Wednesday, 26 February 2014

When the British Government tested and rejected accrual accounting

None of the literature on moving to accrual accounting appears to note the experience in the British war ministry in the early 1920s.  The accrual basis of accounting was introduced, but this reform was reversed a few years later as the benefits were seen as being less than the significant costs.

During the First World War numerous accountants were recruited from the private sector into war related departments.  Some of these accountants were critical of the differences between public and private sector accounting.  As a result, in 1918, parliament was recommended to adopt the basis of income and expenditure (accrual basis) for both annual estimates and the accounts of individual departments.  These changes were only actually adopted by the War Office from 1st April 1919.[i]  “However, the already existing cash accounts… were continued pending further experience.”[ii]  The advocates of the new scheme hoped that the new accounts “would show the Unit Commanders the money cost of achieving efficiency in their units” and, with de-centralisation, these Commanders would be encouraged to “attain economic control of the units under their command.”[iii]

Accrual based financial statements were actually produced for six years.  But in 1925, the Army Council, with the support of the parliamentary Public Accounts Committee, decided that this approach required additional costs of at least £200,000 a year (and twice that amount for the first year), but that  “the experiment had not led to commensurate economies in administration and seemed unlikely ever to do so”[iv].  So the experiment was terminated and the accrual based accounts were no longer produced. 

In 1950 a Parliamentary Committee also carefully reviewed the evidence for the general adoption of accrual accounting and decided that:

            “We agree with the principle that the main Exchequer Accounts and the framework of both Estimates and Appropriation Accounts must remain on a cash basis.”[v]

This Committee also concluded that the adoption of the accrual basis would:

            “necessitate the valuation of all existing assets and an estimate of the probable remaining useful life of each – a gigantic task requiring the listing of figures many of which could be no more than guess work.”[vi]

[i] HMSO (1950) Final Report of the Committee on the Form of Government Accounts, London: HMSO: page 69, paragraph 2
[ii] Op cit: page 70, paragraph 2
[iii] Op cit: page 70, paragraph 2
[iv] Op cit: page 70, paragraph 5
[v] Op cit: page 13, paragraph 26
[vi] Op cit: page 20, paragraph 46.

Thursday, 12 September 2013

Public Budgeting - a manifesto for the Poor

If poverty is really to be reduced, then the government must redistribute income and wealth by taxing the rich and providing basic services at no cost for all. We should campaign against charging for public services and cost sharing as this excludes the poor.  Creating a ‘business friendly’ environment to attract foreign direct investment does not lead to a trickle down of wealth from the rich to the poor.  In contract, all the evidence suggests that it results in increased inequality with wealth gushing up to the corrupt elite, whilst the majority suffer endemic poverty.

Economic elites are often well-positioned to influence policy and block tax increases.
Investment power and political power correspond to two distinct modes through which economic elites can exert influence. However, the Arab Spring, the Occupy Movement, protests and strikes in Brazil, China, Turkey and across sub-Saharan Africa show that another world is possible. We need to campaign with the strength of the organised working class to ensure that the government provides sufficient resources to public services. We need to ensure that the basic human rights of health, education, water and sanitation are available to all.  The resources are available for this program if the government is prepared to make the tax system more progressive. Wealthy companies and individuals should all have to pay their fair share of taxes.

Basic needs as human rights
The following should be basic human rights, but we need to campaign for their achievement:
·      Free education for all children
·      Free health for all
·      Free access to safe water and sanitation
·      Decent minimum wage.

It is widely recognised that basic education should be a human right, for example:

·    Article 26 of the Universal Declaration of Human Rights[i] asserts that: “Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory.”

·    Millennium Development Goal[ii] 2.A is to ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling.

·    This is supported by the Ghanaian constitution[iii].

However, primary completion rate for sub-Saharan Africa is only 70%[iv]. In 2011, UNESCO said that almost 30 million African children were not in school. This includes nearly 650,000 children in Ghana[v].

Free education should include books, feeding (breakfast and lunch)[vi] and uniforms for at least 10 years for each learner. School fees, cost sharing and all contributions to school funds etc should be abolished. Student grants should be provided for post-secondary education.

In Ghana school fees have been abolished for the first 11 years of schooling. However, the costs of basic school requirements such as school uniforms and exercise books are still too high for poor households and often deter parents from sending children to school[vii].

