tax authorities. Ministry of Commerce and delegated to spending bodies giving them at the same time a clear Accounting, recording and reporting instruction to increase the use of open competitive tender. But each spending body was left to develop 21. Accounting is maintained on a simple cash its own detailed procedures and systems. based double entry system. Most payments are discharged through MEB by the use of check 19. There is little feedback to MFR, other than through or transfer. The use of physical cash is limited the reports of the Office of the Auditor General although most departments have small imprests (OAG), about the observance of minimum and advances are made for special purposes such requirements (even where they are defined), as extended travel. Tax revenue is usually paid variations in the effectiveness of the control into MEB by the taxpayer directly, based on an regime implemented by individual spending assessment raised by the tax authorities although bodies or statistical information such as the value some fee and charge revenue is collected in cash of procurement processed through different and paid in by the body concerned. The previous procurement techniques. The lack of internal audit practice of accounting for foreign transactions in many spending bodies does not give assurance at an official rate rather than a realistic market to senior management in ministries that financial rate has tended to distort the picture revealed systems and processes (not just individual by the accounts, particularly for the SEEs with transactions) are being conducted effectively high volumes of such transactions and where and being adequately enforced. The OAG also trading has taken place between SEEs. However, indicates that significant problems arise with this is now being resolved following the recent regards to procurement at all levels with regards integration of exchange rates on an open market to both purchasing and the letting of concessions. basis. This lack of assurance exposes the control system to risk and unevenness of application. The 22. Accounting records are originated by the challenge remains of achieving an appropriate spending/revenue raising body concerned. level of assurance without undermining the Aggregation and reconciliation for reporting and beneficial aspects of delegation. control purposes are conditioned by the largely manual, paper based processes that are still used 20. With regards to tax policy and administration, there in both the originating bodies and in MEB. The have been some improvements in communicating processes of reconciliation are well documented, with taxpayers and in offering recourse to appear adequate, and are applied with sufficient appeal. The process of depositing tax collections rigor to give some confidence in the accuracy of into the Union Fund Account is sound. But the aggregate records. predictability of the flow of tax revenues continues to be affected by weak collection systems, the 23. Reporting is done monthly. However, the existence of tax incentives and discretionary process of aggregation and reconciliation takes powers with regard to their being applied by some 3 months to complete, which delays the different administrative bodies and levels, production of final reports for each monthly 10 Public Financial Management Performance Report 11 reporting cycle. In order to provide more timely committees rely on government ministries for data, the BD produces an interim report which policy analysis. it usually manages to issue within 6 to 8 weeks after the end of the month in question. But, even 26. The Office of the Auditor General (OAG), also so, the compressed format and delayed timing despite its relatively recent origins, is having a of the reports combined with the limited degree significantly positive impact on the management of analysis that is included in summary reports of public finances in Myanmar. The OAG is a semi- weakens their capacity to support active in-year independent body reporting to the Parliament management of the emerging position. The manual through the President’s Office. The OAG has aggregation processes also impose difficulties in purview over all the public sector, except for the producing information in different formats for Ministry of Defense. The OAG is also the entity specific or ad hoc purposes. responsible for setting accounting and auditing policy for the public sector. The OAG has adopted 24. End-of-year financial statements are produced INTOSAI audit standards and conducts mostly on a similar basis to those produced in-year, but financial audits with some procurement and with supplementary clearance arrangements. performance audits. The OAG has yet to submit In the last few years they have been finalized an audit report to the Parliament – under the within 6 months of the end of the year. But the Parliamentary form of government which started statements largely serve the purpose of providing functioning from 2011 onward. A formal response some discipline ensuring consolidation and is provided by ministries to the audit findings reconciliation. They provide limited information within 1 month of receiving the audit opinion, as a basis for active financial management and both but there seems to be little evidence of systematic their form and distribution are difficult to interpret follow-up. and contribute little to fiscal transparency. International accounting standards, even for i. Assessment of the Impact of PFM Weaknesses cash based systems, are not fully met and there are no clear notes attached to the statements 27. The analysis of the six PEFA dimensions suggests explaining the basis on which they have been a system that would benefit from strengthening produced or giving supplementary information in all areas. The extant limitations of the system about important issues such as guarantees and suggest that it is highly constrained in delivering contingent liabilities. Neither in-year nor end-of- across the board on the three levels of budgetary year statements are given wide circulation. outcomes: aggregate fiscal discipline, strategic allocation of resources, and efficient service External scrutiny and audit delivery. The weak control environment, combined with limited budget comprehensiveness and 25. Since 2011, the Parliament has established transparency, suggest a system that is at risk to two specialized committees for the purpose of corruption as well. providing oversight of the Government’s public finances, and, despite its relatively recent origins, 28. Myanmar’s PFM system is highly informal: there is having a major influence on PFM, both broadly is a lack of foundational legal underpinnings (e.g., and on specific issues. The Public Accounts organic budget law) and it is not fully clear which Committee (PAC) has a bipartisan membership regulations are legally in force (so ministries have and vets the budget bill and the audit report. The adopted different approaches, e.g., using old Planning and Finance Committee is responsible colonial regulations from India as guidelines). for reviewing the national development plan and Myanmar’s system does focus narrowly on control legislative matters relating to the financial sector. but not on accountability: regulation focuses on Since 2012/13 these committees have reviewed detailed transaction control and avoiding budget and rationalized the executive’s budget proposal overruns rather than accountability for the efficient significantly and have been instrumental in having delivery of service. There is little visibility for the approved Budget Law published in the local how controls are applied in practice between press. These committees have engaged some different levels of the administration and with technical advisors on a part time basis but do not the parliament. Reliance is placed on the OAG have specialized staff or institutional support that rather than internal standard setting and review. can independently review and analyze the budget The Financial Regulations focus on control at proposals and the national development plan in the transaction level whereas a large amount of order to advise the PAC accordingly. Instead, the supplementation and virement takes place. There • The role of public finances within broader is a high degree of delegated negotiability in areas management of the economy has been such as revenue collection. The effect is to provide complicated and entwined. Monetary and a framework of control and practice, but to leave public financial management have been inter- the system open to abuse by those who would seek dependent and commercial activity has been to make use of that vulnerability. dominated by state run enterprises. These overlaps are being unwound, but will expose 29. The system emphasizes control rather than public financial management to new risks. dynamic management of resources in order to achieve a high quality of expenditures in • Key areas of risk and exposure that will delivering policy objectives. Key weaknesses are: become more important are the management a lack of effective connection between strategic and control of debt and cash. These have been plans and budgets on the one hand and between under-managed in the past. recurrent and capital expenditure on the other; an • There is an absence of a clear framework of emphasis on managing the short term rather than understood policies and parameters within planning strategically for the medium to long term; which public finances will be managed. and information and cash forecast management is cumbersome and inflexible and focused on cash 31. The impact is that as more demands are placed on control rather than informing decisions about new public financial management to deliver services, commitments, priorities, and options. The impact in an environment of a more open economy, is to undermine the ability of the system to focus aggregate fiscal discipline is vulnerable to being attention on the strategic allocation of resources undermined. in delivering policy objectives. Public finances are exposed to a watering down of the quality 32. Table 1 summarizes the links between the six PEFA of expenditures as increasing resources become dimensions and the three levels of budgetary available. outcomes. 30. The exposure of public financial management to external risks is not adequately managed and this will become more important: 12 Public Financial Management Performance Report 13 Table 1: Links between the key dimensions of a PFM system and the three levels of budgetary outcomes in Myanmar Aggregate fiscal Strategic allocation of Efficient service delivery discipline resources Budget credibility In order for the budget to be a tool for policy implementation, it is necessary that it is realistic and implemented as passed. The budget is realistic The lack of budget A lack of credibility in The significant changes in and is implemented credibility in Myanmar the budget in Myanmar the composition of spending as intended has not had a major impact leads to a misalignment during the year raise the on fiscal discipline, in part of policy priorities likelihood of inefficiencies in because revenues tend to and spending, as the service delivery in Myanmar budget is significantly be underestimated in the due to unplanned over- or remade during the budget. under-spending. year. Compositional expenditure deviations have been substantial, leading to a breach between stated policy and actual spending. Comprehensiveness Comprehensiveness of budget is necessary to ensure that all activities and operations of and transparency governments are taking place within the government fiscal policy framework and are subject to adequate budget management and reporting arrangements. Transparency is important for enabling external oversight of government policies and programs and their implementation. The budget and Aggregate fiscal balance M ya n m a r ’s b u d g e t The underdeveloped budget fiscal risk oversight in Myanmar may be classification system is classification system, the are comprehensive threatened by the not fully consistent with lack of comprehensiveness and fiscal and many material changes modern classification in budget documentation, budget information that have been made structures, which and limited availability of in the operations of limits the ability of is accessible to the information to the public SEEs and sub-national policy makers to make public limits scrutiny by citizens, governments. informed judgments about tradeoffs in who would not have the The lack of a consolidated spending. ability to meaningfully report on fiscal risk leaves analyze spending in light the Government open to The significant level of of their preferences. a potentially significant unreported government blind spot (for example, operations means that as pertains to operational the budget law presents losses, payment arrears, a quite limited fiscal or possibly even debt picture in terms of defaults). central government revenue, expenditure, The underdeveloped and financing, which budget classification limits transparent system, the lack of discussion of competing comprehensiveness in priorities, likely leading budget documentation, to less efficient sectoral and limited availability allocation of funds. of information to the public limits scrutiny by financial markets. Aggregate fiscal Strategic allocation of Efficient service delivery discipline resources Policy-based A policy-based budgeting process enables the government to plan the use of resources budgeting in line with its fiscal policy and national strategy. The budget is Limited focus on medium Sector strategies may Budgeting for investment prepared with due term implications of fiscal have been prepared and recurrent expenditure regard to government decisions may lead to for some sectors in are separate processes in policy unsustainable policies. Myanmar, but none of Myanmar, which leads to them have substantially inefficiencies in service Top-down budget ceilings complete costing are not issued by MFR delivery. of investments and in Myanmar, leading to recurrent expenditure, possible ambiguity about which limits the ability aggregate and sectoral of planning efforts spending levels during to influence future the budget preparation budgets. process. Predictability and Predictable and controlled budget execution is necessary to enable effective control in budget management of policy and program implementation. execution The budget is Control in Myanmar The effect is to provide Regulation in Myanmar executed in an orderly focuses on transactional a framework of control, focuses on detailed and predictable det ails wit h weak er but to leave the system transaction control and manner and there are control at the aggregate open to abuse and avoiding budget overrun arrangements for the level. Financial corruption by those who rather than accountability Regulations focus exercise of control would seek to make use for the efficient delivery of on control at the a n d s t e wa r d s h i p of that vulnerability. service. transaction level whereas in the use of public a large amount of funds. supplementation and virement takes place. There is a high degree of delegated negotiability in areas such as revenue collection. Accounting, Timely, relevant and reliable financial information is required to support all fiscal and recording and budget management and decision-making processes. reporting Adequate records Highly limited Accounting and Limited information on and information are information on contingent reporting tend to be the cost of programs in produced, maintained liabilities and future viewed as a largely Myanmar weakens the and disseminated costs of investments technical process that planning and management to meet decision- reduces the scope for exerts control in avoiding of service delivery, and also overspending of budget reduces the availability of making control, management of long- provision and providing evidence needed for effective management and term fiscal sustainability the basis for audit. It audit, providing potential reporting purposes in Myanmar. does little to establish opportunities for leakages, deeper accountability corrupt procurement, or for how resources are inappropriate use of funds. used or play a role in active in-year financial management. 14 Public Financial Management Performance Report 15 Aggregate fiscal Strategic allocation of Efficient service delivery discipline resources Effective external Effective scrutiny by the legislature and through external audit is an enabling factor scrutiny and audit in the government being held to account for its fiscal and expenditures policies and their implementation. Arrangements for M y a n m a r ’s n e w The new parliament is Myanmar’s parliament does scrutiny of public parliament is functioning functioning effectively not generally have sufficient finances and follow effectively to monitor and to monitor and reorient information to advise on up by executive are enforce aggregate fiscal spending allocations service delivery efficiency operating. discipline through the through the annual and effectiveness, but the annual budget process. budget process. OAG is contributing to identifying waste, fraud, and abuse. ii. Prospects for Reform Planning and PFM Reform Steering and Technical Committees. Implementation The decision was taken to repurpose the existing PEFA Steering and Technical Committees into 33. The Public Finance Management (PFM) reforms the new managerial and technical level reform being undertaken are part of a much broader committees. The purposes of the reform committees reform program of the Government. With regards will be to design and drive the reforms as well as to management of public finances, there have coordinate the program with the development been two major catalysts for reforms since 2011. partners. First, the operationalization of the Parliament and establishment of the Public Accounts Committee 36. The Government appreciates that weaknesses and the Planning and Finance Committee remain and is thinking through an appropriate has resulted in enhanced external scrutiny PFM reform program to address these challenges and oversight over the budget. Second, the sequentially. In this regard, the Ministry of Finance constitutional requirement for separation of and Revenue, together with the Ministry of regional and state budgets from the union fund National Planning and Economic Development, accounts has required rapid deconcentration of are intending to develop a PFM reform strategy budgeting and planning functions to support based on technical inputs from this report, bottom up planning and budgeting processes at the recent IMF Public Finance Management the state and region level. Assessment, and the planned Public Expenditure Review. It must be stressed that the Government 34. The fast pace of reform has meant that the would need careful prioritization at each stage. authorities have made signficant changes in PFM Taking into account scarce capacity, Government practices without either drawing up a reform should vigorously resist the temptation to overload strategy or updating the rules and regulations the agenda. that govern public finances to be in-line with the current practices. Where regulation has 37. It would be conceptually useful to define a been passed, it has remained at a relatively high short term and a medium term reform objective. level with signficant leeway given to agencies to The possible short-term objective could be determine policy implementation. This has made conceptualized as “Strengthen MFR’s ability to the current PFM system underregulated and manage the transition while addressing key regulatory largely practice based. gaps and laying the foundation for the future reforms.� The transition refers to the new developments in 35. Recognizing the need to robustly manage the Myanmar, which is a complicated and transitional emerging PFM reform program, the Office of the process that involves constitutional and economic President has endorsed MFR’s request to establish reform that places new pressures on the PFM system. The regulatory gaps refer to key missing pieces and ambiguities in the PFM process that given the presidential instructions issued in could be addressed quickly through interim 2012 ordering ministries to set up internal audit measures. units and undertake competitive procurement. Ministries urgently need a modicum of guidance 38. Managing the transition should focus on the on minimal acceptable standards and processes most immediate needs arising from the economic in order to comply with the President’s orders. policy and public sector reforms underway. There Similarly, another short term priority is building are three top priorities. First, arrangements must a stronger budget policy unit/function, which be made to manage the separation of the CBM would include developing macroeconomic from the MFR. The MFR will need to deal with forecasting capacity, developing a fiscal policy the public finance functions to which the CBM framework, and strengthening prioritization of previously contributed (consolidate accounting capital spending. This latter priority is also related statements and systems, debt management, cash to the expected growth of revenue, including from flow management). Second, given that Myanmar’s natural resources, from higher rates of economic system is in a state of massive flux, a premium growth as well as revenue policy (tax and non-tax) should be put on prudent risk management. The reforms. MFR would benefit from developing an analysis of fiscal risks emanating from the transition and 40. Laying the foundation for future reform refers to mechanisms to address them (including SEE the need to set up a management structure and risks). For example, while current accounting develop tools needed to design and implement systems will not permit a systematic risk analysis, the reforms. A key first step, which the President’s a number of simple steps could be taken, including Office has authorized in early 2013, is establishing making lists of major contingent liabilities (which an executive reform committee and secretariat may or may not include valuations), quasi- to prepare and lead a PFM reform program. fiscal operations of SEEs that could impact their Other critical elements of the reform program performance and the budget, and tax expenditures. would include: a vision of reform (the system Similarly it would be important to start articulating reform objectives for a 10 year period, say); clearly the central-local government fiscal relations detailed reform action plans (by PFM sub-system: system while incorporating measures to mitigate expenditure, tax, procurement, external audit, risks of contingent liabilities that may arise from etc.); a capacity development plan, including borrowing by state and regional governments. ICT; and a performance management framework Third, given Myanmar ’s wealth of natural (e.g., monitoring of selected PEFA PIs). It is also resources, and its embrace of a more market- worth noting that the PFM reform program will oriented economy, it is critical that policies and have further implications for MFR organizational systems be established to strengthen regulation design (which will become apparent after reform and management of natural resource revenue program is developed), which would need to be flows. Myanmar has already made an important addressed. start on strengthening governance of the natural resource sector by taking steps toward adoption of 41. In a way the proposed approach –“Strengthen the Extractive Industries Transparency Initiative, MFR’s ability to manage the transition while addressing which bodes well – but much more will be required key regulatory gaps and laying the foundation for the to ensure that Myanmar captures its revenue future reforms.� – is only really playing “catch potential in a sustainable way and that flows are up� with the fast moving realities of Myanmar channeled through government systems in a way today. The PFM reform program that Myanmar that allows for transparency and accountability. develops will need to carefully prioritize and sequence reform measures, given scarce capacity 39. At the same time it would be important to address and the significant need for improvement across high priority gaps in the regulatory framework the board. The PEFA Performance Report indicates (mainly, improvements in financial regulations the need for strengthening across all areas of and minimum rules on procurement and internal all PFM sub-systems. Obviously, all these areas audit) while commencing development of cannot be addressed simultaneously. Nor does stronger overarching public finance legislation the Performance Report provide guidance about (e.g., a budget law) to be implemented over which areas to prioritize for reform. Rather, the medium term. For example, high priority the diagnosis as to which PFM areas to address gaps exist in procurement and internal audit, depends on country contextual factors, such as the 16 Public Financial Management Performance Report 17 level of capacity, policy objectives, macroeconomic is not adequate to plan a PFM reform program. conditions, and political economy constraints. Much more work will be needed, but it is hoped that these suggestions provide some useful inputs 42. One approach to PFM reform sequencing is to the Government as it commences the next steps focusing on the basic functionalities of the system, in its reform process. and this may well be the best way to think about the reform program in Myanmar. “Getting the basics right first� provides some overarching 1. Introduction guidance as to what should be done (as well as not done), but much more work needs to be done to 1.1 Objective arrive at a specific set of short- and medium-term priorities. Key contextual factors are Myanmar’s 44. The Public Financial Management Performance decision to decentralize rapidly, which has already Report (PFM-PR) is the first comprehensive review started, and its significant natural resource wealth, of Myanmar’s PFM system. There is no recent both of which must be taken into account when history of development partner engagement on developing the logic of reform sequencing. PFM reform and little had been understood about the status of the Government’s PFM reform agenda. 43. A “basics first� logic of prioritization could suggest At the start of this work no prior comprehensive the following four priorities: First, the credibility diagnostic work had been carried out and there of the budget (defined as divergence between the was no dialogue on PFM between Government budget plan and actual spending) is low, thus and development partners. creating negative impacts on line ministry planning and service delivery. There are a number of reasons 45. The objective of this report is to provide the first why credibility is low, including: the use of large comprehensive assessment of Myanmar’s PFM (and late) supplementary budgets, weak revenue system, based on the PEFA PFM Performance forecasting, limitations in public investment Measurement Framework. The report aims to: (i) planning, and the lack of information on donor establish an objective baseline measure of current funded projects. These measures to strengthen PFM conditions, highlighting areas of absolute and budget credibility would increase reliability for relative strength and weakness; and (ii) suggest Union ministries as well as the newly empowered priority areas for reform, taking into account the states and regions. Second, management would need to approach a reform program in a sequenced benefit from incrementally better information manner based on institutional capacity and the on the budget and actual spending. Priorities reform space. The assessment, and the associated here include: strengthening budget classification, dialogue, provides support to the Government in providing some basic ICT functionality to plan, setting reform priorities. record, and analyze expenditure; strengthening the comprehensiveness of information provided in 1.2 Process of preparing the PFM-PR budget documentation; and enhancing oversight of fiscal risk (as discussed above). Third, building Methodology up some basic regulations and controls would help reduce fiduciary risk. Key measures here 46. This report is the result of a coordinated effort would include: strengthening taxpayer registration of the Government, the World Bank, DFID, and and assessment; strengthening procurement; other development partners. The World Bank task and improving payroll controls. Fourth, making team visited the country several times between external oversight more robust would provide May and October 2012 to: (i) conduct discussions enhanced incentives for better public financial and consultations for the PEFA indicators; (ii) management. Key reform measures here would conduct workshops on specific technical PFM include: improving the quality and timeliness of issues requested by the Government; and (iii) in-year budget reports; further building up the present preliminary results to the Government and scope and quality of external audits; and providing other stakeholders, including regular briefings to adequate technical support to the Parliamentary development partners. The missions were joined committees reviewing Government plans and by other partners, including DFID and the ADB, budgets. These four priorities are not meant to on several occasions. DFID also provided funding be definitive but rather suggestive. As noted in for the study. this report, a PEFA Performance Report, by itself, 47. In May the Government set up a high level PEFA published regulations. In other cases, regulations Steering Committee under the chairmanship of exist but were not available in English. Deputy Finance Minister with representation from the relevant ministries, departments, divisions 50. On the basis of the evidence obtained, the team (particularly those dealing with budgeting, audit, scored the individual dimensions and determined accounting, revenue, planning and development), the overall ratings for 28 indicators of government state economic enterprises, and the Parliament. capacity and 3 indicators of donor performance. A series of meetings, interviews and discussions The assessment was prepared in close consultation were conducted with officials from the Ministry with the members of the Steering Committee. A of Finance and Revenue (MFR), Central Bank presentation of the preliminary findings and initial of Myanmar (CBM), Myanmar Economic Bank scores was made to the Steering and Technical (MEB), the Office of Auditor General (OAG), Committees in August 2012. During the October Ministry of National Planning and Economic 2012 mission the mission clarified and resolved Development (MNPED), Ministry of Health, outstanding issues and facilitated a discussion Ministry of Education, Ministry of Energy, on the steps that could be taken by Government Myanmar Oil and Gas Enterprise, and the Union to develop its PFM reform strategy. Quality Parliament (Hluttaw). Overall coordination was assurance for the work followed the Bank’s internal provided by the Steering Committee, particularly review process as well as the standard PEFA by the Budget Department of the Ministry of mechanism. The report was reviewed by World Finance and Revenue. Bank Management and the PEFA Secretariat in December 2012. A detailed review was undertaken 48. The meetings and interviews were also held with by the PEFA Secretariat and bilateral discussions members from the international development between the Secretariat and the task team were community including DFID, IMF, AusAID, the held to finalize several of the ratings. Comments European Commission, UNDP, and ADB. The team were received from the Government and the report visited some resident partner representatives in was finalized in March 2013. Yangon and organized donor briefing meetings to seek broad understanding of the diagnostics 51. The assessment covered the central (Union) and possible reform priorities, in order to ensure government for the years 2008/09, 2009/10, a coordinated approach to PFM support along the and 2010/11. During the period of assessment, lines of this assessment. the Union Government included 33 central ministries, 9 State Administrative Organizations 49. Information was gathered through a combination (SAO), 9 cantonment municipalities, and 43 State of in-depth interviews and analysis of internal and Economic Enterprises (SEEs).2 During the period external documents and data. The team collected of assessment, the central government budget and reviewed various laws and regulations, also controlled most spending by the 14 states operational manuals, revenue and budget and regions. Following constitutionally mandated documents and data, and financial reports. In changes to take effect in FY2012/13, each state many cases, however, the practice-based approach and region now has its own budget law, which is in use by the Government was not underpinned by passed by each state/region parliament. 2 On September 4, 2012, the National Assembly approved a reshuffling of Ministries. Following this change, there were 36 ministers (for 33 ministries) including 6 ministers located in the President’s Office. 18 Public Financial Management Performance Report 19 Table 1: Public Sector Accounts Number of Expenditures (billions of kyats) 3/ entities 2008/09 2009/10 2010/11 2011/12 Central Government 1/ 51 2,269 3,175 4,379 4,719 State Economic Enterprises 2/ 43 2,180 2,288 2,343 2,816 Total 94 4,450 5,463 6,722 7,536 Source: Ministry of Finance and Revenue and Bank staff calculations. 1. Includes 33 ministries, 9 SAOs, and 9 cantonment municipalities. 2. Excludes transfers to central government. 3. Estimated actual out-turns. 2. Country Background Information 53. The rural poverty head-count was estimated to be 29 percent in rural areas compared to 15 percent 2.1 Description of economic situation in urban areas and 26 percent overall.3 Myanmar is ranked 149 out of 187 countries in the 2011 UN 52. Myanmar is bordered by Bangladesh, India, Human Development Index. For comparison China, Laos and Thailand with 1,930 kilometers of purposes, Papua New Guinea is ranked 153 while contiguous coastline along the Bay of Bengal and Timor-Leste is ranked 147 and Bangladesh 146. Andaman Sea. It is spread out over 678,500 square The country’s GDP is estimated at around US$ kilometers and is richly endowed with forest 50 billion, but with population figures ranging lands, arable land, oil, gas, and various minerals. between 48 million and 60 million, per capita Three mountain chains divide Burma’s three river income is estimated to be in the range of US systems, the Irrawaddy, Salween, and the Sittaung $800 - $1,000. Life expectancy at birth is 65 years Rivers. The coastal regions receive over 5,000 mm compared to the regional average of 73 years (72 of rain annually, much of which falls during the years if developed countries are excluded). monsoon season. Table 2: Myanmar: Selected Economic Indicators, 2009–12 2008/09 2009/10 2010/11 2011/12 Real GDP growth (% change): Central Statistical Office 10.3 10.6 10.2 5.9 IMF 3.6 5.1 5.3 5.5 Consumer price inflation (% change): Central Statistical Office 17.9 1.5 7.7 5.0 IMF 22.5 8.2 8.2 4.0 Sources: Central Statistical Organization and IMF. Fiscal years (FYs) end on March 31. 3 UNDP, 2011, Integrated Household Living Conditions Survey 2009-2010, Poverty Profile. Caution is urged in the interpretation of data, since the surveys did not include populations in parts of the border areas, potentially masking large pockets of poverty and skewing final results. Moreover, proxies of poverty show a mixed picture: while caloric intake and ownership of small assets have increased as one would expect when poverty is falling, the share of food in consumption has been rising rather than falling for the poorest three quintiles. 54. Agriculture is currently still the largest contributor 57. Period average inflation rates have generally to national output and to livelihoods. It accounts followed the trend in credit growth. The inflation for roughly 43 percent of GDP, generates about 54 rate has come down substantially in the last several percent of employment, and provides livelihoods years from 22.5 percent in 2008/09 when price to more that 70 percent of the population. The increases were exacerbated by the global spike in major agricultural product is rice which covers food and fuel prices, to 8.2 percent in 2009/10 and about 60 percent of the country’s total cultivated 4.0 percent in 2011/12. The inflation rate for 2012/13 land area and accounts for 97 percent of total food is projected at 6.1 percent. grain production by weight. Other prominent agriculture products are pulses, forestry products, 58. Following the introduction of a managed exchange fisheries, and livestock. There are large and rate float on April 1, 2012, the nominal exchange growing natural gas reserves, with production rate has depreciated slightly in subsequent in 2012/13 expected to account for 33 percent of months. Until this reform was introduced, the export revenues and 20 percent of consolidated official exchange rate was pegged to the SDR at revenues. Myanmar is also a major exporter of 8.5 Kyat per SDR. Based on this exchange rate, gems. Manufacturing is still in its infancy, and is the USD was trading at 6 Kyat with a wide range largely limited to agro-processing. of unofficial rates used within the economy that were much closer to the level of 800 Kyat/USD. The 55. The economy continued to accelerate in 2011/12 new system involves daily sealed bids from certain following several years of moderately strong domestic banks to the CBM for specific quantities growth. Real GDP growth has increased steadily of foreign currency. As at November 30, 2012, the from 3.6 percent in 2008/09 to 5.5 percent in Kyat was trading at 872 kyat to the U.S. dollar. 2011/12 and is projected at 6.2 percent in 2012/13.4 This acceleration was driven on the supply side 59. Going forward, the country’s economic by the manufacturing and services sectors: real opportunities lie in its strategic location within growth in agricultural value-added (43 percent of a large regional and global export market, vast total GDP) fell from 4.7 percent in 2009/10 to 4.4 untapped natural resources, and the improving percent per annum in 2010/11 and 2011/12. Real prospects for trade, investment, and development agricultural growth may slow further in 2012/13 to aid as it re-engages with the wider international 4.2 percent due in part to heavy flooding in August community. The development agenda is 2012 which displaced thousands of farming challenging. The country has yet to fully utilize households. Demand side drivers included higher its locational advantage by being more competitive fiscal spending before the 2012 elections, growth in these markets. In order to fully exploit these in commodity exports, and strong investment. opportunities, a number of critical challenges need to be overcome. These include weak institutions, a 56. Official data from the monetary accounts are poor business environment, a huge infrastructure incomplete after 2005. Even so, the available data deficit, and under-developed service sectors. suggest that the government had been making Decades of under-investment have taken a toll good progress in reducing the stock of net credit on public institutions. The reach of government to the government from 19 percent of GDP in 2000 and its ability to provide services, in particular in to 16.4 percent of GDP in 2007/08. The flow of rural areas, remains limited. Health and education credit subsequently increased to the rather high services suffer from high “out-of-pocket� costs, level of 5.1 percent of GDP in 2009/10 and 2010/11, having been underfunded for extended periods thus increasing the stock of credit to 22.8 percent of time. Salaries of many civil servants – in of GDP by 2010/11. There is a small market for particular at the lower levels of the bureaucracy treasury securities, although the interest rates are and those in rural areas – are often insufficient to set administratively. There is no interbank market cover living costs, although the FY2012/13 budget and the CBM does not yet conduct traditional (following a heated debate in Parliament) provided open market monetary operations. In general, the a significant raise to civil servants. A lack of funds conduct of monetary policy has relied mostly on to cover the cost of transportation has in many direct monetary policy instruments such as reserve cases confined agricultural extension workers to requirements, interest rate controls, and prudential the areas they can reach easily. Within the private limits on the structure of commercial bank balance sector, a substantial portion of economic activity sheets. in Myanmar is informal, with small and medium- 4 IMF staff estimates. Official estimates are twice as high and flat through sized enterprises accounting for over 90 percent of 2010/11. Official estimates for 2011/12 were not available yet. 20 Public Financial Management Performance Report 21 the country’s enterprises. Corporate governance the CBM, the MEB, and the Myanmar Foreign within the larger firms has yet to benefit from Exchange Bank (MFEB). The external audit the same degree of transparency maintained in function is established, financial audit coverage is most middle and high income countries. Finally, high, agencies respond to audit opinions, and the regulations governing the extractive industries newly established Public Accounts Committee of have not been sufficient to protect Myanmar’s the Parliament establishes an appropriate forum environment and rich bio-diversity. for discussing audit reports and budget bills. 