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June 02, 2015

JICA’s Technical Cooperation in PFM: Key Principles

Jica

Posted by Tomoaki Tanaka[1]

The Japanese International Cooperation Agency (JICA) is the world’s largest bilateral development institution, with a budget in 2013 of more than one trillion yen. Out of this budget, 177 billion yen was disbursed on technical cooperation (TC), the remainder on overseas development loans and grants.[2] JICA’s operations cover a variety of sectors, such as Planning and Public Administration, Public Works (infrastructure), Agriculture, Education, Health & Medical Care, and Energy, Commerce & Tourism. JICA is represented in over 150 countries and regions, and has more than 100 overseas offices. Much of JICA’s TC is focused on South and South-Eastern Asia, but other regions where it is active include the Pacific, Latin America, the Middle East, Africa, and Eastern Europe.

Public financial management (PFM) has become one of JICA’s most important areas of TC. In JICA’s view, effective PFM systems are fundamental to the development process. If such systems are not in place, the flow and control of financing for key development projects may be jeopardized.

PFM reform is a challenging enterprise for most countries because of diverse local contexts, the need to adopt a long-term timeframe for reform, variable political and economic conditions, and the wide-ranging interests and perspectives of the many stakeholders involved. These challenges arise both in the process of creating institutions by enacting new PFM legislation, and in putting these institutions into operation through capacity building.

To guide its work on capacity building, JICA has developed a set of “Key Principles” which have been disseminated to JICA experts, counterparts in partner countries and relevant organizations. These principles are divided into three main areas:

  1. 1.   General approach to PFM reform

(1)   View PFM reform as a holistic process and strive to understand the context of reform in each country

(2)   Maintain a medium- to long-term perspective in the PFM reform process

(3)   Analyze political economy factors surrounding PFM reform, and integrate these elements in the PFM reform strategy.

  1. 2.   Project formulation and design stage

(1)   Respect the ownership of the PFM reform strategy by the partner country

(2)   Ensure that JICA’s TC projects provide full support to the country’s overall PFM reform strategy

(3)   Pursue a balanced approach in which short-term reform objectives are not given undue weight at the expense of longer-term initiatives

(4)   View the PFM reform process from both a top-down and a bottom-up perspective

(5)   Strive to establish an effective partnership with the local PFM development community.

  1. 3.   Capacity development stage

(1)   Respect the ownership of the capacity building program by the partner country

(2)   Establish a short- and medium-term road map for building capacity

(3)   Consult widely among stakeholders in designing and implementing a country’s capacity building program

(4)   In developing capacity, emphasize not only theories and concepts but also practical experience and know-how

(5)   Put forward alternative approaches when making recommendations on the design and implementation of a capacity building program

(6)   Support a learning-by-doing approach for the management and staff of partner organizations.

JICA’s overall approach to capacity development is thus both practical and process-oriented, focusing on hands-on support and learning from experience. Much of its TC takes the form of dispatching long-term experts to the field. This approach has demonstrated its effectiveness in a range of areas including tax and customs administration, budgeting, internal audit, and sector-focused PFM support.

A good example of how the Key Principles have been applied in practice is provided by JICA’s TC program on tax administration with Mongolia, which has been running for more than ten years. In the early years, the absence of a modern tax collection system under the socialist regime contributed to the country’s chronic revenue shortfall and a growing fiscal deficit. To address this issue, JICA together with the Mongolian authorities devised a TC program that was divided into three phases: a diagnostic analysis of the problems and potential solutions; an intensive program of assistance to building capacity at the individual level; and finally, the consolidation of these efforts into the building of stronger organizational structures.

During the ten-year period of reform, a strengthened tax collection system was established and the capacity of the Mongolian Tax Authority in its inspection and tax collection activities was much improved. Coupled with the remarkable economic development at that time, the country’s collection of tax revenue has increased more than ten times. JICA has drawn important lessons from its TC program in Mongolia that will help improve the design and implementation of similar programs in other countries.

JICA’s approach to PFM reform enshrined in the “Key Principles” is aligned with various approaches to reform that have been widely discussed in international forums. These approaches include “Getting the Basic Right”[3], the “Platform Approach”[4], and the “PDIA Approach”[5]. In particular, JICA has always emphasized that partner countries must be the primary owner of the PFM reform agenda, and that the development of local capacity through a hands-on approach is of crucial importance.

JICA will continue to explore more strategic approaches to PFM cooperation to improve the effectiveness of its interventions. It will share information and experiences on its TC programs through discussion with international forums and local PFM communities, adapting and fine tuning the Key Principles as required.


[1] Deputy Assistant Director, Public Governance and Financial Management Team, Governance Group, Industrial Development and Public Policy Department, JICA - tanaka.tomoaki@jica.go.jp

[2] Technical Cooperation: 177.3 billion yen, Loan Assistance: 749.8 billion yen, Grant aid: 115.8 billion yen.

[3] World Bank, 1998, Public Expenditure Management Handbook.

[4] Diamond, J. 2013, Good Practice Note on Sequencing Public Financial Management (PFM) Reforms, Background Paper 1: Guidelines for Sequencing PFM Reforms.

[5] Andrews M., Pritchett L., and Woodcock M. 2013. Escaping Capability Traps through Problem-driven Iterative Adaptation (PDIA). World Development 51, 234-244.

 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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