The Challenges Faced by Emerging and Developing Nations

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The Challenges Faced by Emerging and Developing
Nations

• World Congress of Accountants
• Turkey

Istanbul November 14, 2006
Tony Hegarty Chief Financial Management
Officer Head of Financial Management Sector
Board The World Bank
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The World Bank GroupWorking for a world free of
poverty
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Poverty Reduction Global Challenge

• 1.2 billion people live on less than 1 a day
• 2 billion do not have access to clean drinking
  water
• 200,000 children under 5 die each week of
  treatable and preventable diseases
• Globally, 1 child in 4 does not finish primary
  school, and in Africa almost 50 do not
• 70 of the worlds poor are in Middle Income
  Countries

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Millennium Development Goals

• Endorsed by 189 countries at the UN Millennium
  General Assembly in Sept 2000.
• Aim to halve the proportion of people in extreme
  poverty by 2015.
• Set targets for reductions in poverty,
  improvements in health and education, and
  protection of the environment.

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Millennium Development Goals
The Millennium Development Goals offer concrete
targets for everyone to rally around in the
global fight against poverty. But reaching the
goals will require action from both developed and
developing countries. Paul Wolfowitz,
President, The World Bank
Developed countries must boost foreign aid to the
developing world, remove barriers to the exports
of developing countries, encourage private
investment, and make the benefits of science and
technology available to all the world's peoples.
Developing countries, meanwhile, must put in
place the right economic policies, work to
improve governance, invest in their people, and
create an enabling environment that is conducive
to growth and development.
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Gleneagles Summit, Scotland July 2005
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Governance, Poverty Reduction, Financial
Management
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The path to prosperity must be built on a solid
foundation of good governance President P.
Wolfowitz, September 19, 2006 (Singapore)
At the country level
In projects

• Apply highest fiduciary standards in
  Bank-financed projects
• Improved supervision, oversight and monitoring
  through transparent disclosure of project
  information
• Strengthen internal investigation unit to detect
  fraud in Bank-financed projects

• Deeper engagement to strengthen governance and
  fight corruption
• Customized strategy for each country to address
  governance and corruption risks and challenges in
  that country
• Strengthen accountability and transparency of
  state institutions
• Seek out and support champions of reforms in
  governments and civil society

In partnerships

• Expand partnerships, including with the private
  sector, civil society, youth, and media
• Work with rich countries to provide assistance on
  anti-money laundering and asset restitution
• Work with other international organizations
  (e.g., MDBs) on common approach joint strategy
  for sanctions

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Governance, Poverty Reduction, Financial
Management

• Improved FM capacity is at the core of good
  governance and lies at the heart of achieving the
  MDGs/poverty reduction ensuring that public and
  donor resources are used efficiently, effectively
  and transparently for intended purposes.

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Diagnosis of Country PFM Systems?

• A CFAA a diagnostic tool to enhance the knowledge
  of PFM in client countries.
• It supports fiduciary responsibilities by
  identifying the strengths/weaknesses of PFM so
  that potential risks to funds can be
  assessed/managed.
• It supports development objectives that lead to
  the design and implementation of capacity
  building programs (Action Plan) to improve a
  countrys PFM

diagnostic tool
fiduciary responsibilities
development objectives
Action Plan
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PFM Diagnostics Completed over 100
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PFM Diagnostics Emerging Cross-cutting Issues

• Incomplete Budget Information
• Inadequate Accounting Systems
• Obsolete Legal Framework
• Ineffective Internal and External Audit
• Poor dissemination of PFM information
• Shortage of qualified PFM Professionals
• Barriers to IFMIS

Mostly due to weak capacity
Mostly due to weak capacity
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International Financial Crises
Weak Financial Systems
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International Response Standards Codes
The World Bank

• Accounting
• Auditing

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What is an Accounting and Auditing ROSC?

• Evaluates strengths/weaknesses of institutional
  frameworks
• Assesses comparability of national with IFRS/IAS
  and ISA
• Examines compliance with standards in practice
• Supports the preparation of development action
  plan for enhancing accounting and auditing
  standards and practices

strengths/weaknesses
comparability
compliance
development action plan
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AA ROSC informs other ROSCs
Accounting and Auditing
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ROSC AA Reviews Completed 62
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ROSC AA Emerging Cross-cutting Issues

• Outdated legal frameworks
• Weak accountancy professions
• Widespread non-compliance with standards
• Weak monitoring/enforcement mechanisms
• Lack of access to international standards
• Inadequate training and curricula
• Non-availability of implementation guidance and
  practice manuals

Mostly due to weak capacity
Mostly due to weak capacity
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How do we get there?
From Diagnostics to Implementation
Fromdiagnostics to
capacity development
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Capacity Development Follow-up
Involves Collaboration/Partnership

• Government
• Country Stakeholders
• Donors
• World Bank

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Integrated Capacity Development Plan(Example
Country Action Plan)
Statutory Framework
Oversight, Monitoring Enforcement of Standards
Education Training
Auditing Standards Actual Practices
Accountancy Profession
Accounting Standards Actual Practices
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Guiding Principles for Capacity Building

• Country leadership and ownership
• Tailor-made capacity development design
• Comprehensive programme design and implementation
• Coherent and coordinated donor support

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Building PFM Capacity Strengthened Approach
Drawing on lessons learned, donors have
developed a strengthened PFM approach
Donor Country Assistance Strategy and knowledge
requirement
Monitoring results ------------------ PFM
performance measurement framework
Donors Technical Assistance Financing
Government/Donor Policy Dialogue
Government PFM Reform Strategy, Action Plan and
Results
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Strengthening Financial Reporting Summary
Donors Technical Assistance Financing
Capacity Development Activities
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Building FM Capacity Harmonization and Global
Partnerships

• Donors are harmonizing fiduciary requirements and
  are aligning those with strengthened country PFM
  systems
• Donors are supporting FM capacity building
  initiatives in various countries
• Donors are supporting international FM
  organizations
• IFAC
• INTOSAI
• IASB
• IFAC Developing Nations Committee

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Building FM Capacity How Can the Accountancy
Profession Contribute?

• Complying with IFAC membership obligations (SMOs)
• Supporting IFACs Developing Nations Committee
• Providing advise/technical support to
  governments/donors
• Training/Certification of more accountants
  (levels)
• Addressing specific needs of the public sector
• Ensuring compliance with accounting/auditing
  standards

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Improving Corporate Financial Reporting
Follow-up ROSC AAs

• Nigeria Technical Assistance to the Accounting
  Standards Board.
• Slovakia and Morocco Assistance in preparing
  and implementing CAPs.
• Mauritius, Romania and Bulgaria Training
  programs on international standards.
• Tunisia and Ukraine Incorporating policy
  benchmarks into DPLs.
• Korea Support for to accounting and auditing
  reforms.
• Brazil Advice to Security Commission re
  harmonization of standards with IFRS.
• Chile Support for adoption of IFRS by all
  listed companies.
• Bangladesh, Tanzania, Uganda Implementing ROSC
  recommendations Implementation of
• ECA Road to Europe (REPARIS) Program of
  Accounting Reform and Institutional Strengthening
  for 9 countries/entities in south-eastern Europe.

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Summary and Conclusion

• Poverty reduction is primary global development
  challenge
• MDGs created a powerful compact for fighting
  poverty. Reaching them will require accelerated
  and concerted actions from developed and
  developing countries
• Improving governance and financial management
• FM capacity development
• Partnership required in support of country led
  strategy

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Thank you