Evidence from ME and Africa suggests a new approach to Public Finance Management

The World Bank’s approach is based on its Public Expenditure Management Handbook (1998).  Around half of this publication is devoted to two reforms, the Medium Term Expenditure Framework (MTEF) and the Integrated Financial Management Information System (IFMIS).  These have since become standard reforms to be implemented almost everywhere the World Bank has significant influence.  So for example, Mat Andrews (2010), in his study of 31 countries in Sub-Saharan Africa found that “they have alarmingly similar reforms in place” (page 44), “an MTEF was implemented in 28 countries, programme budgeting in 25 and an IFMIS in 20”.  As a result of these findings, Andrews calls for “less similarity of reforms and more context appropriateness”, as one of his three main recommendations.

Close reading of the World Bank Handbook shows that some criticism of what became the standard approaches is acknowledged.  So this publication admits that “program budgeting has not been very successful in either developed or developing countries” (page 13).  However, this became an integral approach to most MTEFs.  In addition, the Handbook provides a short section on “getting the basics right” including a list of pre-conditions for what became the standard reform agenda.

Two years ago both the World Bank and the IMF held high-level seminars to review the evidence for the success (or more common failure) of their common approach to public financial management reform.  One of the presenters warned that an MTEF may cause “enormous waste, frustration, and illusion—for trivial or non-existent benefits. The same is true of the informatics infrastructure for public financial management” (Schiavo-Campo 2008: 26).

The recent World Bank paper reviewing the experience of ten countries in the Middle East and North Africa provides further support for this view.  It found that two of the five most challenging public financial management reforms were medium term sector strategies and large information technology projects.  A “number of countries in the MENA region are attempting to develop forward estimates as part of MTEF reforms, but none has a functioning system at present” (page 16).  Similarly the level of success with IFMIS projects was found to be disappointing and one of the ten lessons of the study is to “be wary of large financial management information systems”.  These have been found to include a high level of risk in both developed and developing countries.  Reference is made to another study that found that “fully 75 percent of IT systems implemented in the United States failed to fully deliver in terms of their time, cost or projected functionality” (page 48).

Mat Andrews, of the Kennedy School of Governance, also emphasises that public financial management reform should be “led by an identification of problems requiring change (not the simple reproduction of technical solutions to change)” and be centred “on internal rather than external change motivation, not external coercion” (page 33).

In contrast, the World Bank Handbook introduced what have become accepted as the three basic objectives for public financial management reform:

·      aggregate fiscal discipline

·      resource allocation and use based on strategic priories

·      efficiency and effectiveness of programs and service delivery.

The recent World Bank study also confirms that regularity remains important, suggesting that public financial management must be “conducted in accordance with the relevant laws and regulations; and undertaken with appropriate checks and balances to ensure financial probity” (page 1). Indeed, regularity is crucial to control budget execution and achieve aggregate fiscal discipline.

These two studies warn of the significant risks of implementing the currently standard approaches, for example, an MTEF or IFMIS.  They also emphasise the continuing importance of control and regularity, and the importance of context and political support for public financial management reform.  We have to understand the environment for the reforms, so the expert knowledge and experience of the local public financial management officials is vital, and we have to know what has been proved to work in similar environments, if only to learn from vicarious experience.

It is to be hoped that the donor community will learn the lessons of this research.  The least we can expect is that only reforms, which have been proved to be successful in a similar environment are promoted.  These cases have not been established. Developing countries need to learn from the experience of others and not just repeat their mistakes.  Reform of public financial management has consisted too much of solutions in search of a problem.  We need far more analysis and understanding of individual public financial management systems and processes, though this can be supported, we need less dependence on consultants and more on the expert knowledge of the local public financial management practitioners.