July 26, 2012Doug Hadden
Doug Hadden, VP Products
The World Bank published a new report Public Financial Management Reforms in Post-Conflict Countries: Synthesis Report that studies eight countries with an interesting video.
As I described a few days ago, FreeBalance has been instrumental in bringing good public financial management practices through Government Resource Planning (GRP) automation to countries ranging from post-conflict to G8.
FreeBalance and Substantial PFM Progress
The Synthesis Report follows a World Bank Economic Premise note last year. Both show that countries that implemented the FreeBalance Accountability Suite have shown substantial PFM progress.
These studies provide some validation that we’re on the right track in enabling sustainable public financial management reform. These studies mention FreeBalance but provide no endorsement of our software or implementation methodology. (That being said, it’s a far sight better than recent analysis of ERP implementations in the United States Department of Defense.)
The closest to an endorsement is the following: “”The revision of the chart of accounts has often been linked to revising budget classifications as well as the introduction of a FMIS as experienced in Afghanistan, Kosovo, Liberia, and Sierra Leone.“
Sequencing PFM Reform with Capacity Building
Nevertheless, there is ample evidence in the studies to support the notion that countries should implement a financial management system first (my assessment above on the FMIS approach may not be entirely correct) and sequence reforms as capacity is built.
The report concludes that “reforms of organic budget laws tend to happen over a period of time rather than early in the process, so rushing adoption of new laws too early is not necessary in many cases.” Long reform cycles prior to the adoption of financial management software does not seem to be a good practice.
The report concludes that “while capacity can be short-circuited through substitution (such as donor-funded staff in line positions), developing sustainable capacity remains a challenge and needs greater and more sustained attention.” We’ve seen some excellent examples of capacity building in Afghanistan and Kosovo. The key lesson here is to progressively activate financial software functionality as capacity is built. Systems can be first installed with basic controls and progressively modernized to support the entire government financial lifecycle with more complex accounting functions and decentralization.
And, capacity is not associated with progress according to the report. “Afghanistan and Sierra Leone, with very low per capita incomes and at the very bottom in terms ofhuman development indicators, have progressed further and faster than Cambodia or Tajikistan with relatively higher per capital incomes as well as human development indices.”
Budget Execution Lesson Learned
Budget execution was found to be the PFM area of greatest improvement. The report concluded that “budget execution reforms tend to be more successful, while some rethinking of reform approaches targeting budget planning on the one hand, and control and accountability on the other hand may be needed.” This validates the experience of Steve Symansky as presented the Overseas Development Institute in 2010.
It really should come as as no surpise that budget preparation lags behind budget execution progress. This is similar in developed countries where multi-year budgeting, program and performance measures are not adequately used.
New Dynamic for PFM Reform
I’ve made the argument that donors pushing for reform is but one force for PFM reform. The report touches on the impact of Official Development Assistance for reform. It’s clearly a factor because donor funded the FMIS implementations in Afghanistan, Kosovo, Liberia, Sierra Leone and the West Bank. And the report concludes that “the provision of budget support also seems to be an incentive for governments to pursue PFM reform, and it can provide a more continuous incentive.” That’s despite the lack of direct budgetary support and the continued use of off-budget funding.
My sense, based on conversations with government officials around the world, is that globalization has created incentives for good governance. Government leaders understand that businesses have choices of where to do business.
Real Governance Outcomes Achieved
It is difficult to make sweeping conclusions from studying a handful of post-conflict countries. The report is clear about this limitation and calls for further study. Some insight was gained such as “progress on overall government effectiveness and control of corruption broadly correlates with the degree of PFM progress achieved in most of the cases.” That’s good news for all organizations promoting the use of government financial management systems tied to PFM reform.