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January 21, 2008

Introducing Financial Management Information Systems in Developing Countries

–  serious delays and limited success

Posted by Pokar Khemani

In the past decade, developing countries have increasingly embarked on major projects to computerize government budgeting, accounting and payment operations, by introducing a financial management information system (FMIS). An October 2005, IMF FAD Working paper, "Introducing Financial Management Information Systems in Developing Countries," by IMF staff Jack Diamond and Pokar Khemani  investigates the reason for serious delays and frequent failure to implement and sustain FMISs in developing countries.

[Click here to donwload Download introducing_financial_management_information_systems_in_developing_countries.DOC ]

The paper starts with a review of the “received wisdom” in implementing these projects, and then analyzes problems in its application in the developing country context to identify key factors to explain why FMIS projects have been so problematic. Based on the identified negative factors, suggestions for addressing them are offered in the hope of improving success rates.

A few of the interesting messages from article include:

FMIS and IFMIS. An FMIS usually refers to computerization of public expenditure management processes, including budget formulation, budget execution, and accounting, with the help of a fully integrated system for financial management of the line ministries (LMs) and other spending agencies. The full system should also secure integration and communication with other relevant information systems. Because of the integration requirement, the FMIS is commonly characterized as an integrated financial management information system (IFMIS). Unfortunately, using the term “integrated financial management information system” can sometimes be erroneously interpreted as describing a system that can capture all the functional processes, and the relevant financial flows, within public expenditure management. However, the complexity of information systems within the government sector is, to a large extent, due to the multiplicity of functions and policy areas. In many functional areas specialized information systems are in place and will still be required even with the implementation of an FMIS. Although the FMIS does not capture all the information flows, adopting a comprehensive approach in the development of the FMIS is fundamental to ensure that all functional interdependencies are identified, hence securing the capture of all related information flows.

FMIS is a major project requiring a structured project management approach. The implementation of a government-wide FMIS is a substantial undertaking for any administration, and it is essential that participants are fully aware of the magnitude of the undertaking. Ensuring project commitment at the highest levels of the political system and continuous participation from the direct users of the system and other stakeholders is necessary in all phases of the project. At the outset of the project, it is necessary to ensure the availability of adequate financial resources, as lack of resources has been experienced as a serious obstacle to the successful implementation of the project.

FMIS must be part of a wider public sector financial management reform agenda to improve output of government. It is one of the tools for improving PFM and should not be regarded as an end in itself. The development of FMIS should not be viewed as isolated intervention, but should be accompanied by, and related to other PFM reforms. It is also necessary that the FMIS objectives and outputs are both relevant and consistent with wider fiscal policy reforms.

Ifmis_box_3_3 A successful development and implementation of FMIS would require a series of preconditions.  A characteristic of many public sector reforms is that they are introduced with neither the willingness to accept the reform nor the technical ability to understand and implement the reform, or indeed to maintain it once introduced. As a result, the reforms either do not succeed or are badly delayed, and create distortions that have damaging effects, so that in many cases the reforms are eventually abandoned. The article has identified some of the factors that lead to the successful implementation of an FMIS, and are summarized in Box 3 (click to enlarge).

FMIS will remain important to a longer-term PFM reform agenda in a developing country. The decision to introduce an FMIS needs to be accompanied by strong commitment, sufficient manpower and financial resources, widespread internal support, and an agenda for effective change management. Unless these are in place, the chances of success are limited. Country authorities should be prepared for a long implementation path, and one that involves significant challenges. A number of difficulties are likely to be encountered en route, but a structured approach outlined in this article, along with resolute commitment of key stakeholders, should overcome these difficulties and ensure success of this worthwhile reform.

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