To fund these educational services, 56 developing country governments, members of Global Partnership for Education, agreed to spend at least of 20 per cent of their total annual budgets on education (with half earmarked for pre-primary and primary education)[viii]. This is supported by UNESCO[ix].

Ghana spends slightly more than 15% of public expenditure on education and so would need to increase spending on education by a third to meet international standards.

Health Care

It is also widely recognised that health care should be a human right, for example:
·    Article 25 of the Universal Declaration of Human Rights1 asserts that:
“Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family”.
·    Millennium Development Goals2 directly relevant to health include:
·     Goal 4: Reduce child mortality
·     Goal 5: Improve maternal health
·     Goal 6: Combat HIV/AIDS, TB, malaria and other diseases.

Thus free health care including medicines for all should be a basic human right.
Charging for primary health care (‘cash & carry’) was as disaster. Health insurance schemes similarly mean that many of the poor are not covered. In Ghana it is estimated that less than one in five are covered by the National Health Insurance Scheme (NHIS)[x]. Moving away from health insurance could save US$83 million each year in Ghana. Enough to pay for 23,000 more nurses. There should be free anti-retroviral medicines for all those who are HIV positive, but this is not included in the Ghana NHIS.

In 2001 African governments pledged to spend at least 15% of their budgets on health in the Abuja Declaration[xi]. In 2012, WHO estimated the minimum spending per person per year needed to provide basic, life-saving services was US$44[xii] and that low-income countries would need to spend a little over US$60 (GHȻ120) per person per year by 2015 to achieve the Millennium Development Goals.

Ghana only currently spends about 12% of its government budget on health or US$27 (GHȻ54) per capita9.  So significant increases are needed in the health budget and a more efficient approach than the NHIS to fund these services.

Water and Sanitation

Public water and sanitation services are essential for sound public health. The Millennium Development Goals call for halving the proportion of the population without sustainable access to safe drinking water and basic sanitation between 1990 and 2015.

The following targets are now being agreed internationally for water and sanitation:
·    use of an improved drinking-water source within 30 minute water collection round trip
·    use of an improved sanitation facility at home, shared between five households or less.
·    all schools and health centres should have water, sanitation and hygiene[xiii].

Across Africa 63% of population use improved drinking-water and 48% use improved sanitation facilities (2011).  In Ghana the figures are 86% and 72%11.

In 2008, at an African Union meeting, African ministers set a target to spend 0.5 per cent of GDP on sanitation and hygiene. Various other studies, notably by UNDP, have suggested that the cost of meeting the Millennium Development Goal for water is around 1 per cent of GDP annually.  So the target for water, sanitation and hygiene (known as WASH) should be 1.5% GDP[xiv].  Ghana only spends around 0.5% of GDP on this sector.

In 2010, at the first high level meeting on sanitation and water for all held in Washington DC, the Government of Ghana promised to spend $350 million (GHȻ700 million) a year on the Water, Sanitation and Hygiene (WASH) sector. However in 2010, only GHC108 million was allocated and GHC132 million for 2011[xv].

A Progressive Tax System

To ensure that adequate public services can be afforded and to help to make society more equitable progressive taxation should be increased by:
·    Raising company and personal income tax rates to at least 30%[xvi] for monthly incomes above GHȻ3,000 (around ten times average per capita GDP)
·    Increase property tax for land/buildings of more than 100ha or value of more than GHȻ100 000[xvii].
·    Import duty on TVs, cars and other electrical goods to be increased
·    Review costs and benefits of tax holidays and free zones and introduce greater controls to reduce capital flight.

“The experience of the first three post-war decades in developed countries, when marginal and corporate tax rates were higher but investment was also higher, suggests that the willingness of entrepreneurs to invest in new productive capacity does not depend primarily on net profits at a given point in time; rather, it depends on their expectations of future demand for the goods and services they can produce with that additional capacity...
However, competing with other potential host countries by offering lower taxes is problematic since it triggers a downward spiral in taxation that reduces fiscal space in all the countries concerned, while initial locational advantages based on taxation tend to erode over time”[xviii].

Across sub-Saharan Africa reduced import tariffs are only partially (30%) being replaced by domestic taxation, mainly VAT.  VAT is very inefficient to collect and is less progressive.  In addition, rates of corporation tax have generally reduced due to tax competition between countries

Property tax Taxation of property and rental income could raise revenues worth an estimated 1-2% GDP in Ghana[xix].  Property taxes should be extended starting with larger urban properties and large foreign owned farms. Revenue lost since lowering royalty tax on mining in Ghana is estimated at US$68 million per year or GHc 102 million17.  The previous tax rates should be re-introduced.

