The FreeBalance Approach to PFM Reform class=

The FreeBalance Approach to PFM Reform

Many within the Public Financial Management (PFM) community think that FreeBalance is an software company that happens to build PFM solutions for improved governance and transparency. It’s actually the other way around…

FreeBalance is actually a PFM specialist that happens to build software – something we discovered when we were helping the Government of Canada to calculate how much it legally had available for spending, known as the “free balance”.

  • The free balance is the original budget minus commitments (or soft commitments or pre-encumbrances), minus obligations (or hard commitments or encumbrances), minus actuals.

Almost 40 years later, with operations in 25+ countries, we have helped many countries build effective PFM reform plans. 

The general approach is shown in the diagram below.
FreeBalance PFM Reform Sequencing Approach

Country Analysis

The mainstream thinking is that determining the country context is more art than science. We don’t agree. We’ve adapted mainstream business strategy approaches to the public sector for a more objective determination of the country context within which governments operate.

  • Environmental Scanning is a technique used in business model design that tracks global and regional key trends, economic forces, and government technology to assist governments [used since 2016 by FreeBalance for strategic planning]
  • Country Context is an adapted version of PESTLE analysis for the public sector that we call GESCED (governance, economics, social cultural, environmental, digital) using over 300 information sources augmented by internet searching and workshops with government stakeholders [used since 2009 by FreeBalance for business development planning]
  • Country Analysis are a set of techniques designed to better understand the available change space and reform footprint in a country by tying the environmental scan, country context and national development plans to diagnose governance gaps and country capabilities [used since 2016 by FreeBalance to assist government reform plans]

PFM Sequencing

We also believe that PFM reform sequencing is more science than art. A structured analytical approach yields effective plans that including prioritization based on context, logical mapping of inputs, that is adapted based on dependencies such as recognizing that effective cash planning is dependent on the Treasury Single Account, or that Medium Term Expenditure Frameworks are dependent on program budgeting classifications. This approach also identifies how governments can increase PEFA scores, although this can be seen as gaming the system with a focus on looking good rather than doing good.

  • Country Analysis Input helps to identify logical reform priorities and the alignment with national development plans, although it is possible that these plans are not properly connected to what priorities ought to be
  • Public Expenditure and Financial Accountability (PEFA) and other assessments provide diagnostics of current policies, procedures, and practices but are not prescriptive [used since 2011 by FreeBalance to assist government reform plans]
  • Public Financial Management Component Map (PFMCM) is a proprietary mechanism that identifies logical PFM components extending the Treasury Reference Model 
  • Reform Scope is identified by aligning country analysis, assessments and the PFMCM in a spreadsheet that adjusts to expert input designed to be practical and prescriptive by considering people (civil service capacity), pace (capacity and change readiness), platforms (technology, infrastructure and digital capacity), policies (legal reform), procedures (workflow not tied to legal reform), practices (form and informal reality), and performance (effectiveness targets) 

These techniques have adapted over time based on our experience with so many global governments. We also dive into the literature. Experience plays an insight role, so there remains some art in the way that we recommend PFM reform sequencing.

FreeBalance’s Government Advisory Services

FreeBalance’s public sector consulting services are customized for governments and include:

  • Governance – identify PFM reform sequencing, described above
  • Modern Ministry – institution structures, operating system and mandates, extending the concepts in an IMF paper
  • Government Resource Planning – risk and opportunity analysis of GRP subsystems, data centre infrastructures, and IT capabilities
  • Smart Prosperity – policy and budget alignment to citizen wellbeing and sustainable development
  • Blockchain – Helping governments to assess readiness for the adoption of blockchain technologies
  • Crisis Response – a portfolio of products and services to help governments overcome the fiscal challenges related to the pandemic

Get in touch to find out how FreeBalance could help your country.