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January 04, 2012

Why a Reform-minded Minister of Finance Needs a Strategic PFM Advisor as Gatekeeper

Posted by Sailendra Pattanayak

Many countries that lack both capacity and infrastructure in the area of public financial management (PFM), particularly the post-conflict ones, have to undertake comprehensive  reforms to establish sound and robust fiscal institutions. Most of these countries usually embark on a multi-pronged reform strategy and receive support—both financial support and technical assistance (TA)—from various international institutions and development partners to build PFM institutional capacity. A key aspect of such support is the funding of a large number of advisors/consultants to assist the ministry of finance in specific PFM areas, e.g., budget planning and preparation, expenditure control and treasury management, accounting/fiscal reporting, auditing, and development and implementation of financial management information systems. These advisors play a crucial role in building the fiscal institutions as the authorities draw upon their specialized expertise in the respective PFM areas. However, as the scope and complexity of TA received from such advisors increase, the strategic coordination of TA and the integrity/coherence of the PFM reform process become all the more critical.

Effective coordination and strategic management of TA from various development partners is essential to identify, monitor and manage potential risks of overlap, inconsistent advice and sub-optimal allocation and use of TA. The TA strategy should also be guided by an overarching PFM reform plan. This process should be led by the authorities, with support, if necessary, from an advisor with skills to provide such strategic advice. This strategic PFM advisor should also act as a gatekeeper between top management (usually the minister or deputy minister of finance) leading the PFM reform agenda and other advisors assisting the ministry technical staff in respective areas to ensure, inter alia, alignment of reform priorities and TA inputs. This will also improve engagement with TA providers and alignment of their support with any future reform plan.

Key tasks of a strategic PFM advisor

The IMF is sometimes asked to provide strategic PFM advisors to countries receiving large flows of TA. The reason perhaps is that the Fund is not a large player in the actual delivery of TA compared to other international organizations such as the World Bank, the EU or bilateral donors, and thus can be seen as relatively impartial. The following are useful roles for such advisors:  

  • Providing support to the authorities to ensure a coherent PFM reform agenda in a dynamic environment, including the alignment of reform priorities with supply of TA from various sources.
  • Providing support to ensure that the PFM reform activities, including the support received from various development partners, are coordinated and managed effectively to avoid potential overlap and inconsistencies and to bridge critical gaps, as and when they arise (this includes identification of gaps in TA in critical priority areas and redeployment of TA to ensure even and consistent progress in interrelated PFM areas).
  • Providing support to ensure that advice/support received from various experts/advisors is contextualized and takes account of the political economy factors.
  • As a gatekeeper to the senior management, identify issues that need their attention and decision and alert them at key stages of the reform process for necessary interventions to maintain traction of the reform agenda.

Risks in the absence of such an advisor

The placement of a strategic advisor is not a trivial matter. There are a lot of things that can go wrong in PFM reform processes. The most prevalent issues are perhaps:

  • Lack of coordination of TA support received from various sources, leading sometimes to contradictory advice, potential confusion and lack of a clear direction of reforms going forward. 
  • Uneven progress in interrelated areas of PFM and manifestation of critical gaps.
  • Inefficient use of staff time and other scarce resources in reform implementation.
  • Vested business interest of TA suppliers superseding domestic reform priorities—this is particularly the case when donor-funded TA are typically delivered through contracted technical assistance advisor appointments (through donor-financed projects) or through large consultancy companies.
  • Quality of advice received may also be an issue (in particular lacking contextualization, inadequate consideration of typical reform sequencing issues in a low-capacity environment, etc.).

Preconditions for a strategic PFM advisor to function effectively

The placement of strategic advisors is not without peril. The main prerequisites to makes such assignments a success are:

  • A clear terms of reference (TOR) for the advisor and matching the tasks in the TOR with his/her skill sets and experience.
  • A mechanism to monitor the performance of the advisor (involving both the authorities and a backstopping institution with primary responsibility for his/her performance).
  • An effective high-level counterpart from the authorities’ side (to provide required key inputs, including necessary interventions/decisions at the appropriate time).
  • An effective TA coordination mechanism with all donors, led by the country authorities.

The Fiscal Affairs Department (FAD) has provided strategic PFM advisors to a number of countries, including post-conflict countries. Two recent successful cases are Afghanistan and Liberia, both of which benefited from (i) FAD advice in developing a PFM reform strategy/roadmap, and (ii) FAD resident advisors to provide strategic guidance during reform implementation.

Afghanistan faced major challenges to rebuilding its economy and implementing much needed structural reforms in the fiscal area. Since 2003, FAD has been assisting the ministry of finance through periodic missions and resident advisor assignments (the last resident advisor assignment ended in November 2008). As the ministry of finance employed a large number of international consultants, including local workers on temporary contracts financed by donors, coordination among these consultants/advisors was often weak. The FAD advisor assisted the authorities to keep their reform agenda on track and avoid the risk of overloading their systems, which remained fragile. He provided strategic advice on the future direction of PFM reform, including guidance to effectively plan, sequence and monitor the implementation of key reforms and help create synergies for the programs of other TA providers in the PFM area, and especially on furthering treasury reforms consistent with government intentions.

In Liberia, FAD has provided extensive PFM TA since 2003, with a mix of FAD missions, regional/resident advisors, and short-term experts. FAD, in collaboration with the World Bank and other development partners, has provided strategic guidance on PFM reforms aimed at putting Liberia’s finances and financial management back on a solid footing. Since April 2008, FAD’s resident advisor has provided strategic support and guidance to prioritizing and sequencing PFM reforms, which since 2010 has focused on implementing the new legal framework as well as the IFMIS.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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Comments

We’ve been at many public financial management and government-focused conferences this year. We’ve been noticing a lack of involvement by the larger Enterprise Resource Planning vendors over the past few years. this is why? why it happened?

Why? Should a reform minded minister require a PFM Advisor, we have too noticed this on several meetings last year, and I too would like to know how this will improve involvement of ERPV's I think we need a Strategic Reform minded Minister..

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