Seven Success Mantras for Public Financial Management Reforms

This article is published in association with IMF.

Antonio Blasco, Srinivas Gurazada

Public Expenditure and Financial Accountability (PEFA) assessment reports offer a comprehensive 360-degree view of Public Financial Management (PFM), utilizing robust evidence-based scoring methodology. While producing a high-quality PEFA assessment report is largely a technical exercise, decisions on reform actions necessarily need to go beyond what are seen as technically good PFM practices.

PEFA Secretariat has emphasized the importance of significant post-assessment reflections before making reform decisions and has issued a globally utilized handbook entitled “Using PEFA to Support Public Financial Management Improvements.^[1]

Considering first-hand practical experiences and the referred guidance, the authors aim to introduce and explore seven key principles (or mantras) complementary to the existing guidance for successful PFM reforms:

1. PEFA Scores Should Not Be the Only Determinant of PFM Reform Decisions: Simplistic conversion of PEFA scores into PFM reform actions may not yield intended results. PEFA assessments focus on the specific aspects of PFM, grounded in objectivity and evidence. While PEFA assessments measure quantifiable aspects reliably, they may not capture every nuance of PFM in exhaustive detail. Additionally, PEFA assessments do not provide direct recommendations. Further analyses beyond PEFA reports are sometimes necessary to uncover the deeper technical and non-technical causes of performance levels, which may be critical to reform outcomes.
2. Use PEFA Dimensions Rather Than Indicators for Monitoring PFM Reforms: PEFA indicators are the result of aggregation of dimensions, which are the basic point of measurement. For example, medium-term budget perspective in expenditure budgeting (PI-16) has four dimensions. If a government at a point in time is only working on MTEF expenditure ceilings ie., dimension (PI 16.2), it may find it more effective to use that dimension to measure progress rather than overall indicator. In most cases, reform actions take place at the dimension level. Therefore, it may be more appropriate to use a dimension or one dimension requirement in a PFM reform strategy to monitor progress as it reflects the improvements better.
3. Build on Signals of Success: In most developing countries, there are several simple reforms that can be executed quickly to demonstrate results. For example, a reform to assess and reduce interest costs due to cash being distributed into multiple commercial bank accounts can demonstrate quick results in savings.
4. Focus on Processes Too Critical to Fail: In most countries, there is an understanding of the aspects of PFM whose failure or weaknesses can have significant cascading effects. For example, poor commitment controls and accumulating arrears can result in significant costs in managing public debt. Focusing on processes too critical to fail could also contribute to strengthened political will and the commitment of leaders to larger reforms.
5. Measuring Reform Value adds Value: Reform plans where the value of a reform is measured in financial terms are more likely to yield results. For example, a new eProcurement system with promised large savings in terms of the percentage of procurement costs or savings in hours would propel action effectively.
6. Demystify Reforms Through Change Management: Often, government officials and other stakeholders have real and imaginary fears about reform. For example, do line ministries lose control over their money if a Treasury Single Account is implemented? Or how does the Supreme Audit Institution (SAI) redeploy its staff when ex-ante controls by the SAI are removed due to improved internal control and internal audit? PFM reforms need to have a sound change management strategy, which deals with the politics of reforms. Resistance may come from within the government or from outside, which needs to be effectively considered and dealt with.
7. Use Technology to Implement Actual PFM Reforms: While IT applications such as IFMIS can be great enablers, technology itself should not be seen as the reform, but the results it generates. Often, major IT solutions are embarked upon as solutions to relatively simpler challenges. Such a strategy may work in some countries as it leads to solutions or improvements to other PFM processes as well justifying the investment, while in other countries it may not work due to the time it takes and the lack of focus on the core challenge that needs a solution.

PFM reforms in the past two decades have yielded significant benefits to governments and citizens. Nevertheless, there are still valid concerns that PFM reforms focus more on ‘form’ than ‘function’. The criticism of PFM reforms for producing “administrative systems in developing countries that look like those of modern states but that do not (indeed, cannot) perform like them” by Andrews, Pritchett, and Woolcock in 2017^[2] seems valid even today. The solution does not lie only in more resources for PFM reforms but also in ensuring the art of PFM reform is mainstreamed in government functioning.