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Professional Diaries #1: Integrated Planning: the Good, the Bad and the Ugly

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Gord Evans:
Initial Involvement

I’ve be asked to post a few reflections on my experiences with integrated policy and financial planning.  Over the next few months, I will recount the good, bad and ugly of several such efforts. 

For those of you who don’t know me, I’ve worked more on the policy and planning than budgeting side of the ledger.  However, my lengthy work experience in Cabinet Office in Ontario, Canada taught that policy planning and fiscal planning, although often competitive and pushing in opposite directions (“we can’t afford that” vs. “we would like to be re-elected”), cannot be performed in isolation.  When I ventured into international work in the late 1990s, to my surprise, what to me was an obvious point of departure (i.e., integrating policy and fiscal planning) was largely being ignored in the world of international development. 

At the time, a multitude of projects were working with Ministries of Finance to implement MTEFs and program budgeting, often overseen by the IMF and/or World Bank.  These projects only remotely connected to the Prime Minister and Cabinet – there would usually be one tick box on the matrix indicating “Government must approve MTEF.”  In this world, policy decisions were the exclusive domain of the Ministry of Finance taken under the watchful eye and veto-empowered IFIs. 

Against the tide, a few intrepid souls were acknowledging that governments were not entirely run by the IFI-MoF duopoly.  SIGMA was completing a series of Centre of Government profiles and advocating policy management reform in EU accession countries.  And a several people at the World Bank, most notably Nick Manning, were exploring how the centre of government influenced policy making and implementation.  At the same time, my international career had begun with an assignment in Lithuania.  This will provide the first reminiscence.   

Following the instructions of those who understand how this works, I will duly add section 2 of 3 in a separate reply post.

Gord Evans:
INTEGRATED PLANNING IN LITHUANIA

Allen Schick once prepared a presentation entitled “Why Efforts to Integrated Planning and Budgeting Usually Fail, and Why It Is Important That They Succeed.”  Lithuania is one of the few cases where it did succeed, but certainly not at first.

The project scoping work, undertaken by a former Cabinet Secretary from Ontario, clearly recommended that reform at the centre of government was what was needed.  However, this was not fully understood by the Lithuanians and the project was duly assigned to the Ministry of Public Administration Reform and Local Administration (MPARLA).  Following in the footsteps of many other EU accession countries, they informed us that they were expecting us to conduct a functional review in three pilot ministries as a precursor to a whole-of-government functional review.  Since the Canadian team all came from government, rather than the foreign aid community, we had no idea what a functional review was – we of course eventually understood, but wondered why on earth anyone would want to perform this type of labour-intensive activity which had so often failed in developed countries.  We were also wondering why a Ministry of Public Administration was leading a project which was supposed to involve government decision making.  How could one deal with government decision-making working in a ministry which couldn’t get the Ministry of Finance to return their calls?

In any event, one of the realities of working in former Soviet Union countries at the time was frequent changes of government (annual was the norm).  Along the way, Andruis Kubilius, who I’d met when he was Deputy Speaker in Parliament, became Prime Minister.  Previously, though our discussions and a first-hand view of integrated planning during a visit to Canada, the future prime minister had become convinced that Lithuania needed the Canadian model if they were going to fix their decision-making system and catch up to Estonia on the path to European integration.  Accordingly, the Prime Minister immediately shifted the project to the Chancellery (their Cabinet Office) with the Chancellor (Head of the Prime Minister’s Office) identified as the lead. 

For those interested in a more detailed look at the reform, you can read the attached article written for the Institute of Public Administration of Canada’s journal “Canadian Public Administration.”  Here are the highlights:

•   a technical working group headed by the Chancellor was established, including senior officials from the Chancellery (Cabinet Office), Ministries of Finance, Economy and MPARLA, and three line ministries.  The group was tasked with developing an integrated planning methodology;

•   a Strategic Planning Unit was established in the Chancellery, which at that time was headed by a former Minister of Finance;

•   the Prime Minister chaired a Strategic Planning Committee with several senior ministers to review the strategic plans and ensure that the government’s strategic priorities were being appropriately supported by the budget; and

•   Strategic Planning Units were established in each ministry to ensure that ministry planning efforts were integrated.

Lithuania’s strategic planning and budgeting system was implemented government-wide in 2001.  A 2006 study by the World Bank (attached) confirmed the positive impact of these reforms on its performance both pre and post-accession.