Capital flight involves the deliberate and illegal disguised expatriation of money by companies or individuals taxable within the country of origin. Developing countries lose more money through private capital flight than they receive in donor aid[xx].  Capital flight over 1970 to 2008 is estimated to have been 66% of the GDP of Ghana or over two and a half times the external debt[xxi].  Capital controls should be re-introduced to reduce the level of capital flight from Ghana.

There should be a systematic study of the overall costs and benefits of the existing incentives regime in Ghana, including tax holidays and tax free zones. Reversing the free zone status of existing forestry firms would raise 0.5% GDP in additional revenue17.

Regional bodies (African Union, NEPAD, ECOWAS, UMEOA etc) should take up fiscal issues and tackle some of the problems of transfer prices (which enable international companies to evade tax), information exchange especially with tax havens (to reduce tax evasion by the rich and expatriate individuals and companies), reducing the facilitation of capital flight and off-shore intellectual rights.  Good practice in terms of efficient and effective taxation policies and practices should also be shared and developed regionally.  Regional bodies should also push for governments to collectively retain and, where appropriate, increase import tariffs and corporation tax rates.

Consideration of using some of Ghana’s oil revenue to introduce a monthly Basic Income Grant of GHȻ20 for all people (cost 4.4% of GDP).  This will reduce poverty, improve access to health and education and reduce crime. Petroleum receipts would give a monthly income of around GHȻ6. Could be introduced first in Upper East and Upper West where poverty levels are particularly high.

Per capita GDP per day (assuming working 200 days a year) was GHȻ16 (US$8) in 2012 (nearly GHȻ500 a month). The Daily Minimum Wage is now GHȻ5.24 (from May 1, 2013) (GHȻ141 a month).  People on this wage are still be expected to pay income tax (so tax thresholds should be increased. The minimum pension under SSNIT is GHȻ100 (from 1.1.13).  Real increases are still needed to bring the minimum wage and pension levels up to a reasonable level.


For a more detailed report with targets and analysis of other sectors of public spending see:

Tax Justice Network Africa (2011) Addressing Inequality in Africa through Taxation

This manifesto should be updated when the results of the Sixth Ghana Living Standard Survey are published (September 2014).

[i] UN (10 December 1948) Universal Declaration of Human Rights

[ii] Millennium Development Goals:

[iii] The Constitution of Ghana 1992 – EDUCATION (Article 25).
[v] UNESCO (2012) Ghana country study on out-of-school children:

[vi] “WFP’s Ghana country programme evaluation, as well as studies on the Ghana School Feeding Programme (GSFP), suggests that school feeding is one of the most effective ways to increase enrolment in schools across the three northern regions and in areas of endemic food insecurity (WFP, 2010a; SNV, 2009; SEND, 2008).” (UNESCO 2012: 74)

[vii] GNECC, 2008; CREATE 2007; Avotri et al. 1999; Boakye et al. 1997). (UNESCO 2012: 70)

[viii] Forty-four developing country governments signed up to a target for education spending of 20 per cent of total spending (with half earmarked for pre-primary and primary education) in 2010 as part of their commitment to implement the Education for All Fast-Track Initiative (EFA-FTI). Fifty-six developing countries are now members of the Global Partnership for Education, the successor to EFA-FTI.

[ix] UNESCO (2013) Education for All Global Monitoring Report:
For more information on education spending see:
UNESCO: Institute for Statistics Data Centre. Montreal, Canada.

[x] Oxfam, ISODEC etc (2011) Achieving a Shared Goal: Free Universal Health Care in Ghana

[xii] WHO (2012) Spending on health: A global overview
Basic WHO statistics on spending in each country:
[xiii] WHO and UNICEF (2013): Progress on Drinking Water and Sanitation, 2013 Update.

[xiv] Government Spending Watch:

[xv] The Daily Guide on Wednesday 30, January 2013,

[xvi] In 2006, corporate tax in Ghana was reduced from 28% to 25% (was 30% the year before).

[xvii] Property tax Taxation of property and rental income could raise revenues worth an estimated 1-2% GDP17. Property tax is levied annually by local authorities on the estimated value of the property, depending on the classification of the area where it is located, with the rates range from 0.5 to 3 percent.