60. Overall government reform program: A reformist 63. Rationale for PFM reforms : With regard to administration has ushered Myanmar on an management of public finances, there have been unprecedented path of political and economic two major catalysts for reforms since 2011. First, reforms. After decades of military rule and ethnic the operationalization of the Parliament and conflict, a civilian administration was sworn in establishment of the Public Accounts Committee on March 30th, 2011 following elections that were and the Planning and Finance Committee have held in December 2010. The new Government resulted in enhanced external scrutiny and immediately embarked on a range of political oversight over the budget by the Parliament, and economic reforms aimed at attaining national while the public airing of budget debates on the reconciliation, good governance, and economic national television and the publication of the development. Some of the key political reforms budget law in national newspapers has enhanced have included the readmission of a key political budget transparency. Second, the constitutional party into the country’s mainstream politics, the requirement for separation of regional and signing of ceasefire agreements with the majority state budgets from the Union fund accounts has of ethnic armed groups some of which have required rapid deconcentration of budgeting and waged war with the Government for the past six planning functions to support bottom up planning decades, large-scale releases of political prisoners and budgeting processes in states and regions. and readmittance into the country of former In order to coordinate and integrate state/region critics of the Government, and increased freedom budgets with the Union budget, the Government of expression. Key economic reforms include has also established the Financial Commission discussion of the budget in Parliament for the first and the National Planning Commission. The time and publication of the budget, adoption of new planning and budgeting practices have a more liberal exchange rate policy, relaxation of also resulted in a deconcentration of PFM policy trade restrictions, rationalization of tax rates, and functions from the President’s Office to the MFR fiscal decentralization. and the MNPED, respectively. Prior to 2011 the policy making function was centralized with the 61. Some aspects of governance at the central level President’s Office. have improved. The Government has made efforts to improve transparency, with the national budget 2.2 Description of budgetary outcomes5 being presented and debated in Parliament for the first time in 2012 (leading to significant cuts 64. Fiscal performance: The fiscal balance of the in the executive’s proposal), and subsequently consolidated government moved further into published in national newspapers. The government deficit in 2010/11 and 2011/12. The consolidated established a Financial Commission and undertook fiscal deficit was -5.2 percent of GDP in 2009/10. a significant de-concentration of budgeting Although revenues gained 1.2 percentage points and planning functions. Restrictions on media of GDP in 2011/12, expenditures gained 1.5 have been lifted, leading to greater coverage of percentage points of GDP, boosting the deficit previously sensitive topics such as corruption. that year by approximately 0.4 percentage points of GDP. As a consequence, the stock of domestic 62. The public financial management system has some public debt grew from 20 percent of GDP in 2009/10 strong features. Budget classification is consistent to 25.9 percent of GDP in 2011/12. There is growing across various ministries and departments (though pressure coming from interest payments which not in line with international standards). Systematic have been steadily rising from 0.6 percent of GDP reporting exists by ministries and state economic in 2007/08 to 1.3 percent of GDP in 2011/12 and a enterprises (Myanmar’s equivalent of state owned forecast of 1.5 percent in 2012/13. enterprises) to the MFR, the MNPED, and, so that 5 The data in this section are generally consistent with data provided by such reports are cross checked for accuracy, with the authorities although the format has been revised in conformance with PEFA guidelines. Table 3: Consolidated Government Fiscal Outcomes, as Percent of GDP, 2009-121/ 2008/09 2009/10 2010/11 2011/12 Est. Est. Revenues and Grants 2/ 13.0 11.7 13.0 13.0 A. Revenues 13.0 11.7 13.0 13.0 1. General government 3/ 4.4 3.8 4.8 4.4 2. State economic enterprises 8.6 7.9 8.2 8.6 B. Grants 0.0 0.0 0.0 0.0 Expenditures 2/ 15.5 16.9 18.4 19.0 A. Recurrent 9.6 9.4 9.7 11.3 1. General government 3.3 3.6 4.2 5.2 a. Non-interest expenditure 2.6 2.8 3.3 4.1 b. Interest expenditure 0.6 0.8 1.0 1.2 2. State Owned Enterprises 3/ 6.4 5.8 5.4 6.1 B. Capital 5.8 7.5 8.8 7.7 1. General government 4.6 6.2 7.8 6.6 2. State economic enterprises 1.2 1.3 1.0 1.0 Overall Balance -2.4 -5.2 -5.4 -6.0 Primary Balance -1.8 -4.4 -4.5 -4.8 Net Financing 2.4 5.2 5.4 6.0 A. Domestic 2.4 5.2 5.4 6.0 B. Foreign 2/ 0.0 0.0 0.0 0.0 C. Statistical Discrepancy 0.0 0.0 0.0 0.0 Sources: Budget Department and Bank staff estimates. 1. For the period under review, the concepts of central government and consolidated government were synonymous: the budgets of the sub-national governments and state economic enterprises were all subsumed into the central government budget. 2. All foreign exchange transactions through 2011/12 were valued at the official, fixed exchange rate rather than the market rate. 3. Net of transfers from state economic enterprises to central government. 22 Public Financial Management Performance Report 23 65. The adoption of a managed float exchange and the Union balance was -7.5 percent of GDP. rate system at the start of 2012/13 is expected According to the 2012/13 budget, the SEE sector to have a favorable impact on the overall fiscal will run a surplus of 4.0 percent of GDP while the balance. Revenue is projected to gain just over 6.4 Union government will generate a deficit of 9.2 percentage points of GDP due to the revaluation percent of GDP.6 In essence, SEE operations are of exports, including gas, and imports. However, expected to provide substantial net financing to expenditures will become be higher as well, gaining the Union government. 5.6 percentage points of GDP. This will allow the overall balance to improve by approximately 0.7 67. Allocation of resources: The first budget discussion percentage points of GDP to -5.3 percent of GDP. in the new Parliament was initiated in 2012/13. The composition of actual budgetary outcomes 66. The new exchange rate regime also means that is expected to change substantially as exchange the importance of the state economic enterprise rate unification brings more revenues, the (SEEs) in financing the budget is set to grow. The construction of the administrative capital SEE sector represents a substantial share of the approaches completion, and defense spending is consolidated fiscal accounts. As shown in Table 2, reduced. Consolidated government spending on SEE revenues were 8.6 percent of GDP in 2011/12 health has been increasing to 4.8 percent of the compared to Union revenues of 4.4 percent of total by 2011/12 but this is set to expand sharply GDP. SEE expenditures that same year were 7.1 in 2012/13 under the first Parliamentary budget. percent of GDP while Union expenditures were ON-budget defense spending increased to 17.3 11.8 percent of GDP. The overall balance for the percent of the total in 2010/11 and then fell to 14.1 SEE sector is that year was 1.5 percent of GDP percent of the total in 2011/12. Table 4: Actual Budgetary Outcomes, by Sectors, as Percent of Total, 2009-121/ 2008/09 2009/10 2010/11 2011/12 Prov. Act. Prov. Act. Prov. Act. Bud. Est. General Public Services 22.2 28.6 29.4 26.0 Defense Affairs 8.8 10.5 17.3 14.1 Public Order and Safety 1.6 2.2 2.2 2.2 Education 3.3 3.3 3.6 3.7 Health Services 0.9 0.9 1.0 1.1 Social security and welfare 1.0 0.3 0.3 0.3 Housing, Water, Community Dev., Environment 2.4 2.5 2.1 2.0 Transport and Communication 6.2 5.8 5.2 6.6 Fuel, Energy, Mining, Manufacturing, Construction 44.3 37.3 30.8 35.7 Religious affairs, Culture, Recreation Media 0.5 0.5 0.5 0.5 Others 8.8 8.0 7.6 7.8 Total Expenditures (excluding debt service) 100.0 100.0 100.0 100.0 Sources: Budget Department and Bank staff estimates. 1. For the period under review, the concepts of central government and consolidated government were synonymous: the budgets of the sub-national governments and state economic enterprises were all subsumed into the central government budget. 6 Based on staff estimates and forecasts for GDP. 68. Table 5 shows how actual spending was distributed capital goods required a general compression over economic classifications. 7 It presents a in recurrent and capital spending by the SEEs. highly distorted pattern of spending relative Spending on wages and salaries is also distorted to international averages. Spending on capital relative to international norms. Such spending investment typically ranges from an average typically ranges from an average of 19 percent of of 25 percent of the total for poor countries to low income countries to an average 31 percent for around 6 percent for the high income countries. high income countries. By contrast, such spending In Myanmar, that share increased from 37.8 in Myanmar did not exceed 7.5 percent of the percent of the total in 2008/09 to 47.7 percent in total during the period under review. If SEEs are 2010/11 and 42.5 percent in 2011/12. Most of this excluded, the maximum share observed would movement can be traced to Union Government increase to 12 percent of total Union expenditures, investments. The increased Union spending on still well below the international norms. Table 5: Actual Budgetary Outcomes, by Economic Classification, as Percent of Total, 2009-121/ 2008/09 2009/10 2010/11 2011/12 Est. Est. Expenditures 100.0 100.0 100.0 100.0 A. Recurrent 62.2 55.5 52.3 57.5 1. Union 21.1 20.7 23.0 29.9 a. Wages/salaries 5.9 5.7 6.5 7.5 b. Goods and services 2.2 1.9 2.0 4.1 c. Maintenance and repairs 1.7 1.2 0.2 2.5 d. Contributions 1.0 1.1 1.1 3.6 e. Interest payments 4.1 4.8 6.2 7.4 f. Other 2/ 6.1 6.0 7.2 4.9 2. State economic enterprises 41.1 34.8 29.3 27.6 B. Capital expenditures 37.8 44.5 47.7 42.5 1. Union 29.9 36.9 42.1 36.3 2. State economic enterprise 7.9 7.5 5.5 6.2 Sources: Budget Department and Bank staff estimates. 1. Consolidated government. All foreign exchange transactions are valued at the official, fixed exchange rate rather than the market rate. 2. Includes current expenditures of the Ministry of Defense and pension and gratuities. 7 The spending categories are not consistent with GFS standards. 24 Public Financial Management Performance Report 25 2.3 Description of legal and institutional relating to public finances have again been subject framework for PFM to consideration and approval by the Hluttaw. A. Legal framework 74. Budgetary expenditures : Paragraph 103 defines how the Union Budget shall be proposed and 69. Much of the PFM system is practice-based and considered. The President or his designee is to operates without benefit of foundational laws submit the budget to the legislature. The legislature (such as an organic budget law, procurement may approve, refuse, or curtail expenditures except law, or public information law) or up to date those listed in sub-section b., including salaries, regulations. These practices can be traced back debt obligations, court ordered expenditures, and to colonial documents (when Burma was a part expenditures required by international treaties. of India), which contain guidelines for many but The constitution also enables the Hluttaw to set not all of the practices observed during the period up a Public Accounts Committee. Sub-section under review in this assessment. There is, however, e. allows for the use of supplementary budgets. one over-arching document: the Constitution of Paragraph 221 requires prior consultation with a 2008. Financial Commission before the Union Budget is drafted. The commission is chaired by the 70. The Constitution (paragraph 11) establishes the President with membership of the Minister of executive, legislative and judicial branches of Finance and Revenue and the states/regions. government and requires that each shall each serve The commission considers budget proposals as a check and balance on the others. A special role with regard to the Union Budget and from the is set aside for the military. Paragraph 12 empowers states/regions. It also considers issues such as state and regional governments through their own the ceiling for taking debt during the year and parliaments. contributions to be made from the Union budget to the state/region budgets. Once the Union 71. The constitution (paragraphs 229 and 230) also budget is approved, funds are cascaded down defines the composition and duties of the Financial from ministries to departments and then, for the Commission. The Commission is constructed as bigger ministries, down to deconcentrated units an over-arching body led by the President with providing services at the local level. Paragraph representation from Union and regional ministers, 222 allows expenditures based on the budget of the Minister of Finance, the Attorney-General, and the previous year in the event that a new budget the Auditor-General. The Commission is assigned cannot be agreed. three key roles. One role is to recommend the Union and state/region budgets prior to vetting 75. Revenues: Paragraph 231 gives the Union the by the Vice Presidents and the President. A second right to collect all taxes and revenues, setting role is to recommend “supplementary finance as aside several revenue sources in Schedule 5 for suitable to the Regions or States from the Union collection by the regions and states. Union taxes Fund, giving grants as a special matter and and revenues are to be deposited in the Union permitting loans.� The third role is to advise on Fund. financial matters that should be undertaken. 76. Borrowing: The Constitution does not prescribe 72. The Constitution also stipulates the nature of the any limits on the amount of borrowing nor when national economy and the role of government in borrowing shall be allowed nor for what purposes. the economy. Paragraph 35 states that the economy shall be market based, although paragraphs 29 and 77. External audit: Paragraphs 241 through 245 refer 30 require the state to provide production inputs to the Auditor-General and Deputy Auditor- for agriculture and industry and paragraph 37 says Generals. The Auditor-General is responsible all land is ultimately owned by the Union. to the President. The Auditor-General can be impeached. Under the Audit Law of 2010, the B. Institutional framework Auditor-General is given a 5-year tenure and budgetary independence, receiving allocations 73. The Constitution of 2008 has had important directly from the Parliament. The Office is not implications for the institutional arrangements fully independent, however, because it reports to and management of public finances. With effect the President of the Union of Myanmar. from the 2012/13, the budget and regulations 78. Regional and state governments: The new constitution • There are considerable off-budget flows with has introduced a federal structure with 14 states regard to areas such as the fees and charges of and regions with their separate budgets and funds. service providing bodies. However, this off- The Union Fund makes grants to state/region budget activity is at least reported in summary funds, but at the time of this review the process form in the financial statements. of separating finances and funding was still in the process of being fully worked through and • The CBM has been under the direct policy stabilized. Paragraph 193 defines how region and control of the MFR and has also fulfilled state budgets shall be proposed and considered in assigned functions in the management of a manner exactly parallel to paragraph 103. public finances that would be separately performed by ministries of finance in many other countries. C. The key features of the PFM system • The payment system is centralized, with 79. The main features of the current institutional payments made by the MEB. Exceptions arrangements are set out in Figure 1. The following include civil service salary payments (which features are of particular note, or are in some are discharged by township level ministry ways different to what would be found in other officials) and payments from Other Accounts countries: (and thus also payments made by SEEs). • The Auditor General reports to the Hluttaw 80. It is worth noting that a number of important through the President rather than directly. changes are in train. In particular, proposals are being developed to make the CBM independent • Budget preparation is shared between MFR and to separate the functions that it currently and MNPED with the latter preparing both performs that are directly related to public finance strategic plans (and economic targets) and management. The SEEs are being given greater developing the budget for capital expenditure. financial autonomy and are now allowed to keep part of their profits, but they are also required • There is no equivalent unit fulfilling the to fund most of their own working capital functions of what would be called the Treasury requirements. Some SEEs are being privatized or or the Accountant General in many countries. otherwise being fully exposed to market forces. Accounting and reporting functions are carried The previous practice of accounting for foreign out through the combined efforts of the Budget exchange transaction at an artificially low official Department of MFR, MEB, and CBM. rate, which was about 1 percent of the market rate • There are no organizational units with and has distorted the reporting of the performance direct responsibility for standard setting in of SEEs in particular, is being dropped with the public financial management generally or unification of the exchange rates. for procurement specifically (the Ministry of Commerce formerly had this responsibility with regard to procurement). 26 Main Features of Institutional Arrangements for Management of Public Finances UNION President+VPs UNION BUDGET APPROVED BUDGET Auditor PROPOSALS APPROVED BY HLUTTAW Chairman PROPOSALS General BY HLUTTAW BUDGET MNPED Finance Commission Members PROVISION Capital budget GRANTS Project appraisal Member (Min) Establishment Control Ministries States & Regions SEEs Departments MINISTRY OF FINANCE AND REVENUE Minster & Vice Ministers Locally Based Units MCFR Inland (Tax) Customs Budget Pensions Revenue Departments Revenue Department Appeal Sections Sector SEE Complilation External Fin Regs & Admin & Budgets (x2) Budgets (Reporting) Debt & FX Comp Finance State Economic Foreign Agri & Invesment & Banks (MEB) Trade (MFTB) Rural (MARD) Com. (MICB) Financial Central Insurance Micro-Industry Institutions Bank Supervision OFF BUDGET OWN SOURCE REVENUE REVENUE Public Financial Management Performance Report 27 3. Assessment of the PFM Systems, 83. Compositional expenditure deviations have been Processes, and Institutions substantial, and often exceed the deviations in total spending. Two ministries (responsible for energy and for livestock) were always under-spent during 3.1 Credibility of the budget the period under review, while five ministries (responsible for agriculture, construction, defense, 81. A budget is considered credible when actual finance and revenues, and social welfare, relief and out-turns for revenues, expenditures, and net resettlement) were always over-spent. Two special financing are very close to what was approved in administrative organizations responsible for the the budget. When budgets are credible, it is easier Union Government and for elections were also for governments to maintain macroeconomic always over-spent. Use of the contingency reserve stability because actual fiscal balances will be in was not a factor in compositional deviations. The line with approved targets. Payments in arrears issue of payments in arrears could not be assessed and increased debt are avoided because actual due to lack of legal definition of arrears and lack expenditures and net borrowing are kept very close to approved amounts. When budgets are of central repository of data. credible, the capacity to provide public services is higher because ministries and their agencies can 84. Looking forward, stronger capacity will be needed plan confidence because the resources approved to deal with three new challenges. First, while exchange rate unification within a managed float for them will be delivered to them. exchange rate regime is expected to substantially reduce the misallocation of resources seen in earlier 82. Budget credibility in recent years has been low, years, it can also reduce some of the certainty that with the exception of revenue out-turns where government ministries had enjoyed previously. credibility is higher. Deviations in recent years Second, the expected increase in revenues from between aggregate expenditure out-turn and the gas exports will bring higher volatility along with approved budgets have been large and growing, higher revenues. In response, to avoid excessive increasing from 8.7 percent of approved spending new risks, the authorities will need to quickly bring in 2008-09 to 20.2 percent in 2010-11. Much but the quality of macroeconomic forecasting and cash not all of this can be traced to adjustments made flow management (PI-16) up to levels seen in other in the annual revised budget. There can be many neighboring market economies if policy makers reasons why a budget would be revised, including and implementing officials. Third, because these new information regarding expected revenues changes also affect the State Economic Enterprises and net financing. In recent years, revenues have which are funded from the budget, it will also be generally been somewhat higher than expected, important to carefully monitor their performance with the implication that net financing – most and provision against the most likely contingent of it domestically sourced – is the main cause of aggregate deviations. In this context, it is also worth liabilities that may arise out of their operations. noting that all deviations would have been higher had the exchange rate used by the government been the same as the exchange rate used by the private sector (see Box 1 for an explanation). 28 Public Financial Management Performance Report 29 Box 1: The Impact of Exchange Rate Distortions It is important to underscore that the estimates reported for PI-1 through PI-3 are the outcome of substantial distortions in the markets for foreign exchange and selected goods and services. The government maintained a dual exchange rate regime between 1977 and April 2012. Under the old regime, all government entities including the state economic enterprises used a fixed and increasingly over-valued exchange rate set at 8.51 kyat per SDR. Foreign exchange earned by government entities was collected centrally and allocated by means of a foreign exchange budget.  There have been no allocations to the private sector at the official rate. By contrast, from 1989 onward, the private sector has been able to buy and sell foreign exchange in a moderately unrestricted market.1 The gap between the market rate and the official rate grew steadily over time, so much so that it peaked at an average of 1,100 kyat per US dollar in 2007-08 compared to the official rate of 5.2 kyat per US dollar. By the end of FY2011-12, official rate had appreciated to just over 800 kyat per US dollar. In addition, sale prices for a number of products produced by, or imported by, the SEEs were controlled by the Government. Thus, for the period under review, substantial portions of the fiscal accounts are under-reported relative to market valu- ations. These include revenues on goods produced by government and SEEs, external grants received by government, expenditures on goods directly imported by government, and debt service paid.  In addition, a special exchange rate set between the official and market rates has been used in assessing the value of imports for customs duties. These price setting policies had the effect of suppressing uncertainty within Government even while they encouraged the misallocation of resources relative to what market prices would have otherwise indicated. The April 2012 decision to unify the official and market exchange rates is expected to bring efficiency gains to the economy as a whole. At the same time, the authorities will need to quickly bring the quality of macroeconomic forecasting and cash flow manage- ment (PI-16) up to levels seen in other neighboring market economies if policy makers and implementing officials are to avoid excessive new risks. _________________________ 1 In 1988, exporters were allowed to retain only 60 percent of their earnings. This was changed to 100 percent retention in 1989 albeit with the requirement that exports are taxed at a rate of 10 percent in foreign currency. PI-1: Aggregate Expenditure Out-Turn Compared To (i) The difference between actual primary expenditure and Original Approved Budget the originally budgeted primary expenditure 85. The ability to keep total expenditures at the level 86. This PEFA assessment covers the Union budget approved in the budget is an important factor in for the fiscal years 2008-09 through 2010-11; with macroeconomic management. Budget credibility 2010-11 being the most recent fiscal year for which in this regard has been low. Deviations between provisional expenditure out-turns were available aggregate expenditure out-turn and approved at the time of the assessment.8 In keeping with budgets in recent years have increased from 8.7 PEFA methodology, the indicator measures the percent of approved spending in 2008-09 to 20.2 aggregate out-turn for combined recurrent and percent in 2010-11. These deviations contributed capital expenditure out-turns compared to the directly to the consolidated fiscal deficit which original approved budget rather than the revised increased from 2.4 percent of GDP in 2008-09 to budget.9 Debt service and expenditures controlled 5.6 percent of GDP in 2010-11. by donors are excluded from the calculation. These adjusted expenditures are referred to here as “primary expenditures.� 8 The government also maintains a separate budget for foreign exchange 9 The authorities often refer to the original budget estimates as BE, the receipts and payments. This is not assessed here. Extra-budgetary revised budget estimates as RE, and provisional actual out-turns as PA. spending, notably by means of so-called “other accounts� are excluded from the calculations. See PI-6. 87. The data used for analysis in PI-1 through PI-3 the originally budgeted amounts in each year. come from translated summaries of the approved Expenditure deviations as a percent of originally expenditure estimates and the provisional budgeted amounts, increased in 2009-10 and estimates for expenditure out-turns provided by again in 2010-11. Unexpected revenue surpluses the BD. The team did not have access to primary in 2008-09 and 2010-11 may have contributed to sources such as copies of official budget estimates, this outcome (see PI-3). No such surplus occurred financial statements, or audited accounts. in 2009-10, however, suggesting that the over- spending in that year has to be traced back to other 88. The data in Table 6 show that the provisional causes. estimates of actual expenditure were well above Table 6: Comparison of Budget Estimates to Actuals (Primary Expenditure, Kyat millions) 2008-09 2009-10 2010-11 Original Estimate 4,723,350 5,347,944 5,947,993 Actual Expenditure 5,132,917 5,992,898 7,147,253 Aggregate Expenditure Deviation 409,567 644,954 1,199,260 Aggregate Expenditure Deviation, Percent 8.7 12.1 20.2 89. Based on the analysis above, a provisional some elements of the PEFA assessment that suggest score of C is indicated. The score is provisional accurate accounting may be difficult to achieve, because the expenditure out-turns are not notably with regard to the regular and timely from audited accounts or final estimates. The reconciliation of bank accounts (see PI-22), timely accuracy of provisional estimates could not be and comprehensive financial reporting (see PI-24, assessed without final estimates that could be PI-25), and comprehensive external audit (see PI- compared to provisional estimates. There are 26). Indicated Indicator Analysis Framework Definition Evidence Used Score The difference The deviations in In no more than 1 of Translated summaries of between actual absolute terms were the last 3 years has the approved expenditure primary expenditure 8.7% in FY09, 12.1% actual expenditure estimates and the and the originally in FY10, and 20.2% in deviated from budgeted provisional estimates for C budgeted primary FY11. expenditure by more expenditure out-turns expenditure than amount equivalent provided by the BD. to 15% of budgeted expenditure. Overall Score C 30 Public Financial Management Performance Report 31 90. The analysis above is restricted to a period of time (i) Extent of the variance in expenditure composition just before some major changes in government during the last three years, excluding contingency operations were implemented. These changes items11 will have consequences. First, on 1 April 2012, the Government made a major move toward 92. The first dimension measures the average variance exchange rate unification within a managed float by individual Union ministries above or below exchange rate regime. This change is expected to the aggregate variance calculated in PI-1.12 This substantially reduce the misallocation of resources is achieved by adjusting the allocations from the seen in earlier years. At the same time, it can also original budget for each of the twenty largest reduce some of the certainty that ministries had ministries by the aggregate variance and then enjoyed previously. Second, the government has calculating by how much the actual out-turn invested in the production of new gas exports. The for each ministry differed from the adjusted expected increase in revenues from these exports allocations. For example, in the case of 2008-09, all as early as 2012-13 will bring higher volatility allocations were increased by 8.7 percent. These along with higher revenues. In response, to avoid adjustments, along with actual out-turns, are show excessive new risks, the authorities will need to in Table 7 below. quickly improve the quality of macroeconomic forecasting and cash flow management (PI-16) to levels seen in other neighboring market economies if policy makers and implementing officials. PI-2: Composition of Expenditure Out-Turn Compared to Original Approved Budget 91. Effective public service delivery and successful investment is more likely when ministries and their agencies and enterprises spend the amounts approved for them in the budget. Many ministries in Myanmar over-spent and did so well beyond what would have been reasonable after taking into account unexpected shocks to revenues and net financing.10 This over-spending was only partially compensated by the under-spending in several other ministries. Unforeseen shocks and policy changes are a common occurrence around the world and many governments set aside a contingency reserve to help deal with these. While this is prudent, the reserve should not be so small as to be unhelpful, nor so large as to undermine the credibility of the overall budget. In addition, it is good practice to ensure that spending is not directly charged to the contingency reserve but rather to the applicable ministry and program. In Myanmar’s case, the credibility of the budget was not undermined by excessive use of the contingency fund, in part because the fund was very small. 11 The government also maintains a separate budget for foreign exchange receipts and payments. This is not assessed here. 10 These include the ministries responsible for agriculture, construction, 12 In a manner similar to PI-1, both recurrent and capital expenditures are defense, finance and revenues, and social welfare, and the state admin- included. Debt service, donor funded project expenditures, contingency istrative organizations for the Union Government and for the electoral items (such as the reserve fund), and off-budget accounts are not in- commission. cluded in the calculation. Table 7: Comparison of Budgeted and Actual Expenditure (Kyat, billions)   2008-09 2009-10 2010-11 Original Adjusted Actual Original Adjusted Actual Original Adjusted Actual   Budget Budget 1/ 2/ Variance Budget Budget 1/ 2/ Variance Budget Budget 1/ 2/ Variance Administrative 376.0 408.6 658.9 282.9 377.4 1,115.2 1,089.6 712.2 666.0 1,432.4 1,261.8 595.8 Organizations 3/ Finance & Rev. excl. 234.0 254.3 331.7 97.7 362.1 446.2 423.7 61.7 488.9 625.9 558.2 69.3 Reserve Fund Defence Affairs 354.4 385.2 465.1 110.7 561.1 672.9 657.3 96.2 849.8 1,323.1 1,297.1 447.2 Home Affairs 52.5 57.0 53.3 0.9 58.5 64.4 92.0 33.6 94.1 112.5 115.4 21.4 Education 167.4 181.9 174.9 7.4 187.1 210.2 209.5 22.4 262.9 266.9 266.7 3.8 Health services 44.8 48.7 45.8 1.0 50.8 57.1 55.8 5.1 69.8 78.4 77.0 7.3 Environment 116.1 126.2 121.4 5.3 129.2 137.9 152.6 23.4 143.2 146.7 147.7 4.5 Transport 78.3 85.1 74.4 -3.9 89.1 92.2 92.1 2.9 85.2 83.2 83.0 -2.3 Communication 242.9 263.9 259.6 16.7 265.1 267.5 271.2 6.1 288.7 302.9 309.1 20.4 Electric Power (1) 188.2 204.6 228.4 40.2 276.8 278.0 283.1 6.3 227.6 242.5 239.3 11.8 Electric Power (2) 295.9 321.6 295.4 -0.6 327.5 335.7 322.3 -5.1 445.2 451.5 415.5 -29.8 Energy 1,381.1 1,500.9 1,089.0 -292.1 1,243.9 917.5 899.0 -344.9 932.7 865.9 817.1 -115.6 Mines 32.4 35.2 28.5 -3.9 44.2 44.2 40.7 -3.5 52.2 47.8 47.6 -4.6 Industry 467.9 508.4 483.5 15.6 558.8 510.6 484.0 -74.8 433.4 375.7 348.9 -84.5 Construction 206.6 224.5 231.0 24.4 240.5 261.3 310.4 69.9 301.3 422.9 446.9 145.6 Information 21.5 23.4 23.1 1.5 26.6 27.5 23.4 -3.1 29.4 30.9 27.4 -2.0 Agriculture and 197.8 214.9 257.7 59.9 209.4 233.1 243.9 34.5 216.5 289.7 282.1 65.6 Irrigation Livestock, Breed-ing & 49.9 54.2 29.1 -20.7 59.2 49.2 29.0 -30.1 55.9 55.9 40.0 -15.9 Fisheries Science 27.4 29.8 29.0 1.6 23.4 25.6 25.7 2.3 34.6 42.5 42.3 7.7 Rail Transport 115.3 125.4 134.5 19.2 172.8 178.6 184.3 11.5 171.3 187.1 186.1 14.8 All Other 72.7 79.0 118.5 45.8 84.5 104.7 103.2 18.7 99.4 112.7 138.2 38.9 Total for PI-2 4,723.3 5,132.9 5,132.9 409.7 5,347.8 6,029.8 5,992.9 645.1 5,947.9 7,496.9 7,147.3 1,199.4 Contingency Items 0.1 0.1 0.0 -0.1 0.1 0.1 0.0 -0.1 0.1 0.1 0.0 -0.1 Total for PI-1 4,723.4 0.0 5,132.9 409.6 5,347.9 6,029.9 5,992.9 645.0 5,948.0 7,497.0 7,147.3 1,199.3 Sources: Ministry of Finance and Revenue and World Bank staff calculations. 1. Calculated by adjusting the allocations for each ministry by the aggregate variance from PI-1. These “adjusted budgets� are provided for analytical purposes, following the PEFA Guidelines, and are not meant to be the same as the improved budgets approved by the Government at the end of each year. 2. Provisional estimates. 3. Administrative organizations include the State Peace and Development Council, the Union Government, the Supreme Court, the Office of the Attorney General, the Office of the Auditor General, the Election Commission, the Civil Services Board, and the Constitutional Tribunal of the Union. More than 90 percent of spending within this category can be attributed to the Union Government. 32 Public Financial Management Performance Report 33 93. Table 8 below shows the average compositional points in each of the three years reviewed in this variances that are calculated from the data shown assessment. Based on the analysis above, a score in Table 7. The average weighted deviations were of D is indicated for the first dimension. As noted 20.6 percent in 2008-09, 26.9 percent in 2009-10, for PI-1 above, the score is provisional because and 24.2 percent in 2010-11. The average weighted the expenditure out-turns are not from audited deviations therefore exceeded the overall variance accounts or final estimates. in primary expenditures by over 15 percentage Table 8: Comparison of Budget Estimates against Actual Primary Expenditure 1/ 2008-09 2009-10 2010-11 Total Primary Expenditure Variance (in percent) PI-1 8.7 12.1 20.2 Average Compositional Variance (in percent) PI-2 20.6 26.9 24.2 Sources: Ministry of Finance and Revenue and Bank staff calculations. For more detail, see Annex1. 1. All data are preliminary, from provisional estimates. (ii) The average amount of expenditure actually charged to in order to deal with unanticipated needs above the contingency vote over the last three years allocated amounts while depositing unspent funds in the same GRF. Thus, the provisional actual 94. The second dimension of PI-2 measures the estimates (PA) through 2011-12 had been the sum average amount of expenditure actually charged of the revised budget (RE) and net flows to/from to a contingency vote (the Reserve Fund) over the the GRF. Based on the analysis above, a score of A is last three years. In the case of Myanmar, a very indicated because the actual expenditure charged small notional allocation of K100 million was to the contingency vote was on average less than allocated to the Reserve Fund each year. It was 3 percent of the original budget. never utilized. Instead, it was common practice to draw from the General Reserve Fund (GRF) Framework Dimension Analysis Indicated Score Evidence Used Definition (i) Extent of The deviations in Va r i a n c e in Translated summaries the variance absolute terms were expenditure of the approved in expenditure 20.6% in FY09, 26.9% composition expenditure estimates composition during in FY10, and 24.2% in D exceeded 15% in at and the provisional the last three FY11. least two of the last estimates for ye a r s , e x c l u d i n g three years. expenditure out-turns contingency items. provided by the BD. ( i i ) T h e a ve r a g e Actual expenditure Actual expenditure Translated summaries a m o u n t o f charged to the charged to the of the approved expenditure actually contingency vote contingency vote was expenditure estimates charged to the was nil. A on average less than and the provisional contingency vote 3% of the original estimates for over the last three budget. expenditure out-turns years. provided by the BD. Overall Score D+ 95. The policy governing the Reserve Fund has (i) Actual domestic revenue compared to domestic revenue been revised starting with the budget for 2012- in the originally approved budget13 13. The contingency vote was increased to Kyat 100 billion per year (1.8 percent of total primary 97. Indicator PI-3 measures actual domestic revenue expenditures) in order to create real capacity to compared to domestic revenue in the originally deal with unanticipated needs. From 2012-13 approved budget. Translated summaries of onward, ministries are expected to draw from the original approved revenue estimates and the contingency vote with approval from the provisional out-turns were obtained from the BD. Minister of Finance and Revenue and the Financial Commission. This could help keep total actual 98. The largest source of domestic revenue comes from expenditures closer to the approved total during state economic enterprise receipts, which account periods when revenues and grants are below for 74 percent of total budgeted domestic Union revenues in 2011-12.14 The next largest revenues expected amounts. in that year were to come from commercial taxes (8.7 percent), income taxes (8.5percent), PI-3: Aggregate Revenue Out-Turn Compared To and “Union Government recurrent receipts� Original Approved Budget (6.3 percent). Roughly 90 percent of all domestic taxes are collected by the MFR although several 96. An accurate revenue forecast is a key input to the line ministries also collect revenues. As noted in preparation of a credible budget. Overly optimistic indicator PI-7, some revenues are retained by the revenue forecasts can lead to unjustifiably large line ministries or by their agencies (health clinic expenditure allocations and to larger fiscal deficits fees, e.g.). when budgeted revenues do not come in. On the other hand, too much pessimism in the forecast 99. Initial budgetary targets for revenue are calculated can result in unanticipated revenues being used by each of the revenue collecting ministries, SAOs for spending that has not been subjected to the and SEEs. These targets are established with some scrutiny of the budget process. During the period guidance from MFR and may occasionally be under review, the Government produced accurate adjusted by MFR. No government office makes revenue forecasts for FY2008-09 and FY2009-10. routing revenue forecasts beyond the annual Deviations from these forecasts were less than targets. Information on actual revenues is collected ±5 percent. By contrast, the forecast for 2010-11 by MFR on a monthly basis from the line ministries, was less accurate with a gap of almost 18 percent SAOs, and SEEs. These data are audited annually between budgeted revenues and actual out-turn. by the OAG. 13 The Government also maintains a separate budget for foreign exchange receipts and payments, which is not assessed here. 14 From SEE contributions (15.7 percent) and receipts (58.3 percent). 34 Public Financial Management Performance Report 35 100. As summarized in Table 9, revenue out-turns have percent in 2010-11.15 Based on these outcomes, a been close to budgeted amounts in recent years. provisional score of B is assigned: actual domestic Actual domestic revenue collection as a share of revenue was between 94 percent and 112 percent budgeted domestic revenue was 103.7 percent of budgeted domestic revenue in at least two of in 2008-09, 96.0 percent in 2009-10, and 117.8 the last three years. Table 9: Domestic Revenue Out-Turn Compared To Original Approved Budget 2008 - 2009 2009 - 2010 2010 - 2011 In Kyat Billions BE RE PA BE RE PA BE RE PA Total Domestic 2/ 4,468.9 4,627.2 4,634.9 4,908.8 4,563.4 4,711.6 4,830.9 5,235.6 5,690.0 Actual (PA) as share of budget (BE) 103.7 96.0 117.8 Sources: Ministry of Finance and Revenue and Bank staff calculations. 1. The authorities refer to the original budget estimates as BE, the revised budget estimates as RE, and provisional actual out-turns as PA. 2. Includes receipts from SEEs and excludes foreign grant receipts. Framework Indicator Analysis Indicated Score Evidence Used Definition PI-3: Actual domestic Actual domestic Actual domestic Translated summaries revenue compared revenue collection as revenue was between of the approved to domestic revenue a share of budgeted 94% and 112% of expenditure estimates in the originally domestic revenue B budgeted domestic and the provisional approved budget was 103.7% in FY09, revenue in at least estimates for 96.0% in FY10, and two of the last three expenditure out-turns 117.8% in FY11. years. provided by the BD. Overall Score B 101. In the immediate future, the Union Government addressed. 