World’s first Model Law on Public Financial Management

The Regulatory Institute proudly assisted the Southern African Development Community Parliamentary Forum (SADC PF) develop the world’s first Model Law on Public Financial Management (MLPFM). The MLPFM was unanimously approved by the 51st Plenary Assembly of the SADCPF on 14 July 2022, representing several months of work, by experts in several countries and an extensive consultation process across diverse sectors of the SADC region. This howtoregulate article outlines the regulatory assistance provided by the Regulatory Institute in the development of this trailblazing model law. Given the value of model laws as a lawmaking tool, the Regulatory Institute is developing a Model Laws Library, the aim of which is to facilitate the work of lawmakers.

1. The full text of the MLPFM can be found here. For a detailed overview of the MLPFM by the legal drafter watch the recording on the SADC PF channel here, including the formal vote by the 51st Plenary Assembly. For background information about the MLPFM please read the Concept Note at this link.

Southern African Development Community Parliamentary Forum

2. The SADC PF was established by the Southern African Development Community (SADC) Summit of Heads of State and Government in 1997 to “constitute a Regional Parliamentary Framework for dialogue on issues of regional interest and concern”. As part of this mandate, the SADC PF promotes best practices in the role of parliaments in regional cooperation and integration. The creation of model laws is one of the methods used by SADC PF to encourage regional cooperation and has already successfully developed model laws in the areas of elections, eradicating child marriage, HIV (human immunodeficiency virus) and gender based violence. The genesis for the development of the MLPFM was to ensure that “SADC national parliaments are enabled to conduct their legislative, budgetary and oversight functions for public financial management (PFM) to be transparent, efficient and responsive to the needs of SADC citizens”. Even before the MLPFM was passed by the 51st Plenary Assembly, its influence could already be felt with Zimbabwe opting to hold off proposed amendments of its PFM law until the SADC PF endorsement.1

Technical Working Group of Experts

3. The Regulatory Institute provided its pro bono assistance to the SADC PF through the contributions of its President and General Manager, Ms Valerie Thomas, who was a member of the Technical Working Group of Experts (TWG). The TWG was responsible for providing guidance and expertise for the drafting of the MLPFM. The TWG was made up of representatives from the following organisations:

The Regulatory Institute assisted in the recruitment process for the legislative drafter, Mr Daniel Greenberg CB was selected and provided comments and amendments to several drafts of the MLPFM. This type of assistance is one of the many pro bono services the Regulatory Institute provides as part of its mission to improve regulation globally so that regulations benefit us all.

4. Our contributions to the TWG, like our howtoregulate articles, was informed by regulatory research about best practice regulation, the results of which we published in the following articles:

  • The legislature’s ex post control of public finances (Part 1); and
  • The legislature’s ex post control of public finances (Part 2).

The Handbook: How to regulate? 2nd edition also informed our approach as it sets out a basic universal method of law-making, specific elements facilitated the work of the TWG include:

  • analysis of the sector of PFM, which we outlined in our two part articles above;
  • identification of possible goals, objectives, measures, requirements, incentives and information or enforcement tools, much of which had been elaborates in the SADCPF Concept Note;
  • developing regulatory measures with a focus on regulation, the Regulatory Institute’s feedback during the drafting process included suggestions for regulatory provisions;
  • basic quality verification, an ongoing activity completed during feedback to drafts; and
  • an overview on regulatory measures and incentives.

Objective of the Model Law on PFM

5. The overarching objective of the MLPFM is to heighten the oversight powers of parliament over the PFM processes of the state to ensure transparency, accountability and the necessary checks and balances.2Additional technical objectives for developing the MLPFM included:

