From the Editor’s Keyboard

Transforming Public Finance Management in Africa (Part 1)

17 April 2009 at 06:37 | 317 views

By Kaifala Marrah, Guest Writer, London, UK.

The rapid development of any economy depends on the efficient galvanization and management of available resources with the objective of achieving targeted results. Performance in the public sector can therefore only be measured by the ability of its managers to carry out these functions. Governance in the translation of performance in the public sector and public financial management (PFM) is particularly targeted, as it is here that the government in the same way as an equity manager or chief executive officer in the private sector, must ensure returns on investments made for the provision of public goods through the payment of taxes by citizens.

In this case, expected results are not enough. The question is more one of outcomes than of simple results. This creates link between the budget and political policies. The budget is the best friend of the politician because it is the only real financial resources base from which she or he can deliver on electoral promises.

Given that taxes provide the budgetary resources with which governments operate, the role of the budget in all countries, whether they are developed, emerging or developing, is central to:

Satisfying the basic human needs of citizens;

Ensuring the performance of microeconomic indicators;

Making the right choices between competing claims by various sectors on scarce public resources; and

Ensuring efficiency and effectiveness of resource use.

BUDGETARY TOOLS

Government efforts to use the budgetary system to impact on the lives of citizens have led to the evolution of budgeting techniques. Various techniques, such as line item budgeting policy/planning/budget system, zero-based budgeting, programme or performance budgeting and results-based budgeting, have been developed and implemented with varying degrees of success across budgetary systems. Despite these efforts, the performance of the various budgeting systems has given rise to further scrutiny of the systems for two reasons:

* Increasingly, it is known that at the centre of all budgetary system failures is one of the most important factors contributing to poor outcomes at all three levels of budgeting - macro, strategic and operational. This is the failure to link policy, planning and budgeting to outcomes. The challenge is to integrate the three and then link them to results.

* The failure of these performance-oriented tools or techniques has been in their implementation, rather than their conception. The solution to this negative situation lies in political will, a clear demonstration of support from senior public officials and professionals, capacity building, gradual and systematic introduction of the concept (sequencing) and, finally, complimentary reforms that encourage performance.

So far, it is difficult to cite a successful performance tool or technique anywhere. When budgeting systems and processes succeed, the explanation is found in culture, appropriate legal frameworks and/or rebusts institutional arrangements driven by strong political commitment.

The challenge, therefore, is not only to formulate a PFM policy or develop a PFM system, but to create an enabling environment in which the system can flourish. Rethinking PFM reform thus becomes a precondition for the transformation of systems so that they can achieve effective implementation of budgets in the short term and the attainment of expected outcomes in the long run. This brings into focus the rethinking of the challenging Africa faces in this area of development.

THE AFRICAN CHALLENGE

African countries cannot afford to defer the challenge any longer. Robust PFM reforms are a sine qua non if the fight against poverty is to succeed in turning the tablets and achieving the millennium development goals (MDGSs). Several questions arise in this context. Are PFM systems vigorous enough to ensure that budgetary allocations made to attain expected results are actually used for that purpose?

Do the systems link expenditure to result?

Are performance measurement instruments embedded in the system?

Do expenditure control systems facilitate the attainment of expected outcomes?

What monitoring mechanisms do the systems provide to ensure that targets are consistently pursued?

What auditing mechanisms are in place to periodically evaluate performance?

THE COMMONWEALTH RESPONSE

To answer these and other questions, the Commonwealth Secretariat brought together a team of PFM professionals from seven African countries (Cameroon, Ghana, Kenya, Malawi, Namibia, Sierra Leone and Tanzania) to the Ontario Public Service for a period of three weeks in April - May 2007 to:

Exchange views with their peers in the OPS;

Observe the PFM best practices of the OPS;

Share experiences on what obtains in their own environments; and

Create a thematic fellowship as a platform for the sharing of experiences within the Commonwealth over the long term.

