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September 17, 2010

Two Very Modest Proposals for Making Technical Assistance More Effective!

Posted by Richard Allen1

Good Government Means Different Things to Different Countries” is the title of a recent article by Matt Andrews, Associate Professor of Public Policy at the Harvard Kennedy School of Government. It is an important paper, for its insightful analysis, but especially because it challenges the conventional wisdom of PFM experts in both the World Bank and the IMF. The central message is that there exists no one-size-fits-all approach to good governance. Effective government means very different things in different countries. Local conditions and institutions are hugely important. Matt tests this proposition through a study of selected PFM practices in a set of OECD and non-OECD countries, such as the development of fiscal rules and internal audit.

The challenge for the Bank and the Fund is that so much of their technical assistance and advisory work on PFM is based, explicitly or implicitly, on a model (implicit or explicit) of best practice. As Dani Rodrick has explained, this reflects a more general bias towards best practice models in the economic work of the Bank and Fund, which allows for cross-national comparisons and benchmarking institutional performance, but takes scant account of local constraints and opportunities. Matt rightly quotes the example of the PEFA framework, the implicit benchmarks of which (though they are not called benchmarks) represent good practice in advanced countries, especially countries with an Anglo-Saxon tradition of public administration. The Bank’s CPIA rating system is based on a similar premise. The implicit assumption is that less developed countries should move towards the advanced country model in a series of stages. The end-point is clear; all that is open to debate is the sequence of steps that moves the country to this desired state. However, as Matt demonstrates, this approach is seriously flawed.

Countless technical assistance reports tell a similar story. The actual practices in the low-income country being reviewed are compared with the advanced country benchmarks, and a set of recommendations are made which, if adopted, would rapidly move the country to this advanced state. Of course in practice, such a transformation rarely if ever happens. A subsequent mission, five years later reveals that in practice, little has changed in the country concerned, and a similar set of recommendations is made which in turn are demonstrated some years later to have had little or no impact. Such a story is all too familiar to those who have worked as advisors in the PFM field.

What can be done to resolve this dilemma? I would suggest two modifications of current IMF/Bank practice which should help a lot, but neither is straightforward. The first is for technical PFM missions to become less purely technical. A natural tendency for technical experts is to recommend technical solutions to problems that are not fundamentally technical, or at least have a critically important non-technical component. Take, for example, a recommendation that I found in a recent report on a middle-income country with a distinctively Southern European approach to public administration. This was to establish a top-down budget preparation process, in which the cabinet of ministers would play a key role in debating fiscal policy options, and setting multi-annual ceilings on budgetary expenditure. A related recommendation was to establish a system of periodic expenditure review, as used quite successfully in countries such as the Netherlands and the U.K.

Of course, in a perfect world, such recommendations might make sense. Unfortunately, in relation to the country concerned they make very little sense because (i) the cabinet system is weak and would require a complete overhaul to make it work on the lines suggested, an outcome which seems politically implausible; (ii) the government is a weak coalition, unlike in many Anglo-Saxon countries which have one-party governments, and has no proven capability to make hard choices about public expenditure; (iii) the ministry of finance is politically fragmented, weakly led and has limited capacity to undertake the technical analysis which would be necessary to improve the efficiency of the expenditure prioritization process.

What is clearly needed in such circumstances is for the authors of the technical report to have a much greater understanding of the political drivers of decision-making in the country concerned, and the powerful institutional constraints on implementing change. If this work had been done – and it requires skills in political economy analysis that are not usually found among the members of a technical PFM mission – the suggestions for reform might have been much closer to the mark and easier to implement. My suggestion would be that technical PFM missions mounted by the Fund or Bank should include a political economy expert whose job should be to carry out the necessary institutional analysis and subject the recommendations of the PFM technicians to a rigorous reality check before they are put onto paper. Greater use could also be made of local consultants with an in-depth knowledge of both public finance and the institutional environment.

My second suggestion is that technical assistance reports should never be the end-point of a process of intervention by the Bank or Fund. To prevent such reports being quietly put on a shelf in the minister’s back office, and left to gather dust, they should always be the starting point of a discussion and dialogue with the finance ministry on the analysis undertaken by the mission, and its findings and recommendations, Other stakeholders (for example, the president’s and/or prime minister’s office, the central bank, the ministry of planning, the line ministries, the national audit office, the parliament, and civil society groups) should ideally be included in such a dialogue. Instead of reports containing 50 or more recommendations compressed into a complex multi-annual action plan, the outcome of such a dialogue should be, for the average developing country, a much smaller subset – say three or four, at most -- of carefully selected actions that could realistically be undertaken during a 4-5 year period, and which stand a reasonable chance of being implemented.

