Public Finance Management in a Post-2015 World: Time to Care About Service Delivery?

By Sierd Hadley, Research Officer for the Centre for Aid and Public Expenditure, at the Overseas Development Institute— Oct 28, 2014

As we motor on towards a Post-2015 development agenda it may also be time to build a new era for public finance management (PFM) – one which considers service delivery far more closely.

Few would disagree that a better understanding of PFM and public sector management is central to reducing poverty. Fiscal stability is needed to promote economic growth and create jobs; while the distribution of public resources (including many forms of external aid) is the basis for providing public services that are critical to improving living standards. Yet PFM looks increasingly unbalanced in many developing countries: while macro-fiscal outcomes seem to be doing well, if not spectacularly so, public service provision is not.

Is it that the global PFM community just doesn’t care about service delivery?

PFM has emerged as one of the most successful governance themes in international development. Over the past two decades, the profession has built up an armoury of standards, tools and norms to guide interventions. Today, those standards are fervently infiltrating public sector reforms around the world. It could even be argued that these have contributed to the remarkable stability shown by developing countries following the 2008 global economic and financial crisis. Yet, despite this progress, the PFM discipline has much less to say about how it can go further to improve service delivery.

Surely, none at the Governance Partnership Facility (GPF) Conference  in September would believe that public services are not important. Organised by the Overseas Development Institute and the World Bank, the conference explored lessons from engaging on governance and anti-corruption projects and deliberated on future priorities for the World Bank. Despite plenty of good will, the dedicated session on “new directions in PFM” revealed just how wide the professional gap between PFM and service delivery really is. Three points stood out from the discussion.

Tools and Measures

Firstly, the standard tools and measures of PFM are inadequate to address concerns about service delivery. Consider the provision of infrastructure: Over the past half-century, “the solution” has progressed from national development planning, to standardised project cycles, and now lies in medium-term expenditure frameworks. But few countries have managed to fully reconcile the need to balance fiscal stability with the construction of good infrastructure projects.

PFM measures such as the Public Expenditure and Financial Accountability (PEFA) assessment are largely blind to the issues facing people and units on the front line. Though some indicators do exist, information that would be considered basic in a private company is often missing from the diagnosis of a PFM system: How many contracts have been signed and paid on time? What proportion of capital projects were budgeted for but never completed? That allows things to go wrong without anyone knowing, or being able to find out, why.

A Lack of Understanding on Why the Gap Exists

Secondly, it is not clear why the gap between PFM and service delivery exists (though there was much speculation at the conference). Perhaps it is because services are highly complex and not easily supported by standardised PFM tools? Others asked if the reasons are more political. Do economists and finance ministries have an overarching say in shaping PFM systems? How well do donors talk and bridge disciplines within their organisations? Or does the gap exist because PFM solutions cannot address the incentives that surround service delivery in developing countries? (After all, PFM almost always involves money, and incentives that involve money can be unpredictable.)

A Lack of Consensus on How to Fill the Gap

Thirdly, there is no consensus on how PFM could be made more service-oriented. Given that we don’t know why the gap between PFM and service delivery exists, it is perhaps unsurprising that there is no consensus on how to fix it. Most likely, different sectors will have different needs. In two separate break-out discussions on health and infrastructure development, both raised the need to address incentives, but differed otherwise. Health units need flexibility to respond to changes in health needs during the year. It may also be possible to get better health outcomes by getting basic PFM systems right (particularly systems for managing the payroll and cash management) or by learning from the experiences of using payment-for-results (PforR). Infrastructure projects face their own distinct challenges, such as managing donors and public-private partnerships. Corruption and poor prioritisation and sequencing are widespread concerns.

A New Era for Public Finance Management?

It is a poor reflection of the politics of PFM that service delivery has been largely side lined by the quest for greater aggregate fiscal discipline (and control). Surely these objectives are not as incompatible as they currently look. As the global economy recovers, and as the international community turns its attention to the post-2015 development agenda, it seems only appropriate for the PFM community to follow in step.

The newly created World Bank Community of Practice – which bring together sector and finance specialists – is a great starting point.  ODI will also be stepping up its research work in this area and no doubt others will too. There is a long way to go, but the timing seems right to show that PFM as a discipline really does care about service delivery.

3 comments:

  1. Thanks for this interesting post, Sierd!

    The lingering frustration that must have permeated some of the proceedings at the GPF conference can almost be felt through your words…

    Let me add a couple of thoughts of my own on some of the issues and contradictions that you point out.

    First, my sense is that much of the debate around PFM has taken place within a small circle of economists, accountants and policy wonks who have developed a very narrow, technical approach to the management of public resources which sometimes forgets that the real objectives of public finances go beyond fiscal discipline and the efficient allocation of resources, and include promoting development and delivering services, that is, managing public resources in citizens’ interest and for their benefit. Zooming in to the intricacies of PEFA indicators can easily lead people to overlook this broader, more important perspective.

    Second, delivering quality public services is arguably much more difficult than improving macro-fiscal outcomes. Cutting spending can be done almost at the stroke of a pen, while building infrastructure, training teachers and nurses and ensuring that they are well equipped and motivated takes a lot more, and depends on many factors that go well beyond the realm of PFM. In this sense, it should come as no surprise that once – so to say – macroeconomic stability is taken care of, the task of improving service delivery might seem like a daunting enterprise.

    In terms of new directions, I’ve got a couple of suggestions… the first one, as has been most recently argued by a group of experts (including yours truly) in a short paper, would be for PFM to leave behind its distorted fixation with specific tools and solutions like MTEFs and IFMISs, and focus on the real functions that PFM should perform in support of service delivery, some of which you mention in your piece. The second one would be for economists and accountants to step out of their “bubble” and take a look at what happens in the real world outside the glass doors of Ministries of Finance, where average citizens live, work, and often suffer for a lack of decent public services. They could start by watching our documentary on the work of Muhuri in Kenya, or reading some of the case studies we have produced on how citizen groups try to influence government budgets. Once the human face of budgeting is revealed, PEFA assessments will no longer look the same.

  2. Thanks Sierd for the wonderful post.
    This article have enhanced my understanding on issues of PFM,many times we have thought with good PFM ,fiscal disciple everything else will fall into place.However you pointed out right that fiscal disciple does not imply public service delivery and improvement on the standards living.I guess it has to be pointed out clearly,especially in developing countries where good PFM is still a challenge that PFM reforms will not solve our problems with poor service delivery. PFM reforms have been presented as a cut above the rest in our developing economies.

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