Reflecting back, next to the personal commitment and engagement of the Prime Minister, the most important success factor for the reform was the involvement of the Ministry of Finance.  Under MPARLA’s leadership, MoF paid no attention whatsoever to the project.  However, once the Prime Minister was in charge, they had to take notice and had to attend meetings.  At first, they did so reluctantly.  To this point, MoF had been merrily implementing program budgeting under the guidance of a US consultant who fervently believed that a properly constructed program budget removed the need for government decision-making altogether, with everything flowing up and down in perfect harmony to and from the budget ceiling determined by MoF.  Why get involved with messy policy decisions, abstract political priorities, or stressful negotiations with ministries when it could all be decided algorithmically through the budget process?   

Meanwhile, back on planet Earth, MoF was begrudgingly attending meetings, providing input into the government’s priorities, linking budget ceilings to those priorities, and modifying ceilings (within an overall cap) though negotiations with ministries who were referencing their strategic plans.  Then a strange thing happened – they began to realize that having the Minister of Finance and Prime Minister on the same page was strengthening their hand with controlling expenditures and discouraging end-runs by powerful ministers.  And why not find out what the Prime Minister really wanted to accomplish at the outset of the process?  Little by little, they became champions of the system and continued to work closely with the Chancellery and Prime Minister’s Office thereafter.  Needless, to say, the system was far from perfect, but continued to evolve and remains in place today.

Gord Evans:
PARALLEL UNIVERSES

Thinking back, one issue which strikes me is the nature of the conceptual gap between the universe of the Ministry of Finance and the universe of decision makers. 
With apologies to PFM professionals (I am definitely straying outside my expertise here), I will begin with the MoF universe. 

Above all, it is holistic, involving all activities and functions of government.  To impose some sense of order, a structure is developed into which the full expenditures and revenues of government can be fit.  Aside from the usual universal structures (GFS/COFOG), each government will have some way of structuring its expenditures and revenues using both organizational and policy cascades.  The former works its way down from ministries/agencies (or sometimes sectors) through divisions, departments and units or whatever.  In many systems, a program structure will be superimposed as a way to provide a sense of policy coherence to the myriad organizational structures.  The policy cascade typically looks at what these organizations are doing and producing (activities and outputs), or intending on doing with their money and what this could mean in the medium term (i.e., the resulting outcomes and impacts).  This approach often requires that the expenditures of ministry divisions and/or programs have a policy logic to them (i.e.,  each program is underpinned by agreed policy goals and policy objectives that can be linked to specific program expenditures and outputs).  Whatever the approach, the Ministry of Finance cares about everything everyone spends and, in varying degrees, why they are spending it and what results from these expenditures.

Not so the head of government – usually the Prime Minister.  A Prime Minister is elected or appointed to deliver a promised set of reforms (i.e., policy changes) that will result in the party he leads being re-elected.  Over a period of up to five years, the PM will expect to see policy proposals from ministries at Cabinet that present policy options to deliver political commitments and explain how those promises will be implemented and what they will cost.  During this period, the PM will periodically indicate new policy priorities and will work with the Minister of Finance to ensure that the budget priorities align with those of the government.

The ministry proposals that come to Cabinet are typically written as policy papers and may be accompanied or followed by draft laws/regulations or some other policy instrument.  Although the policy proposals are (or at least should be) reviewed carefully by the Ministry of Finance, they are not structured in a way that fits within the formal financial structure – costing here becomes a bit of an art.  Typically, these proposals indicate the policy changes that need to be made in order to deliver a political (confusingly, the same word as policy in many languages) commitment.  However, the related policy changes rarely if ever directly correspond with the policies that inform the financial structure.  More often, they will lead to regulatory changes that may affect part of a program policy or many parts of many program policies.  Although the same word (policy) is used, they are referring to two related but different structures.  The Prime Minister could not care less how many program goals, objectives or policies are affected (he won’t even know what they are); he just wants his promise delivered.

in Canada, Cabinet and its sub-committees used to be able to process roughly 100 such proposals per year.  In any given year, therefore, only a portion of the financial structure is affected by these proposals.  For example, the passport office, while an important service provider and contributor to an external affairs documentation program, will never come before Cabinet unless something highly unusual and controversial happens involving the passport process.  Very costly, longstanding agricultural programs will not come before Cabinet unless significant and contentious changes are being proposed.  And so on.  Generally, since processes exist to discourage ministries from bringing forward contentious proposals that have not been identified as government priorities, Cabinet exists as a promise-keeping factory tasked with producing the necessary conditions for re-election.  The Prime Minister’s universe is therefore one that focuses on significant policy changes and only interacts with the MoF universe in a piecemeal manner.  He entrusts that MoF and his Ministers will take care of the whole of government.