16 At present, the government has will benefit from an increased share of gas export neither a legal definition of what constitutes receipts in government revenues. As much as payments in arrears nor a centralized system for 20 percent of total revenues and grants could tracking payments in arrears. come from gas receipts as early as 2012-13. This development, while important for Myanmar’s (i) Stock of expenditure payment arrears (as a percentage economy, will bring higher volatility along of actual total expenditure for the corresponding fiscal with higher revenues. Within the broader Asian year) and any recent change in the stock energy market, natural gas prices tend to be tightly linked to crude oil prices – and crude 103. The existing legislation and regulations in oil prices are notoriously volatile due to high Myanmar do not include any definitions of price elasticities to supply and demand. Thus, payments in arrears. Moreover, none of the as mentioned earlier, to avoid excessive risks, coordinating ministries within the government strengthened macroeconomic forecasting and cash keep a consolidated record of most categories of flow management will be important. payments in arrears. This dimension therefore cannot be rated. PI-4: Stock and Monitoring of Expenditure Payment Arrears 15 These gaps would have been larger under a market determined ex- change rate. 16 Expenditure payment arrears are expenditure obligations that have 102. Indicator PI-4 is concerned with measuring the been incurred by government, for which payment to the employee, extent to which there is a stock of payments in supplier, contractor or loan creditor is overdue. For example, under internationally accepted business practices, a claim will be considered arrears, and the extent to which any systemic in arrears if payment has not been made within 30 days from problem is being brought under control and government’s receipt of a supplier’s invoice (for supplies, services or works delivered), whereas the failure to make staff payroll payment or meet a deadline for payment of interest on debt immediately results in the payment being in arrears. 104. The Government does, however, keep track of 106. It should be noted, however, that records on debt service payments in arrears. The PEFA external debt and debt service payments in guidelines require that only arrears on interest arrears are comprehensive, up to date, and payments be included in the estimation of arrears broadly consistent with records from creditors. on external debt since principal repayment is By December 2012, Myanmar had accumulated not expenditure but a financing transaction. At US$ 11.0 billion in arrears on debt service due end-2012, Myanmar’s arrears on external debt to international donors. Of this amount, US$ 4.9 amounted to US$6.1 billion, including arrears on billion were principal payments in arrears, US$ interest payments and on late interest payments. 1.2 billion were interest payments in arrears, This is equivalent to 59.4 percent of expected while US$ 4.9 billion were arrears on late interest spending in FY2011-12.17 payments (penalties). In January 2013, arrears to multilateral institutions (World Bank and Asian (ii) Availability of data for monitoring the stock of Development Bank) amounting to US$ 932 million expenditure payment arrears were cleared while an agreement was reached on the resolution of the US$ 10.0 billion in arrears 105. There is no central repository of data for most to Paris Club creditors that will result in a 50 categories of expenditures in arrears. Individual percent write-off of arrears and restructuring of ministries, SAOs, and SEEs may monitor their the remainder. own stock of payments in arrears but they are not required to report this information to MFR or any 107. An overall score for this indicator cannot be other coordinating body. A score of D is indicated assigned, due to the lack of information for the since there are no reliable data on the stock of first dimension. arrears from the last two years. Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Stock of expenditure There is no system for Not There is not enough Interviews with payment arrears (as a compiling and reporting rated information to officials from the percentage of actual expenditure arrears. (N/R) assign a score. BD. total expenditure for the corresponding fiscal year) and any recent change in the stock There is no central D There are no Interviews with (ii) Availability of data repository of data for reliable data on officials from the for monitoring the stock expenditures in arrears. the stock of arrears BD. of expenditure payment from the last two arrears years. Overall Score N/R 17 Based on a revised budget estimate of 8,466 billion kyat for total expen- ditures in 2011-12, including interest, and a parallel market exchange rate of 824 kyat per US dollar. 36 Public Financial Management Performance Report 37 3.2. Comprehensiveness and transparency 111. A further compounding factor is the significant level of unreported government operations, 108. This set of indicators assesses whether the budget which means that the budget law presents a and oversight of fiscal risk are comprehensive, quite limited fiscal picture in terms of central and whether fiscal and budgetary information government revenue, expenditure, and financing. is available to the public. There are currently In Myanmar’s case there is a high degree of extra- a number of limitations in the classification budgetary expenditure that is not included in of budget information, as well as missing regular fiscal reports while, at the same time, there types of information in the budget documents is limited information on development partner- themselves and a large amount of unreported funded projects included in fiscal reports. government operations, which together mean that budgetary and fiscal information is highly 112. There is extensive use of “Other Accounts,� limited. An important subset of fiscal information which are essentially accounts held by ministries – inter-governmental fiscal transfers – is also and SEEs in the Myanmar Economic Bank for characterized by a low level of transparency. management of their own-source revenues. The Similarly, the information that is actually made grand total of Other Accounts currently in use is public is highly constrained. From the perspective over 13,400. FY2011/12 data from MEB and the of fiscal risk management, the fact that existing Budget Department show total Other Account mechanisms to monitor fiscal risks from other receipts of 2.54 trillion kyat, which is 44 percent public sector entities are underdeveloped is of total budgeted revenue, and expenditures of compounded by the aforementioned limitations in 2.26 trillion, which represents 28 percent of total the comprehensiveness and transparency of fiscal budgeted expenditure. data. 113. On the external financing side, the picture is also 109. Myanmar’s budget classification system, which mixed. Though complete income/expenditure is the backbone of fiscal accounts, is not fully information is included in fiscal reports for all consistent with modern classification structures. loan financed projects, it appears that only some It does provide a classification structure according information on about 50 percent (by value) of to administrative categories (e.g., ministries and grant financed projects is also included. Ministries departments, SEEs), geographic categories (states, are also supposed to report to the Ministry of regions, and municipal development committees), National Planning and Economic Development broad functional categories (though they are not on a monthly basis on their grant revenues consistent with the United Nations Classification of and expenditures, but the flow and quality of the Functions of Government, COFOG, standard), information is rather uneven, and the information and broad economic categories (though they are received is not yet made available to the Budget not fully consistent with the Government Financial Department. It should also be emphasized that the Statistics, GFS, standard). quality of the grant data provided is likely in need of strengthening, both in terms of projections in 110. The formal presentation of the budget as contained budget documents and actual spending amounts in the Union Budget Law consists of a limited in execution reports. NGO financed activities amount of information, though significant recent are not reported at all in the Government’s fiscal progress was made with the publication of the law reports. for the first time in FY2012/13. The law is limited to total revenue and expenditure (including 114. Another important consideration from the recurrent, capital, loans, and grants) per ministry/ perspective of transparency and comprehensiveness agency and SEE, and total aggregate transfers is the treatment of the intergovernmental fiscal to states and regions. The law also contains the system, which has been in a period of flux. In aggregate debt ceiling for the fiscal year. The operational terms the assignment of functions Union Parliament receives additional data in and finances is evolving. Like with many other budget books on each ministry (and thus SEE), budgetary process indicators, the system is not yet and it appears that these books contain quite fully formed because this is the first full fiscal year detailed revenue and expenditure data. However, in which the new system is being implemented. the budget documentation fulfills very few of the The assessment shows that the system for PEFA information benchmarks. allocating resources to states/regions is neither rules-based nor transparent, and that states/ regions do not receive timely, reliable information on their transfers. Moreover, states/regions may broad functional categories (though they are not and do request supplementary budget allocations. consistent with the United Nations Classification These features make for an inter-governmental of the Functions of Government standard), and fiscal system that is not transparent and that broad economic categories (though they are not impedes sound budget planning. fully consistent with the GFS standard). The rating for this indicator would thus be a D, as budget 115. One of the likely consequences of a fiscal system in formulation and execution are based on a non-GFS as much flux as Myanmar’s is a probable increase compatible classification. in the amount of fiscal risk. In addition to the sweeping changes that have taken place at the 118. The budget classification structure follows a political and constitutional level, many material seven-tier hierarchy: group accounting head (viz., changes have also been made in the operations ministry)18; attendant group accounting head, of SEEs and sub-national governments. These which specifies a set of broad economic categories major systemic changes increase the likelihood of (e.g., revenue and expenditure items; types of fiscal risk for four main reasons. First, the internal expenditure items such as recurrent, capital, and control environment is still relatively weak. For financial (e.g., loans)); major head, which indicates example, the internal audit function is only now the (secondary) major sub-ministerial entities being established in line ministries and the capacity (viz., ministerial departments and SEEs)19; minor in SEEs varies. Second, the central oversight head, which indicates the (tertiary) administrative function is narrow and underdeveloped. Third, sections under the secondary administrative level there is a lack of a strategic approach to public (e.g., High School Section or Inspection Section), financial management, with central oversight and in many cases also provides more detail on agency engagement focusing more on low value functional areas; attendant minor head, which processes and much less on analysis of results provides for administrative units below sections and impact. Lastly, public fiscal information is and can also provide functional information (e.g., quite limited, reducing the chances of meaningful sub-section administrative units, which can be public engagement on these issues. One of the administrative or sectoral in nature); sub-head, major contributors to the C score here is the fact which provides seven categories for recurrent that a consolidated report on total fiscal risk from economic classifications (viz., remuneration, travel the point of view of the Union Government is allowances, goods and services, maintenance, not produced. The lack of such an analysis leaves transfer payments, entertainment expenses, and the Government open to a potentially significant reserve fund) as well as three capital expenditure blind spot (for example, as pertains to operational classification sub-heads (project investment, losses, payment arrears, or possibly even debt works investment, and office equipment); and defaults). Another source of fiscal risk emanates the primary unit, which provides a more detailed from possible contingent liabilities from public- economic classification of about thirty types of private partnerships (PPPs). goods and services, including rentals, contractual labor, office equipment, utilities, medical expenses, 116. Though public access to key fiscal information is conferences and seminars, etc. This structure highly limited in Myanmar, it is worth emphasizing applies to ministries; there is a somewhat different that the Union Government has become much structure in use for SEEs. This structure is used more open in FY2012/13. The most notable for formulating, executing, and reporting on the event with regard to the budget process was the budget (in that sense there is no separate, distinct publication of the FY2012-13 budget. Compared chart of accounts). with international standards, however, Myanmar makes very little information available to the 119. The revenue structure is similarly sui generis but public. does provide for many categories of revenue and PI-5: Classification of the Budget 18 Myanmar has 31 ministries and 44 SEEs. There are also group accounting head items for Cantonment Municipalities and Development 117. Myanmar ’s budget classification is not fully Committees (for Nay Pyi Taw, Yangon, and Mandalay). consistent with modern classification structures. 19 The Major Head Category (mostly ministers’ offices and ministerial departments) broadly provides a sub-functional category that includes It does provide a classification structure according some of the COFOG level two classifications. E.g., the Ministry of to administrative categories (e.g., ministries and Education has two Departments of Higher Education (Lower and departments, SEEs), geographic categories (states, Upper Myanmar), three Departments of Basic Education (Lower, regions, and municipal development committees), Upper, and Yangon), as well as departments for education planning and training, examinations, research, and language. 38 Public Financial Management Performance Report 39 types of taxation. Broad categories of revenue the level of minor heads and attendant minor include tax (income taxes, sales taxes, excises, land, heads for each ministry before determining etc.), non-tax, royalties, capital revenue, and other whether a bridging table could be produced to revenue. There are also categories for investment generate COFOG-consistent documentation. income, interest income, and savings of ministries Particular challenges would seem to lie with the and departments. categories of social protection, recreation/culture/ religion, and environmental protection. Similarly, 120. The capital budget structure is limited to three it is not clear to what extent poverty-reducing broad areas, which are a mix of economic and expenditure could be tracked using the current functional classifications. The heads – project budget classification and account codes. A more investment, which covers construction; works detailed look at minor heads and attendant minor investment, for machinery; and office equipment heads in each ministry would be required. – are general and seem to overlap somewhat among themselves and possibly with the recurrent 122. Government Financial Statistics Manual (GFSM) classification (viz., office equipment). It appears 2001 bridging tables were not able to be produced that there is no official, centrally mandated directly from budget execution data, but are additional classification tier below the three broad under preparation with the assistance of the capital categories. However, some ministries IMF. However, the level of detail in the bridging report using more detailed information for their tables is limited for some categories (SEEs and own budgeting purposes, though it does not subnational governments, as well as transfers, seem, based on the information provided, that capital expenditure, and defense). Moreover, it is ministries necessarily use a structure. Rather, they not clear to what extent a need for reclassification report more detailed expenditure information of some expenditure (by splitting entries under on particular expenditure items. The absence of some budget codes into different codes for GFS) clear guidance and definitions of expenditure would entail a high risk of inconsistency. categories (in the form of a manual, for example) indicates a risk that ministries’ classifications are 123. The Financial Regulations (1986) provide the broad not necessarily consistent with each other. budget classification structure described above, though there is no published manual that provides 121. Myanmar produces some budget data according to the more detailed structure. Ministries do appear four general functions (general services, defense, to use the same broad classification structure, but economic services, and social services), though it is not clear that they all use exactly the same not for its own internal use, but for reporting to structure in the same way. This results in some the IMF. The functional classification system is not variation in detailed expenditure classification and based on COFOG standards (either the ten main reporting from ministry to ministry. There were functions or the more detailed functions below indications that some ministries do not conform them) and it is doubtful that it could produce systematically to the capital budget classification consistent documentation according to those structure, even at the most aggregate level. standards. Further work would be necessary at Indicated Framework Indicator Analysis Evidence Used Score Definition The classification system The classification, though D The budget Union Budget Law, used for formulation, it contains administrative, formulation and FY2012/13; Financial execution, and reporting geographic, and broad execution is based Regulations, 1986; of the central government’s functional categories, does on a different MFR classification budget not use GFS or COFOG classification tables; archival standards, and as yet cannot (e.g. not GFS material from MFR produce documentation compatible or with and line ministries. consistent with those administrative standards. break-down only). PI-6: Comprehensiveness of information included in economy as a whole as well as by sector. For budget documentation example, the annual GDP growth objective is given, as are sectoral growth objectives. The 124. The annual budget as contained in the Union National Planning Act also provides “annual Budget Law contains a limited amount of project proposals and investment estimates for information, though the law is now made public. the state owned sector.� The Act does not provide The law is limited to total revenue and expenditure any fiscal information. The Act also provides (including recurrent, capital, loans, and grants) information on: (1) each ministry/agency’s policies per ministry/agency and SEE, and total aggregate and activities, and capital project proposals; and transfers to states and regions. The law also (2) 14 sectoral plans. The project proposals are contains the aggregate debt ceiling for the fiscal presented for a multi-year, however these project year. The Union Parliament receives additional lists are not considered as resource-constrained data in budget books on each ministry (and thus but rather as sectoral planning priorities. SEE), and it appears that these books contain quite detailed revenue and expenditure data. However, 126. Though the Union Parliament is a new institution as the budget documentation fulfills two or fewer in Myanmar, reports indicate vigorous discussion of the nine information benchmarks, this indicator and debate about the FY2012/13 budget, which is rated as D. was the first one ever discussed in a parliament. The discussions focused on the details of spending 125. It is important to note that the annual budget law within and across ministries. Information on is discussed in the context of the Government’s most of the items treated in this indicator was not national plan, which sets the stage for a detailed made available to the Parliament, but recently discussion of resource allocations in light of parliamentary committees have requested that national priorities. The National Planning Act, this information be provided to them in the future. which is presented to Parliament a few weeks For example, parliamentarians have recently before the budget law, is the annual planning requested the following additional information legislation for the year in the context of the Short as part of the budget process: reports on in-year Term Five Year Plan (which runs from FY2011/12 spending, information on grants, a macroeconomic to FY2015/16). The plan presents targets for the framework, a fiscal policy statement, and a medium term fiscal policy statement. 40 Public Financial Management Performance Report 41 Indicated Framework Indicator Analysis Evidence Used Score Definition Share of the above listed The budget law contains total D Recent budget Union Budget Law, information in the revenue and expenditure per documentation FY2012/13; National budget documentation ministry/agency and SEE, and fulfills 2 or fewer of Planning Act, most recently issued by total transfers to states and the 9 information FY2012/13; Financial the central government regions, and also includes the benchmarks. Regulations, 1986; aggregate debt ceiling for the selected MFR budget fiscal year. Parliament receives books. additional detailed expenditure data in budget books on minis- tries and SEEs. Most of the nine items, however, are not included. 1. Macro-economic assump- tions, including at least es- timates of aggregate growth, inflation, and exchange rate: Some macroeconomic ob- jectives are provided in the National Planning Act, but these are not assumptions, but rather targets. Inflation and exchange rate projec- tions are not provided. 2. Fiscal deficit (according to GFS standard): A fiscal framework is not provided, though a fiscal deficit fig- ure (deficit/GDP) is given, but not according to GFS or comparable standards. 3. Debt financing and antici- pated composition: Only the aggregate debt limit is pro- vided; no information on composition. 4. Debt stock: Not provided. 5. Financial assets: Not pro- vided. 6. Prior year’s budget outturn: Not provided. 7. Current year’s budget: Not provided. 8. Summarized budget data, in- cluding for current and previ- ous year: Not provided. 9. Explanation of fiscal implica- tions of policy changes: Not provided. PI-7: Extent of Unreported Government Operations but 100% are remitted to the State Funds Account (SFA). The Ministry of Public Works has 140 Other 127. The extent of unreported government operations Accounts for receipts from works, maintenance determines whether or not fiscal reports provide income, cement sales, housing rental fees, etc. a complete picture of central government revenue, The Ministry of Education has Other Accounts expenditure, and financing. In Myanmar ’s for dormitory fees, its MBA program, as well case there is a high degree of extra-budgetary as others under the Planning Department. The expenditure that is not included in fiscal reports Myanmar Oil and Gas Enterprise have 14 Other while, at the same time, there is limited information Accounts, including for oil fields, and all of the on development partner-funded projects included enterprises receipts are retained in their Other in fiscal reports. These limitations result in a score Accounts. Anecdotal reports indicate that some of D+ for this indicator. of the Ministry of Defense’s Other Accounts are used for commercial operations (farming, factories, (i) The level of extra-budgetary expenditure which is not etc.). The Ministry of Communications is also included in fiscal reports reported to have significant resources held in Other Accounts. The Ministry of National Planning and 128. There are some sources of budgetary operations Economic Development has Other Accounts for that are not included in fiscal reports. The main donor-funded projects (e.g., from UNDP). source is special accounts, known as “Other Accounts� held in the Myanmar Economic Bank, 131. The Ministry of Defense holds the largest number which are not fully reported in fiscal reports. of Other Accounts, followed by the Ministry of There may also be other sources and uses of funds Health. The total number of Other Accounts (as of which are managed outside of the official process June 2012) held by ministries at the Union level was entirely (i.e., outside of MEB), but this report 8,417 and at the state/regional level was 176. The does not have any detailed information on those total number of Other Accounts (as of June 2012) (and accounts outside of MEB are not permitted held by SEEs at the Union level was 4,319 and at the under the Financial Regulations). The Office of state/regional level was 517. The grand total is thus the Auditor General has surmised that there may over 13,400. All Other Accounts held by MEB are indeed be accounts held outside of the MEB and in kyat. Special accounts for ministry own-source that some revenues generated from joint ventures, revenue denominated in foreign exchange can be as well as from natural resources, could also be held in the Foreign Exchange Trade Bank. extra-budgetary. 132. Other Accounts also saw significant resource flows, 129. “Other Accounts� are essentially accounts held by as shown in Table 10, with the state/regional level ministries and SEEs20 in the MEB for management accounting for only a miniscule share of resources. of their own-source revenues. The Financial These figures do not represent the total balance in Regulations explicitly only allow the Ministries of Other Accounts, however, as previous fiscal year Defense and Home Affairs to open OAs (without balances are carried forward, a provision which MFR permission), but the regulations have been underscores the extra-budgetary nature of these interpreted to allow the MFR to grant permission funds (as revenue received in a fiscal year is not to open OAs to other ministries upon request. necessarily spent in the same fiscal year). FY2011- 12 data from MEB and the Budget Department 130. By definition the funds held in OAs are extra- show total Other Account receipts of 2.54 trillion budgetary (in that they are not reported on or kyat, which is 44 percent of total budgeted revenue, accounted for in budget documentation). Sources and expenditures of 2.26 trillion, which represents of own-source revenues include: user fees, 28 percent of total budgeted expenditure. What revolving funds, trust fund/community donations, is not clear is the distribution of these funds, that etc. The Ministry of Health, for example, has is, how much is held in SEE accounts versus line 427 Other Accounts, which are used for receipts ministry accounts (this is relevant because SEEs from community cost sharing, hospital equity are not included in the analysis of this indicator). funds, and interest on trust funds (each of the 330 Still, based on discussions with officials, it seems townships has an Other Account). The Ministry likely that level of unreported extra-budgetary of Energy has 3 Other Accounts (in Singapore), expenditure of line ministries constitutes more than 10 percent of total expenditure. 20 According to the methodology, public business enterprises are not in- cluded in the definition of “government operations� for the purposes of this indicator. Therefore, SEEs are not considered in this analysis. 42 Public Financial Management Performance Report 43 Table 10: Other Accounts: Deposits and Withdrawals at the Union and State/Region Levels, April-June 2012 (Kyat, bln) April May June Quarterly Total Union Government Deposit 1,216.254 856.009 877.439 Withdrawal 199.000 505.552 570.487 States/Regions Deposit 1.776 6.137 27.528 Withdrawal 0.675 2.17 5.68 Total Revenue 1,218.03 862.15 904.97 2,985.14 Total Expenditure 199.68 507.72 576.17 1,283.56 Source: MEB. 133. Ministries can use the funds in their OAs while the remaining share is deposited in the very freely, though SEEs cannot. Revenue and State Funds Account (SFA). For example, in the expenditure from Other Accounts is not shown in case of hospital charges 50 percent are deposited the Government’s budget data, so it is not known in Other Accounts and 50 percent in the SFA. It for what purposes ministries use OAs. In the case is not clear on what basis that allocation of funds of MOH, for example, spending decisions are made was determined. by each Township Medical Officer. Some share of spending is dedicated to staff remuneration 135. OA fund flows are reported by MEB branches (via (via a staff welfare fund), as well as supplies Form 5) directly to the Central Bank of Myanmar and maintenance. It is not clear if there are any and not to the MEB’s head office, nor to the guidelines on uses of Other Account funds in Budget Department (though the CBM provides MOH. Due to cases of mismanagement of Other a statement on these accounts to the Budget Accounts uncovered by the Auditor General, Dept.). The Budget Department thus does not including in MOH, Township Medical Officers are have a consolidated view of the stocks and flows now required to submit to the ministry spending of these funds by budget head. It is important to reports, which are then audited by the Auditor note that given these reporting arrangements, General. The Auditor General has identified it would be possible for information on Other management of OAs as a source of high fiduciary Account to be included in the budget. Unlike risk and the issues in MOH are likely to be present in many countries where bringing off-budget in other ministries as well. accounts onto the budget are a major challenge, Myanmar is well placed to significantly reduce 134. It is not clear how ministerial income becomes the extent of unreported government operations. defined as own-source revenue. There are some However, given the current situation, with the ongoing discussions between the Government and level of unreported extra-budgetary expenditure the Auditor General about how that determination (other than donor projects) constituting more than is made and whether there are some cases where 10 percent of total expenditure, this dimension is own-source revenues should be redefined as rated as D. normal budgetary revenue. Moreover, not all own- source revenues are necessarily deposited in Other 136. While not extra-budgetary in the sense of this Accounts. In some cases, determined percentages indicator, it is worth noting that there is a class of these revenues are deposited in Other Accounts of capital expenditures known as “Special Development Projects (SDPs),� which are managed information is rather uneven, and the FERD under the Office of the President and do not follow does not yet make that information available to the normal budget calendar. The allocations and the Budget Department. Some in-kind receipts management of these projects is determined by the (such as medicines provided by UN agencies) higher authorities. Some examples of current SDPs are included in ministry reports on grant receipts include the Yangon-Mandalay highway project, as well. The National Planning Act (Annex II) the ASEAN integration project, and preparations includes projects by sources of funding, including for hosting the SEA games. ODA grants. The Ministry of Health, in particular, seems to have a relatively well-developed system (ii) Income/expenditure information on donor-funded for capturing and reporting on donor grants. The projects which is included in fiscal reports fact that the largest share of grant support (about ¾ in FY2011/12) is allocated to the Ministry of 137. The other dimension of this indicator analyzes Health indicates that it is likely that about 50 donor-funded income and expenditure included percent of grant-financed ODA is included (in in fiscal reports. Myanmar performs well on some form) in fiscal reports. However, it should the inclusion of external borrowing in regular be emphasized that “complete� information is not fiscal reports. The Foreign Economic Relations included in the fiscal reports and that the quality Department (FERD) in the MNPED is charged of these data is likely in need of strengthening, as with management of all external assistance. The both projections in budget documents and actual MFR is empowered to borrow, but decisions spending amounts in execution reports. NGO about borrowing – amounts, sources, ministerial financed activities, however, are not reported at beneficiaries – are made by high level committees all in the government’s fiscal reports. involving the President and ministers. External borrowing is reserved only for capital projects and 140. In sum, this dimension is rated as C, given that all projects are included in the development plan complete income/expenditure information for all (as part of the national planning act). The annual loan financed projects is included in fiscal reports. budget law contains aggregate levels of capital spending (including loan-financed) by ministry and the aggregate amount of external borrowing by ministry as well. Ministries and SEEs report on external loan movements (disbursements, interest payments, etc.) on a weekly basis to the BD, which compiles a report and provides it to the minister. It is worth noting that the rules governing external borrowing are internal procedures of the MNPED. 138. Grant assistance to Myanmar is managed by the Grant Aid Foreign Assistance Steering Committee, which is chaired by the President with the Minister of MNPED as secretary. Previously ministries with grants had to provide budget estimates to the MNPED for planning purposes. Starting in FY2013/14 ministries are also required to provide grant estimates to the Budget Department during the annual budget process and the budget law includes aggregate estimates of grant revenue and expenditure by ministry. This change was made at the request of the Parliament. Still, the process is new and grant coverage in the budget is presently incomplete, partly because development partners do not always provide estimates of grant funding for the coming fiscal years. 139. Ministries are also supposed to report to the FERD on a monthly basis on their grant revenues and expenditures, but the flow and quality of 44 Public Financial Management Performance Report 45 Indicated Framework Dimension Analysis Evidence Used Score Definition (i) The level of extra- The level of Other Accounts, D The level of F i n a n c i a l budgetary expenditure which are not reported u n r e p o r t e d Regulations, 1986; which is not included in in budget preparation extra-budgetary data tables from MFR fiscal reports or execution, though expenditure (other and MEB. are recorded by MEB, is than donor projects) larger than one quarter constitutes more of total expenditure. In than 10 percent of addition, there may be total expenditure. extra-budgetary operations in particular sectors (e.g., natural resources) and through particular arrangements (e.g., joint ve n t u r e s ) , a s we l l a s accounts held outside MEB. Though it is not possible to estimate these other operations, anecdotal evidence suggests they may be significant. (ii) Income/expenditure Information on external C Complete income/ F i n a n c i a l information on donor- borrowing is included expenditure Regulations, 1986; funded projects which is in fiscal reports for all information for data tables from MFR; included in fiscal reports loan financed projects. all loan financed and discussions and Management of grant projects is included correspondence with financing is highly uneven in fiscal reports. MNPED as well as and overall relatively weak. some development The regularity and quality partners. of data from most line ministries is in need of improvement. Overall Score D+ PI-8: Transparency of Inter-Governmental Fiscal new constitution defines to some extent the Relations demarcation of revenue collection and expenditure responsibilities between the Union Government 141. Myanmar’s intergovernmental fiscal system has and the state and regional governments, but some been in a period of flux since the new constitution provisions have not yet taken effect.22 was passed in 2008. In operational terms the assignment of functions and finances is evolving. 143. Some functions are managed exclusively by the Like with many other budgetary process indicators, Union Government, such as health and education, the system is not yet fully formed because this is whose respective ministries have deconcentrated the first full fiscal year in which the new system offices in the states and regions. Other ministries, is being implemented. such as agriculture, exist at both the Union and state/regional levels (that is, some state and 142. There is one sub-national government level, regional governments directly manage devolved comprised of seven states and seven regions (of ministries of agriculture in their respective equal status), in terms of budgetary transfers jurisdictions). The arrangement is similar for SEEs, from the Union Government.21 Each state/region some of which exist only at the Union level while is governed by a Hluttaw, or legislature. The others exist at the Union level as well as at the state/regional level. 21 There are also Union Territories, such as the capital, and Self-Adminis- tered Areas. For more detail, see the Constitution of the Republic of the Union of Myanmar, 2008, Chapter II., “State Structure,� Articles 49-56. 22 See Schedules One, Three, and Five in the Constitution of 2008. 144. This indicator is not able to be rated, due to the level). For each fiscal year an estimate is prepared fact that the third dimension cannot be rated (as of expected income and anticipated expenditure, it assesses the preparation of annual monitoring and the resulting deficit is then calculated. For reports, yet one full year of implementation of FY2012/13 all fourteen states/regions anticipate the current system has not happened yet). The budget deficits, necessitating transfers from the assessment of the first two dimensions does show Union. For example, the largest deficit (49, 240 that the system for allocating resources to states/ mln Kyat) is expected in Magwe while the smallest regions is neither rules-based nor transparent, and (4,816 mln Kyat) is expected in Kayar. At the that states/regions do not receive timely, reliable aggregate level fully 88.5 percent of the expected information on their transfers. Moreover, states/ deficits are expected to be covered by grants from regions may and do request supplementary budget the Union Government, with 11.5 percent expected allocations. These features make for an inter- to be covered by loans.23 governmental fiscal system that is not transparent about how allocation decisions are made and that 147. Though it is not clear how the grant/loan split is impedes sound budget planning. determined for each state/region, there may be a correlation between state/region income level (i) Transparent and rules-based systems in the horizontal and mix of grant/loan support. For example, allocation among sub-national governments of some states/regions (viz., Sagaing, Yakhine, and unconditional and conditional transfers from central Ayeyarwaddy) are receiving 100 percent of the government value of their expected deficits in grants, while others, such as Yangon, are expected to rely on 145. There are no horizontal allocation rules, formulae, Union grants for only 37 percent of their deficit or even guidelines for the distribution of Union financing, with recourse to borrowing authority (central) government resources to sub-national to cover the remainder. Thus there may be a broad governments (SNGs). The Finance Commission poverty-influenced guideline in the allocation of and the Union Parliament discuss and determine grants and loans. Overall, Union grants make up annual allocations to sub-national governments approximately 38 percent of total expected state/ based on budget proposals received from the regional expenditure in FY2012/13. states and regions. The process begins with state/region governments preparing budget (ii) Timeliness of reliable information to SNGs on their proposals, which are reviewed and approved by allocations from central government for the coming year their respective parliaments (as budget bills), and forwarded to the Finance Commission, which 148. Once the Union budget has been approved, the proposes an aggregate transfer for each state/ state/regional governments are notified of their region and incorporates that set of allocations allocations. The rules of the system, however, into the Union budget that is submitted to the mean that states/regions do not know their final Union Parliament for approval. The proposed allocations until the Union budget is passed by transfers, as well as the final approved transfers, Parliament, which is typically a few days before are indicated at the aggregate level, that is, as an the start of the fiscal year. In at least one case, this aggregate transfer amount to each state/region, has resulted in delays in approving a budget at the disaggregated only by the amount of grants state level. In FY2012/13 the Shan state was notified versus loan (ceilings on borrowing authority). The of its budget allocation in late March, and the state Finance Commission thus proposes state/region parliament passed the state budget on April 25, budget allocations to the Parliament, which makes 2012, meaning that the state operated without a the final decision. States/regions are also allowed to budget for nearly a month into the new FY (during request supplementary budgets. In fact, all states which time only salaries could be paid). and regions have now requested supplementary (iii) Extent to which consolidated fiscal data (at least on budgets (for both additional grants and loans) in revenue and expenditure) is collected and reported for FY2012/13. It is worth noting that final state/region general government according to selected categories budget laws are published in local newspapers. 