Reforming for Results: Can Public Finance Management reform improve government performance?

Transcription

1 CAPE Public Finance Conference 2008 Reforming for Results: Can Public Finance Management reform improve government performance? November 2008 Overseas Development Institute, London, UK

2 CAPE Public Finance Conference 2008 Reforming for Results: Can Public Finance Management reform improve government performance? Session 1: The role of the Ministry of Finance and centre of government November 2008 Overseas Development Institute, London, UK

3 CAPE Public Finance Conference 2008 Reforming for Results: Can Public Finance Management reform improve government performance? Jim Brumby Lead Public Sector Specialist, PREM, World Bank Björn Dressel Research Fellow, Griffith University November 2008 Overseas Development Institute, London, UK

4 The Role and Capabilities of the Central Finance Agency in the PFM Reform Process Jim Brumby, World Bank (PREM) Björn Dressel, Griffith University

5 Outline Introduction & Context Making the Case: The Centrality of CFAs Roles & Functions of CFAs Rethinking CFA Reform: Why Capacity Building is not Enough Transforming Capabilities of CFAs Starting the Analysis: Rapid Problem Diagnosis Expanding the Analysis: Towards a Political Economy Model of CFA Reform The Macro View: The Political Economy Environment of CFAs The Micro View: Applying PE Tools to CFA Problems Designing Reform: From Diagnosis to Action Development Strategies: Evaluating Opportunities for CFA reform Designing CFA Reform: How to Prioritize and Sequence CFA Interventions Building and Sustaining Reform: Incorporating Stakeholder Analysis Conclusion/Outlook

6 I. Context

7 Introduction Definitional issues Concern is with function Centrality of CFA functions in: Governance PFM Reform Process Empirical Puzzles Key Variables Affecting the Transformational Role of the CFA Historical legacies Political will or space Accountability concepts CFA functions are organized to meet different needs in different circumstances Not necessarily technical But the functions and competencies are critical State Functions 1. Legitimate monopoly on the means of violence 2. Administrative control 3. Management of public finances 4. Investment in human capital 5. Delineation of citizenship rights and duties 6. Provision of infrastructure services 7. Formation of the market 8. Management of the state s assets (including the environment, natural resources, and cultural assets) 9. International relations (including entering into international contracts and public borrowing) 10. Rule of law. CFA instrumental in six of these key functions!

8 Roles & Functions Central Finance Agency Function Core Fiscal Functions Advisory/ Regulatory Functions 1. Macro Forecasting 2. Fiscal Policy 3. Budget Management 4. Treasury & Cash Management 5. Aid & Debt and Liability Management 6. Revenue Policy & Administration 7. Financial Reporting/Internal Audit 8. Intergovernmental Fiscal Relations 9. Financial Management System: Ownership 1. Financial Investigations 2. Lottery & Gambling 3. Procurement 4. Financial Sector Regulation Confidante to the center of government; Chief Policy Adviser Provider of sophisticated budgetary and economic analysis Provider of policy analysis & advice Creator of norms & regulations; stimulator of performance Strategically placed to champion reform

9 Rethinking CFA Reform Rethinking the Paradigm Capacity building is not enough Increase inputs; not increased outputs Increased outputs; little change in inputs Tipping points What unleashes changes in performance and contribution to reform? A Fresh Look Differentiating capacity and capabilities A useful difference? CFA Capability CFA Transformation (different scenarios) CFA Transformative Path (a) CFA Capacity (b)

10 Sources of Capability & Implications Internal Elements Leadership & values Human capacity & performance Technological capacity Managing information flows Quality processes Operating Environment Managing relations Legislature COG Line ministries Others Establishing co-ordination mechanisms & managing fragmentation/redundancies In short, transforming capabilities requires broader analytical focus on set of critical, often intertwined political economy factors such as: 1. Institutional Dynamics (i.e. Fragmentation, Coordination Failures etc.) 2. Structural Constraints (i.e. Institutional Endowment, Patterns of Rule) 3. Agency (i.e. Leadership; Coalitions of Reform)

11 II. Transforming CFAs

12 Starting the Analysis: Rapid Problem Diagnosis CFA transformation requires problem driven approach yet no specific CFA assessment tool exists But various useful ESW products can be applied if linked to the specific roles and functions Result: CFA Diagnostic Matrix Sample

13 Expanding the Analysis: Toward a PE Economy Model of CFA Reform Background The 4 Is: Institutions, Incentives, Individuals, Interests The Macro View Critical Institutional Routes Internal CFA Arrangements (Route 1) CFA and Political Institutions (Route 2) CFA and Line Ministries (Route 3) CFA and External Actors (Route 4) CFA and Civil Society (Route 5) The Structural Context The Micro View Applying PE Tools to PFM Problems (see: Stevens 2004) The Political Economy Environment of CFAs Source: Adapted from Dressel (2008)