This partly explains why the Prime Minister and Cabinet will never be overly concerned with or read an entire MTEF document or ministry strategic plan.  What they care about are the excerpts from those documents that deliver the policy changes deemed essential to the continuing popularity and credibility of the government.  In general, it is therefore prudent to ensure that all-encompassing documents, such as MTEFs and strategic plans, are structured in a way that a Prime Minister can quickly access those priority issues.  The same applies to sector strategies, national plans, program reviews and all other such documents that seek Cabinet approval.  This is just a matter of respecting the universe in which the PM operates.

I could go on further about a third universe – one inhabited by the Ministry of Justice and designed on the basis of Constitutional/legal structures – but that would be migraine-inducing.  From a PFM perspective, the lesson learned above is that the two parallel universes must be mutually understood and that both parties must work closely together to ensure that the intersection of their worlds is mutually reinforcing.  This was the case in Lithuania and has been the case in a few other countries since.  A topic for another day is what happens when the MoF universe must intrude on the PM’s universe; i.e., when revenue collapses and cuts must be imposed.  In this case, negative priorities (what the government will no longer do or do less of) are set as the PM, Minister of Finance and Ministers will need to decide how to achieve the necessary fiscal target while doing the least political damage.     

So that’s it for now – next time (mid to late September), I’ll describe a few cases where integrated planning did not work.  As Schick inferred, they usually don’t.  In the meantime, I would be interested in hearing about your experiences concerning attempts to bridge the policy and financial divides.  I won’t be responding immediately or answering queries (sorry but the day job is intruding), but will certainly pick up on themes raised in future posts.

Gord Evans:
SOMETIMES IT DOESN'T WORK

Time for instalment II.  Having discussed the winning conditions for centre of government reform and integrated planning in Lithuania during the early 2000s, it is time to face facts that those conditions rarely align and can easily be undermined.

Trying to emulate the Baltic experience, some interesting experiments were occurring at the centre of government in Serbia in the late 2000s.  Two DfID-funded projects, led by local consultants, were trying to introduce policy-driven, evidence-based processes through the poverty reduction strategy and ministry-level operational plans.  I was invited by them to help take the next step; i.e., adapting these methodologies for government-wide implementation as part of a broader strategic planning system.  The teams were very high-calibre and would certainly have been capable of leading such a transformation.  The related reforms occurring in the Ministry of Finance could potentially be linked to these efforts.  All very positive, but formidable obstacles existed.

The government of the time was a coalition of two main parties.  The Prime Minister focused mostly on foreign affairs, Kosovo, national security and key economic issues, while the Deputy Prime Minister, from another party, oversaw social policy and EU integration.  In the meantime, a twinning project (France and Lithuania) was working with the Government (Cabinet) Office to introduce a policy-driven decision-making process in place of the highly legalistic system of that time.   
Although some modest success was achieved by introducing an annual government work plan coordinated by the Government Office, more ambitious initiatives to strengthen policy management and develop an integrated policy and financial planning system faltered.  DfID asked me to assess what could be done to create a conducive reform environment.  I prepared a list of critical success (listed below) for presentation and discussion.

1. strong political support
2. single focal point for decision-making
3. coherent central institution structure
4. sufficient central institution capacity
5. Ministry of Finance amenable to reform
6. policy-fiscal linkages technically feasible
7. effective linkages with EU integration
8. buy-in by line ministries
9. favourable incentives

In discussing these, it became obvious that the political factors alone (the Prime Minister was not engaged; two isolated centres of government existed under different coalition partners) made it impossible to implement a policy-driven, integrated planning system.  Although minor reforms can be accomplished at the administrative level, anything ambitious, such as integrating policy and financial planning, must have strong political support for obvious reasons; at some point, critical policy decisions will need to be made in the context of the budget by the Prime Minister, Minister of Finance and their Cabinet colleagues.  In Serbia, at this time, there simply was not a political audience.  This frustrating status quo remained in place for two more years.

Then prospects changed.  A new government was elected and all of the key political positions (PM, Deputy PM, Minister of Finance) and planning responsibilities (policy, budget, EU integration) were filled by members of the major coalition partner.  Moreover, the high-calibre teams supported by DfID remained in place and were willing to accept positions within government to drive the reform.  Prospects for working with the Ministry of Finance were promising.   Finally, the elusive winning conditions were in place. Accordingly, I advised DfID that, after four years, the reforms should proceed. 