23 Based on the loan ceiling approved in the Union budget, states/regions 146. The central transfers are calculated based can contract loans through their local MEB branches. As of October 2012 exclusively on estimates of the state/regional (i.e., seven months into the FY), no states or regions had yet had recourse level operating deficits (with the exception of the to loan financing. Loans from the Union are to be contracted at 4 percent; Chin state, which is reported to receive additional other terms and conditions have not yet been determined. Outstanding state and regional/district debt obligations (historical) have been assumed grant financing due to its relatively higher poverty by the Union. SEEs under states/regions can also borrow, with states/ 46 regions providing the guarantees. Public Financial Management Performance Report 47 149. Implementation of the state/government budget national fiscal data takes place, but there is no follows the same procedures as at the Union level. evidence of detailed breakdown of the data by Each ministry at the state/region government functional and economic classification categories. level submits monthly budget reports to the state/ region budget office, which in turn consolidates 150. The states/regions are supposed to submit monthly and submits them to the Union Budget Office, reports within three months after the end of and the state/region Accountant General’s Office. the month, but thus far they are somewhat late However, the reporting format does not show (running about 4 months behind schedule). The expenditure data by functional or economic BD Head Office will prepare annual financial classification (it only contains very broad fiscal statements for states/regions, but has not yet done aggregates). Thus, some consolidation of sub- so as this is the first year of the new system. Indicated Framework Dimension Analysis Evidence Used Score Definition ( i ) Tr a n s p a r e n t a n d There are no horizontal D No or hardly any Discussions with rules-based systems in allocation rules or formulae part of the horizontal staff of the Financial the horizontal allocation for the distribution of Union allocation of transfers Commission and among SN governments government resources to from central govt. selected states/ of unconditional and sub-national governments. is determined by regions; MFR conditional transfers from However, final state/region transparent and rules reporting templates central govt. (budgeted budget laws are published based systems. for states/regions. and actual) in local newspapers. (ii) Timeliness of reliable State/regional governments D Reliable estimates on Discussions with information to SN are only informed of their transfers are issued staff of the Financial governments on their budget allocations a few after SN government Commission and allocations from central days before the start of budgets have been selected states/ govt. for the coming year the fiscal year. It is not finalized, or earlier regions; MFR clear how reliable state/ issued estimates are reporting templates region budget submissions not reliable. for states/regions. (bills) are for planning and budgeting purposes. (iii) Extent to which As this is the first year of N/A consolidated fiscal data the new system, no annual (at least on revenue and reports have yet been expenditure) is collected produced. and reported for general govt. according to selected categories Overall Score D PI-9: Oversight of aggregate fiscal risk from other allow the “top down� to reinforce the “bottom up� public sector entities in a positive way. Line ministries hold significant virement powers, for example, and determine 151. One of the likely consequences of a fiscal system in their own procurement systems, but are not as much flux as Myanmar’s is a probable increase always subject to clear laws and procedures for in the amount of fiscal risk. In addition to the implementing their budgets and reporting on the sweeping changes that have taken place at the results of their spending. States and regions do political and constitutional level, many material not have clarity about the total amount of annual changes have also been made in the operations funding available to them. SEEs are now operating of SEEs and sub-national governments (SNGs). under new, more commercial arrangements, but Broadly speaking, there has been considerable now also have the authority to borrow, yet still decentralization of fiscal authority to ministries, have narrow reporting requirements and are not states/regions, and state economic enterprises, but subject to robust central oversight. without all the controls and standards that would 152. These major systemic changes increase the for SEEs and ministries to the Minister of Finance likelihood of fiscal risk for four main reasons. and Revenue. First, the internal control environment is still relatively weak. For example, the internal audit 155. The new more commercial orientation starting this function is only now being established in line FY only provides SEEs with 22 percent of their ministries and the capacity in SEEs varies. Second, current approved budget. SEEs are authorized, the central oversight function is narrow and however, to borrow up to 78 percent of their annual underdeveloped. Third, there is a lack of a strategic approved budget allocations. It is unclear how this approach to public financial management, with rule will work in practice, nor how Government central oversight agency engagement focusing will monitor the fiscal risks that could arise. SEEs more on low value processes and much less on operating at the sub-national level can also borrow, analysis of results and impact. Lastly, public fiscal subject to approval of state/regional governments, information is quite limited, reducing the chances which would provide the guarantees. of meaningful public engagement on these issues. 156. OAG audits SEE accounts but the annual coverage (i) Extent of central government monitoring of autonomous rate is not known (but is not complete). OAG’s government agencies and public enterprises method is to sample audit each type of expenditure (recurrent and capital) and assets for each SEE. The 153. This dimension assesses the extent to which OAG reviews SEE internal audit reports (which are autonomous government agencies and SEEs submit not provided to the parent ministries) biannually. regular fiscal reports to the central government, the OAG also reviews all SEE financial statements extent to which those accounts are audited, and every year. whether or not the central government produces 157. One of the major contributors to the C score here is a consolidated report on fiscal risk. In brief, in the fact that a consolidated report on total fiscal risk the case of Myanmar, SEEs do submit regular from the point of view of the Union Government is reports to the MFR, though those reports tend to not produced. The lack of such an analysis leaves be quite limited in terms of the information, data, the Government open to a potentially significant and analysis provided (autonomous government blind spot (for example, as pertains to operational agencies, as defined in this indicator, are not losses, payment arrears, or possibly even debt significant entities in Myanmar). At the same defaults). time there is audit coverage of SEEs, though it is not complete. More challenging is the absence 158. Another source of fiscal risk emanates from of a consolidated fiscal report produced by the possible contingent liabilities from public-private central government, indicating that any data that partnerships (PPPs). MOGE, for example, has is available from individual SEEs are not treated joint ventures (production sharing arrangements) comprehensively. This analysis thus indicates a with foreign oil companies, which operate C rating, as most SEEs submit fiscal reports to under the foreign investment law, which has the central government at least annually, but a just been revised, under the management of the consolidated overview is missing or significantly Myanmar Investment Committee. The Ministry incomplete. of Construction is also reported to have Build- Operate-Transfer (BOT) arrangements for some 154. SEEs provide monthly fiscal reports to the highways. The Ministries of Transport and concerned parent ministries, which provide them Communications are reportedly looking into new to the MFR. SEEs do not regularly or usually PPPs. At present MFR does not undertake regular provide any reporting aside from basic revenue monitoring of the possible fiscal risks from PPPs. and spending data. SEEs by and large do not In the absence of a sound, clear legal framework, appear to set financial targets for monitoring these few existing and planned PPPs could become purposes. There is some evidence that some a major new source of fiscal risk. SEEs report against operational targets (e.g., the Myanmar Oil and Gas Enterprise (MOGE) has (ii) Extent of central government monitoring of sub- production, drilling, and income targets), but it is national governments’ fiscal position unclear that this practice is widespread. The MFR also provides a weekly external loan report on 159. One of the new features of Myanmar’s PFM system disbursements, interest payments, and transfers is the separation of state and regional budgets 48 Public Financial Management Performance Report 49 from the Union budget. As part of this reform, the 160. The focus of this dimension is not, however, Union government provides loans and grants to whether SNGs can borrow, or how much, but the states and regions. States and regions are thus whether the central government has a firm able to borrow, but only with the prior approval of handle on emerging liabilities from SNGs. the Union Parliament. That is, states and regions Robust monitoring of SNGs’ fiscal positions is can only borrow up to the ceiling authorized in the tool needed by the central government to either the annual budget law or the supplementary monitor and measure this risk, which is what this budget law for a given fiscal year. As this is the first dimension rates. In Myanmar annual monitoring full year these provisions are in effect, however, it of sub-national governments’ fiscal position is is not yet clear how they are functioning in practice. significantly incomplete. States/regions do provide The fact that all states and regions requested basic revenue and expenditure data to the MFR, supplementary budgets (for additional grant and but these data are presently highly aggregate and loan financing), however, suggests that there is do not provide enough information for the MFR to actually a soft budget constraint in operation. undertake proper analysis. Nor is it clear to what If states/regions overspend in-year then ask for extent (if at all) the Union Government monitors supplemental grants and loans to subsidize their states/regions’ fiscal positions in order to detect operations, there could be non-trivial fiscal risks possible risks (of operational losses, payment developing for the Union Government. Moreover, arrears, debt defaults by sub-national SEEs, etc.). the fact that the loan terms have not yet been These characteristics would result in a rating of D stipulated also adds to the possible risk. However, for this dimension. However, as a full year has not it is too early to tell whether this is a significant yet passed, the dimension cannot yet be rated. concern or not. Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Extent of central SEEs provide monthly fiscal C Most major AGAs/ Monitoring reports government monitoring of reports to the concerned PEs submit fiscal from selected SEEs; autonomous government parent ministries, which reports to the discussions with agencies and public provide them to the MFR. central government MFR and selected enterprises A consolidated report at least annually, SEEs. on total fiscal risk from but a consolidated the point of view of the overview is missing Union Government is not or significantly produced. All SEEs do have incomplete. annual audited accounts. (ii) Extent of central States/regions must get N/A As FY2012/13 is Discussions with government monitoring of prior approval from Union the first full year MFR, and selected sub-national governments’ Government to borrow, of devolved state/ SEEs and states/ fiscal position but the Government does region budgets, regions. not yet monitor the fiscal technically it is not positions of states/regions possible to rate on a regular basis. this dimension, as it refers to annual monitoring (and a full year has not yet passed). Overall Score C PI-10: Public Access to Key Fiscal Information (iii) Year-end financial statements 161. The Union Government has become more 165. The criteria for this element require that (a) transparent in 2012. The most notable event with statements are made available to the public regard to the budget process was the publication through appropriate means and (b) are made of the FY2012-13 budget. This new openness available within six months of completed audit. is consistent with experience from around the Such statements have not been provided to the world which shows that broad public engagement public during the period under review. There in government budget processes can promote are no legal or regulatory requirements for such improvements in governance and reductions in publication. The Central Statistical Office does, poverty when people have information, skills, however, include summaries of budgetary out- and opportunities to participate. PI-10 measures turns in its annual Statistical Yearbook. These are the first of these criteria, public access to key fiscal reported with a two year lag. information presented in and understandable and meaningful manner. (iv) External audit reports 162. The number of listed elements of public access to 166. The criteria for this element are that (a) all reports information that are fulfilled: on central government consolidated operations are made available to public through appropriate (i) Annual budget documentation means and (b) within 6 months of completed audit. Such reports have not been provided to the public 163. The criteria for this element are that (a) a complete during the period under review. There are no legal set of documents can be obtained by the public or regulatory requirements for such publication. through appropriate means and (b) this is made possible when the budget is submitted (v) Contract awards to the legislature. The Union government did publish a summary of the 2012-13 budget in 167. The criteria for this element are that (a) the award national newspaper on March 30, 2012. This was of all contracts with value above approximately accomplished after, rather than when, the budget US$ 100,000 equivalent are published and (b) are was submitted to the parliament in January 2012. published at least quarterly through appropriate This is consistent with Article 89 of the 2008 means. Contract awards have not been provided Constitution requiring that the proceedings and to the public during the period under review. There the records of the parliament shall be published. are no legal or regulatory requirements for such In addition, Article 214 requires that the President publication. shall sign the laws passed and enacted by the Pyidaungsu Hluttaw and said signed laws shall (vi) Resources available to primary service units be promulgated in the Official Gazette. There are, however, no constitutional or regulatory 168. The criteria for this element are that (a) information requirements that budget proposals submitted to for primary service units with national coverage the parliament shall be published. in at least two sectors (such as elementary schools or primary health clinics) is publicized through (ii) In-year budget execution reports appropriate means; and is publicized (b) at least annually, or upon request. This kind of information 164. The criteria for this element require that (a) within- has not been publicized on a regular basis or on year budget execution reports are routinely made demand during the period under review. There available to the public through appropriate means are no legal or regulatory requirements for such and (b) are made available within one month of their publication. completion. Such reports have not been provided to the public during the period under review. 169. Given the assessment above, a score of D is There are no legal or regulatory requirements for assigned. The Government did not make available such publication. The MFR does, however, produce to the public any of the six types of information quarterly budget execution reports that are shared listed above. with the Financial Commission and Parliament. 50 Public Financial Management Performance Report 51 Indicated Framework Indicator Analysis Evidence Used Score Definition PI-10: The number of The government did not D The government Review of the legal listed elements of public make available to the makes available to and regulatory access to information that public any of the six types the public none of f r a m e w o r k , are fulfilled: 1) Annual of information listed above. the 6 listed types of supplemented by Budget; 2) In-year budget information. discussions with the r e p o r t s ; 3 ) Ye a r- e n d authorities. financial statements; 4) External audit reports; 5) Contract awards larger than $100,000; 6) Funding resources to primary service units in at least 2 sectors such as elementary schools and primary health clinics Overall Score D 3.3 Policy-based budgeting the recurrent costs of investment decisions and anticipates the funding requirements for multi- 170. Government targets are more likely to be achieved year procurement so that each subsequent budget when budgets are prepared in a manner that is is supportive of current policies. deliberately supportive of government policies. Successful budgets need to be consistent with 171. The budget process in Myanmar is largely aggregate fiscal targets, while also ensuring guided by prior practice. Although officials that key sectors and activities receive adequate have clearly defined roles and understand their resources that can be used efficiently to meet policy responsibilities well, there is little guidance in goals. Such budgets are more likely to emerge existing laws and regulations. For the period when all key members of the political leadership under review, ministry spending proposals have as well as technocrats from the SAOs, ministries, generally been made independently of any central and SEEs are able to participate in an orderly, coordination regarding future resource availability well informed budget process. This requires an or constraints. Macroeconomic forecasts are not integrated top-down and bottom-up budgeting routinely shared with the line ministries nor are process, involving all parties, in accordance with they used to help determine aggregate expenditure a pre-determined budget formulation calendar, ceilings for current and future years. Major with adequate time to review and debate various policy decisions or options are not required to budget proposals in the context of government be fully costed in terms of estimates of forward policy objectives. This is often best done in a expenditures and are not required to be described multi-year framework that facilitates planning for in sector strategy documents. Table 11: Summary of Key Steps in the Budget Process Used in FY2012 Budget for FY2012-13 Revised Budget for FY2011-12 August Preparation of instructions and budget estimate Distribution of requests about the need for forms for the next fiscal year revised recurrent and capital budget allocations for the ongoing fiscal year Distribution of instructions and recurrent and capital budget calendars for the next fiscal year September Preparation by SOAs, line ministries and SEEs Preparation by SOAs, line ministries and SEEs of revenue and expenditure estimates of improved revenue and expenditure estimates October Transmission of proposals to MFR and MNPED Transmission of proposals to MFR and MNPED Negotiations between MFR, MNPED, ministries Negotiations between MFR, MNPED, ministries and SAOs and SAOs Preparation of draft budget Preparation of draft improved estimates November Review by Union Ministers for MFR and Review by Union Ministers for MFR and MNPED MNPED Review by Vice President (1) Review by Vice President (1) December Review by Financial Commission Submission of revised budget to Parliament Review by the Office of the President Submission to Parliament January-March Parliamentary debate and modification Parliamentary debate and modification End-March Parliamentary adoption Parliamentary adoption 172. The Union budget process is decentralized, supplemental budget and the budget for the next with the SAOs and line ministries setting their year are submitted almost simultaneously. The own budgetary ceilings and devising their own result is that Parliament is essentially presented expenditure proposals. Budget proposals are with two budgets for their consideration: an organized along administrative lines, by ministry improved budget for the fiscal year coming to a and department, rather than by programs, close and a new budget for the impending new activities, or outputs. The BD is responsible for fiscal year. collating and consolidating the recurrent budget. It is also responsible for the foreign exchange 173. The budget formation process is expected to begin budget which was still in place in 2012 despite the around August when the Budget Department and steps taken toward exchange rate unification in the MNPED issue their budget calendars. In the 2012. The MNPED is responsible for collating and case of the FY2012-13 budget, this initial phase consolidating the capital budget. It also reviews began late due to the various changes associated all investment proposals prior to entry into the with separating the Union, state, and regional budget.24 The process is hierarchical with five levels budgets and the Parliament’s new role. The process of scrutiny before the draft budget is submitted to of internal review is expected to be conducted in the Parliament for debate and eventual adoption November and December. Parliamentary debate immediately prior to the start of the next fiscal year. and adoption are expected to take place between Toward the end of the fiscal year, the authorities January and March. The FY2012-13 budget was devise an “improved� set of budget estimates received by Parliament on January 17, 2012 and which are presented to parliament for approval adopted on March 28, 2012. There are more than in the form of a supplemental budget. The 20 committees in Parliament, each reviewing the expenditure programs under their jurisdiction. 24 Under the old system, it also reviewed spending plans for construction Some budget hearings are broadcast on television. and for the purchase of capital equipment. 52 Public Financial Management Performance Report 53 PI-11: Orderliness and Participation in the Annual Budget Process the case of Myanmar, this last criterion cannot 174. The orderliness of participation in the budget be met because there is no budget call circular formulation process is measured by PI-11. The with indicative recurrent and capital expenditure degree of the orderliness of participation will affect ceilings for ministries, SAOs, and SEEs that the extent to which the budget will reflect macro- were approved by the cabinet or the Financial economic, fiscal and sector policies. In the case of Commission.27 Instead, the line ministries set their Myanmar, orderliness is generally high while the own recurrent ceilings, informed by average cash degree of participation is increasing. outcomes from the previous three years and known adjustments to personnel rolls, in negotiation with (i) Existence of and adherence to a fixed budget calendar MFR. Capital expenditure ceilings are set by MNPED but these are not pre-approved by the 175. For the last budget approved by the Parliament, cabinet. Adjustments are made to these proposals 2012-13, a budget calendar was issued by MFR in by MFR to ensure that spending allocations are October 2011 for the preparation of the recurrent consistent with macroeconomic targets. Changes and capital budgets as well as the revised budget. in the resulting proposals can be made by the A summary of the key steps included in the budget Financial Commission prior to submission to the calendar is also posted on the MFR website25 Office of the President and then the Parliament. but it does not include dates. The calendar was 178. Based on the analysis above, a score of D is supplemented by additional instructions from indicated for the second dimension: a budget call the MNPED regarding the capital budget.26 The team was not provided with any information circular is not issued. regarding a calendar for the formation of the (iii) Timely budget approval by the legislature or similarly foreign exchange budget. The actors in the budget mandated body (within the last three years) preparation process knew in advance what their roles would be and they had a general sense of 179. The budgets for 2012-13 and the previous three the timing of the different stages of the process. years were approved in the month of March Despite this, in conformance with PEFA evaluation before the April 1 start of each new fiscal year. For guidelines, this budget calendar is considered example, the budget for 2012-13 was approved on rudimentary because it is not formally set out in 28 March 2012. A score of A is therefore indicated the applicable laws and regulations. Ministries, for the third dimension: the budget was approved SAOs, and SEEs were allowed only three weeks to before the start of each fiscal year for the last three complete their detailed estimates for the 2012-13 years. Based on the analysis above, an overall score budget due to the transitional challenges described of C is indicated. earlier in the report. 180. Changes made in 2012-13 have significantly 176. Based on the analysis above, a score of C is indicated enlarged the scope of people who are involved for the first dimension: an annual budget calendar in the budget process. During the period under exists, but is rudimentary and substantial delays review, the State Peace and Development Council may often be experienced in its implementation, provided strategic guidance to all levels of and allows MDAs little time to complete detailed government. It also reviewed budget proposals estimates. and approved the annual recurrent and capital (ii) Clarity/comprehensiveness of and political involvement budget allocations and the subsequent improved in the guidance on the preparation of budget allocations at the end of each year. Under that submissions (budget circular or equivalent) system, the government also operated a foreign exchange budget backed by a dual exchange 177. The second dimension of the assessment focuses rate system. As noted in the introduction to on to what extent clear guidance on the budget this report, the formation of the 2012-13 budget process is provided in the budget circular and was conducted under a new regime dictated budget formulation manual, including indicative by the 2008 Constitution. Most fundamentally, budgetary ceilings for administrative units or the role of the SPDC has been largely replaced functional areas approved by the cabinet. In 27 As noted in PI-12, the recurrent and capital budgets are determined sepa- 25 http://www.mofr.gov.mm/dept_bud_04.html rately before joint submission to Parliament. There are no legal or regula- 26 The team was not provided with a copy of the documents from MFR tory requirements that recurrent and capital estimates should be linked in and MNPED. any way. by the Parliament although the newly created new process treats the budgets of the states and Financial Commission will retain important roles regions as being separate and distinct from the in setting strategy and clearing budget proposals central, Union budget, thus enlarging the role and for Parliamentary approval.28 In addition, the responsibilities of local government. Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Existence of and For the last budget An annual budget Summary of adherence to a fixed budget approved by the Parliament, calendar exists, budgetary process calendar the budget calendar was but is rudimentary provided by not dictated by laws or and substantial the authorities, regulations. Ministries had delays may often interviews with to rush in order to meet the C be experienced in authorities in MFR deadlines. its implementation, and MNPED. and allows MDAs little time to complete detailed estimates. (ii) Guidance on the No call circular with A budget circular is I n t e r v i e w s w i t h preparation of budget spending ceilings was not issued. authorities in MFR submissions issued for the last budget D and MNPED. approved by the Parliament. (iii) Timely budget approval The budgets in the last 3 The legislature has I n t e r v i e w s w i t h by the legislature years were all approved not existed for the authorities in MFR before the start of each past three years, and MNPED. fiscal year. yet a “similarly A mandated body� did: the State Peace and Development Council. Overall Score C+ PI-12: Multi-year Perspective in Fiscal Planning, (i) Preparation of multi-year fiscal forecasts and functional Expenditure Policy and Budgeting allocations 181. Many expenditure policy decisions have multi- 182. MFR and MNPED do not make forward estimates year implications. Those decisions will be of any fiscal aggregates beyond the next fiscal year. successfully executed only when the costs are well Line ministries do not receive annual guidance aligned with the availability of resources in the on what to expect in outer years for indicative medium-term perspective. To make this judgment, expenditure ceilings, resource constraints, or the authorities will need multi-year fiscal forecasts expected inflation. MNPED does, however, prepare of revenues, external grants, and knowledge of a five year National Plan that includes a forecast how much domestic and external borrowing can of a few key macroeconomic variables. Based on be pursued without doing harm to policy goals the analysis above, a score of D is indicated for for inflation, exchange rate management, and debt the first dimension: no forward estimates of fiscal sustainability. Similarly, recurrent expenditure aggregates are undertaken. estimates should be informed by knowledge of the operating and maintenance costs of installed capital. 28 See sections 221 and 229-30 of the Constitution. 54 Public Financial Management Performance Report 55 (ii) Scope and frequency of debt sustainability analysis not meet the PEFA definition of being costed: the criteria require that costs are arranged by programs 183. The legal and regulatory framework does not and by economic categories within programs with require any government office to conduct debt main parameters and assumptions stated. A score sustainability analysis exercises. The government of D is therefore indicated for the third dimension: did, however, recently complete such an exercise sector strategies may have been prepared for in collaboration with the IMF as part of the 2011 some sectors, but none of them have substantially Article IV Consultation. The results were published complete costing of investments and recurrent on March 2nd, 2012. A score of B is therefore expenditure. This limits the ability of planning indicated for the second dimension: a DSA for efforts to influence future budgets. external and domestic debt was undertaken at least once in the last 3 years before this assessment. (iv) Linkages between investment budgets and forward expenditure estimates (iii) Existence of sector strategies with multi-year costing of recurrent and investment expenditure 185. Recurrent and capital budgets are determined separately before joint submission to Parliament. 184. The Government uses five-year national plans There are no legal or regulatory requirements that and underlying five-year sector plans. The plans recurrent and capital estimates should be linked include estimated recurrent and capital costs in any way. A score of D is therefore indicated for arranged by administrative units. As there are the fourth dimension: budgeting for investment no forward estimates for fiscal aggregates, costs and recurrent expenditure are separate processes assigned to administrative units are usually with no recurrent cost estimates being shared. constructed by inflating prior year allocations Based on the analysis above, an overall score of D by expected nominal GDP growth. The plans do is indicated. Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Preparation of multi- MFR and MNPED do not D N o f o r w a r d Interviews with year fiscal forecasts and make forward estimates estimates of fiscal authorities in MFR functional allocations of any fiscal aggregates a g g r e g a t e s a r e and MNPED. beyond the next fiscal year. undertaken. (ii) Scope and frequency of A DSA was completed in B A DSA for external IMF, 2011. Article debt sustainability analysis 2011 in collaboration with and domestic debt IV Consultation, the IMF as part of the 2011 was undertaken at Country Report Article IV Consultation. least once in the last 12/104. 3 years before this assessment. (iii) Existence of sector Plan costs are not arranged D Sector strategies may Interviews with strategies with multi-year by programs and economic have been prepared authorities in MFR costing of recurrent and categories within programs, for some sectors, and MNPED. investment expenditure with main parameters and but none of them assumptions stated. have substantially complete costing of investments and recurrent expenditure. (iv) Linkages between There are no legal or D Budgeting for Review of financial investment budgets and regulatory requirements i n ve s t m e n t regulations and forward expenditure that recurrent and capital and recurrent interviews with estimates estimates should be linked expenditure are authorities in MFR in any way. separate processes and MNPED. with no recurrent cost estimates being shared. Overall Score D+ 3.4 Predictability and control in budget thereby, in effect, monetizing any cash shortfalls, execution but also adding to inflationary pressures. As policy changes in the direction of more clearly 186. Spending bodies have a reasonable degree of separating monetary management from public predictability about the resources available to them finance management the current lack of effective in terms of the original budget assigned to them cash flow and commitment planning systems for each year. Quarterly limits on spending are set will need to be addressed. Risks will need to for recurrent spending (though not for capital), but be identified and cash and debt will need to be the spending bodies set these limits themselves managed in a more integrated and strategic way based on the phasing of their expenditure plans. than currently happens. Much more of a balance They do face the risk that if they do not spend will need to be struck between giving spending these quarterly limits, the unused balance will bodies predictability and managing the availability be removed from their budgets for the year as a of resources. How this is managed in practice is whole. But they are in a position to manage that likely to have a profound implication for both risk by, in the first place, avoiding over estimating predictability of spending bodies in being able to and then seeking increases in the limits later in the make payments and for the effective operation of control systems generally. quarter if necessary. 191. The Financial Regulations (FRs), and their related 187. Payment processes are not overelaborated and instructions, the OoSa and HtaSa, dealing with payments can be made efficiently through the transaction control and reporting, are somewhat network of MEB branches with a minimum of out of date (last revised in 1986 in the case of FRs). delay and without centralized vetting from MFR. The financial regulations are recognized as being MEB works with the CBM to ensure that cash substantially out of date. As such, they do not fully is available through its network of more than reflect current practice other than in a general way. 300 branches and cash outages have not been In addition, there are even older regulations used a problem in recent years. Total cash held in that deal with specific issues and situations; some the branch network is reported daily although of these go back to the 1950s. Their legal status consolidation, in effect, only takes place monthly. is unclear although they continue to be used as 188. The situation where transactions involve foreign the basis for practice. The finance department currency remains more constrained. Requirements in each spending body appears to play a key in this respect must be identified in advance and role in deciding which mix of rules is adopted additional approval sought when the payment is within its organization. The arrangements are due. The processes required can be cumbersome thus somewhat ad hoc, differing from ministry and time consuming adding to difficulties in to ministry. Moreover, the regulations are open managing budget execution, although these to interpretation by financial management procedures are under reconsideration. officials and it is not clear the regulations are well understood throughout ministries and states/ 189. However, the lack of systematic and comprehensive regions. commitment/discharging recording in most spending bodies leaves them vulnerable in 192. But the emphasis is on the controlled processing of predicting and controlling the flow of payments transactions and the avoidance of overspending of in a cash based budgeting system. Payments may budget provision rather than broader accountability bunch or get carried over to another period or for the effective use of resources. The lack of linkage year in an unpredictable way causing additional between plans and budgets means that expected budget management pressures. Furthermore, results are not clearly defined. Classification and the large scale and late timing of supplementary reporting systems are focused on identifying budget approvals made in recent years has meant the spending unit and the nature of the input that provision to address additional pressures or rather than the objectives of the expenditure or to tackle new initiatives has not been certain until what it is intended to achieve. The result is that the final few months of the year. compliance tends to focus on observing technical process rather than the quality of the expenditure 190. Although cash shortages that cause disruption in in achieving policy goals. the flow of payments have been avoided in recent years, this has been partly achieved by the CBM 193. Detailed financial management is highly delegated stepping in to buy Treasury Bills when necessary, to ministries and spending units at different levels 56 Public Financial Management Performance Report 57 within them. Resources are cascaded down to arrangements for procurement based on greater departments (or SEEs) within ministries and use of open competitive tendering have improved further down to deconcentrated units within this situation. local townships in the case of the larger ministries providing services directly to the public. Positions 196. This lack of assurance exposes the control system are identified at each level having responsibility for to risk and unevenness of application. Such risks budget execution and for financial management. In arise, for example, as reforms take place in the itself, delegation in this way is potentially positive wider aspects of public financial management, and is in line with modern trends emphasizing the but which, nevertheless have implications for empowerment of spending bodies closest to the the control systems, as senior staff in finance public or the service they provide to decide best departments come and go and as functions are what needs to be done. shared and re-distributed with new units of local government. The challenge remains of achieving 194. However, at the moment, this tends to be an appropriate level of assurance without delegation without the necessary assurance. The undermining the beneficial aspects of delegation. lack of centrally defined standards in areas such as payroll management and procurement does not 197. With regard to tax policy and administration, there ensure that the processes implemented at the level have been some improvements in communicating of the spending bodies observe at least minimum with taxpayers and in offering recourse to appeal procedures and controls. In many cases, these and the process of depositing tax collections minimum requirements are either not defined or into the Union Fund Account is sound. But the the current status of old regulations is not clear. For predictability of the flow of tax revenues continues example, procurement was recently released from to be affected by weak collection systems, the central control by the Ministry of Commerce and existence of tax incentives and discretionary delegated to spending bodies giving them at the powers with regards to them applied by different same time a clear instruction to increase the use of administrative bodies and levels, weaknesses in open competitive tender. But each spending body the compliance management system, and high was left to develop its own detailed procedures values of on-going arrears and considerable and systems for doing that. administrative negotiation surrounding the handling of those arrears. Partly as a result, tax 195. There is little feed back to MFR, other than through collection has remained very low at around 3-4 the reports of the OAG, about the observance percent of GDP in recent years. of minimum requirements (even where they are defined), variations in the effectiveness of 198. There is also a lack of assurance with regard to the the control regime implemented by individual operation of tax collection systems. Although there spending bodies or statistical information such have been some improvements in the legal basis as the value of procurement processed through of taxation, a comprehensive, modern system of different procurement techniques. The lack of laws and regulations is still yet to emerge. Taxpayer internal audit in many spending bodies does not registration is weak and fragmented. There is give assurance to senior management in ministries no central guidance on planning the auditing of that financial systems and processes (not just taxpayers and fraud investigation which are often individual transactions) are being conducted applied at local level and not directly controlled effectively and being adequately enforced. by central tax authorities. There is also a lack of assurance to those senior managers about the effectiveness of control at 199. In summary, spending bodies have reasonable lower levels of the resource cascade such as in security in planning the implementation of at the deconcentrated units at township level. The least their original budgets, but this must now OAG indicates that problems often occur at those be aligned with the recognized need for stronger lower levels, for example, in payroll processing commitment and cash flow controls. Basic controls and the avoidance of “ghost workers,� because it are in place and appear to operate effectively in is more difficult to achieve adequate separation many spending bodies. However, the control of duties at those lower levels. The OAG also system is under-regulated and is applied with indicates that significant problems arise with varying standards. There is insufficient assurance regards to procurement at all levels with regards to management at different levels about the to both purchasing and the letting of concessions. effective operation of the control systems applied It is too soon to be able to tell if new delegated in the areas for which they are responsible. PI-13: Transparency of Taxpayer Obligation and 203. The Government has recently embraced a major Liabilities overhaul of the tax system. Systemic analysis of equity and revenue impact of the amendments to 200. Myanmar’s current tax structure comprises 15 tax policy, however, has not been conducted. In types of direct and indirect taxes and customs particular, the Government has not conducted a duties. Various institutions, including the Internal tax expenditures analysis to measure the revenues Revenue Department (IRD), Customs Department foregone due to fiscal incentives and changes to (CD), and the Ministry of Home Affairs General the statutory tax structure. For the tax year starting Administration Department (MOHA-GAD) are April 2012 the Government has amended major in charge of collection of tax revenues. The IRD, tax laws with the following changes: CD and MOHA-GAD are centralized departments with operational offices located in townships • The profit tax was repealed as it was causing across all fourteen states and regions. The IRD tax cascading. plays a major role in terms of revenue mobilization, • The commercial tax was harmonized at 5 collecting more than 90 percent of total Union percent for most goods and services. However, Government taxes. on luxury goods commercial taxes are higher – 201. The Myanmar tax system dates back to the British with a clear schedule and rates. There are plans colonial regime. Myanmar’s socialist period saw to phase out the commercial tax and introduce the promulgation of the, Income Tax Law (1974), a value added tax. Profit Tax Law (1976), and the Goods and Services • Stamp duty rates were adjusted upward. Tax (1976).29 However the system was archaic and segregated, with the profit tax applied only • Income tax bands were adjusted and extended to the private sector while the goods and services to public officials (previously public officials tax applied to the state sector. Beginning in 1988, were tax exempt). the country’s transition from a centrally planned economy to a market-oriented one was marked by • The corporate income tax rate was reduced the emergence of a more modern tax system. In from 30 percent to 25 percent for resident particular, the Commercial Tax Law was enacted companies (one rate) while the corporate rate in 1990 to replace the goods and services tax and for non-resident companies remains at 35 applied to all sectors in the economy. The income percent. tax comprises corporate income tax, individual income tax, capital gains tax and withholding tax, (i) Clarity and comprehensiveness of tax liabilities and applies to all types of taxpayers, including SEEs, cooperative societies, foreign investments, 204. Tax laws and recent amendments are clear about partnerships or joint ventures, foreigners, and taxable income and activities, bases, rates, and nationals earning an income. Prior to 2011, a the calculation of tax liabilities. Fiscal provisions separate profits tax, adopted since 1976, was for domestic and foreign direct investments are imposed on certain types of income not covered specified in relevant tax, investment, and sector under the income tax law. laws. However, a comprehensive, modern tax system is still emerging. For example, a separate 202. In addition, the legal framework that governs excise tax has not been introduced but rather is both domestic and foreign investments has lumped together with the commercial tax regime. been developed with major investment laws promulgated, including the Foreign Investment 205. A dedicated set of laws and legislation on tax and Law, Myanmar Citizens Investment Laws, Special customs administration is lacking. Although IRD Economic Zone Law, the Dawei Special Economic has been issuing directives for tax administration Zone Law, and sector laws (e.g., the Myanmar (especially inspection, assessment) since 1972, Mines Law). The country has signed double there is no comprehensive set of procedures or taxation agreements with the United Kingdom, regulations governing tax administration. The Malaysia, Singapore, India, Republic of Korea, tax base could be eroded and the determination and Vietnam. of tax liability ambiguous due to the institutional setting and fiscal incentives embedded in separate legal documents. Tax collection has remained low, hovering at just 3-4 percent of GDP. 29 Source: http://www.myanmar.com/finance/dept_ird_06.html 58 Public Financial Management Performance Report 59 206. The Myanmar Investment Commission (MIC), be strengthened. At the current stage, the service formed in 1994, manages the Foreign Investment covers mostly large taxpayers and will need to Act of 1988 and provides investment privileges reach out to small and medium businesses. The including tax incentives under Section X of this tax culture and compliance of these businesses Act.30 The Act provides for a generous set of remain particularly weak, reflected in low level incentives including: (i) tax holidays (minimum of compliance. 