## wpiea2022148-print-pdf

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### Overview and scope
- Ex ante spending controls, established through legal and regulatory frameworks, aim to ensure public spending is executed in accordance with the budget approved by Parliament, within authorized limits and following sound Public Financial Management (PFM) principles (Pattanayak 2016).
- Temporary relaxation of expenditure controls can be allowed through exceptional procedures (to accelerate payments) or emergency procedures (to meet unforeseen spending pressures); PFM rules should specify circumstances and processes for recourse and ensure prompt ex post regularization.
- Unorthodox procedures are defined as practices that relate to the abuse of exceptional procedures—and other spending that bypasses legal provisions, such as off-budget spending or other ad hoc procedures that circumvent regular controls or budgetary rules (including those related to budget time limits, approved ceilings, or approved appropriations).
- Geographic focus: the two Francophone monetary unions in Africa—the Central African Economic and Monetary Community (CEMAC) and the West Africa Economic and Monetary Union (WAEMU).
- Analytical limitation: lack of comprehensive data on amounts of spending associated with unorthodox procedures over time and across the 14 countries; analysis establishes cross-section correlations between prevalence of unorthodox procedures and adverse fiscal outcomes.
- Paper structure summarized: (1) describe expenditure controls and potential adverse effects of unorthodox procedures; (2) take stock of unorthodox procedures in CEMAC and WAEMU countries; (3) discuss potential fiscal impacts; (4) propose policy recommendations.

### Expenditure controls, exceptional procedures, and risks
- Purpose and stages of expenditure controls:
  - Ensure commitments align with budget appropriations and within expenditure ceilings and cash releases approved by the Ministry of Finance.
  - No payment unless based on an approved commitment.
  - Public accountants verify supporting documents at the payment stage.
- Five types of expenditure controls in Francophone PFM systems:
  - Appropriation controls by authorizing and accounting officers.
  - Aggregate cash controls linked to the annual cash plan.
  - Commitment controls (in-year ceilings: quarter, month, semester).
  - Controls of regularity verifying supporting documents and authority.
  - Accounting controls by the public accountant before payment for recording and subsequent audit.
- Exceptional vs emergency procedures:
  - Exceptional procedures: bypass normal chain to accelerate payments or smooth execution of recurrent expenditures with fixed-date payment terms.
  - Emergency procedures: rapid mobilization of resources for unforeseen spending pressures.
  - Both require ex post regularization and recording per PFM rules.
- When procedures become unorthodox:
  - Occurs when exceptional/emergency procedures are routine, cover noneligible expenditures, or are not regularized, often bypassing the FMIS.
  - Five detrimental macro-fiscal effects of excessive unorthodox use:
    - Undermine fiscal discipline and budget credibility; conceal true scale of public expenditure and underestimate reported fiscal deficit on a commitment basis.
    - Disrupt cash management and contribute to accumulation of arrears; crowd out regular expenditure (Flynn and Pessoa 2014; Pattanayak 2016).
    - Undermine quality and integrity of fiscal reporting; remain in suspense accounts, producing below-the-line financing and stock-flow discrepancies (Khemani and Wiest 2016).
    - Adversely affect private sector performance if arrears to private contractors damage liquidity, profits, and investment (Checherita-Westphal, Klemm, and Viefers 2016), undermining trust in government (IMF 2019).
    - Increase scope for corruption, misappropriation, and misuse of government resources; exceptions may conceal fraudulent activities (Omitoogun and Hutchful 2006).

### Regional PFM directives, implementation, and common shortcomings
- Directive revisions: 2009 for WAEMU and 2011 for CEMAC to align with international best standards and GFSM 2001.
- Objectives: more efficient expenditure controls (risk-based controls), decentralization of budget authority to line ministries, transition to results-based budgeting, clarified responsibilities, strengthened internal controls.
- Implementation challenges:
  - Delays in national-level implementation, weak enforcement, ineffective regional sanctions (David, Nguyen-Duong, and Selim 2022; Lando, Rosa, and Suc 2019).
  - Controls perceived as cumbersome—rigid, redundant, slow—contributing to proliferation and overuse of unorthodox procedures (Bouley, Fournel, and Leruth 2002; Doe and Pattanayak 2008; Lienert 2003).
  - Adoption of revised directives related to expenditure controls has lagged in many CEMAC and WAEMU countries.

