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 country‐specific 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 co‐operation, 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.