China has adopted this approach for many years, with some success. Rather than asking the Bank or Fund to mount a full-blown technical assistance mission, the authorities propose a seminar on accounting or budget classification or budget preparation to which they invite specialists from a range of countries. The emphasis is on learning, engaging in a dialogue with experienced counterparts, and translating the experience of others into ideas which might (or might not) be relevant to the Chinese experience, their institutions and decision-making processes.

1 Richard Allen is currently working on a project with the World Bank that is analyzing the role and responsibilities of central finance agencies (CFAs) in low-income countries. A database covering 70-80 countries is being prepared, along with case studies of selected countries. The project includes a strong emphasis on the analysis of political economy and institutional characteristics of CFAs.

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Comments

This is a very insightful and useful post. I currently work in the budget office in a sub-saharan african country, and have seen the results of PEFA missions and other 'technical' missions be ignored and not actioned on.

As is pointed out, this is largely because the technical recommendations require political concessions that are beyond the understanding of the technical mission. It is often surprising to me how little interest these missions show in the 'political gossip' that goes beyond policy. The recommendations are seen as positive value-judgment free statements but they are far from that. The rush is simply to get the finance ministry bureaucrats to agree to the recommendations and sign the MoU, and then assume that the job is done.

I would also like to add a suggestion that might help bridge this gap between the technical and the political: to get the government to do a technical assessment, say a PEFA assessment, prior to the Bank/Fund mission and to use that as a starting point for negotiations. That will in itself bring in greater buy in and would, in the long run, make the government and the finance ministry realize that this assessment is in their interest and not just another boring theoretical lecture by the donors.

This is very useful, especially for practitioners in the field who have to regularly make the choice between orthodoxy and reality in the field. Many of us have, for several years, dealt with this problem in the field. I am sure there are many examples where local advisors have been given large reports by countries and requested to glean a few important measures that need to be implemented first, rather than a long list of prescriptions that there is no capacity (and at times willingness) to implement. I therefore agree entirely with Richard that TA reports should be the start of a dialogue, not its end point. The problem (as it may have existed a few decades ago) was that people in developing countries did not have adequate exposure to the latest developments in the field. It therefore made more sense then to be prescriptive. This is no longer the case. People across the table now have probably been educated at the same institutions as the TA providers and have same (electronic) access to the same literature in the field. Their problem, therefore, is no longer of knowing what to do but of the constraints in the field Richard talks about. The countries therefore do not need large prescriptive reports but help is resolving the constraints they have. This can be done better by people who understand the problems at first hand and can suggest solutions. I would therefore tend to say that while a political economy analyst may be useful for a short term TA mission it is more useful to have as a TA someone who understands the country and has spent some time there. The best solutions are those where international experience is judiciously mixed with local genius. This can only be done by using TAs with local experience of the problems and who have their ear close to the ground to help identify the real problems.
This also leads us to a more philosophical issue of who is the “doer” in any PFM reform process. Most TA providers/donors assume that they are very crucial to the reform process- unfortunately they are at best catalysts in the process. The “doer” in every case is only the country – we as TA providers can only assist in that they want to do- and never can we force what the countries do not want to do in the first place. So we come back to Richard’s point about TA reports being the starting point of any discussion not its culmination. And less ego on part of the TA providers- we don’t always know best- nor is “best” practice suitable to every situation!

We need to be reminded often that PFM reform does not function in a vacuum.

There seems to be an appetite in many countries to implement PFM "best practices". And, many advocate practices in developing countries that have yet to be implemented in many developed countries. (Accrual accounting, performance budgeting, parliamentary oversight etc.)

Your approach is more practical for the country context. Specialists tend to provide highly specialized advice. Developing countries need a more holistic approach - getting beyond the mechanisms of PFM - to the political & cultural environment, legal structure, political economy etc. - to understand the drivers and barriers for change.

Thanks for a very nice post. The fact that you give examples of where 'off the shelf' solutions do not work and why, is especially useful. A related challenge is that most frameworks for such political analysis (Drivers of Change etc) are either too complex or too general to yield actionable recommendations. How do we get past that?

The difference between best practice and appropriate practice is the amount of time the TA is able to put in to get their hands dirty with the local politics, ministry turf issues, capacity issues, agendas of multiple stakeholders, and various other implementation constraints etc. The technical solutions are usually pretty obvious, but of little use on their own - yet they form the bulk of most TA evaluations and recommendations. Yoshi's comment about spending sufficient time in country and understanding the local context is spot on. Tony Higgins

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