### Classification, prevalence, and illustrative examples of unorthodox procedures
- Three categories identified:
  - Any procedure leading to a cash disbursement that bypasses one or several budget execution steps and controls and that is not followed by proper ex post regularization (about 75 percent of practices observed).
  - Any procedure bypassing the regular budget time limit (annual) and approved ceilings.
  - Any extrabudgetary procedures circumventing budget law authorizations and unity, as well as revenue/spending ceilings.
- Key cross-country observations (2006–18):
  - Unorthodox practices have different local names but similar modalities.
  - Procedures are widespread; all countries have at times used them.
  - Some practices evolved or were replaced, but core unorthodox mechanisms persisted.
- Selected country examples:
  - Burkina Faso: simplified release allowing simultaneous commitment, verification, and payment; in 2013 and 2014 nearly 40 percent of approved capital expenditure was executed by release of funds, with substantial amounts pending regularization.
  - Central African Republic (CAR): disbursements by the accountant without budgetary commitment and no supporting documents; significant parts remain in suspense accounts with regularization pending for many years.
  - Mali: overuse of imprest accounts; TA found 18 imprest accounts amounting to over FCFA 100 million; special imprest account of the Ministry of Defense indicated monthly expenditure of more than FCFA 2.3 billion in FY2013.
  - Cameroon: accumulated budget authorizations carried over from previous years reached about 1,000 billion FCFA (5 percent GDP) at the end of September 2017.
  - Senegal: comfort letters led to commitments not yet appropriated; total commitments in connection with one comfort letter amounted to 104 billion CFA (1 percent GDP) in 2018.
- Extrabudgetary spending (third category) mechanics and country examples:
  - Nature: spending outside the budget avoids controls, reporting, and audit; neither revenue nor expenditure included in annual budget law.
  - Guinea-Bissau: ministries execute current operating expenses financed by their own collected revenues deposited in private bank accounts outside Ministry of Finance control.
  - Gabon: “special account” operations where revenues collected and allocated were not authorized in the annual budget law or recorded in financial statements; revenues passed directly to entities to finance personnel or current operating expenses.

### COVID-19 emergency spending and PFM risks (January 2020–September 2021)
- CEMAC countries:
  - Fiscal measures estimated at about US$2.4 billion (2.7 percent of GDP).
  - Almost all support was in the form of revenue and expenditure measures (above-the-line); only about US$67 million (0.1 percent of GDP) was in the form of liquidity support.
  - Measures ranged between 1.1 percent of GDP (Equatorial Guinea) and 2.7 percent (Cameroon).
- WAEMU countries:
  - Fiscal measures estimated at US$6.1 billion (about 3.8 percent of GDP).
  - Above-the-line measures accounted for most of the stimulus (3.3 percent of GDP).
  - Liquidity support was US$0.8 billion (about 0.5 percent of GDP), more than 10 times higher than in CEMAC countries; about three-quarters of this support was in the form of public guarantees.
  - About one-half of WAEMU countries adopted liquidity support measures above 1 percent of GDP.
- Implementation issues and risks:
  - Around one-half of CEMAC and WAEMU countries implemented crisis-related emergency spending without adoption and rapid ex post disbursement regularization of supplementary budget laws.
  - Some countries executed spending outside regular budget controls through extrabudgetary funds outside the TSA.
  - Several CEMAC countries did not hold public tenders or resorted to ad hoc procurement methods; one country changed the threshold for simplified procurement procedures.
  - Countries receiving IMF emergency financing undertook PFM commitments (from ex post audits to enhanced ex post controls and reporting).

### Empirical associations, stock-flow adjustments, and debt implications
- Data and indicators:
  - PEFA indicators used as proxies: compliance with payment control rules and procedures; arrears; fiscal reporting integrity (PEFA scores converted A=4, B=3, C=2, D=1).
  - Control of corruption measure from the Worldwide Governance Indicators (2020).
- Main empirical findings (correlations):
  - Use of unorthodox procedures is associated with a larger stock of arrears in both CEMAC and WAEMU countries.
  - Recourse to unorthodox procedures is associated with poor fiscal reporting and weak integrity of fiscal data; large amounts recorded in suspense accounts pending regularization.
  - Correlation between unorthodox procedures and control-of-corruption index suggests increased vulnerabilities to corruption.
- Stock-flow adjustments (SFA) and debt:
  - SFA averaged about 1.1 percent of GDP per year between 2013 and 2019 in CEMAC countries.
  - SFA averaged about 1.5 percent of GDP per year between 2013 and 2019 in WAEMU countries.
  - In cumulative terms, SFA amounted to 8 percent of GDP in CEMAC countries and 10 percent of GDP in WAEMU countries over the whole period.
  - Large budget deficits accounted for 70 percent of debt accumulation; other factors (including SFA) accounted for approximately 30 percent.
  - In WAEMU countries, change in public guarantees amounted about 0.2 percent of GDP; excluding the change in guarantees, SFA would be about 1.3 percent of GDP (instead of 1.5 percent).
  - Between 2013 and 2019, below-the-line operations were particularly large in:
    - Gabon (close to 6 percent of GDP)
    - Togo (2.3 percent of GDP on average)
    - Senegal (2.2 percent of GDP)
    - Benin and Côte d’Ivoire (1.4 percent of GDP)
    - Central African Republic and Cameroon (1.2 percent of GDP)
  - Examples of below-the-line operations: extrabudgetary spending, prefinancing schemes (Benin and Togo), quasi-fiscal operations related to SOE-related fiscal transactions, roll over of past budgetary appropriations in Senegal.

