The Challenge of Reforming Budgetary Institutions in Developing Countries

Attached is a presentation by Richard Allen on "The Challenge of Reforming Budgetary Institutions in Developing Countries". The presentation was made to the African Department of the IMF on October 22.  It is based on Mr. Allen's Working Paper (WP/09/96) on this topic, published in May 2009.

The main messages include the following:

• Would-be reformers greatly underestimate the time taken to implement PFM reforms in LICs.
• The experience of now-developed countries suggests that the process of establishing credible and robust budgetary institutions can take many decades, or longer.  There is no reason to expect LICs to be different.
• Many developing countries -- and their advisors --  are turning their backs on basic systems which are needed before moving on to more advanced reforms.
• Because the necessary basics are not in place, many reforms are likely to fail.
• While a few countries have made progress, in general, the evidence suggests that weak budgetary institutions tend to be the norm in many LICs.  Some countries that were "shining stars" in the 1990s have stagnated or fallen back.
• Donors and the international consultants they hire are often part of the problem rather than part of the solution.
• Reform action plans tend to be much too complex (e.g., the "platform approach"), and the time periods for completion much too short. Donors compete for a share of the TA pie.  Such plans are unlikely to be successful.
• Much more attention needs to be given to the political economy constraints to reform since changing budgetary institutions is not at root a technocratic issue.
• Not enough attention is given to monitoring and evaluating the results of reform programs, creating the right incentives for reform, and holding officials to account for success and failure.
• The presentation gives examples of PFM reforms that should be given priority, and others that should not generally be attempted before basic systems are in place.

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Interview with Richard Allen

Comments

[Udaya Pant]

Interesting and good points Richard Allen has made to take note of, by the national policy makers and international consultants. The intention should be to offer 'simple solutions for complex issues, step by step'- not necessary only one or few steps at a time.

Equally important to appreciate is the hidden desire of the project managers of the countries of attaining long-term donor funds; and keep relying on the international advisors. This combined vested interest of the receipients and advisors, compromises with the donor and national agenda of reform.

The proposed international systems to be implemented, have to be translated into local adaptations, retaining the core issues, within the legal and operational framework of the receipient countries. Of course, the path shall remain zig-zag.

[Steve]

An interesting point on page 5 of your presentation about the unfortunate results of the Paris Declaration being that country systems are being used before they are ready.

While paying lip service to Paris/Accra what responsible donor is going to leave funds at the mercy of underdeveloped country systems, with the implications for fiduciary risk.

Interestingly the organisations pushing Paris/Accra seem to be those with no perceived direct responsibility to Western taxpayers such as the UN, World Bank and the countries themselves.

[Mauro Napodano]

'Choosing rather than sequencing is the right approach'. This is indeed interesting point as it is selective and implies approaching PFM as strategic management more than a technique.

The problem on 'HOW to do it over time' in practice remains, though, as it shows in your 'sequenced' list of PFM basics in slide 18. My take on that would be to better link PFM reform, and MTEF in particular, to an integrated planning system. The case of Albania, though not perfect, may be of reference. There the PM Office leads the national planning, anchored to the multi-annual budget framework, and oversees implementation of sector policies. The vehicle is a Strategy Planning Committee headed by the PM and supported by a technical office of 8-10 people. Mutatis mutandis it is what is happening as well in Brazil with the PAC.
Best regards, Mauro