14 Designing Reform I: Evaluating Opportunities for CFA Reform Country-wide Development Strategy (Fukuyama/Levy 2007) Reform Sequences, Entry Points and CFA Reform Scope Strategic Implications

15 Designing Reform II: Prioritization & Sequencing of CFA Interventions Critical Concern of how to prioritize & sequence (CFA) reform Practical Relevance Refinements in Approach? Good Enough Governance (Grindle 1997/2007) Basics First (Schick 1998) Platform Approach (Brooke 2003) Implications for CFA Reform (sample)

16 Designing Reform III: Building & Sustaining Reform Momentum Fundamental Role of Agents and Agency in the Reform Process Politics of Reform Mapping Coalitions Stakeholder Analysis The Challenge of CFA Reform Reform Typologies Country Trajectories L Political Reform Leadership H L Political Reform Leadership H Political Drive (Steering) Status Quo High Drive Technocratic Drive (Rowing) L Bureaucratic Reform Leadership H UG (86-90) TH (02-06) TH (06-present) UG (95-03) TH (98-00) UG (92-95) MOZ (95-present L Bureaucratic Reform Leadership H

17 Conclusion MOF/CFAs are central to PFM reform; capabilities - not just its capacities - need to be strengthened Strengthening CFA capabilities (and thereby driving government performance) is not a mere technical issue Requires a broader political economy angle that captures the complex interplay between the institutions, incentives, interests, and individual actors that are directly and indirectly related to a CFA, as well as the structural environment in which they operate Viewing CFA roles and performance through the political economy lens has implications for the design of interventions and the appropriateness of the counterpart Context of country s development strategic Prioritization & Sequencing Coalition Building Moving the Agenda forward Plan to apply framework to 10 case studies over two year period

18 END

19 CAPE Public Finance Conference 2008 Reforming for Results: Can Public Finance Management reform improve government performance? Graham Scott Executive Chairman, Southern Cross Advisers; former Secretary to the Treasury, New Zealand November 2008 Overseas Development Institute, London, UK

20 Driving Government Performance through the Ministry of Finance Graham Scott CAPE Public Finance Conference ODI London, 12 November 2008

21 How does PFM lift performance? What is a high performing govt/state? Governance, citizen rights protections and freedoms, accountability, checks and balances Sound policy making in the public interest Good management of service delivery Financial management has a major impact on each BUT The budget is a system for financial allocations and expenditure monitoring neither it nor the whole FM systems is a comprehensive management system There are many other measures for promoting performance that have little to do with FMR Stay within PFM comparative advantage

22 How can PFM promote state performance? 1. Macro-fiscal stability and risk mgt. 2. Promoting fiscal principles 3. Reflecting strategic priorities in budgets 4. Promoting efficient and effective service delivery and meeting service standards 5. Supporting sound policy analysis, evaluation and feedback 6. Promoting transparency and participation 7. Providing comprehensive FM frameworks for all state activities

23 Performance oriented PFM OECD experimenting with several models, generally unsuited to D&TCs but not uniformly World Bank performance informed budgeting is an approach not a model Can go a long way without NPM models i.e. contracting for outputs with hard budget constraints and contestability E.G. practical methods of program budgeting that reflect existing structures Comprehensive coverage Better processes and data in preparation and execution Upgrading MOF analytical skills Etc etc building methods and capacity and capability

24 Increasing efficiency through empowering managers Balancing financial freedom and accountability is complex in terms of techniques, incentives, capability, governance environment and organisational culture Start with clearing out useless controls and duplication Have a workable vision of a practical and appropriate new management model and promote it Set criteria - not obstacles - for granting greater freedom and support success

25 Complementary reforms PFM reform bogs down after fiscal goals are met and better prioritisation Next steps require the whole environment around minsters and managers to re-orient to performance And other systems changes such as local govt. fiscal reform This is hard anywhere and system wide reform is nearly impossible so set realistic goals and take time Address real policy and service delivery problems and demonstrate the linkages with system reforms Find influential sponsors Upgrade enclaves but align with wider vision for future Changing culture - including MOF - is crucial for better management practices

26 Sequencing Whole of system performance as reform criterion not benchmarking, best practices and dogma Understand and respond to what governments want and give professional advice on what they need Build simple management cycle and develop it in a balanced way over time in response to need and opportunity attend to the weak links Be wary of canned sequencing methodologies and use common sense and deep understanding of context Urgent service needs justify taking risks and experimenting even with very advanced systems Avoid pushing pre-cooked reform products

27 END

28 CAPE Public Finance Conference 2008 Reforming for Results: Can Public Finance Management reform improve government performance? Sherefedin Shehu Deputy Minister of Finance, Albania November 2008 Overseas Development Institute, London, UK

29 Linking Policy, Budgeting and Service Delivery in Albania Presented by Dr. Sherefedin Shehu Deputy Minister of Finance