[xviii] UNCTAD (2012: XIV) Trade and Development Report 2012 – policies for inclusive and balanced growth, New York and Geneva: United Nations

[xix] Prichard, W. and Bentum, I. (2009) Taxation and development in Ghana: finance, equity and accountability, Tax Justice Network and ISODEC

[xx] SOMO (2008) Taxation and Financing for Development
[xxi] Ndikumana & Boyce (2011) Africa’s Odious Debts – how foreign loans and capital flight bled a continent

Wednesday, 17 April 2013

Are Donors Actually Adopting Their Own Principles When Supporting PFM?

The declaration from Busan (4th High Level Forum on Aid Effectiveness - 2011) included the following four principles:

a) Ownership of development priorities by developing countries. Partnerships for development can only succeed if they are led by developing countries, implementing approaches that are tailored to countryspecific situations and needs.

b) Focus on results. Our investments and efforts must have a lasting impact on eradicating poverty and reducing inequality, on sustainable development, and on enhancing developing countries’ capacities, aligned with the priorities and policies set out by the developing countries themselves.

c) Inclusive development partnerships. Openness, trust, and mutual respect and learning lie at the core of effective partnerships in support of development goals, recognising the different and complementary roles of all actors.

d) Transparency and accountability to each other. Mutual accountability and accountability to the intended beneficiaries of our cooperation, as well as to our respective citizens, organisations, constituents and shareholders, is critical to delivering results. Transparent practices form the basis for enhanced accountability.

However, at least in the area of public financial management, it is not clear that the donor community have actually adopted these principles in practice.  It does appear that the old model of implementing ‘answers’ (the standard New Public Management reforms of accrual accounting, MTEF, decentralisation etc) with the use of international consultants on short-term projects is still the most common approach.  Donors, their consultants and local officials in the Global South should perhaps re-consider the extent that they have adopted the Busan principles by thinking through the following ideas:
  • Public financial management is ‘poor’ in many countries of the Global South because these countries suffered economic collapse the 1980s and the 1990s – not because they are backward and need ‘modernising’.
  •  PFM capacity building is not a quick fix and will probably be a decades long process.
  • The point of departure for capacity building should be what already exists.  This will be dependent on the intimate knowledge of local officials.
  • Possible moves towards New Public Management should be open and not just promoted as ‘modernisation’.  Any such moves should be based on proven approaches with clear evidence of success.
  • Capacity building should be country led – not micro-managed by donors and their international consultants.

I expand on each of these ideas below.

Public financial management is ‘poor’ in many countries of the Global South because most countries suffered economic collapse the 1980s and the 1990s – not because they are backward and need ‘modernising’.

Countries with a higher per capita GDP tend to do well in public financial management and overall governance. Four countries that do particularly well in sub-Saharan Africa are Botswana, Mauritius, Namibia and South Africa. They far outperform other sub-Saharan countries in GDP per capita and the quality of their public financial management systems.

Many countries in the Global South suffered economic collapse in the 1980s with, at best, slow growth in the 1990s. This resulted in under-paid, insecure and demoralised public sector officials, some of whom, not surprisingly turned to corruption to survive.  Getting out of this hole is much harder than falling into it, and will take much longer, even if sustained economic growth and guaranteed donor support over the medium term (five to ten years at least) is provided.  Many sub-Saharan Africa economies grew well over 2003 -2008, but their economic future is now much less certain.

What is needed is not modernisation/reform/New Public Management, but rebuilding of public financial management processes based on sound regulatory compliance, good quality internal financial control and systems which are promptly brought up to date.  Efficiency, performance management and decentralisation can wait until the necessary local capacity is re-built.

PFM capacity building is not a quick fix and will probably be a decades long process.

Donors need to learn that what public financial management officials need is predictable support over at least the medium term (decades), not just a few weeks or months.  Whereas most donor agencies set out ambitious matrices of reform within a time frame of three to five years, a study of African experience with PFM reform suggests that, in most low-income countries in sub-Saharan Africa, to reach a level where the country is capable of self-reliantly maintaining and developing its PFM systems would take15-25 years (Andersson & Isaksen, 2002).

Public financial management reforms in New Zealand, US and Britain have taken decades and are still continuing.  So donors need to plan for and provide support over a similar timescale.  This will be more likely to be successful if the support is dependable, predictable and sustained over the medium term.