3 years, extendable); (ii) accelerated depreciation with full capital expensing; (iii) double deduction (iii) Existence and functioning of a tax appeals for R&D expenditures, taxes paid to foreign mechanism workers, (iv) import duty exemption for machinery and materials, including petroleum.31 In case 209. Tax appeal procedures are laid out in major investors desire to obtain further incentives, they tax laws, specifically the Income Tax Law and can discuss with the MNPED, the MFR, and the Commercial Tax Law. There are three appellate MIC. The administrative discretionary power levels. The first appellate level is the responsibility by different institutions in applying multiple tax of the Regional and State Revenue Directorate. The incentives tends to undermine efficacy, equity, and second level of appeal resides with the Revenue transparency of the tax system. Appellate Tribunal (RAT), a dedicated function at the MFR. The RAT, operating since 1954, is (ii) Taxpayer access to information on tax liabilities and independent of the IRD and includes members administrative procedures from the Supreme Court and the Ministry of Justice. If taxpayers remain unsatisfied, they can 207. A taxpayer service function has recently been request the RAT to refer the case to the Union instituted, with major improvements since early Supreme Court, the third, and final, appellate level. 2012. IRD has prepared a detailed handout on taxpayers’ obligations and liabilities for all taxes 210. While the appeal mechanism is clearly defined, under its administration. This flier presents the the treatment tends to be biased against taxpayers. tax rates, allowances, exemptions, and methods They have to pay their assessed tax liability in full for calculation of taxes. The IRD conducts taxpayer before making the case for appeal. If taxpayers outreach programs during the annual tax filing win appeal cases, in income tax, e.g., a refund will timeline from April – June. Each township be used to credit for the next year’s tax liability office of the IRD is responsible for establishing without any interest earned on the assessed refund. a public relations unit. The unit is responsible Tax laws do not specify the deadline that each for organizing tax education events including level of appeal has to reach its decision on the radio programs, workshops, and seminars, and pending cases. Interviews with the IRD indicated conducting tax awareness campaigns, especially that the revenue administration’s rate of success is when there is new change in tax policy/procedures. about 50 percent. The non-systemic treatment of While this role is undertaken by tax officers, no taxpayers in appeal combined with the low level specific or extra training is provided on how to of compliance may attribute to the low, declining exercise this function. Tax forms are available number of appeal cases: from 234 in 2008 to just for download from the Department’s website or 25 cases in 2010. obtained from public relations units. Both the IRD and CD prepare pamphlets, conduct radio programs, and have established a hot-line to answer taxpayer questions. 208. Since 2012, the pamphlets have been designed systematically and uniformly at the headquarters, replacing the previous ad hoc practice done by public relations units at township level. The IRD has recently started publishing a Revenue Journal that informs on tax news, tax knowledge, and features articles on taxation. However taxpayer service is still new to revenue agencies and has to 30 Source: http://missions.itu.int/~myanmar/t&b/invest01.html. 31 Source: http://www.yomabank.com.mm/business/CC3.htm. Indicated Dimension Analysis Framework Definition Evidence Used Score ( i ) C l a r i t y a n d Legislation and stipulated C Legislation and Income Tax Law comprehensiveness of tax p r o c e d u r e s f o r t h e procedures for (1974), Profit liabilities major tax instruments some major taxes Tax Law (1976), are comprehensive and are comprehensive Myanmar Foreign clear, but the fairness and and clear, but the Investment Law consistency of the tax fairness of the (1988), Goods system is compromised system is questioned and Services Law due to the absence of a dedicated set of tax and due to substantial (1976) – all as customs administration discretionary powers amended April 30, laws and due to substantial of the government 2012 discretionary powers of entities involved multiple government entities involved in granting tax incentives. The incentives are provided in various legal documents including major tax, investment and sector laws. Tax revenue collection remains low. (ii) Taxpayer access to Taxpayer service function B Ta x p a y e r s h a v e Taxpayer outreach information on tax liabilities has been instituted and easy access to program and and administrative improved since early 2012. comprehensive, user p u b l i s h e d procedures Taxpayers seem to have easy friendly and up-to- pamphlets for access to comprehensive, date information calculating taxable user friendly and up-to on tax liabilities income date information on tax and administrative laws and administrative procedures for major taxes. procedures for some However, the taxpayer of the major taxes, service function needs to be while for other taxes substantially strengthened the information is to reach out to micro, small limited. and medium businesses. ( i i i ) E x i s t e n c e a n d The tax appeals procedures C A tax appeals system Income Tax Law functioning of a tax appeals are transparently defined in o f a d m i n i s t r a t i ve (1974), Profit Tax mechanism. major tax laws with three procedures has been Law (1976), Goods separate appellate levels. established, but needs and Services Law The second appellate level substantial redesign (1976) – all as is referred to the Revenue to be fair, transparent amended April 30, Appellate Tribunal, which is and effective. 2012 independent of the revenue administration. The effectiveness of the appeal process is substantially limited, however, due to both its non-systematic treatment of taxpayers in case they win and the relative ease of direct negotiation on assessed tax liability between taxpayers and tax collectors at the township levels. Overall Score C+ 60 Public Financial Management Performance Report 61 PI-14: Effectiveness of Measures for Taxpayer paying directly at the designated bank (an office Registration and Tax Assessment of the MEB), keeps one copy of the chalan for own file, and returns a copy of the chalan with the 211. All resident citizens, resident foreigners, bank payment validation to the IRD; (iv) in cases corporations earning income and/or taxable where the taxpayer disputes the tax assessment proceeds of sales, engaged in trade and certain she/he can start an appeal process as stipulated types of services have to register, file returns, and in the relevant tax laws – however the assessed pay their taxes due. Registration takes place at the tax must first be paid. There are three levels of township level with stipulated form. Currently appellate available to a taxpayer: first level at in total there are 200,000 taxpayers registered in the Regional and State Tax Directorate within the the system, representing about 0.4 percent of the IRD; the second level with the Revenue Appellate population. Tribunal; and the third with the Supreme Court. (i) Controls in the taxpayer registration system 215. Tax laws establish transparent and strict terms applicable to non-compliance and tax evasion 212. Registration takes place at the township level. The in dedicated chapters dealing with offences IRD establishes annual targets for the registration and penalties. The penalties vary, from financial of new taxpayers. A taxpayer is required to register (payment of fines) to administrative (confiscation of information including name, nature of business, business properties or imprisonment). The offenses address, and national identification number and as stipulated in tax laws are comprehensive, is then issued a General Index Registration (GIR) covering all types of non-compliance (e.g., failure number. The IRD has commenced deployment to register, later/non-filing; late/non-payments of a bespoke e-Revenue system which would of taxes due; falsification of sales/purchases; and incorporate information on registered taxpayers, giving or taking bribes). For example in the case tax returns, and GIR numbers. However, at the of commercial tax, if a taxpayer does not respond present, no unified master taxpayer database has to the chalan, the applicable tax laws allow been established. As currently constituted, the the revenue agencies to impose a penalty of 10 IRD is organized by tax types and each tax-type percent on the tax amount due. The taxpayer is directorate holds an individual list of its registered then provided a deadline of two to three weeks taxpayers. to respond. In case the taxpayer does not respond to the tax penalty chalan, then the tax laws allow 213. The GIR is semi-automated and issued as a serial the IRD to go to court for confiscation of property number without any links to other government and closure of business. The property can be databases. The number is used only within a auctioned. This is the system, but in the past, the specific geographical area. It is not unique and IRD never resolved to confiscation of property as can be duplicated across regions and tax-type the previous government did not encourage the directorates. The same taxpayer may have IRD to pursue this route. From this fiscal year, the multiple GIRs if she/he operates different types IRD and CD have significant leeway in effectively of businesses in different regions. As such the GIR enforcing the system. However, extremely low is not an effective control mechanism and fails to compliance indicates that revenue administrations facilitate communication with third parties. The remain reluctant to enforce the power conferred IRD recognizes the shortcomings of the GIR and to them by the law. The latest tax filing data show is considering the introduction of a unique tax the compliance reaches just 29 and 33 percent for identification number (TIN) system. income and commercial tax, respectively. The rate remains far from satisfactory, even for large (ii) Effectiveness of penalties for non-compliance with taxpayers, administered by the Company Circle registration and declaration obligations Tax Office (CCTO, Yangon), with a total aggregate filing compliance of only 67 percent for Myanmar 214. The IRD applies an administrative assessment enterprises, foreign enterprises, and joint ventures. system. The process is as follows: (i) the taxpayer files a tax return and presents her/his financial 216. By nature, administrative assessment confines accounts to the IRD; (ii) IRD calculates the tax audit to its most rudimentary form and places liability and issues a “chalan� (tax summon) to excessive reliance on fraud investigation as the the taxpayer with a 3 week deadline for paying main instrument in enforcement. Under this the tax; (iii) if the taxpayer agrees with the tax system, taxpayers are required to file their taxable assessment then she/he settles the tax liability by sales or net income and the tax administration is responsible for reviewing and assessing the bargaining between traders and tax collectors, tax liability. If in doubt, the IRD will request the weak capacity of revenue administration, and taxpayers to submit supplemental documents the lack of central manuals or guidance on survey to justify the reported sales and income. If the methodologies to identify potential taxpayers, township tax offices suspect any falsification, they many micro/small businesses have incentives to can send other rank staff to conduct field inspection stay in the informal sector and the IRD is unable and tax liabilities can be determined on the field to capture them in the system. report. Given the procedures, tax audit amounts to 100 percent simple desk review. In customs (iii) Planning and monitoring of tax audit and fraud investigation administration, the CD’s investigation unit is programs responsible for checking the importer declarations. Inspections of assignments are conducted on 218. Both the IRD and the Customs Department have an ad-hoc basis. If fraud is found, penalties are not prepared a comprehensive set of guidelines or imposed and the CD informs both the MNPED manuals for auditing. In practice, the concept of and the Ministry of Commerce which in turn may risk based auditing is not yet practiced. In addition, decide to cancel the import permits and put the administrative assessment with overreliance importers on a black list. on field inspection creates significant room for taxpayer-tax collector interactions and associated 217. Efforts are being made to increase the number of rent seeking opportunities. The IRD intends to registered taxpayers. The IRD establishes annual switch to a Self-Assessment System together with targets for the addition of new taxpayers. However, introduction of unique taxpayer identification due to a combination of several factors, including number (TIN) and risk based auditing, and is the application of administrative assessments currently exploring how to make this transition. leading to unavoidable direct negotiation and Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Controls in the taxpayer R e g i s t e r e d t a x p a y e r s D Taxpayer registration IRD staff discussions registration system are issued General is not subject to any on the General Index Registration (GIR) effective controls or Index Registration Numbers. The GIR is not enforcement systems system unique across regions and tax-type directorates. Ta x p a y e r s o p e r a t i n g multiple businesses in different regions may have multiple GIR Numbers. The database is not linked to any other government database systems and is not communicated with t h i r d p a r t y. A m a s t e r taxpayer database has not been established. There is an absence of central guidelines for systematic periodic surveys to detect potential taxpayers. 62 Public Financial Management Performance Report 63 Indicated Framework Dimension Analysis Evidence Used Score Definition (ii) Effectiveness of penalties Offences and penalties in C Penalties for non- Income Tax Law for non-compliance with compliance with taxpayer compliance generally (1974), Profit Tax registration and declaration registration, filing and exist, but substantial Law (1976), Goods obligations payment, and integrity of changes to their and Services Law tax administration are well structure, levels or (1976) – all as defined in tax laws. Non- administration are amended April 30, compliance is subject to needed to give them 2012 various statutory financial a real impact on and administrative compliance. p e n a l t i e s . H o w e v e r, substantial improvement in administration and enforcement is needed to give them real impact. Administrative assessment creates opportunities and incentives for direct negotiation between taxpayers and tax inspectors, rendering legal provisions on tax penalties and offences ineffective, reflected in low compliance. (iii) Planning and There is no central guidance D Tax audits and fraud I R D s t a f f monitoring of tax audit or planning on auditing and investigations are proclamations and fraud investigation fraud investigation, leaving undertaken on an ad and discussions programs township offices with hoc basis if at all. with staff of discretion on conducting the compliance enforcement measures. management Tax audits amount to system 100 percent simple desk audits. The IRD and CD have not prepared uniform guidelines or manual on auditing and fraud investigation. There is an absence of risk based auditing while fraud investigations are undertaken on an ad hoc basis. Overall Score D+ PI-15 Effectiveness in the collection of tax payments previous administration, the penalty and recourse mechanisms available under law were not applied 219. Tax collection enforcement is weak even in cases where the taxpayer failed to respond. though the tax laws sufficiently establish clear The new administration has empowered the IRD definitions of offenses, provisions for penalties to follow up with taxpayer more systematically and enforcement processes (e.g., 10 percent penalty and apply sanctions as needed to collect tax due. of tax due, confiscation of property, auction of It is however too early to determine how the assets to recoup tax liability, and imprisonment enforcement practice has changed, given the data in serious fraud cases). The IRD assesses taxes on collection of taxes and arrears. and issues tax summons. However, under the 220. To strengthen customs administration, Myanmar 221. Neither the IRD nor the CD has yet introduced has adopted the Harmonized System (HS) codes an arrears management system. In particular, the for classifying goods and uses reference prices to agencies do not conduct rigorous analysis of tax determine import duties. For second hand goods arrears or prepare effective arrears management the CD also maintains a list price against which it plans in which efforts can be targeted to arrears cross-checks the declared prices. The CD allows collection on the basis of systemic, well-defined for bonded warehouses and temporary import of classification of arrears by tax type, age, and goods for expositions and stated reasons (as per taxpayers. The aggregate level of tax arrears ASEAN agreements).32 Prior to the exchange rate have not been reduced over the past three years unification, import duties were collected in foreign and remain high at about 100 billion Kyats exchange and reflected in the local currency at (representing 8 percent of total tax collections in the official exchange rate. With exchange rate 2010). unification, the rate has been adjusted upward to the daily official rate notified by the CBM. 222. The arrears collection of the two main taxes, income and commercial, shows the persistent (i) Collection ratio for gross tax arrears, being the low performance. Income tax arrears collections present of tax arrears at the beginning of a fiscal during the year as a share of total tax arrears at the year, which was collected during that fiscal year beginning of the year stand at just 62 and 52 percent (average of the last two fiscal years) in 2009-10 and 2010-11, respectively. The collection of commercial tax arrears in the respective two years is much less effective at 24 and 26 percent. Table 12: Arrears collection, major taxes, 2009-2011 Income Tax Commercial Tax 2009-10 2010-11 2009-10 2010-11 Beginning of the year (million Kyats) 31,929 29,056 46,736 49,019 Collected during the year (Million Kyats) 19,691 15,194 11,063 12,878 Collection ratio 62% 52% 24% 26% Average 57% 25% Source: Internal Revenue Department 223. There are also substantial arrears on import taxes not have the money to pay for the import duties, collected by customs. Under the Special Orders so arrears accrue. Customs arrears in 2010 were for Rapid Clearance (SORC) procedures, the CD 14 billion Kyats. This is significant accumulation can clear imported goods33 before importers settle of arrears, accounting for 26 percent of the total their import duties. Government departments that customs duties collected in the same year.34 import goods often ask private sector importers to bring in the goods and issue the documents that (ii) Effectiveness of transfer of tax collection to the trigger the SORC procedures. The goods then get Treasury by the Revenue Administration cleared without import duty being paid up front. In some cases, government agencies simply do 224. The IRD and CD do not have control of the monies collected. Both departments follow normal financial management procedures for government agencies. Collections by the CD in foreign exchange 32 Source: http://www.myanmar.com/finance/dept_customs.html are remitted to MFR at the official exchange rate. 33 Criteria for rapid clearance include provisions for the following goods: Neither IRD nor the CD maintains any accounts (i) perishables; (ii) goods immediately required by Government; (iii) live animals; (iv) dangerous and hazardous materials; and (v) medi- cines, pharmaceuticals, and goods requiring refrigeration. 34 The calculation is based on data by the CD. 64 Public Financial Management Performance Report 65 outside the MEB – all revenue collections are that there is reconciliation of tax collections banked by taxpayers into these accounts and with tax summons --- and the annual report is no cash is accepted as payment for taxes. These also submitted to the OAG and subject to audit. bank accounts are controlled by the BD and Reconciliation of tax assessments, collection, cross checked with the tax summons. Revenue receipts, and arrears records (between records of departments are responsible for providing the IRD or CD and the MEB) is conducted monthly. collection reports to the BD on a weekly basis. Final, complete reconciliation is normally done within two weeks of the end of the fiscal year. (ii) Frequency of complete accounts reconciliation between tax assessments, collections, arrear records and receipts 226. Monthly reconciliation of tax assessments, by the Treasury collections, arrears and transfers to the BD is conducted by the revenue departments upon 225. Arrangements for banking tax collections into receiving the bank account statements from the accounts controlled by the BD are largely sound. MEB. Final and complete reconciliation takes place The IRD, CD, and MEB have a built in facility annually, usually within 2 months of the end of to reconcile tax assessments, collections, and the fiscal year. The OAG also audits tax collections transfers. Discussions with the OAG confirm and reconciliation reports annually. Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Collection ratio for The stock of arrears has been D The debt collection Data on arrears gross tax arrears, being the relatively constant over the ratio in the most from the IRD and present of tax arrears at the last 3 years at high level of recent year was the CD beginning of a fiscal year, about 100 billion kyats, or below 60% and which was collected during 8 percent of the total tax total amount of tax that fiscal year (average of collection. Enforcement in arrears is significant the last two fiscal years) arrears collection remains (i.e. more than 2% weak. The average rate of of total annual arrears collection in the collections). two main taxes, the income and commercial taxes, respectively reached just 57 percent and 25 percent over the past two years, 2009-2011. (ii) Effectiveness of transfer From the regulations all tax A All tax revenue is Financial of tax collection to the collections are transferred paid directly into Regulations (1986) Treasury by the Revenue to the Treasury through accounts controlled and discussions Administration the IRD and CD accounts by the Treasury with the MEB on the opened in the MEB on a or transfers to the actual practice daily basis. These bank Treasury are made accounts are controlled by daily. the BD and cross checked with the tax summons. Revenue departments are responsible for providing collection reports to the BD on a weekly basis. Indicated Framework Dimension Analysis Evidence Used Score Definition (iii) Frequency of complete Monthly reconciliation of C C o m p l e t e Discussions with accounts reconciliation tax assessments, collections, reconciliation of the MEB and the between tax assessments, arrears and transfers to tax assessments, OAG collections, arrear records Treasury is conducted by collections, arrears and receipts by the Treasury the revenue departments and transfers to upon receiving the bank Treasury takes place account statements from at least annually the designated bank, the within 3 months of MEB. Final and complete end of the year. reconciliation takes place annually – within 2 months of the end of the fiscal year. The OAG also audits tax collections and reconciliation reports annually. Overall Score D+ PI-16: Predictability in the availability of funds for (i) Extent to which cash flows are forecast and monitored commitment of expenditures 229. There is no organizational unit or function 227. Budget allocations (sanctions) are distributed on established for cash flow monitoring. In estimating a highly delegated basis to relatively low levels of borrowing requirements, broad estimates are the organization. The allocations to ministries and made of cash needs based on the level of budgeted departments within them are fixed by the estimates deficit and past patterns of expenditure. Individual presented to Parliament. Departments, where budget holders at each level are required to appropriate, cascade the sanctions down to the estimate their cash needs a quarter in advance level of their deconcentrated units in townships. (for recurrent only, capital is not required). These Although ministries and departments within them are provided to MEB and become quarterly limits are required to provide detail of their estimates that may not be exceeded. If they are not used, down to economic classification (minor heads and the resources are lost to the budget holder for sub-heads) and these are provided to Parliament in the year as a whole (acting as an incentive not the form of a detailed budget book, the detail at this to overestimate their needs). But these quarterly level is not subject to Parliamentary approval. The estimates, or any data about the timing of large BD receives monitoring reports from the budget payments, are not aggregated into an overall cash holders within ministries down to this detailed plan quarter by quarter. level, but only intervene if estimates for certain 230. However, the lack of cash planning does not appear sub-heads considered sensitive (such as travelling to have acted, in recent years, in such a way as to expenses) threaten to be exceeded. Information disrupt the spending plans of budget holders or at this detailed level comes from the accounting caused MFR to intervene in the flow of expenditure. records of the individual budget holders and is This is because the CBM, if necessary, has stepped not held centrally. in to take up Treasury Bills and thereby effectively 228. MEB is advised of sanctions down to the level monetize the cash deficit. While this will have an of the organizational unit that holds the budget effect on monetary management and inflation in sanction and only distinguishes between capital particular, it has tended to shield budget holders and recurrent. It holds no detail below that. It from changes in their ability to spend the approved will meet the checks issued by the budget holder budgets due to cash constraints. provided that they do not cause the sanction held at that aggregate level to be exceeded. 66 Public Financial Management Performance Report 67 (ii) Reliability and horizon of periodic in-year information 231. Budgets are issued in good time with sanctions to MDAs on ceilings for expenditure commitment being notified to ministries and departments within them before the start of the new financial year. Table 13: Dates of Budget Law Approval and Sanction Issuances, FY2009-10 – FY2012/13 2009/10 2010/11 2011/12 2012/13 Budget Law 30/03/09 22/03/10 27/01/11 28/3/12 Approved Sanction issued 30/03/09 29/03/10 28/03/11 29/03/12 Sources: Budget laws and Budget Department. 232. MEB has confirmed that the more detailed cascade 235. Budget holders have considerable flexibility down to townships, together with the quarterly in moving money around at the minor head drawing limits), is normally completed for the first and subhead level and appear to exercise this quarter by the end of April at the latest. In effect, discretion. Restrictions are placed on only some the full budget is issued to budget holders at the sub-heads (such as travel expenses). But except in start of the year. The constraints of quarterly limits very exceptional circumstances, changes in budget are based on the estimates of the budget holders limits above this level are focused through a once themselves. An element of uncertainty derives a year supplementary budget. While changes may from the possibility of having unused sanction be made as the supplementary budget proceeds at the end of each quarter taken away, but, to a for approval through the Minister of Finance large extent, this is within the hands of the budget and Revenue, cabinet, and then the Hluttaw, the holder and they generally manage to avoid such process for identifying required supplementations constraints. and discussing the need for them appears to be transparent between the budget holder and BD. 233. Although they are under reconsideration, supplementary controls are still in place in relation 236. However, both the timing and the scale of changes to transactions that require foreign currency. in the supplementary budget cause a problem for These must be estimated in advance and act as the predictability of resources available to budget supplementary limits. Variation in those limits is holders (Table 14). In FY2009-10 and FY2010-11 the subject to a procedure that can be cumbersome sanction allowing spending bodies to spend was and take considerable time. issued following cabinet approval and before the law had been passed by the Hluttaw. However, in 234. Each ministry and department set their own 2011/12, this did not take place and will not take quarterly spending limits and can commit place in 2012/13 although MFR is trying to speed expenditure accordingly, indicating an A for up the processing of the law. Even if they are this dimension. However, changes in the able in part able to anticipate the supplementary supplementary budget are substantial and have provision, the scale of change and the late been very late in recent years, undermining the confirmation of amount seriously undermines the credibility of in-year information on ceilings (but predictability for spending bodies of being able to these effects are already captured in PI-1 and PI- spend the supplementary funds requested. The 2, and so are not considered in the rating of this late issue of the sanction in 2011/12, in particular, dimension). led to the buildup of arrears as budget holders retained invoices that they could not process for (iii) Frequency and transparency of adjustments to payment. Nevertheless, MEB confirms that all budget allocations, which are decided above the arrears were cleared before the year end. level of management of MDAs Table 14: Dates of Supplementary Budget Law Approval and Sanction Issuance, FY2009-10 – FY2011-12 2009/10 2010/11 2011/12 Date Supplementary Budget Law 12/03/10 25/01/11 24/02/12 Approved Date supplementary Sanction issued 21/12/09 06/12/10 24/02/12 Memo item: Total amount of supplementary in relation +22% +28% +16% to original budget Sources: Supplementary Budget Laws and Budget Department. 237. In the past, the lack of a well-developed cash with which budget holders will be able to execute planning function had not acted to undermine their budgets. To this extent there is interplay the ability of budget holders to plan and execute between the first and second dimensions. Focusing their budgets as originally approved. However, as supplementation on a once a year review is not, in monetary management receives more emphasis as itself, a bad practice, but the timing and scale of Myanmar’s economy becomes more open, the need change that has happened in recent years seriously for cash management within the public service undermines both the credibility of the original will become more important. The way in which budget and the predictability for deploying the tighter cash management is introduced is likely to funds sought. have profound implications for the predictability Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Extent to which cash The in-year estimate of D Cash flow planning B u d g e t L a w s flows are forecast and cash flow requirements is and monitoring is of S u p p l e m e n t a r y monitored of a rudimentary nature a poor quality. budget laws and lacks connection to the Discussions with BD, undertaking of spending CBM, and MEB; and commitments. some budget holders (ii) Reliability and horizon Each ministry and A MDAs are able to F i n a n c i a l of periodic in-year department set their own plan and commit Regulations, information to MDAs on quarterly spending limits expenditure for at OoSa and HtaSa. ceilings for expenditure and can commit expenditure least six months Timing and scale commitment accordingly, indicating in advance in of supplementary an A for this dimension. a c c o r d a n c e provision. However, changes in the with budgeted supplementary budget are appropriations. substantial and have been very late in recent years, undermining the credibility of in-year information on ceilings (but these effects are already captured in PI-1 and PI-2). 68 Public Financial Management Performance Report 69 Indicated Framework Dimension Analysis Evidence Used Score Definition (iii) Frequency and Supplementary provision is A Significant in-year Supplementary transparency of adjustments focused on a single annual adjustments to budget laws to budget allocations, which supplementary budget law. budget allocations and Financial are decided above the level take place only once Regulations. of management of MDAs The process is transparent or twice in a year and follows the same and are done in a principles as the annual transparent and budget process. predictable way. Overall Score D+ PI-17: Recording and management of cash balances, (ii) Extent of consolidation of the government’s cash debt and guarantees balances 238. The CBM and the BD maintain records of internal 241. There is a general rule that no bank accounts and external debt respectively, but separately. may be set up by Government bodies outside External debt raised to fund specific public services the umbrella of MEB. This and the procedure for is recorded against that service and interest is establishing an account with MEB are set out in charged accordingly to that service. The CBM the OoSa/HtaSa guidelines. Deployment of non- acts as Government’s banker, but individual budget resources, such as Other Accounts, must transactions are processed through the branches be carried out through parallel MEB accounts of MEB, a Government-owned and controlled and movements are reported in the Government’s bank. The CBM releases cash to MEB to fund those financial statements. transactions as necessary. 