The PFM Blog recently posted a fascinating Q&A with the IMF’s Richard Allen Apart from a serious faux pas where he refers to the IMF as an ‘honest broker’ that can provide ‘genuinely impartial advice… and its implementation’, he shares some stunning insights that reflect his years of experience in the field
First he argues (admits?) that there is no ‘consensus mode’ for sequencing Public Finance Management (PFM) reform. In plain English: there is no recipe for where to start or how to string together such reforms. After a comment by Sanjay Vani, Allen does however agree that ‘a solid accounting and reporting is as a precondition to any other reform. In Vani’s words: “If the Ministry of Finance cannot accurately tell how much money has been spent and for what purposes, no other PFM reform has any chance of success.”
According to Allen, this is not just a gap in our knowledge about how reform works; he also argues that the political, administrative and financial incentives for rapid PFM reform do not exist in most developing countries. He goes even further by arguing that “there are much more prevalent incentives against reform. Budgetary institutions are particularly difficult to reform because they are a primary source of rent seeking’.”
This may look like pessimism about the possibility of any PFM reform at all, but Allen actually argues for a more cautious and modest approach to such reforms: “Even developed countries normally tackle only one major reform a time, compared with the dozens of items typically found in a platform approach document.” But “unfortunately, such scaled-down approaches to PFM reform are not very appealing to some governments and donors.”
After this Allen takes some delicious sideswipes at donors, recipient governments and technical assistance (TA) providers:
“They (donors) are reluctant to say ‘no’ to ministers who ask for the ‘wrong’ types of reform, such as MTEFs and performance budgeting, that are way beyond the capacity of most countries to implement, and contravene the principle of getting the basics right first―Allen Schick’s famous motto ‘look before you leapfrog’.”
“World Bank teams and other donors have pushed IFMIS (Integrated Financial Management Information System) and similar high-tech projects on countries as a way of disbursing loans, and with too little thought to the real needs of the country.”
“Many TA providers have a vested interest in maintaining existing approaches and instruments. TA providers are not sufficiently held to account for the imperfections of the models they use, and the advice they offer.”
Is this fair criticism? In my experience many donors, government officials and TA providers are as perplexed as Allen about what to do next in countries that have seen wave upon wave of reform. So what to do?
If we have learnt anything over the last 30 years, it is that PFM reforms cannot be approached as a series of technocratic projects. For this reason the ‘political turn’ in the thinking of donors is an encouraging development (see DFID’s Drivers of Change studies, for example ). It seems obvious that an understanding of why things are the way that they are, is a necessary first step to any reform. Introducing reforms without changing the political balance of power will doom these reforms to failure or the permanent reform limbo that so many developing countries are stuck in.
With this insight in mind, more and more donors have started working with audit institutions and legislatures. More and more donors also understand that citizens and civil society organisations can provide the political impetus to support technical reforms. See for example DFID, SIDA, DANIDA’s large investments in civil society policy advocacy.
Of course there is no standard recipe for such politically streetwise reforms either. The liberal assumption that the rebalancing of power will emanate from the countervailing forces of the legislature, judiciary, media and civil society is not always true. Those trying to support change cannot avoid have to search for people that have the wider public interest at heart. Sometimes the people driving change are in the Executive. In a few recent cases we have even seen expatriates play this role through the electronic media.
We should also stretch Vani’s point wider. Few of the political processes supporting PFM reforms will get traction if the information produced by ’solid accounting and reporting’ is not made publicly available. The people and institutions that may change the balance of power will need to know what government is doing with public resources before they can change anything about it.
The PFM Blog has been hosting a fascinating debate on the challenges and uses of Medium Term Expenditure Frameworks (MTEF). This debate is highly topical because MTEFs have been part of the unquestioned recipe for budget reform in poor countries for more than ten years.
The debate started as a slightly esoteric domestic dispute between Marc Robinson and Bill Dorotinsky about the main functions of MTEFs. Click here to see the post and responses.
Next they featured a paper by Salvatore Schiavo-Campo; “Of Mountains and Molehills: The Medium-Term Expenditure Framework”. The astonishing finding from this ex-IMF and World Bank staffer is that:
“The evidence is now conclusive that pushing the MTEF as fashionable “cutting edge”, “state of the art” “best practice”–in disregard of institutional considerations and capacity limits–has produced fiscal Potemkin Villages and mountains of red tape with no improvement in macroeconomic balances, financial control and predictability, or efficiency of allocation and use of public funds.”
His conclusion is of course right. But it is very surprising for this opinion to come out of the IMF and World Bank after 20 years of promoting these very reforms as public finance gospel.
Incidentally, I wonder how long it will be before public finance technocrats come to a similar set of conclusions about the current wave of program budget and performance management reforms. True, some service delivery departments have managed to develop performance indicators. But these indicators are not used to monitor performance. They are recorded and submitted in compliance with regulations and filed and forgotten by understaffed treasuries.
What MTEFs do come down to in the South, is expenditure control by another name. Even in South Africa with its much lauded Treasury and Minister of Finance, MTEF ceilings have largely been used as barriers to extravagant budget demands by spending departments.
This is in line with a broader trend that most treasuries in the South are not interested in policy at all (OK, I’m generalizing). Where they have any muscle at all, they use it to police expenditure ceilings and deficit targets. No wonder citizens and citizen organizations are intensely skeptical of MTEFs. They can see that MTEFs are almost always about blunt expenditure cuts, rather than about spending money on the right things.
What is to be done?
So now that even the World Bank and the IMF have realized that MTEFs don’t work, maybe we can have a more serious discussion about how to reform public finances in poor countries. Reformulations of technocratic reforms will not take us any further. As Einstein told us: “Insanity = doing the same thing over and over again and expecting different results.”
If we are going to shift the political interests that bedevil government finances in poor countries, new voices and interests must be introduced into these tired old debates. And surely these voices must include the people who stand to lose most: citizens themselves.
French philosopher Albert Camus once observed rather depressingly that the only serious philosophical question is whether we should commit suicide or not. Maybe the only serious public finance reform question is how to bring about meaningful participation in public resource allocation.