Two key government appointments, however, dramatically altered the reform landscape.  First, the new head of the Cabinet Office was uninterested in policy and believed that her exclusive job was to ensure the legal quality of ministry laws and regulations.  More damaging was the Deputy Secretary.  He was young, had worked in Parliament and was interested in IT systems.  Sadly, it turned out that there was little else he was interested in.  His vision consisted of a vast IT system feeding him information on everything everyone was doing.  He wasn't exactly sure what he would do with this information, but it certainly would be a cool thing to have.  Although he begrudgingly accepted the reforms being pushed on him, and, even more begrudgingly, accepted that a female head from one of the DfID teams might lead the reforms, he continually obstructed progress.  For example, he forbid staff to consult with the Ministry of Finance or the Prime Minister's advisors and constantly disparaged and undermined the eminently qualified local consultant.  Ultimately she left and the reforms once again faltered.  It should of course have been possible to replace him, but he was well-connected in the party and the donors did not want to force this issue early in the life of the new government.

Sour grapes on my part?  Yes, definitely, but this underscores how much having the right people in the right place matters when the stars align.  Reform environments are particularly precarious during the early years and typically depend on a very small circle of well-placed champions.  The Lithuanian example, where the Prime Minister was the lead advocate, is hardly the norm.  In Albania, where reforms did work (a discussion for another day), the initial momentum was established by one adviser in the Prime Minister's Office, the Budget Director, a director in the European Integration agency and a few supporting consultants.  The politicians did not engage for several months and it was a couple of years before critical mass was secured. 

Gord Evans:
SETTING PRIORITIES IN REVERSE - WHAT TO CUT?

Well-functioning governments expend considerable effort to establish and secure funding for new, high-priority policies and programs.  Options are identified, ex-ante impact assessments completed, and multi-year, budgetary requirements established.  The budget process provides the funnel through which competing policies are prioritized and resourced.  Much care, thoughtful deliberation and decision-making time, in inter-ministerial committees, private briefings and eventually at Cabinet, are invested by decision makers in getting these choices right.

The same is rarely true for the reverse process: deciding what to cut, particularly during periods of severe fiscal crisis where the cuts are so severe that the required savings target cannot be reached without extensive restructuring or elimination of programs and services.  To arrive at the right mix of cuts, the government usually tasks the Ministry of Finance, sometimes in collaboration with Cabinet Office, with leading the process.  Although ministries will be involved, it is generally assumed that they will not be forthright in offering up potential cuts.  This leaves the Ministry of Finance to take the lead and wield the blunt axe as required. 

Unlike policy development, policy withdrawal is not something that is informed by an inclusive consultation process (too politically contentious) or a methodical decision-making process (too many cuts are being considered concurrently).  Rather than carefully constructed policy options papers, the government is presented with lists of projects or initiatives to be cut (in one exercise I was involved with in Canada, over 400 programs/initiatives were included on a list presented at Cabinet).  Usually, some form of briefing note with one or two sentences on potential impacts is prepared by Finance or Cabinet Office.  Given political pressures to get the bad news out all at once and fast (it is difficult for the media to decide where to focus any criticism when it all comes at once), there will only be time to look in-depth at the most contentious, far-reaching cuts.  For most items, mention on a list and perhaps in a briefing note will be the extent of information that Cabinet sees. 

With so many decisions taken so quickly, things rarely unfold according to plan.  Given the relative speed and lack of depth to the process, unanticipated consequences are inevitable, particularly where there are cross-cutting impacts.  So the bad news keeps on coming, sometimes in torrents, sometimes in trickles.  Some backtracking will occur, some changes will be made.  Although the communications plan will insist that the government return to a more positive decision-making environment as soon as possible, this is easier said than done.

So, is there anything that can be done to make this less painful?  In truth, not a huge amount.  Nonetheless, if ministries do invest in understanding their programs, take performance measurement seriously, periodically conduct meaningful program assessments/evaluations and simulate cost-cutting scenarios when there is time to think things through, then the chances of surviving the cuts less scathed increase.

At the government level, Cabinet Office and the Ministry of Finance should work together, before a fiscal crisis occurs, to identify the best way to triage and present large volumes of decisions in a way that enables politicians to understand the major decisions they are being asked to make.  Any incentives to promote meaningful ministry participation and reduce gaming will also be helpful.  The goal of the exercise is to reach the savings target while incurring the least amount of political damage.  A well-crafted expenditure reduction process, fed by previously considered ministry proposals, will contribute significantly to that outcome.

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