  • serving as a benchmark and guiding legal instrument for national parliaments of SADC to reinforce their domestic legal framework on PFM;
  • providing legislative provisions for parliament to pass performance-based budgets related to programmes and corresponding key performance indicators;
  • ensure that all statutory bodies and public authorities file their annual audit report/audited financial statements to parliament;
  • providing empowerments for Public Accounts Committees (PACs) to review/examine all reports of statutory bodies/public authorities, as well as the Report of the Director Audit/Auditor General, and have qualified enforcement powers with regards to the recommendations, particularly an empowerment to report issues through its Secretariat to relevant authorities (eg. the anti-corruption agency or the public services commission), including mandatory report back on action taken by the recipient authority;
  • governing the management of public debt towards the SADC voluntary target of 50% of GDP;
  • providing empowerments to a dedicated parliamentary committee to monitor public debt and call public officials to account when established debt ceilings are exceeded;
  • ensuring that supplementary budgets are scrutinised in detail and report to parliament siting in plenary;
  • ensuring that international commitments are reflected in national budgets, along with the related key performance indicators; and
  • providing a framework for parliament to ratify public contracts which exceed 3% of GDP by a qualified majority (eg. three-quarters), where such public contract does not appear appear in the electoral promises of the government of the day, a related framework shall also be developed for a formal electoral manifesto to be filed with the independent electoral commission.3

6. These objectives are reflected in Part 2 Aims and Objectives of the MLPFM at Sections 9 (Purpose of Act) and 10 (Measurable Objectives)4.

9. The purpose of this Act is to foster accountability, transparency, independence and modernity by providing for efficient and effective processes to be followed in relation to—

(a) the raising of public revenue;

(b) expenditure of public money and other public resources;

(c) accounting for receipts and expenditure of public money; and

(d) Parliamentary oversight of public resources.

10.—(1) In exercising powers in relation to public financial management public officials shall aim—

(a) to optimise public revenue and expenditure, and to prevent unauthorised expenditure;

(b) to contribute to the prevention of illicit financial flows;

(c)to improve sustainability for future generations; and

(d) to make Parliamentary accountability and oversight as effective as possible.

(2) The Minister shall operate a scheme designed—

(a) to specify measurable benchmarks for testing success in achieving the outcomes listed in subsection (1); and

(b) to ensure that the benchmarks inform other reporting and recording functions under this Act.

(3) Benchmarks for the purpose of this section may (in particular) take the form of, or be incorporated in, Treasury instructions or guidance.

Part 2 is a very good example of a clear objective “Parliamentary oversight”, the regulatory technique of specifying a result to be achieved “optimise public revenue” and the measures for success to be identified by the Minister and reported against, facilitates parliamentary control.

Requirements and Empowerments

7. Every parliamentarian has a responsibility to represent the interests of their constituency, which includes scrutinising both executive and parliamentary activities in a manner consistent with their constituents’ interests. Following SADC PF analysis5 of Member States’ PFM regulations, some PFM regulatory gaps were identified such as:

  • no requirements for performance-based budgets with clear performance indicators;
  • lack of empowerment powers of parliament to scrutinise public accounts via its responsible committee (the Public Accounts Committee) despite parliamentary responsibility for the allocation of funds; and
  • lack of enforcement powers to respond to cases requiring further examination or application of a penalty, particularly around debt management, misuse of supplementary budgets and long-term contracts (eg contracts exceeding the 5 year executive term).

8. Part 6 of the Model Law concerns parliamentary control and lists the key PFM empowerments of parliament. Additional empowerments exist under the relevant part regulating that subject eg. debt-related empowerments for the scrutiny of public debt (Section 93) is dealt with under Part 8 Government Borrowing. Section 39 provides that the “Parliament should use the full range of mechanisms available to it for the purpose of overseeing and controlling the public financial management process”, particularly using mechanisms such as: Committee hearings and inquiries (including Committees including, or advised by, external experts); Plenary Questions and debates; Written and Oral Questions; and Ministerial Statements. Section 39 (3) outlines the empowerments, in accordance with the respective Standing Orders, including:

  • establish sub-Committees and inquiries, including sub-Committees and inquiries having expert external membership and advice;
  • require a public authority to prepare and submit work plans and implementation reports;
  • require the Auditor General or other audit bodies to prepare and submit reports on actual or alleged financial irregularities;
  • require public authorities to disclose commitments entered into;
  • compel the attendance of witnesses and the giving of evidence or the submission of information or documents;
  • deploy electronic systems for the detection and reporting of financial irregularities; and
  • evaluate and report on programmes and policies.

