Budgeting in the Real World - What Do We Know? What Should We Do?

[Napodano]

Interersting speech delivered by Antoinette Sayeh, Director of the IMF’s African Department at the UK’s Overseas Development Institute’s annual CAPE Conference in London

http://blog-pfm.imf.org/pfmblog/2013/11/budgeting-in-the-real-world-what-do-we-know-what-should-we-do.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+pfmblog+%28PFM+blog%29

QUOTE
From my experience, four sets of factors play an important role in countries with weak PFM performance:

•First, I have no doubt that the political economy in many low income countries is an obstacle to good PFM practices. Weak governance creates disincentives for transparent budget processes because they would enhance accountability. The fact that budget preparation PEFA scores are better than execution and oversight reflects these political economy dynamics. Preparing a reasonable budget does not interfere with political interests if execution and oversight offer loopholes to reallocate funds.

•Second, the capacity constraints in LICs’ public administration also play an important role. I am sure that many of the practitioners among us could tell frustrating stories about the struggle to train accountants, auditors, and IT experts. And often it is even more difficult to stop them from taking better paid jobs in the private sector once they are well trained. The extensive use of international consultants financed by donors in many countries also weakens the incentive to strengthen local capacity. Using the tremendous potential of modern IT is difficult because the operation of IT systems and the use of the internet remain costly in many countries. Even basic problems like unreliable power supply can turn a well intended IT program into a white elephant. Or they could frustrate the energy and determination of the few motivated staff there are in post-conflict ministries of finance.

•Let me now comment on the third set of factors. Having worked as Minister of Finance in Liberia, I am convinced that a country’s history and culture play an important role when it comes to PFM. After years of civil war, it takes time to re-establish respect for the rule of law and formal arrangements like contracts. One should have no illusions about the impact of introducing state of the art budget legislation in such an environment. Change will only happen once institutions have evolved that are capable of implementing these laws and have the authority to do so. And political will as well as strong leadership are essential elements of institution building

•And now the fourth set of factors. Related to the bias in favor of changing laws and procedures instead ofstrengthening institutions, we also have to critically re-think the role of donors and international institutions, including the IMF. Too often, our expert advisors have strong ideas about what a “good” budget should look like. They then advise on how to change laws and budget manuals to bring them in line with “best practices”. Such legal changes can be made rather quickly which allows us to report progress on PFM reform to our boards. Strengthening the institutions that are supposed to implement these laws is a much more tedious task. It takes much longer and is more prone to failure—something us bureaucrats in Washington and elsewhere don’t always appreciate.
UNQUOTE
See also post on Getting Basics Right under Have You seen this by Sharon Hanson Cooper on Dec 4

[John Short]

There is much in this that I would agree with – particularly the main themes of political willingness and capacity constraints.  Nevertheless of the four points, my experience is slightly different.  Re PEFA scores, of the many PEFAs I have been involved in, budget preparation has generally been much weaker than budget execution – particularly PI-12 (i), (ii) and (iv) and PI 11 (ii) and (iii).  Scores on P1-2 are variable.  Where there is a functioning IFMIS (which is often not all that sophisticated), budget execution from an accounting and control perspective is much stronger than budget preparation.  The charge against IT implementation is a red herring.  With modern technology, where there is political will to make it work, cost itself should not be an issue as the Cost- Benefit to donors would justify assistance in ensuing the power stays on (however generated) to run the internet (however configured) and the servers.  Here, political will is key.
Political (un)willingness is often the reason for the extensive use of international consultants in that host government accept the dictats of how reform is implemented.  They shy away from demanding a slower pace where new businesses processes are developed, trialled and staff trained before committing to changing legislation that reflects the PFM business practices that are seen to be suitable.  The third set of factors of history and culture will undoubtedly dictate the pace of change, but proper sequencing should ensure that what is in the law is meaningful and understood.  Experience in Albania with budget preparation reform supports the development of procedures and trialling them along with training before changing the Law has been positive.  However, it is also important to ensure that the processes and procedures are maintained by continuously training and having experienced staff.  Experience with the IFMIS implementation in Kosovo leads to the same conclusion.  Where businesses practices are not thought out and therefore not trialled and where staff are not trained before the Law is changed, PFM reform will be week.  Here political (un)willingness writ large is often to blame.