Which way forward for public financial management – do the donors really know what works?

Feb 07, 2011

post prepared by Andy Wynne of www.idilmat.com

The World Bank and donors that support its approach have dominated the public financial management reform agenda in developing countries for the last fifteen years. However, this approach has been subject to increasing criticism in recent years. Two important studies published last year provide further evidence that the currently dominant approach is not working, at least not in Africa and the Middle East.

The World Bank’s approach is based on its Public Expenditure Management Handbook (1998). Around half of this publication is devoted to two reforms, the Medium Term Expenditure Framework (MTEF) and the Integrated Financial Management Information System (IFMIS). These have since become standard reforms to be implemented almost everywhere the World Bank has significant influence. So for example, Matt Andrews (2010), in his study of 31 countries in Sub-Saharan Africa found that “they have alarmingly similar reforms in place” (page 44), “an MTEF was implemented in 28 countries, programme budgeting in 25 and an IFMIS in 20”. As a result of these findings, Andrews calls for “less similarity of reforms and more context appropriateness”, as one of his three main recommendations.

The World Bank paper reviewing the experience of ten countries in the Middle East and North Africa found that two of the five most challenging public financial management reforms were medium term sector strategies and large information technology projects. A “number of countries in the MENA region are attempting to develop forward estimates as part of MTEF reforms, but none has a functioning system at present” (page 16). Similarly the level of success with IFMIS projects was found to be disappointing and one of the ten lessons of the study is to “be wary of large financial management information systems”. These have been found to include a high level of risk in both developed and developing countries. Reference is made to another study that found that “fully 75 percent of IT systems implemented in the United States failed to fully deliver in terms of their time, cost or projected functionality” (page 48).

These two studies warn of the significant risks of implementing the currently standard approaches to public financial management reform. They also emphasise the continuing validity of the traditional objectives of control and regularity, and the importance of context and political support for public financial management reform. We have to understand the environment for the reforms, so the expert knowledge and experience of the local public financial management officials is vital, and we have to know what has been proved to work in similar environments. This is what the International Journal of Governmental Financial Management tries to do – to highlight the successes (or otherwise) of the actual experience of public financial management reforms.

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