9. Sections 50 to 55 concerns the Public Accounts Committee (PAC) and prescribes requirements for constituting a PAC to ensure its independence, transparency, financial experience, gender balance and fair representation.6 These sections also outline functions to be performed by the PAC and their related empowerments, such as:

  • considering reports of the Auditor General, including whether to publish such reports, responses to those reports and progress against implementation of recommendations;
  • initiating inquiries into accounts of a Ministry or a public authority;
  • initiating debates in parliament about the reports; referrals to law enforcement agencies (including anti-corruption agencies); and
  • making any regulations or guidances about the exercise of functions under Section 52.

An empowerment to make a complaint portal facilitates the work of the PAC by allowing third-parties to assist in the enforcement of PFM regulations (Section 53). The PAC has additional scrutiny powers under Part 8 Government Borrowing, specifically requesting additional public debt statements [Section 89(3)] and noteworthy empowerments at Section 93:

93.—(1) This section applies if—

(a) public debt exceeds the debt ceiling; or

(b) it appears to the Public Accounts Committee that, as a result of spending plans or other financial information or intentions announced by the Government, public debt is likely to exceed the debt ceiling.

(2) The Public Accounts Committee shall publish and maintain a strategy (“the public debt Parliamentary oversight strategy”) for—

(a) monitoring the accrual of public debt;(b) overseeing the management and servicing of public debt; and (c) making recommendations for the reduction and control of public debt.

(3) Before publishing or revising the strategy the Public Accounts Committee shall consult— (a) the Minister, (b) the Auditor General, and (c) the Accountant General.

(4) The public debt Parliamentary oversight strategy may recommend changes to the debt management strategy under section {Debt management strategy}.

(5) The debt Parliamentary oversight strategy may require the Minister to make specified arrangements for advance Parliamentary approval for debt incurred while public debt remains above the debt ceiling; and the arrangements may—

(a) require proposed additional debt to be approved by a specified majority;

(b) include budgetary or other sanctions for Ministries or public authorities incurring unauthorised borrowing.

10. The budget provisions outlined in Part 7, are a good example of clear and concise requirements for presenting the national budget to parliament. Budget provisions requires the Minister to make arrangements providing parliament an opportunity to, inter alia:

  • approve or object to individual budgetary proposals of the Government [Section 57(1)];
  • require the implementation of specific recommendations arising from public expenditure scrutiny to be implemented in budgetary proposals for one or more specified future years [Section 57(1)];
  • give or withhold approval to particular components of the public financial management systems [Section 57(1)];
  • receive an annual budget that gives a true and fair view of expected Government expenditure (avoiding the use of extra- budget special funds, special purpose vehicles or other mechanisms that conceal the full intentions for Government expenditure from the Parliamentary budget scrutiny) as well as information about appropriations in aid [Section 60(3)];
  • receive a tabled statement in parliament setting out the proposed timetable for the budget process in respect of that year [Section 60(4)];
  • receive budget documents that are comprehensive, clear, reliable, timely and sufficiently user-friendly to satisfy the requirements of the Transparency Principles, the Accountability and Participation Principle and the Parliamentary Engagement Principle [Section 60(7)]; and
  • debate the budget documents and allocate separate time to debate (in addition to debate on the estimates): matters arising in respect of the SDG budget statement, matters arising in respect of the international commitments statement, and matters arising in respect of the equality and diversity statement [Section 62(3)].

Enforcement

11. Both Parts 7 and 8 contain examples of information provisions that help parliament to enforce the PFM framework. For example Section 60 requires the Minister to provide parliament with an annual budget, the provisions on information that facilitate enforcement (approval/verification by parliament) include that the budget documents give a true and fair view of expected Government expenditure as well as information about the appropriations in aid, are sufficiently user-friendly to satisfy the requirements of the Transparency Principles, the Accountability and Participation Principle and the Parliamentary Engagement Principle. Enforcing sustainability of government budgets is provided through information requirements of government borrowing under Part 8, where the Minister is required to table in parliament a public debt statement each year and where that debt has reached the debt ceiling the PAC is required to publish a public debt parliamentary oversight strategy. Third parties are also encouraged to participate in enforcement via the following opportunities:

  • The Accountability and Participation Principle that government and public bodies should be accountable in their exercise of PFM functions and there should be formal and meaningful opportunities for the public – including members and representative of marginalised and disadvantaged groups generally to engage in the national budget process and other aspects of PFM (Section 11);
  • PAC complaint portal Section 53 Part;
  • that each budget document is prepared in a manner that enables the Government to be held to account generally, and specifically in relation to the interests of women, persons with disabilities and marginalise and disadvantaged groups [Section 60(7)(b)];
  • public consultations (Section 63 Part 6); and
  • Section 69 requires an equality and diversity statement that identifies components of the annual budget that in the Minister’s opinion are reasonable likely to have an impact on equality and diversity.

