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PFM Lessons from Post Conflict Countries


July 24, 2013

Doug Hadden, VP Products

Marcus Manuel, Alastair McKechnie and Edward Hedger of the Centre for Aid & Public Expenditure at the Overseas Development Institute gave this interesting seminar at the Crawford School of Public Policy. There has been a significant amount of work on improving public finances in fragile countries. Optimized spending, improved fiscal discipline and reduced corruption are important goals in any country but more critical in post-conflict situations in order to reduce the risk of falling into conflict once again.

FreeBalance is somewhat unusual in the Commercial-off-the-Shelf (COTS) software market in our ability to provide Government Resource Planning (GRP) successfully in countries from fragile to G7. A recent “synthesis report” from 2012 found that post-conflict countries that have been using FreeBalance software for some time have experienced “substantial” Public Financial Management (PFM) reform.

This seminar provides more context and lessons learned about improving PFM results in post-conflict countries. Marcus Manuel pointed out that donors should be encouraged to use country systems. This requires some change in donor culture.

Alastair McKechnie described the perils of fragmentation when many donors are proposing different programs in post-conflict countries. He recommends “defragmentation” through national priority programs that reduce management and transaction costs from lots of small donor projects. He suggested that the problem is not whether to use country systems but how to make them work. Pooling for bilateral aid takes time. And, programs span across elections in donor countries. He also suggested that governance problems ensue when donors micromanage.  Most importantly, McKechnie sees going outside of country systems as dangerous, as he stated: “the best way to destroy institutions is to ignore them.”

Like many other observers, McKenchie sees the need to move forward on budget execution and fiscal discipline first. There is no place in post-conflict countries to obsess over adding new laws.

McKenchie was stern about donor objectives in post-conflict countries. He said that donors look at procurement systems as a mechanism to spurn international competition. His view is that public procurement in post-conflict should focus primarily on building up local businesses.

Edward Hedger was surprised how countries that achieved substantial reform had focused on PFM controls. He finds the notion that “political will” is important in reform to not be analytically useful or measurable.  He did point out that the actions of Ministers of Finance were critical. Many Ministers were formerly employed by International Financial Institutions and had credibility.

Hedger warned that the space for ideas can be taken up by external players who often recommend best practices. Countries who understood what they wanted were able to reform faster. He emphasized that the need for legal framework up front was not critical to success despite canon of literature from the International Monetary Fund. Budget preparation reforms in post-conflict countries including the support of Medium Term Expenditure Frameworks (MTEF) have not been successful because of capacity. More complex reforms often divert capacity from other initiatives.

Hedger pointed out that the adoption of the Treasury Single Account (TSA) and the computerization of budget execution were consistent markets of reform success.

Could the relationship between computerization by using FreeBalance and reform success be coincidental? Our commitment to adapting software and working directly with governments has resulted in better product and service solutions, in my opinion. The ability to sequence reforms is critical as shown below:

A much longer overview of financial management systems:

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Doug Hadden

Doug Hadden

Executive Vice President, Innovation at FreeBalance
Doug is responsible for identifying new global markets, new technologies and trends, and new and enhanced internal processes. Doug leads a cross-functional international team that is responsible for developing product prototypes and innovative go-to-market strategies.

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