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August 17, 2012

The sequencing debate is over… or is it?

Posted by Philipp Krause*

There seems to be an emerging consensus that advanced budget reforms should not be attempted in developing countries before budgetary basics have been soundly established. In many countries, this may well mean a focus on budgetary basics for the foreseeable future, consigning more advanced techniques to the inbox of another generation of budget officials.

It has not always been so. It has been 15 years since Allen Schick first warned practitioners to “look before they leapfrog”. It shouldn’t be forgotten that his warning came in response to widespread enthusiasm for adopting New Public Management reforms the world over. An often overlooked feature of Schick’s work is his emphasis on the external factors that function as preconditions for advanced budget systems to become viable. For instance, Schick noted that New-Zealand-style contractualism in the public sector only becomes viable in countries where informality has been firmly overcome in private sector practices.

A few weeks ago, Colin Talbot noted that Britain is another example for just such a co-evolution of public sector and private sector practice: in the mid-19th century, private sector property rights, democratic accountability and the professionalization of the civil service all proceeded in lockstep over the course of several decades. One might also add that the formal budget process was only established towards the end of this evolution, in the 1860s. Talbot’s key point is about co-evolution: large-scale societal changes depend on one another as they develop, and such developments are at best measured in decades and possibly a lot longer.

Allen Schick has just restated, quite categorically, that “Basics First is Best Practice”, whereas trying to apply international best practice irrespective of context is not. He re-joins a steady chorus of voices arguing that one should beware of advanced budget reforms and look towards non-technical factors to assess what PFM reforms make sense. This has been a theme of Matt Andrews’ work for a long time. In the same vein, Richard Allen has forcefully criticized platform approaches and pointed out how very long it took for Western countries to establish budget institutions that developing countries are now meant to set up in a few budget cycles. I’ve argued in a recent blog post that too many PFM practitioners still focus on the technical dimension of sequencing, in spite of the mounting evidence that doing so is a bad idea. Schiavo-Campo’s work describing Medium-Term Expenditure Frameworks (MTEFs) as “Potemkin Villages” is an example of the scathing criticism levelled on international best practice reforms. A recent study completed by the World Bank found that MTEFs, performance budgets and advanced accounting reforms have an abysmal success rate in post-conflict states. And the list continues…

One might conclude that this debate has now been settled. At least in the academic community, nobody would advocate to “leapfrog before you look”. And yet this is not quite the end of the story. For one thing, as Catherine Dom has rightly argued here, one should not assume that just because things happened a certain way in today’s rich countries, developing countries need to follow that path. Developing a PFM system reminiscent of Sweden in a decade might be ludicrous, but so too is assuming that just because the British budget institutions evolved over centuries, so must everyone else’s. There is a lot we still need to learn about what precisely it is about the “other stuff” around PFM that shapes the success of PFM reforms.

More importantly, best practice reforms are still the name of the game for development agencies. Check the websites of internationally active public sector consulting firms and you will find plenty of ongoing MTEF reforms, performance budgeting reforms and other such projects. Matt Andrews has shown that, at least for Africa, the attempt rate for best practice reforms is almost universal. Privately, some government officials complain of donor representatives actively pushing for state of the art PFM systems that the government doesn’t feel it needs. The reverse, governments being overly ambitious and consultants privately predicting failure, is also common. Occasionally the rationale for reform is merely a poor PEFA score that needs levelling up, even though PEFA dimensions are certainly not created equal. Carole Pretorius has rightly noted that there are complex reasons for why best practice reforms are still pursued so often. As Carol explains, peer pressure, professional pride and the prestige associated with being an internationally recognized reform leader, rather than a steady administrator of line-item budgets, all contribute. 

There seems to be a growing gap between universities and think tanks, where best practice approaches are viewed very critically, and the reality in many countries, where best practice reforms are still attempted with great frequency. The debate on what the next generation of PFM reforms could look like is only getting started.

*Philipp Krause is Head of Research, Budget Strengthening Initiative at the Overseas Development Institute in London. He writes for Beyond Budgets, a blog about PFM, governance and state-building. 

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

I think the post is very interesting for PFM reforms in the developing countries. It presents in very good manner the risk of trying to implement "best practices" if the context is not appropiate for doing so. But, in the conclusion the main actors named are the universities, think tanks and the government. I think that other key actors in these iniatives are the Multilateral Organizations, such as the IMF and World Bank, and they also need to strees the risks and the problems if the basics are not in place, and this situation does not always happen.

Gerardo - this is a very good point. I would think that multilateral organizations are very much part of the "reality in many countries", which I would contrast with with academia and think tanks...

I think that other key actors in these iniatives are the Multilateral Organizations, such as the IMF and World Bank, and they also need to strees the risks and the problems if the basics are not in place, and this situation does not always happen.

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