### Policy recommendations (five priority measures)
- First: Establish clear legal frameworks restricting exceptional and simplified procedures to very limited and well-identified cases. Legal and regulatory frameworks should:
  - (1) clearly specify the exact rules applicable to such procedures;
  - (2) present a comprehensive listing of all existing simplified and exceptional procedures;
  - (3) list the conditions and circumstances (including the type of emergencies) for their use;
  - (4) present the powers of the various actors and authorities (for example, the Minister of Finance);
  - (5) provide details on ex post regularization and all accounting rules required for these procedures correlated to the risk emanating from their use;
  - (6) list the responsibilities and sanctions applicable in the event of noncompliance with procedures.
  - Require annual budget laws to set maximum appropriation amounts that can be executed through exceptional procedures and more frequent reporting on budget execution (for example, quarterly reports).
- Second: Strengthen internal and external audits.
  - Internal audits should ensure internal controls comply with procedures and identify failures and remedies.
  - Treasuries could publish a list of unregularized expenditure in their financial reports (for instance, in the special appendix, as provided for in the regional directives).
  - External audit systems can impose sanctions when exceptional procedures do not comply with legal frameworks; SAIs need independence, adequate resources, technical capacities, and timely fiscal reports from the Government.
  - Implementation of internal controls should be supported by independent and accountable authorities; codes of conduct/ethic rules and procedures manuals should be produced and disseminated.
- Third: Leverage digital solutions.
  - Better use of IFMIS and digital solutions can prevent deviations from appropriations or bypassing controls during expenditure stages.
  - Example: In Gabon, requirement that suppliers present a purchase order issued by the FMIS to be paid has proven effective at the commitment stage.
  - System-embedded controls could include automatic alerts when a ceiling on authorized exceptional spending is reached or when the timeframe to regularize an exceptional spending has lapsed.
- Additional recommended measures (implied across the source material):
  - Devolve budget execution authority to line ministries to reduce concentration of execution and control authorities and to strengthen impartial controls.
  - Adopt multiyear budget preparation tools—Multiyear fiscal framework (MTFF) or Multiyear budget framework (MTBF)—and in-year programming instruments such as procurement plans, commitment plans, and cash flow plans.
  - Centralize liquidities via a Treasury Single Account (TSA) as required by CEMAC and WAEMU directives.

### Box: Gabon case — moving to regular spending procedures
- Background and problem:
  - Between 2013 and 2017, Gabon used a simplified procedure for all expenditures of goods and services with no limits; commitment and verification stages were merged.
  - Without strict ex post regularization, transactions were not appropriately recorded; arrears accumulated from 2013–16.
  - An audit in 2016 identified these arrears, which were estimated at about 3 percent of GDP.
- Measures implemented:
  - Removing the simplified procedure and making it mandatory to produce a purchase order to issue payment (decree issued in May 2017).
  - Upgrading the FMIS to allow systematic issuance of purchase orders at the commitment stage (July 2017).
  - Communicating changes to suppliers (press release).
  - Training directors (financial affairs and budget controllers).
- Implications:
  - Excessive centralization of payment mandates in Ministry of Finance encourages recourse to exceptional/unorthodox procedures.
  - Devolution of budget execution authority to line ministries would contribute to smoother execution and strengthened controls.
  - Use of TSA and linked cash flow plans improves oversight and monitoring of exceptional procedures not included in forecasts.

*IMF Working Paper — Introduction section of "Unorthodox Expenditure Procedures in CEMAC and WAEMU Countries".*

### Introduction ...........................................................................................................

### Introduction

### Overview
- Ex ante spending controls, established through legal and regulatory frameworks, aim to ensure public spending is executed in accordance with the budget approved by Parliament, within authorized limits and following sound Public Financial Management (PFM) principles (Pattanayak 2016).
- A well-functioning fiscal framework may allow temporary relaxation of expenditure controls to create flexibility during budget execution through exceptional procedures (to accelerate payments) or emergency procedures (to meet unforeseen spending pressures). PFM rules should specify circumstances and processes for recourse and ensure prompt ex post regularization so that bypassed controls are eventually imposed and expenditures are properly recorded.
- When less stringent procedures are broadly used and not regularized, they become unorthodox procedures that conflict with legal and regulatory budget rules and processes. Unorthodox procedures are defined as practices that relate to the abuse of exceptional procedures—and other spending that bypasses legal provisions, such as off-budget spending or other ad hoc procedures that circumvent regular controls or budgetary rules (including those related to budget time limits, approved ceilings, or approved appropriations).
- The paper focuses on expenditure processes in the two Francophone monetary unions in Africa—the Central African Economic and Monetary Community (CEMAC) and the West Africa Economic and Monetary Union (WAEMU)—and draws on PFM assessments (PEFA, PIMA, Fiscal Transparency Evaluations) and IMF technical assistance reports to identify unorthodox budgetary procedures.
- The analysis is limited by the lack of comprehensive data on amounts of spending associated with unorthodox procedures over time and across the 14 countries; the paper establishes cross-section correlations between the prevalence of unorthodox procedures and adverse fiscal outcomes.
- The paper is structured to (1) describe expenditure controls and potential adverse effects of unorthodox procedures; (2) take stock of unorthodox procedures in CEMAC and WAEMU countries; (3) discuss potential fiscal impacts; and (4) propose policy recommendations.