By requiring information to be published about matters in the budget that could reasonably be expected to impact on equality and diversity, or marginalised and disadvantaged groups, makes it easier for such groups to form an opinion of the budget and respond to their representative in parliament.

12. The PAC of parliament have dedicated enforcement provisions at Section 54, focussed around information gathering (including compelling witnesses), monitoring recommendations in response to Auditor General reports, managing complaints portals and oversight of whistleblower protection. Compelling witnesses and implementing a penalty for non-compliance, is a good enforcement tool in this MLPFM because key PFM officials (Finance Secretary, accounting officers, etc) have broad inspection empowerments, making them good witnesses. The strongest enforcement tool of Parliament is the Section 124 disqualification power:

124.—(1) A public official who has been identified in a report under section 121 as having committed financial maladministration may, by resolution of Parliament, be disqualified from a specified office or appointment, or class of offices or appointments, in respect of which Parliament has powers of appointment.

(2) A resolution—

(a) may be made on the motion of the Auditor General or a Parliamentary Committee made in accordance with Standing Orders; and

(b) must specify the period for which the disqualification is to apply.

13. Finally, the Minister has broad enforcement powers at Sections 123-125 to ensure that the PFM framework is adhered to and includes:

  • recovery of public funds, including making regulations and ensuring that Treasury operates a scheme for recovering all funds; and
  • making enforcement regulations that may require the provision of information, enable the giving and acceptance of undertakings,and creating criminal offences.

Regulatory Institute’s Model Laws Library

14. The SADC region has recorded successes with its use of model laws to ensure that its Member States develop and implement laws according to the subject matter of the law. The following SADC model laws cover the following subjects:

Noting these successes and understanding that developing laws and regulation can be tough, and resources limited, the Regulatory Institute will establish a library of model laws to facilitate the law-making process.

15. The Regulatory Institute has published over 50 howtoregulate articles that compare regulation on a certain topic or in a certain policy field and identifies good elements. The Model Laws Library (“Library”) would configure these elements into model laws. It would also add elements which have proven to be effective in entirely different policy fields, suggesting cross-fertilisation between policy fields. Where complete and politically unbiased model laws exist, the Library would highlight a few possibilities for improvement. Where complete model laws do not exist, the Regulatory Institute would create them.

16. The Regulatory Institute is open to all kinds of support for the development of the Library, including in kind support, which could include hosting our organisation or spreading the word about our work. The positive effects of soft law approaches such as model laws cannot be underscored. Our experience with assisting in the development of the SADC PF’s MLPFM and the fact that the model law approach has been used by many international organisations such as the United Nations, World Bank and OECD, highlights the value the Regulatory Institute’s Library would be for law-makers.

This article was written by Valerie Thomas, on behalf of the Regulatory Institute, Brussels and Lisbon.

1  Statement by HE SG Boema Sekgoma at 97 minutes of recording of Parliamentary Caucus women’s meeting.

2  Concept Note for 51st Plenary Assembly of the SADCPF “Towards energy efficiency, sustainability, and self sufficiency in the SADC region” held in Malawi over 7-16 July, p. 4 https://www.sadcpf.org/index.php/en/component/edocman/concept-note-on-the-theme/viewdocument/963?Itemid=.

4  Public Consultation with academic institutions of the SADC region see presentation about Part 2 1 hour 12 minutes and 10 seconds Although this is not the final draft that was voted on the provisions about the Part 2 Aims and Measures did not change at this point. https://www.youtube.com/watch?v=pE2JafGKyto

5  Ibid. “III. Existing legal and regulatory gaps in public financial management across the SADC region” pp. 3-5.

6  Public Consultation with academic institutions of the SADC region see presentation about PACS at 1 hour 23 minutes and 15 seconds. Although this is not the final draft that was voted on, the provisions about the PACS did not change at this point, https://www.youtube.com/watch?v=pE2JafGKyto.

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