242. MEB discharges payments authorized by spending (i) Quality of debt data recording and reporting bodies and receives revenue through a network of more than 300 branches. It is in the process of 239. Separate records are maintained of individual trying to computerize its systems, but this has debts for domestic debt on the one hand and only been partially completed across part of this foreign debt on the other. Both sets of records are network (30 branches at the time of review) and is maintained on a manual basis. The debt records said to be taking a long time. As systems remain include both stock and servicing information largely manual, there is no process of automatic and the usual information about each specific overnight consolidation of balances. However, loan records including the creditor concerned. the MEB head office requires daily notification of External debt records also include information on balances held in each branch and reports the total the proceeds conveyed onwards to the spending to the Minister of Finance and Revenue. There is a bodies funded. Both sets of records appear well monthly process within MEB of setting off balances maintained within the limits of manual recording. between the center and its branches that mops up No significant issues or problems appear to have surpluses and effectively consolidates the balances. been identified by the OAG who has access to both The MEB head office reconciles the balance at the sets of records. month end with CBM and if government accounts at MEB are in deficit, the CBM transfers funds from 240. Regular quarterly reports are made concerning the Union Fund account to replenish the MEB the stock and movements of internal debt. Copies account. are made available to senior management in MFR and to the OAG. Reports concerning external 243. MEB provides data with regard to both on-budget debt are produced on an ad hoc basis as and and off budget cash balances to the CBM that then when senior management requires. There is no produces consolidated statements of cash balances consolidated reporting and analysis of the debt on a monthly basis. But due to reconciliation stock as a whole. Summaries of debt stock and problems, it usually takes around 3 months for movements are not made publicly available. There these consolidated statements to be finalized. In is no regular process for reconciling stock records the meantime, MEB draws down further cash with creditors, but ad hoc exercises take place from from the CBM on a monthly basis as required and time to time. provides cash to each of its local branches for the coming period. MEB gives more frequent (weekly) 248. The disbursement procedures work reasonably summaries of foreign exchange balances. This efficiently on a decentralized basis. Some visibility does not include, however, any exchange held in is created of balances of cash (daily), internal debt overseas bank accounts other than MEB’s account (quarterly) and external debt (as required). But in Singapore. these are produced separately and there is no integrated reporting or overarching strategy for 244. The CBM produces an annual assessment cash and all forms of debt with the aim of making of consolidated cash needs, based on broad the best use of cash balances and minimizing aggregates (such as the average spending pattern borrowing costs. Consolidation of cash balances is in the last 3 years and planned level of deficit). This only undertaken on a monthly cycle and with some assessment has no detailed link to the phasing of considerable problems of reconciliation between budget expenditure planned by spending bodies. the CBM and the MEB. Debt recoding and issuance It is updated as monthly actual cash flow figures works reasonably effectively at a basic level, but are known. Previous practice has been for the the manual processes involved would be severely CBM to provide cash to fund budget expenditures stretched by any significant increases in volume drawn down by MEB, buying Treasury Bills as or variety in transactions. necessary (effectively monetizing any deficit). MEB calls down cash amounts monthly from the CBM. It derives an estimate of cash requirements for the month ahead based on past expenditure patterns and talking to key departments about large spending projects. (iii) Systems for contracting loans and issuance of guarantees 245. A total ceiling for new and replacement debt is included in budget documentation and subject to approval by the Hluttaw. The ceiling is a single aggregate figure encompassing both domestic and foreign debt and was 2.6 trillion kyat for FY2012-13. Individual large loans or tranches of loan require specific Parliamentary approval. The raising of loans or granting of guarantees other than through MFR and within debt ceilings is. This includes loans proposed by both SEEs and sub-national governments. 246. The debt ceiling is promulgated by the Finance Commission, but there is no regular production of a debt strategy or some similar form of analysis underpinning it. There has been some recent work on risk management and debt profiling with the assistance of the IMF, but this is not part of regular systems. As a broad rule of thumb, policy is to raise 40% of cash requirements through bills and 60% through bonds. 247. Processing of new or replacement debt issuance by the CBM and BD appears to be conducted effectively although manually. It does not follow modern practice based around separating front, middle, and back office functions. 70 Public Financial Management Performance Report 71 Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Quality of debt data The records kept appear C Domestic and Viewing of manual recording and reporting to cover all debt, but are foreign debt records kept by on a manual basis and records are CBM and MFR. not subject to systematic complete, updated Discussion with regular checking back with and reconciled CBM and MFR. creditors. Summary reports at least annually. are produced for internal Data quality is debt but not given wide considered fair, distribution. Reports of but some gaps external debt are produced and reconciliation on an ad hoc basis. problems are recognized. Reports on debt stocks and service are produced only occasionally or with limited content. (ii) Extent of consolidation Cash balances are calculated C Calculation and Discussion with BD, of the government’s cash daily, but only consolidated consolidation of CBM, and MEB; balances monthly. Reconciliation most government OoSa and HtaSa between CBM and MEB cash balances regulations. takes place monthly, but is take place at least often delayed for around monthly, but 3 months while problems the system used are sorted out. (But bank does not allow balances are all controlled consolidation of through MEB and, in effect, bank balances. consolidated monthly.) (iii) Systems for contracting Under the new constitution B Central New constitution. loans and issuance of all public sector bodies are government’s Discussions with guarantees required to process loans contracting of the BD. through the center and loans and issuance proceeds are passed from of guarantees are the center to the initiating made within limits body. This is carried out for total debt and within an overall debt total guarantees, ceiling approved in the and always budget. approved by a single responsible Although manual debt government entity. issuance, servicing and recording are well maintained. Overall Score C+ PI-18: Effectiveness of payroll controls no centrally generated checks of payroll against these establishment records or that correct grade 249. There is no centralized payroll. Each spending rates, allowances etc. are being paid. Instead, there body is required to develop its own system, is reliance by the center on budgetary limits for but must discharge the payroll through MEB controlling staff related payments. by issuing a payroll list. Some spending bodies have computerized the payroll calculation and (ii) Timeliness of changes to personnel records and the payroll preparation function, though most are still manual. A mixture of payment by check for the gazetted 254. Although each ministry has its own system, each officers and cash for more junior staff is used. of the four ministries represented on the PEFA Technical Working Group has a set timetable for 250. There is no standard system or central process for handling changes. Changes occurring before a set quality assuring the systems that spending bodies date in the month are processed for the payroll at put in place. The financial regulations do not the end of the month. Those arising later in the specifically address payroll management and there month are generally processed in the next month. is also no centralized payroll related regulations Emergency arrangements are available where governing this area. But each ministry appears to circumstances justify late adjustment in the month. have its own internal regulations setting out, for The cutoff date appears to be different for different example, who is authorized to make adjustments, ministries, but the process is much the same. forms to be used, methods of payment, etc. In the four ministries seen, the internal regulations used 255. What appears to be a common practice of requiring appear to be similar and of long standing, perhaps positive confirmation of the payroll list from due to the existence of old regulations that date the senior management of the spending body from the 1950s pre-dating the current financial concerned (generally at department level within regulations. The status of these old regulations ministries) provides a degree of assurance that is not clear, but common ancestry may explain changes have been captured. Although changes certain common features in the individual ministry are sometimes missed, the OAG does not indicate regulations. this as a major cause of concern. 251. Given the lack of centralized systems and lack of (iii) Internal controls of changes to personnel records and central control over the processes of individual the payroll spending bodies it is only possible to make a general assessment based on discussions with 256. For the four sample ministries a degree of internal a sample of four line ministries and their SEEs check is imposed by separating the authorizing engaged through the PEFA technical working of payroll lists (or updating of computerizing group. personnel records) from payroll processing. But this separation of duties is not backed up by (i) Degree of integration and reconciliation between regular independent checks to ensure that both personnel records and payroll data personnel records are up to date and in line with the payroll processed. Documents for making 252. Those ministries with computerized payroll changes are defined and an adequate audit trail systems use the systems to record both personnel is generally maintained. and payroll records. Those with manual systems rely on the generation and authorization of manual 257. However, the OAG confirms that he finds many payroll lists produced by the spending body and problems particularly where payroll activity is reauthorized regularly by the senior management conducted at the township level (which includes of the spending body. most of the staff for the big deconcentrated ministries such as health and education). Here, 253. There is a separate establishment control process the lack of and variations in the quality of financial by which both MNPED and MFR receive, management staff makes it difficult to achieve approve and record agreed establishments the necessary degree of separation of duties and and establishment changes for individual necessary checks and balances. departments and administrative units. This system is largely paper based although some ministries use spreadsheet systems. There are 72 Public Financial Management Performance Report 73 (iv) Existence of payroll audits to identify control weaknesses or audits of the physical existence of employee and/or ghost workers against payroll provision by the spending body concerned or against the establishment records 258. There is an absence of internal audit in the line held by MNPED or MFR. ministries (other than in SEEs where the OAG considers those units to be variable in quality and 260. The lack of centralized regulation and standard generally weak) to provide internal assurance to setting with regards to payroll processing hinders management about the accuracy and control of making generalized conclusions about the payroll processing. This is an area where internal soundness of payroll processes across the public audit would normally play an important role both sector as a whole. But while it seems that some in conducting transaction checks and carrying checks and balances are achieved at the center out system based reviews. Therefore, there is a of spending bodies through division of duties reliance on audit activity by the OAG. The OAG etc., payroll processing at the deconcentrated confirms that significant problems arise including level of ministries such as health and education is the existence of “ghost workers� particularly at the particularly vulnerable to error and fraud. The lack deconcentrated level within the large ministries. of regular reconciliation between establishment and personnel records, the absence of internal 259. There do not appear to have been any recent special audit in many spending bodies, and non-existence exercises conducted to review payroll processes of systematic independent checks outside the systematically or to carry out independent checks normal processing routines are critical weaknesses. Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Degree of integration Some, but not all, ministries D Integrity of Discussions with and reconciliation between have computerized payroll the payroll is four line ministries personnel records and and some of those systems significantly and two SEEs. payroll data have integrated personnel undermined by lack and payroll information of reconciliation within them. But there is b e t w e e n Sample of internal no established or consistent establishment, regulations provided procedure applied for personnel and by MOGE. checking that they are payroll records. aligned and that they are up-to-date and accurate. There is no regular reconciliation between establishment, personnel and payroll records. (ii) Timeliness of changes The internal regulations B Up to three months Discussions with to personnel records and of the line ministries seen d e l a y o c c u r s i n four line ministries the payroll include a requirement updating of changes and two SEEs; OAG. and procedure for rapid to the personnel update. However, the OAG records and payroll, confirms that while not a but affects only a serious problem, delays do minority of changes. sometimes occur. Retroactive adjustments are made occasionally. (iii) Internal controls of The internal regulations of C Controls exist, but Discussions with c h a n g e s t o p e r s o n n e l the sample of line ministries are not adequate to four line ministries records and the payroll seen include procedures ensure full integrity and two SEEs; OAG. for separating duties for of data. changing personnel records and processing payroll, limiting the authority for changes and establishing an audit trail. But audit activity suggests that these checks are insufficient or insufficiently enforced to avoid a significant number of cases of incorrect payroll payments, particularly in local units at the deconcentrated level. (iv) Existence of payroll There is no formal system of D No p a y r o l l Discussions with audits to identify control payroll audit and internal audits have been four line ministries weaknesses and/or ghost controls are left to each undertaken within and two SEEs; OAG. workers spending bodies. There is the last three years. no internal audit system (except in SEEs) to perform these checks. Overall Score D+ 74 Public Financial Management Performance Report 75 PI-19: Transparency, competition and complaints put in place by each minister/spending body or mechanisms in procurement quality assurance of those arrangements. 261. Until 2011, overall controls of procurement (ii) Use of competitive procurement methods operations were centralized through the Ministry of Commerce. In an order from the President’s 265. Due to the delegated nature of the new Office dated 2nd June, 2011, however, ministries arrangements it is difficult to generalize about were made responsible for making their own the arrangements being put in place under them. procurement without central supervision. In doing This assessment is based on discussions with four this, the order noted that: ministries represented on the PEFA Technical Working Group. These discussions suggest that It is found that some ministries are still practicing a there is an awareness of international good practice Closed Tender system while purchasing materials and; with regards to open tendering, tender opening machinery, equipment, vehicles, workshops, operated (in the presence of bidders) and evaluation. Each factories and construction built by ministries. Similarly, ministry has formed a tender committee under the sales of State-owned properties under ministries the authority of the minister and chaired by a such as buildings, factories, workshops, hospitals, vice-minister. But practice varies with no standard schools, vehicles, machinery and other materials as well practice as regards: as the rental of buildings, factories, workshops, road construction, bridges, ponds, vehicles and machinery • The form of internal instructions, rules and by some ministries are based on Close Bidding. documentation. 262. The President issued an instruction that in • Thresholds (value or type of expenditure) delegating procurement functions to ministries with regard to the deployment of different the practice of closed bidding was to stop and that procurement techniques (except a general each spending body should use open bidding, expectation that all large scale capital spending but there have been no detailed regulations or will be done by competitive bidding). guidance issued as to how they were to implement • Some ministries have central records of tenders their delegated powers. placed and technique used, others do not. 263. The OAG confirms that he finds significant None of the ministries with which this was problems in the area of procurement including discussed with were able to give precise figures inappropriate and corrupt practices. There were on the proportion by value of the different unconfirmed press reports recently of a number procurement techniques used. of large scale cases of corrupt and inappropriate • It also seems that the understanding of open practices in several ministries concerning both competitive bidding may vary from ministry to purchasing and concessions. But as the last ministry. For example, cases were observed of complete audit related to the year 2010/11 these specifying specific models for equipment when findings reflect practice before the June 2011 many models are available in the market. order and it is too soon to detect an improvement through audit findings. 266. Spending bodies say that they are responding to the requirement for open competitive bidding (i) Transparency, comprehensiveness and competition in in respect of all significant procurements. But the legal and regulatory framework definitions of “significant� seem to vary. For example, it is taken as all capital and other items 264. There is no overarching procurement law that above kyat 500,000 for health; for education it provides a framework for procurement. The varies according to the department. financial regulations last revised in 1986 are largely silent in this respect. In delegating authority (iii) Public access to complete, reliable and timely over procurement to line ministries there have procurement information been no detailed regulations or guidance issued concerning the methods by which open tendering 267. Tender exercises are announced in the gazette and is to be employed or the procedures to be followed. appear to be given appropriate levels of publicity. Each ministry is, therefore, formulating its own However, there is no common framework for arrangements and internal rules. However, as yet, ensuring systematic supply of information and there is also no central scrutiny of the arrangements transparency. In particular, there are no procedures for publicly announcing tender results and issuing aggrieved parties contacting the press or by summary information about tender plans and the making a complaint to the OAG. value of contracts placed. 270. Clearly, previous procurement practice has 268. There are no arrangements for post contract review been unsatisfactory and the intent of the new other than the scrutiny carried out by the OAG as arrangements issued in 2011 is to create more part of his audit program or for summarizing and/ openness and competitiveness. However, given or making the results of audit scrutiny available the lack of data and consistency of practice to the public. under delegated arrangements it is impossible to generalize about the effectiveness of the new (iv) Existence of an independent administrative procurement requirements. Without these arrangements being complaints system set under a stronger framework of minimum requirements, standards and transparency there is 269. There is no formal complaints procedure or a strong risk that the intended pressure for more arrangement for considering the claims of openness and competitiveness will be weakened aggrieved parties. Ministries appear to consider in practice. that complaints are likely to emerge through Indicated Framework Dimension Analysis Evidence Used Score Definition ( i ) Tr a n s p a r e n c y, There is no centralized D The legal framework The Order issued comprehensiveness and framework. Each ministry meets one or none of by the President’s competition in the legal and has delegated powers to the requirements Office on 2nd June, regulatory framework make its own arrangements listed in the PEFA 2011. within a general framework. requirement to exercise Discussion with open competitive tendering MFR and four line as the default method. ministries (ii) Use of competitive There is no central collection D Reliable data is not procurement methods of data about the different available. procurement techniques deployed and spending bodies do not keep records in this form. (iii) Public access to Some information is D The Government complete, reliable and given and some tenders lacks a system timely procurement are advertised, but to generate information there is no framework substantial and for ensuring systematic reliable coverage Discussion with supply of information and of key procurement MFR and four line transparency. i n f o r m a t i o n ministries and does not systematically make key procurement information a va i l a b l e t o t h e public. ( i v ) E x i s t e n c e o f a n There is no independent D There is no independent administrative procurement complaints independent procurement complaints review body. procurement system complaints review body. Overall Score D 76 Public Financial Management Performance Report 77 PI- 20: Effectiveness of internal controls for non-salary each with clearly defined responsibilities. expenditure • Use of controlled and numbered documents (i) Effectiveness of expenditure commitment controls for receipts and payments. 271. Internal control of non-salary payments is highly • Use of checks and limits on the drawing of cash. decentralized with the finance departments of the • Rules about imprests and advances. spending bodies playing a key role. • Virement authorities. 272. There is no formal system of commitment control although some spending bodies (for example the 275. However, there are significant areas that are either Ministry of Health) take the initiative to make not covered or are treated very generally without their own records of commitments largely on a providing a clear framework within the FRs for manual basis. Other than in respect of foreign development in detail under separate regulations: exchange transactions there are no requirements procurement arrangements, payroll arrangements, for the placing of contracts and other forms of management of assets (other than cash), there commitment to be cleared through any centralized is no provision relating to internal audit, and control process. MNPED does monitor progress disciplinary matters (what happens on breach/ on capital projects, but not at the commitment/ default). The four participating line ministries do individual payment level. have asset registers and inventory control systems. (ii) Comprehensiveness, relevance and understanding of 276. Overall, finance departments, judging by the other internal control rules/procedures nature of the findings of the OAG, do appear to exert discipline although the effectiveness of that 273. The financial regulations are recognized as discipline varies from spending body to spending being substantially out of date. As such, they do body. What seems to be lacking is an up to date, not fully reflect current practice other than in a consolidated and modern framework of regulations general way. Some thresholds, for example, are that is driven by a consistent philosophy and denominated in fixed amounts of currency and approach that is clearly understood across the are clearly much out of date. In addition, there whole of the public sector. are even older regulations used that deal with specific issues and situations; some of these go (iii) Degree of compliance with rules for processing and back to the 1950s. Their legal status is unclear recording transactions although they continue to be used as the basis for practice. The finance department in each spending 277. All payments (with the exception of those body appears to play a key role in deciding which made through minor cash imprests) are required mix of rules is adopted within its organization. to be made through the accounts of each spending The arrangements are thus somewhat ad hoc, body held with the MEB (which itself distributed differing from ministry to ministry. Moreover, geographically across more than 300 branches). the regulations are open to interpretation by Payment vouchers submitted to the MEB for financial management officials and it is not clear discharge require two signatures from the the regulations are well understood throughout spending bodies. One from a secretary general and ministries and states/regions. one from the relevant spending unit. There is no requirement for supporting documentation to pass 274. The financial regulations do contain a range of to the MEB such as proof of delivery or evidence basic control provisions including: of fulfillment of requirements by the supplier/ contractor. However, the procedures of the four • The establishment of a framework of authority line ministries require copies of the vouchers to and responsibility attached to named posts. pass through their own finance department for • A requirement for spending bodies to establish vetting and additional signature. Spending bodies their own internal regulations. must seek separate approval for each payment to be made requiring foreign currency. • Efforts to establish a degree of internal checks and balances in particular through 278. Basically, therefore, the MEB only checks the the separation of duties between authorizing availability of budget sanction at an aggregate level officers, drawing officers and controlling officers and that it recognizes the required signatures. The 279. In general, controls appear to be understood and MEB confirms that it does reject payment vouchers applied with some discipline. However, the basis from time to time, but not often and usually for the of these controls on established practice within unavailability of budget sanction. The MEB will, each spending body gives rise to vulnerability as in what are described as rare circumstances, make finance staffs come and go. This vulnerability is advances in urgent cases where there is no budget enhanced by the lack of updating, consolidation sanction in place, but only with the agreement and clarity of status of regulations to be applied of their own managing director and where there consistently across the public sector as a whole. is certainty that budget sanction is going to be The lack of systematic recording of commitments is forthcoming in due course. likely to become more of a problem as Government seeks to tighten its cash controls in a way that has not been applied in the past. Indicated Framework Dimension Analysis Evidence Used Score Definition ( i ) E f f e c t i v e n e s s o f There is no system of D C o m m i t m e n t Sample of four line expenditure commitment u n i v e r s a l l y a p p l i e d control systems are ministries and two controls commitment control generally lacking. SEEs. c o ve r i n g a l l f o r m s o f expenditure and control is largely reliant on containing cash payments within budget. (ii) Comprehensiveness, The financial regulations D C l e a r , F i n a n c i a l r e l e va n c e a n d are recognized as being comprehensive Regulations 1986 and understanding of other substantially out of date. control rules/ various older sets of internal control rules/ As such, they do not fully procedures are regulations provided procedures reflect current practice lacking in other by the Ministry of other than in a general way. important areas. Health. Discussions The finance department with the OAG. in each spending body appears to play a key role in deciding which mix of rules is adopted within its organization. The arrangements and interpretations of them are thus somewhat ad hoc, differing from ministry to ministry. (iii) Degree of compliance Transaction controls are well B Compliance with Discussions with with rules for processing understood and applied rules is fairly high, OAG and MEB. and recording transactions c o n s i s t e n t l y a l t h o u g h but simplified/ advance procedures will be e m e r g e n c y used in advance of budget procedures are sanction in exceptional used occasionally circumstances. without adequate justification. Overall Score D+ 78 Public Financial Management Performance Report 79 PI-21: Effectiveness of internal audit approach to system based review and assurance to management. The OAG considers the internal 280. While it seems that internal audit is now required audit units that do exist variable at best and in most to exist in all large scale public bodies, many ministries and some SEEs as largely ineffective. do not yet have it in practice. Nor is there any other function that provides a similar process of 284. At present, there is no organizational unit within assurance to top management within the spending MFR or elsewhere that has a clear role in providing bodies regarding the effectiveness of internal cadre leadership and standard setting for the control and financial management systems. internal audit function across the public sector. However, the SEEs under the policy umbrella of There has been no assessment of the expansion individual ministries usually do have internal of staff and skills required to widen both the audit units of varying depth and effectiveness. coverage and effectiveness of internal audit that Within the ministries themselves, those that do is implied in the order issued by the President’s not have internal audit (which seems to be most office. The impetus for deepening internal audit of them) they sometimes have inspection units has come largely from the OAG, yet for the OAG to that largely carry out pre-payment checks as provide leadership in terms of implementation and part of the control system and investigate cases standard setting of internal audit would carry the concerning fraud and other irregularities. But these risk of drawing him closer to being part of internal are more part of the control system itself rather control systems and potentially compromise than fulfilling the role of modern internal audit. his role as external auditor at arm’s length from management. 281. The OAG has been concerned about the lack of an internal audit capacity and has been making (ii) Frequency and distribution of reports suggestion in his report to the President about addressing the problem. An order was issued from 285. Line ministries are now planning on establishing the President’s Office (July 2012) requiring that audit committees, but it is too early to see how all ministries set up internal audit units. It is clear widespread this will be adopted (or over what time that some ministries are beginning to respond to period). The sample of SEEs engaged in the PEFA this order, but it is too early to be able assess the assessment have established audit committees that effectiveness of response or the results achieved. receive reports and respond to recommendations in a systematic and timely way. An issue that is (i) Coverage and quality of the internal audit function still not clear is whether such committees will be established for the ministry encompassing 282. There has been no set of centrally defined audit the SEEs under its policy umbrella or whether standards, roles, objectives and processes to guide each SEE will continue to have its own. Current the internal audit function. In the ministries and practice in sharing reports between SEEs and their SEEs represented on the PEFA Technical Working respective ministries appears to vary. Reports are Group (TWG) there is an awareness of the not systematically shared with the MFR. The OAG existence of international standards, but no process has a right to see reports and does exercise that for holding internal audit sections accountable for right at his discretion. observing them. There was also no guidance or set of standards issued to accompany the order (iii) Extent of management response to internal audit requiring more widespread adoption of internal findings audit within the ministries themselves although the OAG has this objective in view. 286. The existence of audit committees, at least in a subset of SEEs, does provide for a systematic 283. For the sample of line ministries and SEEs engaged response and the SEEs involved in the PEFA in the PEFA assessment, only some of the SEEs at assessment feel that this works well. But since least appear to have produced audit plans which the reports are largely transaction based, the are cleared with the management of the SEE and response also appears to be largely confined to shared with the responsible ministry. The limited the transactions concerned rather than focusing sample of audit reports for SEEs seen suggest on more systemic problems. that the audit work is largely transaction based although changes in system may be proposed 287. This is an area where, clearly, the need to do more where transaction reviews suggest the need. has been perceived and steps have been taken to However, there is little to suggest a methodical initiate improvements, at least in coverage. While it is too soon to assess the effectiveness of the particular. But, whether this is achieved in practice response to the order requiring wider adoption of will depend very much on clearer standard setting internal audit, PEFA ratings in this area could be and procedures for leading and reviewing the improved; this would have knock on benefits for implementation of internal audit and the quality other indicators such as PI-18, PI-19 and PI-20 in of work undertaken. Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Coverage and quality of Coverage of public bodies D There is little or the internal audit function as a whole by internal audit no internal audit is quite limited. Internal focused on systems audit is not yet operational monitoring. in most ministries. The internal audit function is present in some SEEs. Little of the internal audit carried Discussions with the out in SEEs is systemic in sample of four line nature. ministries and their SEEs engaged in the ( i i ) F r e q u e n c y a n d Hardly any ministries have D Reports are either PEFA review; the distribution of reports operational internal audit non-existent or very OAG. functions. For those bodies irregular. that have internal audit The July 2012 order (mainly the SEEs) at least issued by President’s annual reports are issued, Office and the reports but are not systematically of an SEE in the PEFA shared with MFR. TWG. (iii) Extent of management In those few ministries C A fair degree of response to internal audit and SEEs with operational action taken by findings internal audit, management many managers on often takes action on major issues but significant issues though often with delay. sometimes with delay (Note: the management response is rated here only for the internal audit units that exist). Overall Score D+ 3.5 Accounting, recording, and reporting 289. Previous practice of accounting for foreign transactions at an official rate rather than a realistic 288. Accounting is maintained on a simple cash market rate has tended to distort the picture based double entry system. Most payments are revealed by the accounts, particularly for the SEEs discharged through the MEB by the use of check with high volumes of such transactions and where or transfer. The use of physical cash is limited trading has taken place between SEEs. However, although most departments have small imprests this is now being resolved following the recent and advances are made for special purposes such integration of exchange rates on an open market as extended travel. Tax revenue is usually paid basis. into the MEB by the taxpayer directly, based on an assessment raised by the tax authorities although 290. Accounting records are originated by the spending/ some fee and charge revenue is collected in cash revenue raising body concerned. Aggregation and and paid in by the body concerned. reconciliation for reporting and control purposes are conditioned by the largely manual, paper based processes that are still used in both the 80 Public Financial Management Performance Report 81 originating bodies and in the MEB. The processes for them, SEEs are also required to produce of reconciliation are well documented, appear accounts on a commercial basis using accounting adequate and are applied with sufficient rigor to principles adapted from those used internationally. give some confidence in the accuracy of aggregate A process is already in hand to make the finances records. of the SEEs more independent of the ministries to which they currently report and, in some cases to 291. Reporting is done monthly. However, the process privatize the operations. of aggregation and reconciliation takes some 3 months to complete and delays the production 296. End of year financial statements are produced on of final reports for each monthly reporting cycle. similar basis to those produced in-year, but with In order to provide more timely data, Budget supplementary clearance arrangements. In the last Department produces an interim report which few years they have been finalized within 6 months it usually manages to issue within 6 to 8 weeks of the end of the year. But the statements largely after the end of the month in question. But, even serve the purpose of providing some discipline so, the compressed format and delayed timing ensuring consolidation and reconciliation. They of the reports combined with the limited degree provide limited information as a basis for active of analysis that is included in summary reports financial management and both their form weakens their capacity to support active in-year and distribution are difficult to interpret and management of the emerging position. The manual contribute little to fiscal transparency. International aggregation processes also impose difficulties in accounting standards, even for cash based systems, producing information in different formats for are not fully met and there are no clear notes specific or ad hoc purposes. attached to the statements explaining the basis on which they have been produced or giving 292. In addition to reporting progress against budget, supplementary information about important spending bodies are also required to report issues such as guarantees and contingent liabilities. revenues that they are allowed to raise and use Neither in-year nor end-year statements are given off-budget such as some of the fees and charges wide circulation. raised in schools and health facilities. However, details of how those resources have been deployed 297. Overall, accounting and reporting tends to be are limited. viewed as a largely technical process that exerts control in avoiding, for example, overspending of 293. Consideration is being given to introducing budget provision and providing the basis for audit. wider use of modern computer based information It does little to establish deeper accountability for technology for accounting and reporting. MEB how resources are used or play a role in active in- has already introduced IT systems in about year financial management. 30 of its more than 300 branches. But there is little experience of large scale IT systems in the PI-22: Timeliness and regularity of accounts Myanmar public service and there is an awareness reconciliation of a need to proceed cautiously. 298. Both accounting and reconciliation processes are 294. The upward aggregation of accounting data gives mainly based on a monthly cycle. The processes the higher levels of management an opportunity involved are set out in instructions issued under to review the activity of lower levels and to the authority of two documents called the OoSa hold them accountable, but this is limited by the and the HtaSa. Reconciliation takes place in two mainly administrative and input basis of the data directions. Between MEB as to disbursements produced. As the bulk of expenditure in relation made on behalf of spending bodies and the to service units is controlled and discharged at detailed accounting records maintained by those the level of the deconcentrated units of ministries spending bodies. Secondly, between the MEB and at township level and because it is discharged the CBM as to the cash balances and movements through the bank accounts at township level in cash between them and MEB branches. with MEB, there is little visibility at the higher levels of how resources have been distributed (i) Regularity of bank reconciliations among service units (schools, clinics, etc.) at the operational level. 299. The MEB sends records of payments made on behalf of spending bodies to each spending body 295. In addition to being included in the budgets and on a monthly basis requiring that they check accounts of the ministry with policy responsibility against their own records. The MEB itself does advances and requires accounting, reconciliation not check that spending bodies have, in fact, and retirement of any balances. If this is not done carried out this reconciliation. However, the MEB within 3 months of the funded event, the BD takes also sends the monthly statements to BD, which steps to deduct the amount involved from salary. requires each spending body to submit their summary reports and make clear any unreconciled 304. In what are described as rare circumstances, the differences. At this point BD checks that the reports MEB will hold payments in suspense when there from spending bodies agree with those received is no budget sanction. This is only done in urgent from the MEB and take up any differences with circumstances with the agreement of the managing the spending bodies. The reconciliation process director of MEB and when the subsequent issue thus described includes cash held by the MEB in of budget sanction is considered certain. Any the off-budget accounts of the spending bodies. suspense balances must be cleared at the end of the year. 300. To fund spending requirements, MEB draws down cash monthly from the CBM. Cash balances held 305. Spending bodies are also allowed to hold amounts by MEB and balances held by CBM on behalf of in suspense for a limited period of time, for government are reconciled between MEB and CBM example, when the correct coding at the detailed also on a monthly basis. level is not clear at the time of payment or where short term timing issues arise such as with income 301. Problems arise due to the geographical dispersion tax deductions from salary. The OoSa and HtaSa of MEB branches on the one hand (more than 300) set out the procedure by which these amounts and the deconcentrated nature of the spending must be reported to BD, which must monitor their and revenue collecting in the larger spending regular and timely clearance. The arrangements bodies where budget management is delegated with regards to advances/deposits, imprests down to units at township level. These problems and suspense set out in the Oo Sa and HtaSa are are compounded by the manual nature of the specific and provide BD with clear visibility and records on both sides of the reconciliation process. an opportunity to challenge spending bodies. The process is forced to move at the pace of its weakest links. Some lower level spending bodies 306. The processes of reconciliation are well reconcile and submit their spending reports more documented, appear adequate and are applied slowly than others, statements submitted by MEB with rigor. The problem is one of timing caused by branches are sometimes incomplete or inconsistent the disbursed nature of the network and the largely and there is limited capacity in MEB and CBM manual processes used. The procedures for control to perform the overall reconciliation. As a result, and clearance of advances/deposits, imprests, and the whole monthly cycle and full reconciliation suspense accounts are set out in detail and appear typically takes around 3 months to be fully to be applied with some rigor. completed. (ii) Regularity of reconciliation and clearance of suspense accounts and advances 302. Each department within the spending bodies is entitled to request a small imprest. For example, the imprest of BD itself is 500 kyat. The amount of the imprest is assessed department by department on the basis of petty cash requirements for 2 weeks and is subject to approval by the BD. Spending bodies are required to account for transactions and reconcile imprest balances on a monthly cycle. They make returns to the BD, which reconciles the aggregate balance. The process is set out in the OoSa and HtaSa. 