*IMF Working Paper — Introduction section of "Unorthodox Expenditure Procedures in CEMAC and WAEMU Countries".*

### Context on regional PFM directives and implementation
- Regional PFM directives were revised in 2009 for WAEMU countries and 2011 for CEMAC countries to provide a common framework for enhanced PFM practices aligned with international best standards.
- The directives aim for more efficient expenditure controls (for example, risk-based controls) and enhanced budget execution procedures (for example, decentralization of budget authority to line ministries).
- Effectiveness of de jure PFM improvements is impeded by delays in implementation at the national level and weak enforcement and ineffective sanctions at the regional level (David, Nguyen-Duong, and Selim 2022; Lando, Rosa, and Suc 2019).
- Existing controls are generally perceived to be cumbersome—rigid, redundant, and slow—and have contributed to the proliferation and overuse of unorthodox procedures (Bouley, Fournel, and Leruth 2002; Doe and Pattanayak 2008; Lienert 2003).
- Most studies show the adoption of the revised regional PFM directives related to expenditure controls has lagged in many CEMAC and WAEMU countries (David, Nguyen-Duong, and Selim 2022; Lando, Rosa, and Suc 2019).

### Data and analytical limitations
- Lack of comprehensive data on amounts of spending via unorthodox procedures across the 14 countries limits the analysis to cross-section correlations rather than time series causality.
- Despite data limitations, the analysis finds these procedures are prevalent and have harmed public finances.

---

### Expenditure Controls and Unorthodox Budgetary Procedures

### Purpose and stages of expenditure controls
- Expenditure controls ensure expenditure is executed only with proper authorization and are applied during the stages of budget execution (Allen and Tommasi 2001).
- In simplified form, controls should ensure:
  - A commitment is incurred only when it is in line with the budget appropriation and within expenditure ceilings and cash releases approved by the Ministry of Finance.
  - No payment is made unless it is based on an approved commitment.
- Public accountants are expected at the payment stage to verify, based on supporting documents, that conditions are met for release of funds.

Box 1 — Expenditure Controls during the Different Stages of the Expenditure Chain in Francophone PFM Systems:
- Five types of expenditure controls exist at different stages of the expenditure chain (Figure 1):
  - Appropriation controls by both authorizing and accounting officers ensure that expenditure is regularly appropriated in the budget and that amounts do not exceed approved ceilings.
  - Aggregate cash controls ensure that the expenditure is consistent with the annual cash plan and that it does not exceed the payment capacities of the treasury.
  - Commitment controls ensure that the committed expenditure by the spending units does not exceed the overall ceilings, as well as the allotted in-year ceilings (quarter, month, and semester), in relation with the annual cash plan.
  - Controls of regularity verify that supporting documents comply with legal and regulatory requirements and that procedures are respected (for example, authorizing officers have the authority to act as they have done).
  - Accounting controls by the public accountant before payment ensure the recording of the expenditure in the accounts that would allow subsequent control, for example, from the Supreme Audit Institution, and the production of fiscal reports.

### Relaxation of controls: exceptional and emergency procedures
- Exceptional procedures bypass the normal chain of expenditure to accelerate payments or smooth execution of recurrent expenditures with fixed-date payment terms (Pattanayak 2016).
- Emergency procedures allow rapid mobilization of resources to meet unforeseen spending pressures.
- PFM rules should specify circumstances and processes for recourse and ensure that spending through these procedures is promptly regularized and recorded.

### When procedures become unorthodox and associated risks
- If exceptional or emergency procedures become routine, cover noneligible or unauthorized expenditures, or are not regularized, they become "unorthodox procedures" that circumvent regular controls and are often not recorded in the FMIS.
- Five detrimental macro-fiscal effects of excessive use of unorthodox procedures:
  - They could undermine fiscal discipline and budget credibility by causing expenditure overruns and concealing the true scale of public expenditure, underestimating the reported fiscal deficit on a commitment basis.
  - Regular release of cash to meet unplanned payments through unorthodox procedures could disrupt effective cash management and contribute to the accumulation of arrears; these payments absorb cash resources allocated for approved expenditure and can crowd out regular expenditure (Flynn and Pessoa 2014; Pattanayak 2016).
  - Unorthodox procedures could undermine the quality and integrity of fiscal reporting and increase fiscal risks. If not regularized, they may remain in suspense accounts and not be tracked or verified, resulting in below-the-line financing without corresponding above-the-line allocations and large stock-flow discrepancies between government debt and deficits (Khemani and Wiest 2016).
  - Persistent recourse may adversely affect private sector performance if arrears to private contractors damage liquidity, profits, and investment (Checherita-Westphal, Klemm, and Viefers 2016), undermining trust in government (IMF 2019).
  - Unauthorized and unreported expenditures may increase scope for corruption, misappropriation, and misuse of government resources; exceptions to controls may conceal fraudulent activities, especially for politically sensitive and secretive transactions (Omitoogun and Hutchful 2006).