Against this backdrop of how the OPS organizes itself to deliver results, this report seeks to bring out PFM best practices in the OPS transversal financial administrations involved in policy planning and implementation of the budget, and to identify key areas in which PFM best practices are in use in OPS line ministries.

For three weeks, the thematic fellows shadowed their counterparts in the OPS and participated in seminar discussions as a pioneer group for the programme, Building Pyramids within the Commonwealth. Aware of the post-Toronto challenge, the Africa fellows took on the additional task, as well as their end of programme report, of proposing for publication a document that states the case for rethinking PFM reform in Africa against the backdrop of OPS practices in a way that captures the partnership that was created.

Public Finance Management Practice in Fiscal Policy and Capital Planning

Fiscal Policy Planning And Implementation: The Public Finance Management Link

The objective of Public Finance Management (PFM) is to promote management of public resources, with the overall aim of achieving economic growth and the development of the social and economic welfare of a country’s citizens. Prudent public expenditure is predicated on fiscal discipline, honesty flexibility, transparency and accountability.

The quality of Public Financial Management is determined by how well the following basic questions are addressed within the context of a well-structured constitutional and regulatory framework:

What activities are necessary to achieve government policy?

Who should carry out these activities - central government, local government or alternative service delivery mechanisms?

How should these activities be carried out to ensure maximum effectiveness and cost-efficiency?

During their stay at the OPS, the fellows together and individually, were involved in the following PFM structures, processes and ongoing initiatives:

Authorities and legislation

Planning and resource allocation

Accounting and stewardship

Performance and measurement

LEGISLATION AND REGULATIONS

A good PFM system thrives within sound legal and institutional structures that are supported by good financial governance. Most constitutions set out a basic framework for financial accountability between the legislative and executive arms of government.

Structures and key institutions need to be in place, equipped with adequate legal powers and resources to enable them to operate efficiently and independently within the overall framework. Specific legal and regulatory attributes were identified in the OPS PFM system, including:

Clear constitutional mandates on PFM-related issues, given to state institutions (the legislature, the executive and the judiciary);

Separation of powers between the various institutions, guaranteeing financial oversight by the legislature and the judiciary;

Entrenchment of public finance legislation in the Constitution or the existence of an organic budget law;

Clear legislation, rules and regulations established with regard to PFM (on issues such as the budget, audit and procurement), with appropriate and effective sanctions for non-compliance;

Appropriate integrated IT working system that enables efficiency in communication and public service delivery;

Awareness of public officers and citizens of those parts of the Constitution rules that regulate PFM;

Legislation, rules and regulations which are translated into clear policies and operating procedures, and consolidated in a central source such as an instruction manual which is simple and easily comprehensible;

Instruction manuals which are updated and easily accessible by all public officers.

AUTHORITIES AND COMMITTEES

A good PFM system depends on both the institutional framework and working systems. Institutions with a clearly defined and adequate mandate for decision-making must be in place to avoid duplication of roles and avoid conflict. The basic institutional arrangements in the OPS include:

A central authority for PFM (the Treasury or Ministry of Finance) covering finance, procurement and asset management, that oversees policy formulation and implementation;

Decentralisation of the operational aspects of PFM to line ministries, departments and agencies (MDAs), allowing greater autonomy and flexibility;

Independent panels for review of feedback and complaints (such as procurement practices, use of government budgets, etc.);

Strong audit procedures, both internal and external, rationalized to ensure better control, backed by legislation and with clear bank accounts.

Independent institutions, committees and panels (such as a board of survey for inventory and assets) that conduct periodic random checks;

Clearly defined roles and working relationship, both within ministries of finance and public infrastructure renewal, and between these and other ministries, creating increased trust and efficiency;

A combination of horizontal decentralization (local government) and vertical decentralization (agencies) of financial management, enabling the empowerment of several decisions making pool, thus making budget implementation more efficient.

Kelfala Marrah(photo) is a Sierra Leonean who works as Adviser, Public Expenditure Management, Governance and Institutional Development Division, Commonwealth Secretariat, London.

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