303. Advances are allowed to be made for things such as overseas travel and other specific areas set out in the HtaSa. Budget Department follows up 82 Public Financial Management Performance Report 83 Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Regularity of bank While reconciliation takes D Bank reconciliation reconciliations place frequently (monthly) for all Treasury it takes around 3 months to managed bank be completed. accounts take place with backlogs of Monthly Financial several months. Statements. The OoSa and (ii) Regularity of There is a monthly A R e c o n c i l i a t i o n HtaSa regulations. reconciliation and clearance process of monitoring and and clearance of of suspense accounts and reconciliation reinforced suspense accounts Discussion with the advances by quarterly action to clear a n d a d v a n c e s BD, MEB, and CBM. balances. take place at least quarterly, within a month from end of period and with few balances brought forward. Overall Score C+ PI-23: Availability of information on resources other forms of expense (utilities) are retained at received by service delivery units township level and discharged from there. For these allocations, the provision is still retained at 307. This indicator requires focus on primary schools township level and payments for purchases made and primary health clinics in relation to the overall on behalf of schools, colleges etc. from within the resources made available to the sectors irrespective allocation are made by the township from accounts of which level of government is responsible for kept with MEB. the operation and funding of those units. In Myanmar, budgetary resources in both sectors are 310. In the case of health, the process is similar, but cascaded down from ministries to their functional there are no allocations below township level yet departments (such as primary education) and and for things like materials, the township medical then on down to individual townships and the office purchases and distributes based on his deconcentrated offices of the sector ministry. This understanding of need (the ministry is considering is in the process of changing with the introduction a change to introduce allocations to health unit under the new constitution of local government level). bodies with decentralized powers, but the process 311. As the bulk of expenditure in relation to service of decentralization is still in a transitional phase. units is controlled and discharged at township 308. In general, the township offices do not make level and because it is discharged through direct allocations to individual schools, clinics, the township’s bank account with MEB, there etc., but retain the budgets devolved to them and is no accounting data that flows upwards manage them on behalf of the establishments in from the township about how resources have their area. Delegation to township level includes been distributed at the operational level. Only procurement except where common types of information about how the township has used purchase are centralized for price efficiency the resources in aggregate. The evolving system purposes or controlling capital works. of capitation within the education sector gives some visibility of what ought to be controlled at 309. In the case of education, some experimentation, operational unit level, but there is no accounting supported by donor funds, is taking place with data that is summarized upward to show this. giving schools direct management of limited funds based on the size of the school and the number of 312. There also appears to have been no surveys in pupils. However, budgets for salaries and some recent years to see what resources are actually being consumed by service units in either ministry. Indicated Framework Indicator Analysis Evidence Used Score Definition Collection and processing of There is no visibility of D No comprehensive Meetings held with information to demonstrate how resources distributed data collection on both the Ministries the resources that were across service units above resources to service of Education and actually received (in cash township level (although delivery units in Health, and the BD. and kind) by the most education are starting to any major sector has common front-line service make notional allocations been collected and delivery units for some resources). processed within the last 3 years. Overall Score D PI- 24: Quality and timeliness of in-year budget also compilation within the Budget Department is reports largely manual and paper based. 313. The basic source of information for in-year 315. In terms of monitoring reports, information is monitoring reports and the accounts of government submitted by the spending bodies to the Budget as a whole are detailed records maintained by Department at the detailed level of economic spending bodies largely on a manual basis. (minor head and sub-head) classification within Reconciliation processes take place between ministries and departments. However, overall spending bodies and the MEB who make payments summaries made by BD (monthly to the Minister of on their behalf, and between MEB and CBM Finance and Revenue and quarterly to the Hluttaw) as to cash balances and movements. However, are at the more aggregate level of department budget sanction is recorded by MEB at a high without the economic classification. For control level (ministry, department within ministry, purposes, the lower level of detail in the form of and recurrent/capital). Detailed information, economic classification contained in the budget for example, down to economic (minor head book appears to be a largely administrative form and sub-heads) classification is dependent on of control between MFR and the spending bodies. the records maintained by the spending bodies. The BD exercises control at this more detailed Procedures for accounting and in-year monitoring level over areas that spending bodies are not are set out in two documents, the OoSa and the allowed to vire between (for example the sub- HtaSa, that overlap in many respects, but which, head travelling expenses). In addition, monthly together, set out detailed procedures for both consolidated financial statements for government transaction processing and the aggregation of showing summary movements and cash balances data to prepare monitoring reports of spending are produced in the same form as the financial compared to budget and the financial statements statements for the year. of government as a whole. As well as setting out the procedure for reconciling and aggregating 316. SEEs are required to produce separate reports data for reporting purposes the OoSa also sets on a “commercial� basis using commercial style out a number of requirements designed to achieve accounting practices. These are also produced internal check and to establish responsibility for monthly and made available to the minister having the quality of data at each level of the aggregation. policy responsibility for the SEE and are also available to the OAG. The procedure for preparing (i) Scope of reports in terms of coverage and compatibility these reports is set out in the OoSa. with budget estimates. (ii) Timeliness of the issue of reports 314. Reports are based on summaries of cash transactions, including the transactions of SEEs 317. Spending bodies are required to aggregate data also in cash form. There is no information about from their lower level units monthly and reconcile either commitments or arrears. Spending bodies that data with statements given to them by MEB as are required to show original estimates, revised to cash paid away on their behalf. While spending estimates, and accumulative actuals to date. The bodies are required to submit their reconciled accounting systems of MEB are largely manual. spending reports to the BD by the 7th of the second Processing inside individual spending bodies and month following the period in question (Source: 84 Public Financial Management Performance Report 85 Annex A of the Oo Sa), they are allowed to omit at Except at the time that the supplementary budget that stage any reconciled accounts not yet received is being considered, the report is largely confined from lower level units as long as they advise the to tables of numbers without very much by BD of the omissions. Nevertheless, the BD uses way of critical analysis or forward projecting of the material from spending bodies submitted on implications. There is no publishing of this report that basis to prepare interim monitoring reports to a wider audience. Given the manual nature of by around 8 weeks after the end of the period in the data production and compilation of summaries question. This is also shared with cabinet and the in the BD, it is very difficult and time consuming OAG. to produce different formats of data, such as data summarized by economic (minor head and sub- 318. Full reconciliation between CBM, MEB, and the BD head) classification either regularly or on demand. normally takes around 3 months to finish. At that point the summary financial statements are also 320. The reporting and reconciliation processes produced. The scale of difference between interim are adequate enough to achieve an eventual and financial statement figures is discussed with reconciliation and a basic level of accountability respect to Dimension 3. However, in recent years, among the spending bodies. The process is set out this period has remained more or less constant and in detail in the OoSa and HtaSa and is applied with there has been no buildup of delay. some rigor. But the compressed format and delayed timing of the reports combined with the limited (iii) Quality of information degree of analysis that is included in summary reports weakens their capacity to support active 319. The interim summary submitted by DG of the in-year management of the emerging position. Budget Department to the Minister of Finance and Controls and responsibilities built into the OoSa Revenue contains only partially reconciled data and HtaSa are focused largely on the avoidance and even omissions where no data is available. of overspending of budget provision. Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Scope of reports in Reports are produced C Comparison to Examples of terms of coverage and by the BD in terms of budget is possible reporting formats compatibility with budget administrative headings. only for main from spending estimates Spending bodies do administrative bodies to the BD report data at a more h e a d i n g s . and from the BD to detailed level, but this Expenditure the minister. is only summarized and is captured at reported upward at a more payment stage (not OoSa and Hta Sa aggregated administrative commitment data). regulations. l e ve l . R e p o r t s d o n o t include commitment data which would be necessary to secure a higher rating. (ii) Timeliness of the issue Interim reports are issued C Reports are prepared Timetable set out in of reports monthly, but with some quarterly (possibly the OoSa and Hta Sa data incomplete by around excluding first and observed from 8 weeks after the month quarter), and issued recent cycles. in question. Reconciled within 8 weeks of reports normally take at end of quarter. least 3 months to complete. (iii) Quality of information T h e i n t e r i m r e p o r t s C There are some Examples of produced are not complete concerns about reporting formats. and fully reconciled, but the the accuracy of Consolidation differences with final actual information, which processes adopted are not large. The extent may not always be by the BD. of analysis and forward highlighted in the forecasting undertaken is reports, but this does OoSa and Hta Sa limited. not fundamentally regulations. undermine their basic usefulness. Overall Score C PI-25: Quality and timeliness of annual financial statements Myanmar). For off-budget accounts only the movements are shown, not the balances. No notes 321. The accounting year for the Government runs are added with regard to significant financial from April to March. Accounts are produced in considerations such as guarantees, arrears, or the form of consolidated financial statement and contingent liabilities. several annexes. The statements are cash based. 323. The cash transactions of SEEs are included in these The form of the financial statements has been fixed statements, but each SEE is required, in addition, for some considerable number of years. Copies to produce separate accounts on a “commercial� of the statements are provided to the Minister of accounting basis. These are available to the Finance and Revenue, cabinet, and the President, Ministry that has policy responsibility for each but not published or otherwise made available to SEE, the senior cadre of both the MFR and MNPED the public. The OAG receives copies of both in-year as well as the OAG, but not published or made and ends of year statements and audits the sixth widely available. month and final statement. (ii) Timeliness of submission of the financial statements (i) Completeness of the financial statements 324. The accounting year is closed to new payment 322. The statements show cash payments and receipts transactions relatively quickly. MEB stop accepting as well as movements in cash balances. Only new payments at 31st March and adjusting movements in the overall stock of debt or other movements by the 10th April. However, a lengthy forms of financial assets/liabilities are shown, not clearance and reconciliation process takes place the opening and closing balances. There are a large and in earlier years this has taken up to 2 years to number of off-budget accounts, but the movements complete. However, in recent years the process has in these are also recorded in an Annex to the main been completed more quickly and the final form statement although it is not clear that the list of of the Financial Statements was submitted within off-budget accounts is complete (for example in 6 months to the Auditor General as follows: respect of foreign currency accounts held outside 2009/10 2010/11 2011/12 Date of submission of financial 04/08/10 12/09/11 09/08/12 statements to the OAG Sources: Financial statements and confirmation from the Office of the Auditor General. 86 Public Financial Management Performance Report 87 (iii) Accounting standards used little changed for at least several years up to and including the statements for 2011/12. However, a 325. The Auditor General is also Chairman of the major change of practice has occurred in 2012/13. Myanmar Accountancy Board which deals with It has previously been the practice for receipts accounting standards generally in Myanmar. and payments made in foreign currency to be Accounting standards have been developed for accounted for at the official rate – around (1 the commercial sector which is also applied to percent) of the market rate now being used in SEEs in the “commercial� form of their accounts. 2012/13 following steps to unify the exchange But, as yet, there are no standards or statements of rate. The use of the artificially depressed official practice that apply to the Government’s financial rate has had an increasingly distorting effect on statements which include SEE activity prepared the financial statements as revenues from natural on a parallel cash basis. The Auditor General is resources have quickly grown. The previous seeking to encourage the development of a set practice has also applied in transactions between of public sector accounting standards, which the individual SEEs so that the apparent trading OAG is intending to complete in 2013. results between the SEEs have also been distorted. The change in practice in 2012/13 will make the 326. The current form of the financial statements financial statements for that year inconsistent does not fully reflect the requirements of the with those for earlier years and it is not yet clear cash-based IPSAS, for example, in relation to the how this will be dealt with. It is understood that treatment of donated funds, but they do include work is being done to calculate the main areas of some information that would be required by the distortion, but not the comprehensive affect. IPSAS, such as previous year actuals. There are no explanatory notes included with the statements 328. The financial statements are produced on a regular as to the accounting policies adopted or guidance and reasonably timely basis. But they largely serve issued to help in their interpretation. In general, the purpose of providing some discipline ensuring they act as a technical control rather than being consolidation and reconciliation. They provide very informative as a basis for active financial limited information as a basis for active financial management. management and both their form and distribution are difficult to interpret and contribute little to 327. The underlying practices in preparing the existing fiscal transparency. form of the financial statements have remained Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Completeness of the The limited form and scope C Consolidated Copies of recent financial statements of the format of the financial statements are financial statements. statements produced prepared annually. Explanation of basis omitting information that Information from the CBM. would be required under on revenue, expenditure and international standards bank account even under a cash- based balances may not system. always be complete, but the omissions are not significant. (ii) Timeliness of submission The dates of submission to A T h e s t a t e m e n t s The CBM and BD as of the financial statements the OAG being around 5-6 are submitted for corroborated by the months after the end of the e x t e r n a l a u d i t OAG. financial year. within 6 months of the end of the fiscal year. (iii) Accounting standards There is a lack of any D A c c o u n t i n g Discussion with used standards or supporting standards are not t h e O A G o n t h e explanatory notes disclosed. development of provided with the financial accounting standards statements. in Myanmar generally and for the public sector specifically. Overall Score D+ 3.6. External scrutiny and audit PI-26: Scope, nature and follow-up of external audit 329. The two institutions that provide external oversight 332. The Auditor General has powers and duties to the executive are the Parliament and the Office in formulating the state audit and accounting of the Auditor General (OAG). Established under policies, and setting out the standard rules for the Constitution of the Union of the Republic of state audit. The Auditor General is responsible for Myanmar, the role of the Parliament in relation the administration of related state audit affairs. to public financial management is to scrutinize The OAG was established under the Constitution the national development plan and the budget, as an independent agency, which is a ministerial government public finances, and external audit equivalent under the law. The appointment the reports. Since 2011, the Parliament has established Auditor General is made by the President with the two specialized committees for this purpose. approval of the Parliament. The Auditor General The Public Accounts Committee (PAC) has a reports through the President to the Parliament bipartisan membership and vets the budget bill and is thus not fully independent. However, and the audit report. The Planning and Finance good international practice requires that the OAG Committee is responsible for reviewing the submit its audit report directly to Parliament. national development plan and legislative matters relating the financial sector. Since FY2012-13 these (i) Scope/nature of audit performed (including adherence committees have reviewed and rationalized the to auditing standards executive’s budget proposal significantly and have been instrumental in having the approved 333. The OAG performs financial, tax collection, and budget law published in the local press. These compliance audits consistent with INTOSAI audit committees have engaged some technical advisors standards. The OAG has purview over all general on a part time basis but do not have full-time government revenue and expenditure, including specialized staff or institutional support that can financial statements from SEEs, but excluding independently review and analyze the budget the Ministry of Defense. The OAG, therefore, has proposals and the national development plan purview over approximately 70 percent of total and to advise the PAC accordingly. Instead, these expenditures. All SEEs are required to submit committees rely on government ministries for its financial report, compliant with Generally policy analysis. Accepted Accounting Standards. At present the Auditor General’s Office performs mainly financial 330. The OAG was constituted in its current form audits, with limited performance and procurement under the Law of the Auditor General of the audits. Republic of the Union of Myanmar of 2010. The OAG is a semi-independent body reporting to (ii) Timeliness of submission of audit reports to legislature the Parliament through the President’s Office. The OAG has purview over all the public sector, 334. Financial statements prepared by the Ministry of except for the Ministry of Defense. The OAG is also Finance and Revenue are subject to annual audit the entity responsible for setting accounting and by the OAG. Before the Parliamentary system of auditing policy for the public sector. The OAG has government there was a significant lag (between adopted INTOSAI audit standards and conducts 1-2 years) in submission of the audit report by the mostly financial audits with some procurement OAG to the President. With the Parliamentary and performance audits. The OAG has yet to system the OAG is required to submit audit reports submit an audit report to the Parliament under the to the Parliament. However as the parliamentary Parliamentary form of government which started system of government has not completed a functioning from 2011 onward. fully audit cycle, the audit report has not been submitted by the OAG to the Parliament as yet. The 331. Complete independence of the OAG from Parliament has already established a bipartisan the executive and extending its purview over Public Accounts Committee to review the audit expenditures of the defense sector are points of report when submitted. The MFR submitted the consideration for Myanmar as the authorities financial statements for FY2011-12 to the OAG in consider further steps to improve management of August 2012. However, because the OAG had not public finances. submitted the audit report to Parliament as yet, it is not possible to rate this dimension. 88 Public Financial Management Performance Report 89 (iii) Evidence of follow up on recommendations General confirmed that most ministries provide a response to the audit opinion/queries, and also 335. Audited agencies are required to respond within 30 propose an action plan to address concerns. The days of receiving the audit findings and to propose OAG checks in the next fiscal year if the action remedial measures to address any deficiencies plan has been implemented or not. uncovered by the audit process. The Auditor Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Scope/nature of audit According to the Auditor C Central government Auditor General of performed (including General of the Union Law entities representing the Union Law (2010) adherence to auditing (2010), the Auditor General at least 50 percent of and discussions standards has mandate to audit all total expenditures with staff from the revenues and expenditures are audited Office of the Auditor of the Union Government, annually. Audits General regions, states, and SEEs, predominantly except the Ministry of Defense. c o m p r i s e The Office of the Auditor transactions level General has adopted testing, but reports INTOSAI consistent audit identify significant standards and audits issues. Audit about 60-70 percent of standards may total expenditures under be disclosed to a its jurisdiction annually. limited extent only. Audits are mostly financial (transactions level testing) and some performance and procurement audits are also conducted. ( i i ) T i m e l i n e s s o f Audit reports expected to be N/A Number of months Discussions with submission of audit reports submitted to the Parliament a u d i t r e p o r t i s staff from the Auditor to legislature 8 months of the end of submitted to the General and BD period covered from the legislature from time the Ministry of Finance the time financial and Revenue submits the statements are financial statements to the r e c e i ve d b y t h e OAG. However, as the Office of the Auditor Parliament only started General from the full operations since 2011 executive. audit reports have yet to be submitted from the OAG to the Parliament. Therefore it is not possible to rate this dimension. (iii) Evidence of follow up A f o r m a l r e s p o n s e i s B A formal response Discussions with on recommendations provided by ministries to is made in a timely staff from the OAG the audit findings within manner, but there and line ministries 1 month of receiving the is little evidence of audit opinion. But there systematic follow seems to be little evidence up. of systematic follow-up. Overall Score C+ PI-27: Legislative scrutiny of the annual budget law (iii) Adequacy of time for the legislature to provide a response to budget proposals both the detailed estimates 336. For FY2012-13 legislative scrutiny of the annual and, where applicable, for proposals on macro-fiscal budget law was quite comprehensive. The aggregates earlier in the budget cycle Government gave due consideration to the deliberations and resolutions of the Parliament on 340. The timeframe for Parliament’s review of the the FY2012-13 budget. The overall framework for budget proposal is stipulated in the annual budget the Parliament’s consideration of the draft budget calendar. For the FY2012/13, budget estimates were is set out in the Constitution of the Republic of submitted to the Parliament on January 17, 2012 the Union of Myanmar and the budget calendar. and the Budget Law was approved on March 28, The Parliament has established a specialized 2012. This effectively provided the Parliament Public Accounts Committee (PAC) to examine more than two months to review and debate the each agency budget proposal, and there are very budget proposals. detailed discussions between the PAC and the Ministry of Finance and Revenue and respective (iv) Rules for in-year amendments to the Budget without ministry on specific changes (reductions) in the ex-ante approval by the legislature draft budget proposals. 341. The rules allow for significant in-year reallocations 337. The coverage of this indicator, however, is the last within administrative heads – which reduce the completed FY under the existing system. Given credibility of the approved budget law. However: that the new Parliament only began to operate in (i) reallocations between capital, recurrent and 2012, the relevant FY would be FY2012-13, which personnel appropriations are not allowed; (ii) has not yet been completed. Thus, this indicator the rules for reallocations are clear; and (iii) cannot yet be rated. reallocations are reported to the Parliament ex-post during the supplementary budget presentation. (i) Scope of the legislature’s scrutiny Reallocations do not seem to expand the overall expenditure envelopes, however supplemental 338. The Parliament review covers basic fiscal policies budgets do. presented in the capital investment proposal and aggregates for the coming year as well as detailed estimates of expenditure for Union, state and region budget entities. There is significant scope for the Public Accounts Committee of the Parliament to influence budgetary appropriations. According to discussions the Public Accounts Committee (PAC) trimmed down the Executive’s budget proposal significantly for FY2012-13 – and the corresponding deficit went from a proposed 4.9 percent of GDP to 3.8 percent. Additionally, the Parliament did not appropriate any budget for a proposed Ministry of Industrial Relations – and the result was that the Government did not establish the ministry. The debate on the draft budget law for FY2012-13 was telecast live on national TV. (ii) Extent to which the legislature’s procedures are well-established and respected 339. Procedures and processes for legislature’s review of the budget law are simple and respected by the Government. When reductions were made to the FY2012-13 budget proposal, the Government reflected them in the reviewed draft budget law, which was only approved after the Public Accounts Committee reviewed the changes. 90 Public Financial Management Performance Report 91 Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Scope of the legislature’s The Parliament’s review N/A The legislature’s Discussions with scrutiny covers: (i) broad fiscal review covers the Public Accounts policies (as presented in fiscal policies and Committee of the the capital investment aggregates for the Parliament proposals); and (ii) details of coming year as well expenditure and revenues as detailed estimates for the coming year by of expenditure and Union, regions, and states. revenue. An aggregate borrowing ceiling is also passed by the Parliament, even though details sources or applications of borrowing are not provided. (ii) Extent to which the The Parliament in Myanmar N/A Simple procedures Discussions with legislature’s procedures was established 2008. exist for the the Public Accounts are well-established and The current procedures legislature’s budget Committee of the respected are simple and evolving. review and are Parliament and the Established procedures respected. BD and processes are respected by the Government. When budgetary cuts were made to the FY2012/13 budget, the Government reflected them in the reviewed draft budget law, which was only approved after the Public Accounts Committee reviewed the changes. (iii) Adequacy of time for For the FY2012/13, budget N/A The legislature has Budget Calendar the legislature to provide estimates were submitted to at least two months for FY2012/13 and a response to budget the Parliament on January to review the budget discussions with proposals both the detailed 17, 2012 and the Budget Law proposals. the Public Accounts estimates and, where was approved on March Committee of the applicable, for proposals 28, 2012. This effectively Parliament and the on macro-fiscal aggregates provided the Parliament at BD earlier in the budget cycle least two months to review and debate the budget proposals. (iv) Rules for in-year Clear rules for in-year N/A Clear rules exist Financial amendments to the Budget reallocations exist and they for in-year budget Regulations 1986 without ex-ante approval allow for administrative amendments by by the legislature reallocations which are the executive, reported to the Parliament and are usually during the supplementary respected, but they budget presentation. a l l o w e x t e n s i ve administrative reallocations. Overall Score N/A PI-28: Legislative scrutiny of external audit reports Hence it is not possible to rate any dimension of this indicator. 342. Prior to 2011 the audit report used to be submitted by the OAG to the President of the Republic of the 344. However, it is important to note that: (i) the review Union of Myanmar for review and sign off. The of the audit report by the Parliament within a audit report was not published and there was no predetermined timeframe is not mandated by any public debate on findings of the audit report. legislation. The parliamentary procedures call for a review by the Public Accounts Committee only, 343. With the new government assuming office, the and not a full discussion in either the House of Parliament was sworn-in in early 2011 and became Representatives (Pyithu Huttlaw) or the Upper fully operational over the course of the year. The House (Amyotha Huttlaw); (ii) the PAC has limited Public Accounts Committee (PAC) tasked to technical support; (iii) the legislative framework review the budget proposal and the audit reports. does not call for actions to be undertaken with The PAC reviewed the executive’s budget proposal respect to recommendations of legislative review; for FY2012-13. However, as the audit cycle for and (iv) there is no provision in the legislation FY2011-12 had not been completed, the Parliament requiring publishing of the audit report. has not had the opportunity to review the same. Indicated Framework Indicator Analysis Evidence Used Score Definition (i) Timeliness of The Parliament was N/A Number of months Discussions with the examination of audit established in 2008 with t h e s c r u t i n y o f PAC and OAG. reports by the legislature parliamentarians sworn in the audit report is (for reports received within in 2011 (after the November completed by the the last three years) 27, 2010 election). To date legislature. the Parliament had not reviewed the audit report because the first audit cycle under the new system is yet to be completed. Therefore it is not possible to rate this indicator at this time. (ii) Extent of hearings on Thus far the Parliament had N/A S u b s t a n c e o f Discussions with the key findings undertaken by not received and reviewed hearings between PAC and OAG. the legislature the audit report. the legislature and the audited entity on key audit findings. (iii) Issuance of As the audit report N/A W h e t h e r o r n o t Discussions with the recommended actions had not been reviewed recommendations PAC and OAG. by the legislature and by Parliament, it is not are issued by implementation by the yet possible to rate this the legislature executive dimension. for the executive to implement to address audit issues, and follow through thereof. Overall Score N/A 92 Public Financial Management Performance Report 93 3.7 Donor practices Ministry of Health (70 percent in FY12) but the ministries responsible for forestry, education, 345. During the period under review, Myanmar was in sports, and science and technology also benefitted. the bottom fifteenth percentile of all ODA recipients According to the MFR, external loans have been on a net per capita basis. In 2010, the average net extended to the ministries for agriculture, industry, assistance was US$7 per-capita, mainly in the form transport, energy, and electricity, among others. of grants. In recent years, five ministries benefitted from grant assistance. Most grant aid went to the Box 2: Managing ODA in Myanmar – Some current partner practices The lifting of sanctions in 2012 will facilitate pursuit of the agenda set out in the 2005 Paris Declaration for Aid Effective- ness. These are: 1) developing countries should set their own strategies and objectives for poverty reduction, improve their institutions and tackle corruption; 2) donors should align behind these objectives and use local systems; 3) there should be harmonization between government and donors in aid coordination and implementation, simplifying pro- cedures, sharing information to avoiding duplication; 4) developing countries and donors shift focus to measurable development results; and 5) donors and the government should be mutually accountable for development results. Ownership and alignment: International assistance has been largely focused on humanitarian interventions and has come in far smaller volumes on a per capita basis than aid to neighboring countries such as Laos, Cambodia or Viet- nam. Due to international sanctions during the period under review, most assistance had been directed to communities rather than to the government. Aid projects thus far have typically focused on activities related to education, health, community development, minority support, and disaster management/prevention. Some of this assistance is “in-kind,� the provision of medicines being an example. There are also several scholarship programs aimed at capacity building. The drafting of a new five year development plan and the accompanying Framework for Social and Economic Reform, which has been drafted through a consultative process, are aimed at increased ownership and the promotion of donor alignment. In best practice applications, consultations are given adequate time to ensure all interested stakeholders are heard, additional time is allowed for the discussion of proposed decisions and reasons are provided to all stakeholders for each key decision taken. Going forward, it will be important to ensure that national ownership of the development process is not undermined by (i) too many uncoordinated offers of support, fragmented, and/or stand-alone initiatives from development partners; (ii) lack of transparency in management of development finance that could result when resources flow off budget or bypass crucial elements of the government systems; and (iii) overly high transaction costs imposed on stretched government structures. Harmonization: The donor community does coordinate with the Government with regard to the level, composition and timing of their support. Planning meetings can occur several times a year. Only a few appear to be timed in a man- ner that allows the authorities to make informed estimates of expected aid disbursements in the budget cycle. Many members of the donor community do also coordinate among themselves as well. The formation of several technical working groups is currently under discussion. Many donors have relied on UN agencies, regional institutions and international non-government organisations for project implementation. The fact that most of this work has been at the community level implies that government procedures have generally not been used for procurement, payments, accounting, auditing, and financial reporting procedures. In some cases, project activities can be managed by ministry staff under contract with a donor, but this has meant the officer is temporarily removed from the government payroll until the expiration of the contract. Some issues remain with regard to differentials in travel allowances paid by donor agencies and the government. Many project staff at the community level have been paid in cash because of the under-developed banking system. More recently, the Government and donors have set up a few multi-donor trust funds. These have generally proven to be a positive experience in terms of coordination, policy dialogue and a shared understanding of results. Looking forward, it will be especially important for the government and its donor partners to support the strengthening of institutions and avoid a range of practices that in other countries have tended to undermine institutional development: these include (i) “brain drain� of the best civil servants to development partner-financed structures, (ii) salary “top-ups� or payments to government officials outside government norms which create distortions and unsustainable practices for the rest of the administration, and (iii) multiplication of project-specific and separate implementation structures. Some of these practices might be well intended for short term quick delivery of results but in the long term undermine the ability of institutions to deliver services and design and implement policies. 