The point of departure for capacity building should be what already exists.  This will be dependent on the intimate knowledge of local officials.

Public financial management reforms should be incremental and organic – based on existing practices improved to solve specific problems using techniques which have been proved to be successful in a similar environment.  It is only the local public financial management officials that really understand their systems; international consultants fresh off the plane, whatever their CVs say, can never have the detailed knowledge of the local context, culture and history that is essential to lead future reforms.

A strategy of experience sharing and peer assistance should be adopted where by the leading countries in a given region may support other countries to raise the level and quality of their public financial management systems based on approaches and techniques which have clearly proved their worth in a similar environment.

But donor strategies often remain wedded to the introduction of MTEF, IFMIS, programme budgeting, accrual accounting, performance management etc etc.  They are pushing NPM style, fundamental reforms with international consultants when these are not clearly based on the actual experience of success.

Possible moves towards New Public Management should be open and not just promoted as ‘modernisation’.  Any such moves should be based on proven approaches with clear evidence of success.

‘Reinventing Government’ by Gaebler and Osborne in 1992 applied to the public sector the supposed power of performance measurement and launched a new industry of performance indicators and targets.  This is part of the NPM agenda of ‘modernisation’, ‘efficiency’ etc.  However, by the mid-1990s doubts had risen about the transferability of PFM models from more developed to less developed countries.  The New Public Management model, for instance, failed to get the expected traction in countries such as Jamaica. The New Zealand accrual accounting model was sold to countries that had difficulty in managing their resources on a cash basis, including Mongolia, with poor results. Schick (1997, 1998) advocated a step-by-step approach, starting with getting the ‘basics’ right. 

But this was then ignored by donors who, for example, continued insisting on moves towards accrual accounting, programme budgeting and performance audit. This was despite the lack of clear objective research that these approaches really deliver their expected benefits in the industrial countries, let alone across the Global South.

Many so called ‘modern’ techniques are part of a specific approach to public financial management reform.  The decision on whether or not to take this route should be openly discussed by local officials and politicians, and guided by the actual level of success of similar reforms in other countries.

Capacity building should be country led – not micro-managed by donors and their international consultants.

Consultant led development projects are rarely sustainable or successful and breed dependence rather than real capacity development. Analysis of the risks to development and the reduction in risk that could be achieved, within the constraints of government will and government capacity to absorb reforms can only be undertaken by local officials who have the necessary deep understanding of how their systems actually work.

This deep knowledge is only available to local government officials and explains why country leadership is so important.  Most countries in the Global South do not need reform or modernisation (NPM); but rebuilding sound public financial management with regularity and probity as the main objective.  Efficiency, performance and decentralisation may, perhaps, come later.

Friday, 28 December 2012

Organic Reform rather than New Public Management

Neoliberalism, the belief that the market is the most efficient approach to allocation of resources, is the currently dominant economic paradigm across the world. This has had a major influence on the way in which states are managed and the way in which public sector accountability is viewed.  The governance model of seeing the private sector as being directly relevant and a positive model for the public sector has been termed New Public Management.  This has been sold as modernisation over the last three decades and pushed by the World Bank, IMF, OECD and bilateral aid agencies.  But this is only one approach to public financial management and, as with Neoliberalism itself, New Public Management is being increasingly contested.  Here I outline some possible alternatives.


Many developing counties developed significant levels of debt from the 1980s. This provided the IMF and World Bank with the leverage they needed to implement structural adjustment programmes (SAPs) in the 1980s in which privatisation and deregulation were dominant.  The fall of the Berlin Wall in 1989 provided the International Financial Institutions with more confidence, but also the recognition that the state was necessary for effective economic development. In addition, the end of the cold war meant that a blind eye could no longer be turned to corruption which had grown with the demoralisation arising from the failures of independence and state led development to provide sustained economic growth.

The UN and increasingly the World Bank turned their attention to public sector accountability and financial management in the late 1990s.  Thus we had the UN Program for Accountability and Transparency (PACT) established in 1996 as a compilation of existing good practice with the more radical World Bank Public Expenditure Management Handbook published a couple of years later.  This was to provide guidance for the increasingly active role the World Bank played in this area taking over as the prime source of guidance from the UNDP.