---

### Unorthodox Procedures in CEMAC and WAEMU Countries

### Regional surveillance and PFM framework
- In the mid-1990s, CEMAC and WAEMU adopted regional surveillance frameworks prescribing ceilings on macro-fiscal aggregates (fiscal deficit, public debt, inflation). Member countries observe convergence criteria to ensure sustainability and consistency with common monetary policy.
- Regional PFM directives are influenced by the Francophone tradition and share similarities:
  - Detailed rules and procedures for budget cycle stages (loi de finances, mise à disposition des crédits, liquidation, engagement, certification du service fait, liquidaton, ordonnancement et paiement).
  - Specific controls and rules for cash operations during budget execution (credit reservation occurs in practice in most countries, particularly for capital expenditure).
  - Verification stage triggers reporting of arrears if payments remain overdue for more than three months (Articles 23 and 14 of the respective CEMAC and WAEMU directives on the Government Financial Operations Table (TOFE)).
  - Strict distinction enforced between the commitment officer ordering payment (“ordonnateur”) and the treasury officer or public accountant making the payment (“comptable”), with the public accountant assuming personal financial responsibility and accountability to the supreme audit institution (Cours des comptes) (Pattanayak 2016).

### Progress and shortcomings
- The 2009 (WAEMU) and 2011 (CEMAC) directive revisions followed GFSM 2001 standards, strengthened accountability (transition to results-based budgeting), clarified responsibilities, and buttressed internal controls.
- The WAEMU Commission conducts self-assessments of PFM reforms; CEMAC Commission has undertaken assessments with IMF TA support.
- National organic budget laws allow exceptional spending procedures under specific circumstances (emergency, petty cash operations, recurring sensitive expenditure such as salaries). These procedures aim to accelerate expenditure when normal procedures are too cumbersome.

### Distinction between exceptional and unorthodox procedures
- Exceptional procedures are legally allowed under specified conditions and require ex post regularization and recording.
- Unorthodox procedures refer to abuse of exceptions or other practices that bypass legal provisions, evade FMIS recording, and are not regularized, thereby conflicting with legal and regulatory budget frameworks.

*IMF Working Paper — Introduction section of "Unorthodox Expenditure Procedures in CEMAC and WAEMU Countries".*

### Box 2. The PFM Principles Set by CEMAC and WAEMU Directives

### Box 2. The PFM Principles Set by CEMAC and WAEMU Directives

### PFM principles (six main rules)
- Annuality: The budget authorization from Parliament for both revenue and expenditure is only valid for one calendar year.
- Specificity: The budget law specifies the purpose of the expenditure and the responsibility (line ministry, department, unit) according to the existing budget classification (for example, economic, administrative, programmatic); this specificity limits what the Government may do with approved funds.
- Unity: All revenue and expenditure must be included and presented in the budget law.
- Universality: All expenditure and revenue must be presented in the budget with their nominal value, without netting one with the other. This rule also implies that revenue should not be earmarked and dedicated to one single type of expenditure.
- Sincerity: The budget law must reflect a truthful image of the government’s fiscal position and deficit: revenue must not be overestimated, and expenditure must not be underestimated.
- Strict separation of functions between authorizing and accounting officers: The current practice, confirmed by WAEMU directives, requires a strict distinction between the person who initiates the decision to spend (the authorizing officer, ordonnateur) and the person handling the payment itself (the accounting officer, comptable). Both functions are mutually incompatible; only accounting officers are entitled to manipulate public cash.

### Exceptional procedures allowed under the PFM legal framework
- Advance decrees
  - Enable the Ministry of Finance to open supplementary credit lines during emergency situations to allow countries to swiftly respond to unforeseen spending pressures.
  - Allow the amendment of the initial budget law without prior Parliamentary approval, with immediate notification to Parliament and ratification by the next budget law (usually through a supplementary budget law passed during the closest session of Parliament).
- Imprest accounts (régies d’avance)
  - Allow the upfront release of cash before goods and services are delivered but require ex post regularization.
  - Two types:
    - Regular imprest: capped at low ceilings, largely used for petty cash needs and urgent minor expenditure.
    - Special imprest: used for emergency spending purposes and allowing one-off advance payments that exceed the ceilings under the regular imprest.
  - Typically created by decree specifying ceilings, eligible spending, period of use, and end date.
  - Ex post controls require underlying transactions to be settled by the end of the fiscal year and adequately reported in financial reports.
- Note: These procedures are allowed and strictly regulated by PFM rules and differ from unorthodox procedures in direct conflict with legal provisions.