346. Assistance between 2006 and 2011 was provided to problems in budgeting resources (including by 23 bilateral donors, 5 multilateral agencies, presentation in the budget documents for and 14 UN agencies. A list is provided in Annex legislative approval) and in reporting of actual Table 2. The largest donors in recent years disbursement and use of funds (which will be include: Australia, the European Commission, entirely the donor’s responsibility where aid is the Global Fund for Vaccination and Inoculation, provided in-kind). While the Government through Japan, Norway, Sweden, the United Kingdom, its spending units should be able to budget and the United States of America. This assistance and report on aid transferred in cash (often as contains elements of both recurrent and capital extra-budgetary funding or through separate expenditures. Due to international sanctions bank accounts), the government is dependent during the period under review, only a small on donors for budget estimates and reporting on fraction of this aid was channeled through the implementation for aid in-kind. Donor reports public sector, primarily for non-procurement on cash disbursements are also important for related activities such as teacher training in reconciliation between donor disbursement the townships. No direct budget support, nor records and government project accounts. sector-wide support, had been provided during the period under review. Assistance therefore (i) Completeness and timeliness of budget estimates by took the form of projects, technical assistance, donors for project support and aid in-kind. There has thus been almost no use of country systems for procurement, 348. Overall, most development partners do not payments, accounting, auditing, or reporting. A provide budget estimates for disbursement of comprehensive assessment of donor practices project aid for the coming fiscal year and at least regarding the sharing of financial information with three months prior to its start, indicating a rating the government remains pending. of D for this dimension. The FERD has some reporting processes and mechanisms in place, but D-1: Predictability of Direct Budget Support. the MNPED acknowledges that they are a work in progress. For example, development partners are Direct budget support to the Union Government supposed to sign memoranda of understanding is expected in the near future but the Union (MOU) with the FERD. The MOU would provide Government has not received such support at the estimates of project support, though it appears not time of this assessment. all partners sign the MOU, or do not sign them in a timely manner from the perspective of the budget (i) Annual deviation of actual budget support from the calendar. Similarly, data provided by partners is forecast provided by the donor agencies at least six neither precise nor comprehensive. The FERD weeks prior to the government submitting its budget does not have information on international NGO proposals to the legislature (or equivalent approving project support; nor is this information included body) in the budget by the MFR. Still, the FERD prepares estimates, based on the available information, for Not applicable. use in national planning process, though it does (ii) In-year timeliness of donor disbursements not routinely report this information to the Budget Department. (compliance with aggregate quarterly estimates) 349. Some partners do provide estimates of their Not applicable. support for budgeting purposes. For example, D-2: Financial Information Provided by Donors for officials from the Ministry of Health reported Budgeting and Reporting on Project and Program Aid that UNICEF and the ministry conduct an annual budgeting exercise together in which activities and 347. Predictability of disbursement of donor support for funding are agreed. WHO shares budget estimates projects and programs affects the implementation with the government at the annual WHO Regional of specific line items in the budget. Project support Committee meetings, through the Sub-Committee can be delivered in a wide range of ways, with on Policy and Program Development. These varying degrees of government involvement in meetings are held in the fall months, typically planning and management of resources. A lower September, in time for incorporation into the degree of government involvement could lead budget for the forthcoming year. 94 Public Financial Management Performance Report 95 (ii) Frequency and coverage of reporting by donors on FERD also attempts to obtain spending estimates actual donor flows for project support from line ministries directly. The FERD provides rudimentary forms to line ministries, which 350. There is some reporting by development partners are supposed to provide data to the FERD on a on actual project support flows, but there are quarterly basis. Weak partner reporting to line major limitations on the frequency, timeliness, ministries also, however, limits the effectiveness and coverage of the information provided, thus of this approach. Some information is provided, indicating a rating of D for this dimension. Some though it is incomplete and not usually provided donors, such as the UNDP, provide quarterly in a timely manner. Loan transactions are reported reports on actual spending to the FERD. The more rigorously (e.g., on a weekly basis internally). Indicated Framework Dimension Analysis Evidence Used Score Definition (i) Completeness and There is some reporting Not all major Correspondence timeliness of budget by development partners donors provide with selected estimates by donors for on actual project support budget estimates development project support flows, but there are for disbursement of partners; OECD/ major limitations on the project aid at least DAC database; D frequency, timeliness, and for the government’s reporting formats coverage of the information coming fiscal year from FERD/MNPED. provided. and at least three months prior to its start. (ii) Frequency and cover- Most development partners Donors do not Correspondence age of reporting by donors do not provide budget provide quarterly with selected on actual donor flows for estimates for disbursement reports within two development project support of project aid for the coming months of the end- partners; OECD/ fiscal year and at least three of-quarter on the DAC database; months prior to its start. D disbursements reporting formats made for at from FERD/MNPED. least 50% of the externally financed project estimates in the budget. Overall Score D D-3: Proportion of Aid that is Managed by Use of is compounded when different development National Procedures partners have different requirements. 351. National systems for management of funds 352. The use of national procedures mean that the are those established in the general legislation banking, authorization, procurement, accounting, (and related regulations) of the country and audit, disbursement and reporting arrangements implemented by the mainstream line management for donor funds are the same as those used for functions of the government. The requirement that government funds. All direct and un-earmarked national authorities use different (donor-specific) budget support (general or sector based) will by procedures for the management of aid funds may definition use national procedures in all respects. be justified in the short-run but, over the long-run Other types of donor funding, such as earmarked will reduce incentives to improve the capacity budget support, basket funds, and discrete project and quality of the national systems. The problem funding may use some or no elements of national procedures. (i) Overall proportion of aid funds to central government and department accounts 05 and 06), primarily that are managed through national procedures for non-procurement related activities such as scholarships, training, seminars, supervision, and 353. Due to international sanctions during the period monitoring. Flows through these accounts are under review, almost all the cooperating partner- generally subject to the full array of government financed activities operate outside the country’s systems for payments, accounting, auditing, and PFM system. According to data supplied through financial reporting. In addition, a number of the OECD. Only 13 percent of official development “Other Accounts� have been established in order assistance was channeled through the public to forward some of the assistance flowing through sector. Partners therefore generally use procedures ministry accounts to the township level (e.g. by the that are different from the country’s regular ministries responsible for education and health). It procurement, payments, accounting, auditing, and is government practice not to allow procurement financial reporting procedures. from these forwarded grant funds. Flows through these accounts are generally subject to the full array 354. Only a small fraction of external aid funds were of government systems for accounting, auditing, channeled through the public sector (ministry and financial reporting. Indicated Framework Indicator Analysis Evidence Used Score Definition Overall proportion of aid Due to international Less than 50% Correspondence funds to central government sanctions during the period of aid funds to with selected that are managed through under review, almost all central government development national procedures. the cooperating partner- D are managed partners; OECD/ financed activities operate through national DAC database; outside the country’s PFM procedures. discussions with system. MNPED and MFR. President has endorsed MFR’s request to establish 4. Government Reform Process PFM reform steering and technical committees. The decision was taken to repurpose the existing PEFA 355. The Public Finance Management (PFM) reforms Steering and Technical Committees into the new being undertaken are part of a much broader reform managerial and technical level reform committees. program of the Government. Since 2011 the elected The purposes of the reform committees is to design government has been undertaking major structural and drive the reforms as well as coordinate the reforms to the political governance system, the banking and financial sector, the public sector, and program with the development partners. the investment climate/private sector development 357. With regard to management of public finances, area. The reform efforts have been aimed at making there have been two major catalysts for reforms the political space more democratically contested since 2011. First, the operationalization of the and electorally representative, liberalizing the Parliament and establishment of the Public financial sector and unifying the exchange rate Accounts Committee and the Planning and to reduce market distortions, promote greater Finance Committee have resulted in enhanced financial intermediation and capital market external scrutiny and oversight over the budget development, reforming tax policy and budgeting by the Parliament, the public airing of budgetary systems to enhance the revenue effort and making debates on the national television and enhancing the budget more transparent and responsive to budgetary transparency thorough publication of local needs, rationalizing different regulations the budget law in national newspapers. Second, and abolishing permits that constrain private the constitutional requirement for separation of enterprise to flourish. regional and state budgets from the union fund 356. Recognizing the need to robustly manage the accounts has required rapid deconcentration of emerging PFM reform program, the Office of the budgeting and planning functions to support bottom up planning and budgeting processes at the 96 Public Financial Management Performance Report 97 state and regions level. In order to coordinate and adequate controls and assurance systems needed integrate state and region budgets with the union in a highly delegated PFM system. budget, the government has also established the Financial Commission and the National Planning 361. This section describes briefly some of the specific Commission. The new planning and budgeting PFM reforms undertaken by Government, presents practices has also resulted in a deconcentration of some weaknesses identified as part of the PEFA PFM policy functions from the President’s Office assessment based on the performance indicators, to the MFR and the MNPED, respectively. Prior to and presents some forward looking reforms which 2011 the policy making function was centralized the Government is in the process articulating more with the President’s Office, and the respective line clearly through a PFM reform strategy. agencies only required to implement top-down policies. Tax policy and adminstration reforms 358. Another major development has been the change in the treatment of SEEs. Since 2011 the 362. The revenue effort in Myanmar is low compared Government has moved to make SEE management with other ASEAN countries. The revenue to GDP independent of the corresponding parent ministry ratio in Myanmar was 6.7 percent in FY2011/12, and more market oriented, stopped the practice compared to the average ASEAN country revenue of providing budgetary support to cover SEE to GDP ratio of about 15 percent. Low revenue losses – with a move to providing loans to SEEs for collection significantly limits the ability of the covering losses, making operational results more government to undertake needed expenditures, transparent – and moved toward privatization as well as complicates cash management. of some SEEs. This change has resulted in less government control over SEE operations but also 363. The MFR began tax policy and administration of reduced ministerial oversight of SEEs. reforms in 2012 aimed at increasing the revenue effort and simplifying tax policy. From FY2012- 359. The fast pace of reform has meant that the 13 the Government: (i) replaced gross profit tax authorities have made signficant changes in PFM with net profit tax, (ii) increased taxable income practices without either drawing up a reform thresholds for salary earners and brought public strategy or updating the rules and regulations that servants into the tax net; (iii) abolished differential govern public finances to be in line with the current corporate tax rates on foreign exchange earnings; practies. Where regulation has been passed, it has (iv) rationalized the commercial tax on most goods remained at a relatively high level with signficant and services to 5 percent and reduced the number leeway given to agencies to determine policy of different tax rates applied, as well as increasing implementation. This has made the current PFM the number of services subject to the commercial system under regulated and largely practice based. tax. These reforms are aimed at simplification of revenue in order to enhance compliance and 360. The majority of the PFM reforms have focused increase revenue collections in an efficient and on delegation of authority downward – from the accountable manner. Union Government to the states and regions (for meeting regional and state level development 364. The Government has also taken initial steps needs), from central agencies to sectoral ministries to improve transparency of tax policy and its (for example on public procurement and internal administration. In April 2012 the Government audit functions), and from sector ministries published the revised personal income tax code to SEEs (by making them more arm’s length, and corporate tax code in both Myanmar and less dependent on budget financing, and more English on the website of the Internal Revenue commercial). Less emphasis has been put on Department (IRD). The IRD also published and ensuring that the rules and regulations governing distributed a simplified guide to taxpayers for the delegated system are at par with actual current calculating taxable income based on the revised practices, that the control environment is outdated tax code for all major tax instruments. This was and accountability for results systems not yet in followed up by a countrywide taxpayer outreach place. At the same time, fiscal transparency and program, including training to tax officials on the focus on results is quite limited. This makes application of the revised tax laws. the current PFM system in Myanmar susceptible to mismanagement because of the asymmetry 365. However there are still significant shortcomings between significant delegation but the lack of in tax policy. Myanmar does not yet have a unified tax code which compromises the consistency of Peace and Development Council signing-off on the overall tax policy and leads to tax cascading. the budget without any external consultation or Major tax instruments are legislated separately scrutiny. This changed with the establishment and are quite dated, different tax laws allow for of the parliamentary system of government and significant leeway in granting tax exemptions establishment of regional and state parliaments. without estimating tax expenditures. Additionally Starting with fiscal year 2012/13, the Government the rate structure of commercial taxes could be separated regional and state budgets from the simplified further for efficiency purposes. Union budget. This is aimed at making the budget process more bottom-up and responsive to local 366. Tax administration also faces major challenges. needs. Myanmar practices the administered tax assessment system which allows for significant collusive 369. In order to effectively coordinate and integrate the interactions between taxpayers and collectors. budget process for the Union, state and regional Although the government has implemented a levels, the Government has also established General Index Registration system for taxpayers, new institutions. First, township level planning only 0.4 percent of the population is registered. committees were established to provide inputs Additionally, the GIR number is used only within a into the formulation of regional and state budgets. specific geographical area. It is not unique and can Second, the Financial Commission (FC) was duplicate across regions and tax-type directorates. established to coordinate the Union budget with The same taxpayer may have multiple GIRs if regional and state budgets. The FC is chaired she/he operates in different types of businesses by the President and comprises the Minister for in different regions. As such the GIR is not an Finance and Revenue (Secretary), Chief Ministers effective control mechanism and fails to facilitate from the regions and states, the Minister for communication with third parties. The compliance National Planning and Economic Development, management system is weak, showing collection the Auditor General and the Attorney General. rates of less than 30 percent for the commercial tax The FC reviews the proposed union and state and 60 percent for income tax. and regional level budgets and subsequently submits them to Parliament for approval. Third, 367. The Government is cognizant of these weaknesses in June 2012, the Government also constituted and is planning to address these deficiencies. In the Planning Commission (PC) – chaired by the this regard, the MFR plans to develop a sequenced President and comprising the Minister for National revenue policy and administration reform Planning and Economic Development (Secretary), program which focuses on further simplifying all Union Ministers, all Chief Ministers from revenue policy, modernizing administration, Regions and States, the Union Auditor General, enhancing revenue transparency, and promoting and the Attorney General. The PC coordinates the compliance. Potential reform elements include: (i) formulation and implementation of the National comprehensive revision of tax policy along with Development Plan along with providing high level rules and regulations governing tax administration; guidance to agencies on project implementation (ii) modernizing the tax assessment system; (iii) issues on a case-by-case basis. strengthening taxpayer identification system concurrent with progressively building a modern 370. There have also been reforms aimed at improving risk-based tax audit system; (iv) developing alignment of the budget to development priorities. more efficient and modern tax instruments; and One of the characteristic features of past budgets (v) improving the arrears management system. has been the dominance of allocations to defense, These reforms will require significant change while allocations to such critical sectors as health management, institutional restructuring, and and education have been relatively very low even capacity enhancement. compared to peers and neighboring countries. In FY2011/12, military outlays accounted for about 23.5 percent of all expenditure in comparison to Expenditure management reforms only 5.4 percent of total spending allocated to health and education. However, Government has 368. Establishment of the Union, region, and state started the process of realigning the budget to parliaments in 2011 has heralded a fundamental critical development priorities. In the FY2012-13 change in the expenditure management system. budget, on-budget military spending was reduced Prior to 2010 the budgeting and planning system by ten percent, accounting for 14.4 percent of total was top-down with the Chairman of the State budgeted expenditures. Concurrently, nominal 98 Public Financial Management Performance Report 99 allocations to education and health were increased. 373. Moreover, the Government has established an In terms of shares of total planned expenditure, Extractive Industries Transparency Initiative (EITI) education and medical care expenses accounted Leading Authority chaired by the Minister to the for 4.7 percent and 2.8 percent, respectively, each President’s Office and comprising the Minister up about 1 percentage point. for Environment Conservation and Forestry, the Minister for Energy, Minister for Mines, and the 371. However, the legislative framework has lagged Minister for Finance and Revenue. The Center for the new budget planning practices. While the Economic and Social Development at the Myanmar government has changed budgeting-planning Development Resources Institute has been systems very expeditiously, the financial rules and assigned the role of EITI National Coordinator. regulations, budget planning and management The Leading Authority has been tasked to develop guidelines, internal control framework, and the detailed EITI implementation plan so that the financial reporting rules have not been updated Government can formally apply to be an EITI to reflect these new practices. Instead the public member. This work is expected to be completed by financial management system functions by December 31, 2013 (as per the official notification “generation by generation� practices. This makes issued by the President’s Office in the local news Myanmar one of the most practice-based systems media). in the world. For example, the public procurement system is regulated by a brief Order of the 374. Notwithstanding these positive developments, President’s Office mandating agencies to establish fiscal transparency remains quite constrained an open tender system for public procurement. and practice based. The legislative instruments However, there are no centrally issued subsidiary and the financial regulations are mostly silent on regulations on how the open tender system should disclosure of fiscal information. The publication be organized and monitored. Instead, agencies of the FY2012/13 budget in the newspapers was have been given the autonomy in determining the based on the recommendations of the PAC. structure of their respective open tender systems. Myanmar does not publish some of the fiscal With no central monitoring agency responsible for information that the PEFA considers as good procurement policy and administration, there is practice. These include in-year budget reports; thus no regulatory yardstick to determine whether year-end financial statements; external audit or not the country procurement system is being reports; information contract awards; and financial run in an efficient and effective manner. resources availed to primary service units such as elementary schools and primary health clinics. Hence, there is significant room for legislatively Enhancing transparency in the management of mandating greater fiscal disclosure and ensuring public finances compliance. At the same time, fiscal transparency depends on sound management practices and IT 372. Since 2011 the government has also been systems, thus necessitating a gradual approach. undertaking reforms aimed at enhancing Some gains could be realized in the short term transparency of public finances. In FY2012/13 the (1-2 years), including: making more budget Government changed the budget and accounting information available to the public (e.g., year-end processes to use a more market based exchange financial statements, external audits, procurement rate for foreign currency transactions. This contract awards, etc.). Other measures would reform is very significant as it allows for greater take more time, including to prepare the technical transparency in tax collections from foreign inputs, and are feasible over the medium term transactions and also allows agencies greater (3-5 years), including: strengthening budget realism on the expenditure side by minimizing classification; preparing analysis of previous FY the need for fictitious adjustments on expenditures budget execution and comparing past data with made in foreign exchange. Furthermore, the current budgets; bringing more spending onto Government published the Union Budget Law the budget (including from donors and INGOs); for FY2012/13 in the Official Gazette, and in working with donors and INGOs to provide more the Myanmar Ah-Lin and Mirror newspapers. information to the Government; and clarify rules This marks a significant step toward improved for allocations from Union level to state/regions. transparency since the published budget provides information of interest, such as the recurrent and 375. In order to ensure that the highly delegated PFM capital budgets for each ministry and transfers to system provides accountable and efficient public states and regions. services, there is need to put in place adequate control and accountability mechanisms that performance and the budget, and tax expenditures. balance the current flexibility to front line service Similarly it would be important to start articulating delivery units by providing assurance that public clearly the central-local government fiscal relations resources are being put to appropriate use within system while incorporating measures to mitigate an effective control environment in an efficient risks of contingent liabilities that may arise from manner. borrowing by state and regional governments. Third, given Myanmar ’s wealth of natural 376. The Government appreciates that weaknesses resources, and its embrace of a more market- remain and is thinking through an appropriate oriented economy, it is critical that policies and PFM reform program to address these challenges systems be established to strengthen regulation sequentially. In this regard, the MFR, together and management of natural resource revenue with the MNPED, are intending to develop a PFM flows. Myanmar has already made an important reform strategy based on technical inputs from this start on strengthening governance of the natural report, the recent IMF Public Finance Management resource sector by taking steps toward adoption of Assessment, and the planned Public Expenditure the Extractive Industries Transparency Initiative, Review. It must be stressed that the Government which bodes well – but much more will be required would need careful prioritization at each stage. to ensure that Myanmar captures its revenue Taking into account scarce capacity, Government potential in a sustainable way and that flows are should vigorously resist the temptation to channeled through government systems in a way overload the agenda. that allows for transparency and accountability. 377. It would be conceptually useful to define a 379. At the same time it would be important to address short term and a medium term reform objective. high priority gaps in the regulatory framework The possible short-term objective could be (mainly, improvements in financial regulations conceptualized as “Strengthen MFR’s ability to and minimum rules on procurement and internal manage the transition while addressing key regulatory audit) while commencing development of gaps and laying the foundation for the future reforms.� stronger overarching public finance legislation The transition refers to the new developments in (e.g., a budget law) to be implemented over Myanmar, which is a complicated and transitional the medium term. For example, high priority process that involves constitutional and economic gaps exist in procurement and internal audit, reform that places new pressures on the PFM given the presidential instructions issued in system. The regulatory gaps refer to key missing 2012 ordering ministries to set up internal audit pieces and ambiguities in the PFM process that units and undertake competitive procurement. could be addressed quickly. Ministries urgently need a modicum of guidance on minimal acceptable standards and processes 378. Managing the transition should focus on the in order to comply with the President’s orders. most immediate needs arising from the economic Similarly, another short term priority is building policy and public sector reforms underway. There a stronger budget policy unit/function, which are three top priorities. First, arrangements must would include developing macroeconomic be made to manage the separation of the CBM forecasting capacity, developing a fiscal policy from the MFR. The MFR will need to deal with framework, and strengthening prioritization of the public finance functions to which the CBM capital spending. This latter priority is also related previously contributed (consolidate accounting to the expected growth of revenue, including from statements and systems, debt management, cash natural resources, from higher rates of economic flow management). Second, given that Myanmar’s growth as well as revenue policy (tax and non-tax) system is in a state of massive flux, a premium reforms. should be put on prudent risk management. The MFR would benefit from developing an analysis 380. Laying the foundation for future reform refers to of fiscal risks emanating from the transition and the need to set up a management structure and mechanisms to address them (including SEE develop tools needed to design and implement risks). For example, while current accounting the reforms. A key first step, which the President’s systems will not permit a systematic risk analysis, Office has authorized in early 2013, is establishing a number of simple steps could be taken, including an executive reform committee and secretariat making lists of major contingent liabilities (which to prepare and lead a PFM reform program. may or may not include valuations), quasi- Other critical elements of the reform program fiscal operations of SEEs that could impact their would include: a vision of reform (the system 100 Public Financial Management Performance Report 101 reform objectives for a 10 year period, say); planning, and the lack of information on donor detailed reform action plans (by PFM sub-system: funded projects. These measures to strengthen expenditure, tax, procurement, external audit, budget credibility would increase reliability for etc.); a capacity development plan, including Union ministries as well as the newly empowered ICT; and a performance management framework states and regions. Second, management would (e.g., monitoring of selected PEFA PIs). It is also benefit from incrementally better information worth noting that the PFM reform program will on the budget and actual spending. Priorities have further implications for MFR organizational here include: strengthening budget classification, design (which will become apparent after reform providing some basic ICT functionality to plan, program is developed), which would need to be record, and analyze expenditure; strengthening addressed. the comprehensiveness of information provided in budget documentation; and enhancing oversight 381. In a way the proposed approach –“Strengthen of fiscal risk (as discussed above). Third, building MFR’s ability to manage the transition while addressing up some basic regulations and controls would help key regulatory gaps and laying the foundation for the reduce fiduciary risk. Key measures here would future reforms.� – is only really playing “catch include: strengthening taxpayer registration up� with the fast moving realities of Myanmar and assessment; strengthening procurement; today. The PFM reform program that Myanmar and improving payroll controls. Fourth, making develops will need to carefully prioritize and external oversight more robust would provide sequence reform measures, given scarce capacity enhanced incentives for better public financial and the significant need for improvement across management. Key reform measures here would the board. The PEFA Performance Report indicates include: improving the quality and timeliness of the need for strengthening across all areas of in-year budget reports; further building up the all PFM sub-systems. Obviously, all these areas scope and quality of external audits; and providing cannot be addressed simultaneously. Nor does adequate technical support to the Parliamentary the Performance Report provide guidance about committees reviewing Government plans and which areas to prioritize for reform. Rather, budgets. These four priorities are not meant to the diagnosis as to which PFM areas to address be definitive but rather suggestive. As noted in depends on country contextual factors, such as the this report, a PEFA Performance Report, by itself, level of capacity, policy objectives, macroeconomic is not adequate to plan a PFM reform program. conditions, and political economy constraints. Much more work will be needed, but it is hoped that these suggestions provide some useful inputs 382. One approach to PFM reform sequencing is to the Government as it commences the next steps focusing on the basic functionalities of the system, in its reform process. and this may well be the best way to think about the reform program in Myanmar. “Getting the basics right first� provides some overarching guidance as to what should be done (as well as not done), but much more work needs to be done to arrive at a specific set of short- and medium-term priorities. Key contextual factors are Myanmar’s decision to decentralize rapidly, which has already started, and its significant natural resource wealth, both of which must be taken into account when developing the logic of reform sequencing. 383. A “basics first� logic of prioritization could suggest the following four priorities: First, the credibility of the budget (defined as divergence between the budget plan and actual spending) is low, thus creating negative impacts on line ministry planning and service delivery. There are a number of reasons why credibility is low, including: the use of large (and late) supplementary budgets, weak revenue forecasting, limitations in public investment Annex 1: Variance in Spending: Budgets vs. Actuals, FY2008-2009 – FY2010-2011 Table 1: Myanmar FY2008-09 Original Revised Adjusted Absolute Administrative head, Kyat millions Executed Deviation Percent budget Budget budget deviation Administrative Organizations 375,988 661,685 658,872 408,599 250,273 250,273 61% Finance & Rev. excl. Reserve Fund 233,986 327,151 331,703 254,281 77,422 77,422 30% Defense affairs 354,446 362,214 465,147 385,189 79,958 79,958 21% Home Affairs 52,467 54,690 53,339 57,018 -3,679 3,679 6% Education 167,416 176,782 174,858 181,937 -7,079 7,079 4% Health services 44,810 47,192 45,821 48,697 -2,876 2,876 6% Environment 116,138 120,512 121,396 126,211 -4,815 4,815 4% Transport 78,319 77,632 74,413 85,112 -10,699 10,699 13% Communication 242,852 261,506 259,594 263,916 -4,322 4,322 2% Electric Power (1) 188,232 233,224 228,443 204,558 23,885 23,885 12% Electric Power (2) 295,939 299,082 295,385 321,607 -26,222 26,222 8% Energy 1,381,115 1,166,009 1,089,021 1,500,905 -411,884 411,884 27% Mines 32,383 31,957 28,514 35,192 -6,678 6,678 19% Industry 467,856 496,228 483,460 508,435 -24,975 24,975 5% Construction 206,611 232,831 231,037 224,531 6,506 6,506 3% Information 21,538 24,001 23,073 23,406 -333 333 1% Agriculture and Irrigation 197,793 273,121 257,727 214,948 42,779 42,779 20% Livestock, Breeding & Fisheries 49,850 47,089 29,144 54,174 -25,030 25,030 46% Science 27,431 28,995 28,982 29,810 -828 828 3% Rail Transport 115,346 136,819 134,502 125,350 9,152 9,152 7% All Other 72,734 120,298 118,486 79,043 39,443 39,443 50% + allocated primary expenditure 4,723,250 5,179,018 5,132,917 5,132,917 0 1,058,836   + contingency (reserve fund) 100 100 0   = total primary expenditure 4,723,350 5,179,118 5,132,917 + interest 162,853 172,814 181,203 + financial expenditure 1,098 1,094 771   = total expenditure 4,887,301 5,353,026 5,314,891       overall variance PI-1 8.7% composition variance PI-2(i) 20.6% contingency share of budget PI-2(ii) 0.0% Source: Budget Department and staff calculations. 102 Public Financial Management Performance Report 103 Table 2: Myanmar FY2009-10 Original Revised Adjusted Absolute Administrative head, Kyat millions Executed Deviation Percent budget Budget budget deviation Administrative Organizations 377,435 1,115,225 1,089,624 422,961 666,663 666,663 158% Finance & Rev. excl. Reserve Fund 362,058 446,177 423,739 405,729 18,010 18,010 4% Defense affairs 561,088 672,888 657,299 628,766 28,533 28,533 5% Home Affairs 58,454 64,359 92,044 65,505 26,539 26,539 41% Education 187,075 210,224 209,461 209,640 -179 179 0% Health services 50,754 57,119 55,836 56,876 -1,040 1,040 2% Environment 129,217 137,933 152,599 144,803 7,796 7,796 5% Transport 89,120 92,211 92,070 99,870 -7,800 7,800 8% Communication 265,089 267,471 271,170 297,064 -25,894 25,894 9% Electric Power (1) 276,807 277,994 283,080 310,195 -27,115 27,115 9% Electric Power (2) 327,466 335,677 322,331 366,965 -44,634 44,634 12% Energy 1,243,891 917,458 899,024 1,393,928 -494,904 494,904 36% Mines 44,217 44,150 40,674 49,550 -8,876 8,876 18% Industry 558,824 510,648 484,017 626,229 -142,212 142,212 23% Construction 240,494 261,338 310,365 269,502 40,863 40,863 15% Information 26,568 27,541 23,443 29,773 -6,330 6,330 21% Agriculture and Irrigation 209,416 233,121 243,919 234,676 9,243 9,243 4% Livestock, Breeding & Fisheries 59,167 49,240 29,049 66,304 -37,255 37,255 56% Science 23,415 25,646 25,676 26,239 -563 563 2% Rail Transport 172,829 178,602 184,303 193,676 -9,373 9,373 5% All Other 84,460 104,748 103,175 94,648 8,527 8,527 9% + allocated primary expenditure 5,347,844 6,029,770 5,992,898 5,992,898 0 1,612,349   + contingency (reserve fund) 100 100 0   = total primary expenditure 5,347,944 6,029,870 5,992,898 + interest 185,812 289,628 263,180 + financial expenditure 1,036 1,966 4,514   = total expenditure 5,534,792 6,321,464 6,260,592       overall variance PI-1 12.1% composition variance PI-2(i) 26.9% contingency share of budget PI-2(ii) 0.0% Source: Budget Department and staff calculations. Table 3: Myanmar FY2010-11 Original Revised Adjusted Absolute Administrative head, Kyat millions Executed Deviation Percent budget Budget budget deviation Administrative Organizations 665,986 1,432,380 1,261,805 800,278 461,527 461,527 58% Finance & Rev. excl. Reserve Fund 488,866 625,872 558,207 587,443 -29,236 29,236 5% Defense affairs 849,808 1,323,066 1,297,051 1,021,167 275,884 275,884 27% Home Affairs 94,050 112,464 115,443 113,015 2,428 2,428 2% Education 262,907 266,907 266,702 315,921 -49,219 49,219 16% Health services 69,758 78,390 77,024 83,824 -6,800 6,800 8% Environment 143,166 146,692 147,683 172,035 -24,352 24,352 14% Transport 85,238 83,181 82,951 102,426 -19,475 19,475 19% Communication 288,709 302,867 309,065 346,926 -37,861 37,861 11% Electric Power (1) 227,576 242,486 239,336 273,465 -34,129 34,129 12% Electric Power (2) 445,222 451,528 415,451 534,999 -119,548 119,548 22% Energy 932,664 865,925 817,068 1,120,731 -303,663 303,663 27% Mines 52,171 47,792 47,569 62,691 -15,122 15,122 24% Industry 433,428 375,701 348,902 520,826 -171,924 171,924 33% Construction 301,304 422,901 446,926 362,060 84,866 84,866 23% Information 29,390 30,898 27,366 35,316 -7,950 7,950 23% Agriculture and Irrigation 216,486 289,656 282,051 260,139 21,912 21,912 8% Livestock, Breeding & Fisheries 55,914 55,924 39,995 67,189 -27,194 27,194 40% Science 34,606 42,452 42,327 41,584 743 743 2% Rail Transport 171,288 187,052 186,111 205,827 -19,716 19,716 10% All Other 99,356 112,746 138,220 119,391 18,829 18,829 16% + allocated primary expenditure 5,947,893 7,496,880 7,147,253 7,147,253 0 1,732,377   + contingency (reserve fund) 100 100 0   = total primary expenditure 5,947,993 7,496,980 7,147,253 + interest 313,901 364,963 358,467 + financial expenditure 1,059 1,377 1,219   = total expenditure 6,262,953 7,863,320 7,506,939       overall variance PI-1 20.2% composition variance PI-2(i) 24.2% contingency share of budget PI-2(ii) 0.0% Source: Budget Department and staff calculations. 104 Public Financial Management Performance Report 105 Annex 2: List of Donors Active between 2006 and 2011 Bilateral Multilateral United Nations Australia European Commission Humanitarian FAO Aid and Civil Protection (ECHO) Austria ILO Belgium OCHA European Commission (EC) Canada UN Habitat Denmark UNAIDS Global Alliance Vaccines and Finland Immunization (GAVI) UNDP France UNESCO Germany Global Fund UNFPA Greece UNHCR Ireland International Energy Agency UNICEF Italy UNODC Japan UNOPS Luxembourg WFP Netherlands WHO New Zealand Norway Portugal Republic of Korea Spain Sweden Switzerland United Kingdom United States Source: OECD DAC website. Annex 3: Sources of Information Economist Intelligence Unit. Myanmar Country Report. March 2012. Hori, M., and Y.C. Wong. “Efficiency Costs of Myanmar’s Multiple Exchange Rate Regime.� IMF Working Paper. WP/08/199. International Monetary Fund. Myanmar: Staff report for the 2011 Article IV Consultation. SM/12/44. (2011). Ministry of Finance and Revenue, Budget Department. Budget Calendar for 2012/2013 and Summary of Key Steps in the Budget Process. 2012. ________. Approved expenditure estimates and the provisional estimates for expenditure out-turns (translated summaries), various years. ________. Debt Accounting Records, various years. ________. Financial Regulations and supporting documents for accounting and internal monitoring (translated sections of the Oo Sa and Hta Sa), 1986. ________. State Economic Enterprise Monthly Fiscal Reports (translated), various years. Ministry of Finance and Revenue, Central Bank of Myanmar. Debt Accounting Records, various years. Ministry of Finance and Revenue, Customs Department. Objectives, Customs Reforms, Rules and Regulations, various years. Ministry of Health. Expenditure Commitment Control Regulations, n.d. Ministry of National Planning and Economic Development, Central Statistical Office. Statistical Yearbook 2010. Ministry of Oil and Gas. Sample internal audit report for an SEE, FY12 (partial translation). 2012. ________. Sample of internal regulations for payroll management (partial translation), n.d. Myanmar Economic Bank. Financial Statements and Summary of “Other Accounts,� various dates. Office of the President. Order on the Conduct of Procurement (translation), June 2011. Republic of the Union of Myanmar. Auditor General Law, 2010. ________. Commercial Tax Law, 1990 (as amended, April 2012). ________. Constitution of the Union of the Republic of Myanmar, 2008. ________. Myanmar Foreign Investment Law, 1988 (as amended, April 2012). ________. Goods and Services Law, 1976 (as amended, April 2012). ________. Income Tax Law, 1974 (as amended, April 2012). ________. National Planning Act, FY2011. ________. Profit Tax Law, 1976 (as amended, April 2012). ________. Union Budget Law, FY2013(translation) (as published in the Official Gazette and in the Myanmar Ah-Lin and Mirror newspapers), 2013. ________. Supplementary Budget Laws for FY2010, FY2011, FY 2012 (translations). 106 Public Financial Management Performance Report 107 United Nations Department of Economic and Social Affairs, Population Division. World Urbanization Prospects: The 2009 Revision, 2009. United Nations Development Program. Integrated Household Living Conditions Survey 2009-2010, Poverty Profile. 2011. 110