The Public Expenditure Management Handbook outlined three main objectives for the management of public finances:

  • aggregate fiscal discipline

  • resource allocation and use based on strategic priorities

  • efficiency and effectiveness of programs and service delivery.

It also identified the recent innovations of IFMS and MTEF as the basis for the radical transformation of public sector accountability and financial management whilst still extending the market and reducing the size of the state.  These reforms with decentralisation, independent revenue agencies and, at least in middle income countries, the introduction of accrual accounting became the standard reform agenda across the Global South.

However, many of these reforms were not as successful as expected.  International consultants were used to push a standard reform agenda which did not really fit with the local environment and the expertise of local public financial management officials was not given adequate recognition.  In addition, recent developments have led to a more widespread questioning of both Neoliberalism generally and New Public Management in particular.

The Global Financial Crisis and the Arab Spring

In its World Economic Outlook (September 2011), the IMF stated that:

The global economy is in a dangerous new phase. Global activity has weakened and become more uneven, confidence has fallen sharply recently, and downside risks are growing. Against a backdrop of unresolved structural fragilities, a barrage of shocks hit the international economy this year.

The World Bank's latest Global Economic Prospects (January 2012) said that the world had “entered a difficult phase characterised by significant down-side risks and fragility”.  It also predicted a “turbulent year ahead”, that a “‘Second wave’ of financial crisis will take a toll on developing countries and reduced its expectation of the rate of growth in 2012 by over a quarter.

In addition, the Arab Spring, whilst continuing to bring an end to more dictators across the region, appears to have sparked a global protest movement. Occupy Wall Street spread to many cities across the US, but also to the steps of St Paul’s Cathedral in London, Australia, India and Pakistan.  Whilst in Chile hundreds of thousands are demanding free, high quality education; in Greece the general strikes have now extended to two days; and popular unrest has swept across many countries in sub-Saharan Africa.  In Nigeria, for example, a weeklong general strike succeeded in reducing the recently increased price of fuel by a third.

All this is leading to a continued questioning of the received economic wisdom.  If privatisation, deregulation and deficit reduction do not appear to be working at the economic level; is New Public Management, with its balanced budgets and standard set of reforms, really delivering the claimed benefits?  So what are the alternatives? 

An Alternative Public Financial Management Agenda

Perhaps public financial management reforms in developing countries should be based on the following principles:

·    organic and incremental change – reforms should build on and improve existing systems and procedures rather than the more risky approach of major reforms and fundamental change; public financial management should be more about rebuilding systems than transformational ‘modernisation’

·    tried and tested reforms – one of the few benefits of being a developing country should be that it is not necessary to experiment, but only reforms which evidence clearly show have worked in a similar environment should be adopted

·    support for alternatives – one size does not fit all jurisdictions, there are different approaches to public financial management and variation is healthy; genetic variation is essential for the future of a species, similarly novel procedures, processes and institutions can provide for healthier public finances

·    use of local experts rather than international consultants – it is only the local public financial management officials that really understand their systems; international consultants fresh off the plane, whatever their CVs say, can never have the detailed knowledge of the local context, culture and history of reform that is needed.

These principles can be used to critique the standard reform agenda of New Public Management which is still being pushed by the International Financial Institutions and the donor community.

Alternatives to the Standard Reforms

Rather than thinking about accrual accounting, which does not bring the claimed benefits, we need to be thinking about simple and clear financial statements that parliamentarians and the public can understand.  Accounting standards should be based on existing good practice.  As a recent study by the Africa Capacity Building Foundation ( has shown, many governments in sub-Saharan Africa display aspects of good practice in their annual financial statements which are not necessarily included in existing international accounting standards.

The Medium Term Expenditure Framework (MTEF) still appears to be part of the standard donor reform package despite making little progress in many countries.  One expert recently commented to the World Bank that, “MTEFs act as a huge distraction to good basic budgeting, with questionable results and much wasted resources”.  Incremental reforms may be more effective, especially if they are able to gradually extend the effective budgetary horizon and recognise the political economy reality that many presidents want to retain the power to direct resources during the financial year.  Similarly if governments are struggling to control line item budgets, then programme budgeting, which several OECD countries having been trying to implement since the 1960s, is probably not a priority.

In general terms governments have always borrowed to invest in public infrastructure (including an educated workforce).  The current emphasis on balanced budgets and prudent public finances may lead to an under investment and so inhibit future growth.