### How exceptional procedures can lead to unorthodox practices
- Two main drivers of systematic recourse to exceptional/ad hoc procedures:
  - Inadequate implementation of ex post regularization; unrecorded expenditures (e.g., from advance payments) remaining permanently in suspense accounts and not settled at year-end or reported in financial reports.
  - Vague or imprecise legislative definitions leaving room for interpretation and arbitrariness (for example, “urgency” not precisely defined), enabling officials to apply emergency procedures indiscriminately to noneligible or major expenditures.
- Additional risks:
  - Large-scale emergency spending, rapid interventions, and multiple actors without adequate coordination can produce unorthodox procedures.
  - Emergency procedures during the COVID-19 crisis could lead to unorthodox budgetary procedures if not subject to adequate ex post regularization and other PFM rules.

### Classification and prevalence of unorthodox procedures
- Three categories of unorthodox procedures identified:
  - Any procedure leading to a cash disbursement that bypasses one or several budget execution steps and controls and that is not followed by proper ex post regularization; this category accounted for around 75 percent of practices observed in CEMAC and WAEMU countries and reported in Table 1.
  - Any procedure bypassing the regular budget time limit (annual) and approved ceilings.
  - Any extrabudgetary procedures circumventing budget law authorizations and unity, as well as revenue/spending ceilings.
- Observations from country-level evidence (2006–18):
  - Unorthodox practices carry different names across countries but show clear similarities in practice.
  - Procedures remain widespread among all countries in both regions.
  - All countries have had recourse to unorthodox procedures at some time.
  - Practices have evolved; some were abandoned or replaced by others with slightly different modalities but fundamentally unchanged unorthodox mechanisms.

### Examples of unorthodox procedures (selected illustrative cases)
- Cash payment without supporting documentation or ex post regularization (Box 4 examples)
  - Burkina Faso: simplified release allows commitment, verification, and payment order to happen simultaneously; funds released before service is rendered or goods delivered; used mostly for capital expenditure; significant delays in ex post regularization; controls by financial comptroller and public accountant are not required; in 2013 and 2014 nearly 40 percent of approved capital expenditure was executed by release of funds, with a substantial amount pending regularization.
  - Central African Republic (CAR): disbursement made by the accountant without a budgetary commitment and no supporting documents produced afterward; regular cash advances supposed to be for specific urgent circumstances are commonly used outside those conditions; disbursements often partially regularized or not recognized at all; significant parts of expenditure remain recorded in suspense accounts, with regularization pending for many years.
  - Mali: overuse of imprest accounts; principle use for “minor” operating expenses (equal to around CFA 10 million francs in Mali) but in practice amounts are sometimes very high; TA reports found 18 imprest accounts amounting to over FCFA 100 million; special imprest account of the Ministry of Defense indicated monthly expenditure of more than FCFA 2.3 billion in FY2013; supporting documents not systematically presented, reducing quality of general accounts and scope for controls.
- Irregular multiyear expenditure circumventing annuality and ceilings (Box 5 examples)
  - Cameroon: third-party accounts introduced with TSA to separate funds; practice deviated to allow managers to (1) carry over budget authorizations (for example, credit transferred to agencies) and (2) bypass lengthy chain of checks through accelerated procedures; accumulated budget authorizations carried over from previous years reached about 1,000 billion FCFA (5 percent GDP) at the end of September 2017; authorities subsequently adjusted legal framework to prohibit such practices.
  - Senegal: comfort letters used initially for multiyear contracts evolved to Minister of Finance guaranteeing budget resources to pay contractors and providing similar assurances to commercial banks requesting financing to be repaid out of future budget appropriations; commits public expenditure not yet appropriated and narrows future fiscal space; amounts indicated in comfort letters are not recorded in IT systems or public books; total commitments in connection with one comfort letter amounted to 104 billion CFA (1 percent GDP) in 2018.

### COVID-19 emergency spending and associated PFM risks (Box 3 highlights)
- CEMAC countries (January 2020–September 2021)
  - Fiscal measures estimated at about US$2.4 billion (2.7 percent of GDP).
  - Almost all support was in the form of revenue and expenditure measures (above-the-line); only about US$67 million (0.1 percent of GDP) was in the form of liquidity support.
  - Measures in countries ranged between 1.1 percent of GDP (Equatorial Guinea) and 2.7 percent (Cameroon).
- WAEMU countries (same period)
  - Fiscal measures estimated at US$6.1 billion (about 3.8 percent of GDP).
  - Above-the-line measures accounted for most of the stimulus (3.3 percent of GDP).
  - Liquidity support was US$0.8 billion (about 0.5 percent of GDP), more than 10 times higher than in CEMAC countries; about three-quarters of this support was in the form of public guarantees.
  - About one-half of WAEMU countries adopted liquidity support measures above 1 percent of GDP.
- Implementation issues and risks
  - Around one-half of CEMAC and WAEMU countries implemented crisis-related emergency spending without the adoption and rapid ex post disbursement regularization of supplementary budget laws.
  - A smaller number of countries executed a share of spending outside regular budget controls through extrabudgetary funds outside the TSA.
  - Several CEMAC countries did not hold public tenders for procurement or resorted to ad hoc procurement methods; one country changed the threshold for simplified procurement procedures.
  - Countries receiving IMF emergency financing undertook PFM commitments (ranging from conducting ex post audits to enhancing ex post controls and reporting) to improve COVID-19-related spending execution and transparency.

