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PFM Reform and Donor Funding in Post-Conflict Countries: Recommendations Derived from Personal Observations

 

January 17, 2011

Steven Symansky, formerly with the International Monetary Fund, was the keynote speaker at the FreeBalance International Steering Committee (FISC) conference. Dr. Symansky spoke about Public Financial Management (PFM) Reform and Donor Funding in Post-Conflict Countries. He has practical experience in Afghanistan, Iraq, Kosovo, Liberia and Timor-Leste. Dr. Symansky published a short paper on the subject.

He reflected on his experience in financial management software that works in post-conflict countries – FreeBalance. Dr. Symansky suggested that FreeBalance software could be considered part of good practice in PFM reform. Dr. Symansky described his rich academic experience followed by work at the Federal Reserve, World Bank and the IMF.  He characterized this background as similar to what most post-conflict countries face, little or no experience. He quickly abandoned his pre-conceived notions. The most important lesson learned: best is the enemy of good.

Dr. Symansky described the genesis of selecting FreeBalance software in Kosovo. Installation including development of the Chart of Accounts and printing cheques within 2 months. He described the experience implementing FreeBalance software in Timor-Leste and Afghanistan. The  financial management system in Afghanistan was good on paper. There was great resistance in automating the system. Many experts thought that study was needed. But the experience in Kosovo and Timor-Leste showed that a financial management system could be implemented quickly and adapt to reform.

Dr. Symansky described the International Financial Institutions (IFI) focus on “policy” in post-conflict countries as ill conceived. Post-conflict countries have no basis for policy according to Dr. Symansky. “You got to get the nuts and bolts right.” Dr. Symansky recently produced a discussion paper for the Overseas Development Institute. He was interviewed during the 6th Annual CAPE ODI Conference.

Fragile states tend to have missing or weak human and physical capital. Many local experts leave according to Dr. Symansky. There is often a massive foreign influx of experts and funds which is not always a blessing. Many foreign experts impose systems from their own countries and often do not listen to local concerns and think that they know best. They often come with developed country attitudes and values. Dr. Symansky recommends that foreign experts should listen to government public servants.

There is often a limted source of domestic revenue in fragile countries according to Dr. Symansky. Much of the foreign money coming into countries goes outside the financial management system leading to duplication of effort.

Advice from Dr. Symansky, “in public financial management, one size fits all, but no harm in borrowing what works elsewhere, like FreeBalance.” He also suggested that “best is the enemy of good”. For example, countries should not implement accrual accounting or program budgeting if the cash processes are not understood. He recommended that countries use existing structures, including the legal framework whenever possible.

“Budget execution is more important than budget preparation”, according to Dr. Symansky, “Someone at the Cape Conference put it better than I did: ‘Get the plumbing right or there is no sense having a well-designed house.’ We know that the budget reflects policy but in these cases, the budget is often meaningless since so much takes place outside the government budget. It is more important to legitimize the budget and the way to do that is by showing the international community that the government can be trusted and the way to do that is by setting expenditure rules with accountability and ensuring a proper audit trail. This was exactly what was done in Kosovo, Timor Leste and Afghanistan. For this to work, you need computerization. Interesting that the IMF tended to reject this arguing that it takes time to set up the right procedures. But I think that this is wrong. Better to set up a system that has the basics of budget execution but is easily configurable to adapt to a changing environment.”

Dr. Symansky described the reasons why the FreeBalance Accountability Suite was an ideal solution for post-conflict countries:

  1. IT has been quick to implement
  2. Designed and structured for government rather than modified to fit government
  3. Easily configurable unlike traditional business software
  4. Needs less support than most other software
  5. Expandable, can grow from the Ministry of Finance to Line Ministries and sub-national government

“Government systems to show the international community that it had proper controls on spending, strong reporting, proper accountability and audit trails. Success in this area would provide the government with information to develop budgets and donors could trust the system,” according to Dr. Symansky. International organizations do not want to put money through government budgets. Yet in Afghanistan, the US government has begun to put money directly in the government budget. The corruption in the country is primarily outside of the financial system according to Dr. Symansky. (As we have written previously.) He described how corruption was reduced dramatically in Afghanistan through automation. “That doesn’t mean that you don’t need good audit,” according to Dr. Symansky.

Dr. Symansky urges International Financial Institutions to provide direct budgetary support.Donor coordination for technical assistance is needed. He suggested that donors should report to the government to the government Chart of Accounts. He suggested some other practices:

  • Manage administratively but report by program as a first step to program budgeting
  • Political buy-in of PFM systems can help, but successful implementation can produce political support
  • Avoid overly centralized control and micro managing
  • Control at the aggregate level rather than at the “pencil” level
  • Work with the existing civil service structure and avoid expensive foreign consultants

He concluded his presentation with the controversial view that donors should be taxpayers in countries.

About FISC

The annual FreeBalance International Steering Committee (FISC) conference runs from January 16 – 19, 2011 in Madeira, Portugal. FISC provides an interactive forum to exchange Public Financial Management (PFM) good practices among international customers and PFM thought leaders. FISC drives the FreeBalance Accountability Suite product vision to direct FreeBalance GRP solutions. Previous FISC events were held in Mt. Tremblant, Canada (2010); Prague, Czech Republic (2009); Cascais, Portugal (2008); and London, United Kingdom (2007).

About Steven Symansky

Steven Symansky retired from the IMFin 2009 as an Advisor in the Fiscal Affairs Department. While in the IMF, he served as the Division Chief of the Fiscal Surveillance and Policy Division, and the mission chief for Afghanistan for 3 years during which he negotiated the Staff Monitored Program and the program related to the Poverty Reduction and Growth Facility. Also, Mr. Symansky was in the Research Department at the IMF for about 8 years. Before that, he spent two years in the Research Department at the World Bank and eight years in the International Division at the Board of Governors of the Federal Reserve after he earned his PHD in economics from Wisconsin. He led a number of fiscal technical assistance missions to post-conflict countries (i.e. Kosovo, East Timor, Afghanistan, Iraq and Liberia). He also led several public expenditure and macro-fiscal technical assistance missions to a variety of countries.

In addition to his technical assistance and IMF country work, he developed the IMF’s first world macro-econometric model and published numerous papers related to this work. He co-authored a paper with George Kopits on Fiscal Rules and was a co-author of two recent IMF staff position papers — one on fiscal policy during the crisis and one on multipliers. He has also published papers on debt buy-backs, real exchange rates, tax harmonization, and the macroeconomics of drugs. Most recently he has been drafting fiscal responsibility legislation for two countries in the Caribbean.  

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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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