It is now accepted that in many developing countries new public financial management laws are in advance of actual practice.  In this situation it may be more effective for Auditors General to improve their approaches to regulatory audit rather than struggling to introduce performance audit.  Similarly, Auditors General are being encouraged to adopt private sector International Auditing Standards to provide an opinion on the financial statements rather than reviewing public financial management as a whole.  For years donors have tried to replace pre-audit with systems or even risk-based audit.  However, at a recent audit conference in Nigeria, a presenter received a round of spontaneous applause when they suggested it would be better to have effective pre-audit to prevent fraud and corruption before it has even taken place.  The traditional approaches to audit may, in certain circumstances, be more effective than performance audit and risk based auditing.

Many countries are still struggling to implement comprehensive Integrated Financial Management Information Systems (IFMIS) when smaller systems have far lower risks.  The Federal Government of Nigeria, for example, recently signed a $29 million contract for an IFMIS with only just over two months to go before the ‘go live’ date of 1st January 2012.  IT can be useful, but small, smart applications (for example, may be far more effective than dreams of being able to monitor the finances of the whole government ‘at the touch of a button’.  The IFMIS in Tanzania was arguably successful because it was, initially at least, just a system to make payments for goods and services from a single office, rather than being a comprehensive financial management system.

Decentralisation is still being pushed in many countries, even quite small ones, but centralisation and regionalisation may be more appropriate in many cases.  Some small island states in the Pacific are implementing co-operative audits between countries to access the skills and experience they need.  The Federal Government of Nigeria is successfully centralising the payment of salaries and other payments rather these being implemented in individual ministries, departments and agencies.

Contracting and procurement are recognised as high-risk areas in terms of bribery and corruption.  So perhaps more governments need to consider the direct provision of services rather than entertaining the risks associated with out-sourcing.  Where external procurement is considered necessary, social and environmental factors should be considered to ensure that ‘whole life costs’ and externalities are taken into account. Sustainable public procurement is a tool which allows governments to use public spending in order to promote the country’s social, environmental and economic policies – see:

Independent revenue agencies may have undermined the development of national tax policy expertise as the agencies are limited to increasing revenue in line with existing legislation.  The reduction in customs tariffs, despite the introduction of VAT have led to a significant reduction in revenue for many developing countries.  An other result is that the tax system is less progressive.  Governments should have a key role in redistributing income.  The erosion of this role (taxing the rich to pay for free public services for the poor) has led to a significant increase in inequality in OECD and developing countries alike.

The World Bank and the IMF have recognised that charging for primary education and health was a failure and are now assisting governments in provide these services at no cost.  However, health insurance is being encouraged in several countries.  This is unlikely to be successful as if the poor cannot pay for health care when they are ill they are even less likely to be able to do so when they are still healthy.  In many cases providing free public services, like health, education, water and roads is the only way to make these services available to the majority of the population.


The global donor community met at the 4th High Level Forum on Aid Effectiveness in Busan, South Korea at the end of 2011.  A review of the targets the donors had set at previous forums in Paris and Accra were, “sobering. At the global level, only one out of the 13 targets established for 2010… has been met, albeit by a narrow margin”.  So we need to look at constructive alternatives to New Public Management and Neoliberalism.

We should disseminate the evidence on the actual costs (and lack of benefits) of accrual accounting and facilitate the development of accounting standards based on existing good practice (in contrast to the existing Cash Basis IPSAS).

We should develop and publish critiques of the MTEF, including programme budgeting, and develop practical alternatives to achieve effective budgetary control.  We should recognise that a key role of government is to borrow to fund investment in public infrastructure.

We should not be demanding that external auditors adopt performance audit and internal auditors change from pre-audit to risk based audit.  Adopting new work practices is demanding for all of us and in an environment where corruption is widespread regulatory audit may be the most effective approach.

Similarly with IFMIS and other items in the standard donor public financial management tool kit, we need to ensure that practical approaches that can be easily accommodated within the existing environment are implemented and can be maintained locally.  This will only happen where the reform agenda really is locally owned and local public financial management officials have a core role in designing and implementing the reforms.

If poverty is really to be reduced, then the state must undertake some redistribution by taxing the rich and providing basic services at no cost. Creating a ‘business friendly’ environment to attract foreign direct investment will not lead to a trickle down of wealth from the rich to the poor.  In contract, all the evidence suggests Neoliberalism and New Public Management results in wealth gushing up and increased inequality.