Public Finance Management reforms for what?

May 16, 2011

Last week the PFM Blog posted on Transparency Versus Effectiveness in Public Financial Management.

They make a series of interesting points about:

  •  Links between the two: “Providing the public with comprehensive and timely information on the government’s budget and financial activities and opportunities to participate in decision-making can strengthen oversight, improve policy choices, and enhance the efficiency and sustainability of policy implementation.”
  • Sequencing of reforms:  “due to their complementary nature, a country cannot go far with one of these two goals unless it addresses the other.”
  • Preconditions for such reforms:  “a key prerequisite is political ownership of reforms in the absence of which a lot of resources may be wasted (e.g., in designing strategies and action plans and setting up organizational structures to manage reforms for strengthening transparency and/or effectiveness of the PFM system) without much result”

The post does make one wonder about whether these reforms have inherent value:

  • Are they not best applied in service of broader democratic reforms?
  • Does effectiveness in public financial management matter if government is not spending on the right things or raising revenue from the right places?
  • Does budget  transparency matter if it is not in service of public participation in the budget process? How much of budget transparency does not help the public or democratic institutions oversee the budget (information that is too aggregated for example)?
  • Should our thinking about public finance management not always be located in a democratic framework that already works towards building budget accountability?

4 comments:

  1. Albert, these are very important questions, adding even more to the questions posed in the original post. Which, interestingly, has not attracted a single comment since going up. I think the reason must be that nobody knows, at least not in the context they’re being post.

    My two cents is that both the IMF post’s questions and the questions here cannot be answered without a proper theory of budgeting and/or policymaking. Reasonable people will have different theories, implicit or explicit, and will have arguments about their implications. But without one, transparency and efficiency are just words without much analytical meaning. I, for one, would have certainly defined efficiency and transparency very differently from the original post…

    A useful discussion cannot be had without clarifying this at least in general terms.

    1. @Philipp: Great hearing from you! Your comment is interesting, but could you say a little more? How would you have developed definitions of efficiency (they speak of effectiveness, by the way) and transparency differently? Looking forward to hearing more.

      Albert

      1. That’s true, my sloppy reading clearly at fault. So when public spending is efficient, PFM is effective? I automatically think efficiency because we use operational and allocative efficiency as two of the three overarching goals of budgeting… but you’re right I totally missed that.

        I think point is not so much how I would have developed my definitions, but that in order to see if there is a tradeoff, you need to make explicit how you define it.

        For instance. You can think of budget transparency as primarily as the exercise of making information on your financial flows available to the public to make sure that third parties are able to check that funds are used properly. But for a macroeconomic analyst, transparency might also mean that the government gives at least medium-term signals of its policy intentions and overall fiscal stance, so that the (macroeconomic) effects of public spending can be properly scrutinized and evaluated before the fact. As a citizen who doesn’t want to wait for the final accounts to be audited, transparency for me might also mean that competing spending proposals are made public and I get a sense of what the government is arguing over before the budget is tabled in parliament.

        And that’s not even getting into the question of how to define effectiveness (or efficiency for that matter). There is of course at least implicit in even posing this question an assumption that too much transparency might harm efficiency, but clearly how that would pan out would depend on what kind of transparency and what kind of efficiency.

        It is very hard to imagine a PFM system that doesn’t rely on some sort of mechanism (or several) of external control and oversight, which directly helps the efficiency of the system (as in, if accounts are not audited, civil servants might be wasteful or outright corrupt, and we would assume that the compliance costs are lower than the averted damage).

        But then you could think of a PFM system that does have a lot of checks and balances and where external oversight mechanisms make sure that everything is done properly, but the country still decides to spend a huge chunk of the budget on the supression of parts of its own population, which surely makes one wonder what the point of such a system would be.

        So in sum I think these are very pertinent questions, and my sense is that in some quarters there might actually be an implied bias against “transparency” as in-efficient, but to properly get to the heart of the matter, we need to be much more specific..

        1. Great, thanks Philipp,

          So let me try and make my own definitions clearer (I think some of these were implicit in my post)
          – Budget transparency means that governments should make timely information available on all major public resource management decisions and actions before these are taken or performed (with some minor exceptions). The reason why I say this is that I think that public finance management is best conducted as part of the broader democratic exchange: The population pay tax, vote and watch them. They govern.
          – Effectiveness: To me the difference between efficiency and effectiveness is the old distinction between doing things right and doing the right things. So a dictatorship may be able to dp things right (i.e. efficiently), but is less likely to do the right things (spend on the needs and demands of the population).

          If the above holds, it is conceivable that budget transparency is sometimes inefficient: For example the official that complains that the production of information detracts from the time she can spend ‘doing her job. But it is very hard to see how budget transparency can be ineffective: Any effort to get input on what the population needs and wants is helpful. That definition would also make a link between budget transparency and participation unavoidable.

          What do you think?

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