*Source: Authors, based on CEMAC and WAEMU PFM directives and supporting IMF TA, PEFA, and staff reports included in the source content.*

### Box 6 provides examples of the third unorthodox category: extrabudgetary spending. This type of

### wpiea2022148-print-pdf - Box 6 provides examples of the third unorthodox category: extrabudgetary spending. This type of

### Nature and mechanics of extrabudgetary spending
- Extrabudgetary spending takes place outside of the budget and totally avoids controls, reporting, and audit.
- Neither the revenue nor the expenditure related to extrabudgetary transactions is included in the annual budget law, nor are amounts related to the actual execution of the underlying transactions.
- Such transactions occur completely outside the scope of authorized officers and the regular expenditure chain and IT systems, thereby circumventing regular controls and PFM rules.
- Extrabudgetary operations circumvent budget unity and expenditure ceilings.
- They are difficult to capture due to lack of reporting and traceability and due to a variety of arrangements (for example, extrabudgetary units, extrabudgetary funds and entities, extrabudgetary accounts).

### Country examples (Box 6)
- Guinea-Bissau
  - Some ministries (education and health) execute current operating expenses financed by their own collected revenues, in contravention of existing PFM rules.
  - Part of the internal revenue collected by these ministries is deposited in accounts with private banks, which are outside of the control of the Ministry of Finance.
  - These procedures affect budget unity; the corresponding revenues and expenses are not subject to fiscal reporting and control, and there is no guarantee that funds are used for planned purposes.
- Gabon
  - “Special account” is a generic term for financial operations benefiting some public entities (including the central government) in which revenues were collected and allocated without being authorized in the annual budget law or recorded in financial statements.
  - Some revenue was collected by beneficiary administrations (for example, audit products, fines, and tax disputes) and deposited into “special accounts” opened by the treasury; other revenue was passed directly to relevant entities to finance personnel or current operating expenses.
  - These operations reduced available fiscal space without ensuring the regularity or effectiveness of the related expenditure.
- Source: IMF TA reports (January 2014 and October 2014).

### Potential fiscal impacts — empirical associations and indicators used
- Analysis relies on PEFA indicators and a control of corruption measure from the Worldwide Governance Indicators (2020).
- PEFA indicators used:
  - Compliance with payment control rules and procedures — used as a proxy for the quality of expenditure controls; PEFA scores converted to numerical values (A = 4, B = 3, C = 2, D = 1).
  - Arrears — PEFA indicator on the stock of expenditure arrears.
  - Fiscal reporting integrity — PEFA indicator assessing reconciliation of treasury bank accounts, suspense accounts, and advance accounts, access and changes to records, and existence of an operational verification body.
- Main empirical findings (associations based on correlations):
  - First: Use of unorthodox procedures (bypassing regular expenditure controls) was associated with a larger stock of arrears in both CEMAC and WAEMU countries.
    - Arrears arise because available cash had been used to meet unplanned unorthodox payments, leaving invoices and payment orders presented during the payment stage pending.
  - Second: Recourse to unorthodox procedures is associated with poor fiscal reporting and weak integrity of fiscal data.
    - Longstanding use of unorthodox procedures was associated with large amounts recorded in suspense accounts pending regularization.
  - Third: Unorthodox procedures may have potentially increased vulnerabilities to corruption.
    - Significant correlation between use of unorthodox procedures and the control of corruption index; vulnerabilities increase as unauthorized spending circumvents controls.
    - Incentives for corruption often more prevalent in defense and security spending; confidentiality concerns lead to less transparency, channeling expenditures outside regular controls or bypassing budget procedures.

### Stock-flow adjustments (SFA) and debt implications
- SFA averaged about 1.1 percent of GDP per year between 2013 and 2019 in CEMAC countries.
- SFA averaged about 1.5 percent of GDP per year between 2013 and 2019 in WAEMU countries.
- In cumulative terms, SFA amounted to 8 percent of GDP in CEMAC countries and 10 percent of GDP in WAEMU countries over the whole period.
- Large budget deficits accounted for 70 percent of debt accumulation; other factors (including SFA) accounted for approximately 30 percent.
- Some SFA components were benign (for example, clearance of outstanding arrears in Côte d’Ivoire in 2018; adoption of broader debt perimeter in Senegal in 2017).
- In WAEMU countries, change in public guarantees amounted about 0.2 percent of GDP; excluding the change in guarantees, SFA would be about 1.3 percent of GDP (instead of 1.5 percent).
- Between 2013 and 2019, below-the-line operations were particularly large in:
  - Gabon (close to 6 percent of GDP)
  - Togo (2.3 percent of GDP on average)
  - Senegal (2.2 percent of GDP)
  - Benin and Côte d’Ivoire (1.4 percent of GDP)
  - Central African Republic and Cameroon (1.2 percent of GDP)
- Examples of below-the-line operations included extrabudgetary spending, prefinancing schemes (Benin and Togo), quasi-fiscal operations related to SOE-related fiscal transactions, and roll over of past budgetary appropriations in Senegal.