30 Theory: How Can Public Trust be Built? IF Governing Politicians convert electoral promises into policies, meaning: Line up announced policies in Policy Documents: Government Program National Strategy Sector Strategies Convert them into policy objectives measured by performance indicators Convert them into spending plans by Priority

31 Easy to Say: Elect, Continue or Fire the Government Elect the Government which: States during the election campaign, in measurable indictors, what their government will produce, Keep the Government when: It performs as promised (stated indicators achieved ), Otherwise, Fire it

32 Hard to Do: What Was the Reality Three Years Ago? Confusion in policy, planning and budgeting roles, responsibilities and tools for example: There was a National Strategy for Social and Economic Development (NSSED), in which everything was a priority NSSED was intended to establish the strategic framework for budgeting In practice, it attempted to duplicate key aspects of the budget process Medium term Budget Programme (MTBP) implemented in pilot ministries

33 2005- Integrated Planning System (IPS) Approach Adopted *Foreign Aid Management *Government Program *Public Investment Management NSDI MTBP *European Integration Annual Budget Appropriations

34 How Does the IPS Work? NSDI SECTOR/ CROSSCUTTING STRATEGIES Sector Strategies Reflect: The Government program Euro/Atlantic integration Public investment External assistance Sector Strategies: MTBP ANNUAL BUDGET Feed in the National Strategy for Development and Integration (NSDI) Promote policy coherence and a common sense of longer term direction within the sector

35 Reforms to Make the IPS Work Established: Strategic Planning Committee (SPC) chaired by the Prime Minister Government Modernization Committee (GMC) chaired by the Deputy PM NSSED transformed into a strategic planning process and changed into National Strategy for Development and Integration (NSDI) MTBP process and procedures fully implemented External Assistance Strategy function established under the PM Public investment management transferred from Ministry of Economy to Ministry of Finance Comprehensive public investment and external assistance planning processes established EU integration planning required to be integrated Integrated monitoring system to be fully established Sector strategies developed

36 Institutions & their Role Changed The IPS implementation needs leadership, management and coordination provided by: Council of Ministers (CoM) Strategic planning and government program implementation through SPI, GMC and Department for Strategy & Donor Coordination (DSDC) Ministry of Finance (MoF) through preparing a policy & output based MTBP and establishing a modern public expenditure and investment management process Ministry of European Integration through harmonisation of EU agenda with strategic planning and MTBP and ensuring adequate incorporation and funding of EU Integration activities under the Line Ministries budgets

37 Key Institutions in the MTB Process Management SPC Committee chaired by the PM and including key Ministers makes key strategic planning and budgeting decisions; Government Modernization Committee monitors the progress Ministries budget and report on output basis The Minister of Finance monitors and informs the Council of Ministers on Ministries compliance

38 Legal Framework and Management Arrangements Changed Developed new NSSED in the form of the NSDI; Introduced new management arrangements: MTBP Management Team in the MoF Groups for Strategy, Budget & Integration (GSBI) chaired by the Minister and Program Management Teams (PMT) in each Line Ministry and Central/Autonomous Agency; Public Investment Management brought into the MoF and new set of specific instructions developed A modern Law on Management of the Budget System developed that explicitly requires outputoriented budgeting which focuses on service delivery;

39 Ministry of Finance Plays a Key Role in Managing the IPS Develops/reviews MTBP procedures and instructions Prepares macro forecast and spending ceilings linked to it Guides/Supports line ministries Conducts analysis of submissions and works with line ministries to improve them on quality and compliance with government policies Prepares MTBP document and Annual Budget

40 Line Ministries Role in the MTBP-Key to the Success Establish MTBP Preparation Groups (Called GSBI) Chaired by Minister Coordinated by Secretary General Members are Program Directors Make MTBP Preparation Groups effective by keeping them involved and responsible in the decision-making on: Approval of program list Allocation of ceilings by programs Establishment of objectives and output targets Quality of MTBP Submissions Strengthen the Coordinators and Program Management Teams role on: Development/Review of Program list, goals, objectives, projects, outputs, activities and expenditures by activity and items

41 The Challenges Ahead Strengthening management and accountability arrangements for institutions, including SPC, IPS Coordination Group, GSBIs, and PMTs, Managing the cultural change in moving from annual budget towards Medium term budget programme Some traditionally strong institutions (e.g. Ministry of Public Works) remain to be convinced of the value of output-oriented planning methodologies; Sometimes the MEI focus more on external parties (EC) and loses focus on its role within a holistic system (IPS) Faster progress in the MoF means the rest of the system has yet to 'catch up for IPS to be fully effective MoF has mastered modern institutional practices for budgeting Main challenge remains the improved plan and budget submissions from ministries and other budget users Integration of Public Expenditure & Investment Programme System to the Albanian Ministry of Finance Treasury System

42 CAPE Public Finance Conference 2008 Reforming for Results: Can Public Finance Management reform improve government performance? November 2008 Overseas Development Institute, London, UK