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PFM Reform Good Practices

Second blog in a series on PFM reform practices:

  1. The Problem With PFM Reform ‘Best Practices’
  2. PFM Reform Good Practices

Why haven’t we turned Public Financial Management (PFM) reform sequencing into a science? The PFM discourse seems to revolve around generalities and conventional thinking: “the country context is key” or “leadership is needed.” Some brave souls go so far as to suggest PFM reform is a forlorn hope. And, many observers shoe horn pet theories into the fray.

The Complexity of PFM Reform

It is in this environment that The Limits of Institutional Reform by Matt Andrews is a welcome relief. Andrews delves into the soft underbelly of PFM reform. He describes how reform comes with “considerable expense, and with great anticipation” yet fails to achieve desired results despite decades of practical experience.  Improved management of public financials is accepted as an important element in improved governance. Andrews finds a gap between legal reform and informal practices.

This is where “country context” becomes critical in diagnosing reform paths. Andrews digs beyond the generalities of “context” to include “regulative, normative and cultural-cognitive elements” of reform. He describes how “informal elements of incumbent logics holding on even when regulative mechanisms appear to change.”

Legal reform is seen as “signalling” the international community that a government is in process of change – even though there could be very little real change in informal processes. Laws and senior leadership “buy-in” is not sufficient for institutions to change.

Andrews suggests that we shouldn’t attempt to simplify the complexities of institutional reform. There is no magic bullet – it’s a question of embracing the complexity to map a path to success.

What are PFM Reform Good Practices?

FreeBalance has been involved in PFM reform in developing countries for decades. In our experience, the good practices listed below are more effective than blindly following ‘best practices‘.

  • More successful PFM reforms are driven by a cadre of change agents who have resilience to achieve sustainable changes.
  • A positive narrative around what the PFM reforms will achieve as programs are rolled out – rather than the often negative narrative around large IT projects – helps to create and maintain buy in.
  • “Big bang” approaches to change rarely work – iterative small steps are more likely to succeed in the long run.
  • Crises create an environment more ready to change. Disruption from other factors is more likely to create an internal viewpoint that change is needed.
  • PFM projects that begin with improved budget preparation and macroeconomic planning fail to improve spending. PFM reform typically should start with budget execution control.
  • Budgets for training, capacity building, professionalizing and certification are rarely sufficient. It’s a shame that so much is spent on technical assistance up-front followed by information systems and so little on creating a critical mass of expertise in government and effective incentives.

The Importance of PFM Reform Signals

Legal reform often provides superficial change on the ground. However, other PFM initiatives around transparency: budget, revenue and procurement – can be more than a signal. It’s way more difficult to hide poor governance in this environment and very difficult to re-introduce opaque processes.

Signalling can be an important political incentive. Yes, change agents are required – but change agents have little influence without some political will at the top. Governance signals are part of the arsenal of reform. And, in this environment where the press is fast to blame corruption and mismanagement at the feet of developing countries, it could be a powerful tool.

For more information on PFM reform good practices, please get in touch.