### Policy recommendations (five priority measures)
- First: Establish clear legal frameworks restricting exceptional and simplified procedures to very limited and well-identified cases. Legal and regulatory frameworks should:
  - (1) clearly specify the exact rules applicable to such procedures;
  - (2) present a comprehensive listing of all existing simplified and exceptional procedures;
  - (3) list the conditions and circumstances (including the type of emergencies) for their use;
  - (4) present the powers of the various actors and authorities (for example, the Minister of Finance);
  - (5) provide details on ex post regularization and all accounting rules required for these procedures correlated to the risk emanating from their use;
  - (6) list the responsibilities and sanctions applicable in the event of noncompliance with procedures.
  - Require annual budget laws to set maximum appropriation amounts that can be executed through exceptional procedures and more frequent reporting on budget execution (for example, quarterly reports).
- Second: Strengthen internal and external audits.
  - Internal audits should ensure internal controls comply with procedures and identify failures and remedies.
  - Treasuries could publish a list of unregularized expenditure in their financial reports (for instance, in the special appendix, as provided for in the regional directives).
  - External audit systems can impose sanctions when exceptional procedures do not comply with legal frameworks; Supreme Audit Institutions (SAIs) need independence, adequate resources, technical capacities, and timely fiscal reports from the Government.
  - Note: Progress toward granting full autonomy to SAIs in CEMAC and WAEMU has been slow and uneven; the World Bank’s Supreme Audit Institutions Independence (SAI) Index (2021) indicates SAI independence in both regions remains weak.
  - Implementation of internal controls should be supported by independent and accountable authorities; codes of conduct/ethic rules and procedures manuals should be produced and disseminated.
- Third: Leverage digital solutions.
  - Better use of IFMIS and digital solutions can prevent deviations from appropriations or bypassing controls during expenditure stages.
  - Example: In Gabon, requirement that suppliers present a purchase order issued by the FMIS to be paid has proven effective at the commitment stage.
  - System-embedded controls could include automatic alerts when a ceiling on authorized exceptional spending is reached or when the timeframe to regularize an exceptional spending has lapsed.

*Source: IMF Working Paper content provided in the supplied PDF excerpt.*

### Box 7. Moving to Regular Spending Procedures in Gabon

### Box 7. Moving to Regular Spending Procedures in Gabon

### Background and problem
- Between 2013 and 2017, Gabon used a simplified procedure for all expenditures of goods and services with no limits.
- Under this practice, commitment and verification stages were merged, and commitment controls were temporarily bypassed to be applied after service delivery.
- Without strict ex post regularization, transactions were not appropriately recorded in fiscal accounts.
- Commitments were made in excess of the government’s payment capacity, and arrears accumulated from 2013–16.
- An audit launched in 2016 identified these arrears, which were estimated at about 3 percent of GDP.

### Measures implemented by the Gabonese Government
- Removing the simplified procedure to strictly limit the use of exceptional procedures and to make it mandatory to produce a purchase order to issue payment for the goods supplied or services delivered (decree issued in May 2017).
- Upgrading the FMIS to allow the systematic issuance of purchase orders at the commitment stage of the expenditure chain (July 2017).
- Communicating (through a press release) to inform all suppliers of the new procedure.
- Training of the relevant directors (financial affairs and budget controllers).

### Key implications for budget execution and credibility (broader analysis in source)
- Excessive centralization of payment mandates and requests at the Ministry of Finance creates cumbersome execution, encouraging urgency and recourse to exceptional and unorthodox procedures.
- Concentration of execution and control authorities within the same entity (Ministry of Finance) impedes independent controls; controls by public accountants or financial comptrollers are often rushed or abandoned due to hierarchical/political interference.
- Devolution of budget execution authority to line ministries, as prescribed by regional directives, would:
  - Contribute to smoother execution processes and strengthened controls.
  - Refocus the Ministry of Finance assignment on impartial control.
- Weak in-year budget preparation and lack of multiyear perspectives limit capacity to implement and control budget execution, encouraging circumvention strategies (notably for investment).
- Systematic use of multiyear budget preparation tools—Multiyear fiscal framework (MTFF) or Multiyear budget framework (MTBF)—and in-year programming instruments such as procurement plans, commitment plans, and cash flow plans are critical to improving budget credibility and addressing the incentives for unorthodox procedures.

### Complementary cash-management tools (contextual relevance)
- The Treasury Single Account (TSA) centralizes all liquidities at the Central Bank, providing the treasury an instant and comprehensive view of available deposits, enabling centralized oversight of cash management, and strengthening internal controls.
- Adoption of a TSA at the national level is a requirement by both the CEMAC and WAEMU PFM directives.
- Cash flow plans linked to commitments and procurement planning help monitor the use of exceptional procedures not included in forecasts and prioritize payments of regular expenditures.

*Source: Gabon Staff and TA Reports.*

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_Source: https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022148-print-pdf.pdf_