Greg: And the economic crisis has highlighted the importance of effective PFM not only for low- and middle-income countries, but also for advanced countries?
Michel: Right. Even the more advanced countries continue to introduce reforms and try to improve their PFM practices. In recent years, these countries have been at the leading edge of sophisticated techniques such as performance budgeting, fiscal responsibility laws, and accrual accounting. The global crisis has pointed to the fact that countries where the basic elements of PFM are in place and operating well still can have weaknesses, for example, in fiscal transparency. Some advanced countries still need to get a number of the basics right, by enhancing tools such as effective commitment controls, sound cash and debt management practices, and strong fiscal institutions.
PFM is always in a state of flux. Countries implement reforms aimed at more effective PFM, but nothing is achieved forever. As authorities introduce more advanced reforms, they still need to pay attention to the effectiveness of the basic tools. There is no continuous upward climb where what has already been achieved can be taken for granted.
Greg: Some PFM reforms are taken up more swiftly than others, and the impact of reforms varies substantially across countries. Some innovations in PFM look to be ongoing priorities, while others may in hindsight be only fads. Will we in 10 years time still be talking about the same type of reforms?
Michel: A number of reforms that have been introduced in recent years are not yet at the stage where they can be adopted by every country. For example, accrual budgeting is a sophisticated reform that has been implemented in probably not more than half of a dozen countries. Not many countries are ready at this moment to move in that direction. Nor is it clear that accrual budgeting will remain a major priority for reform 20 years from now. Because it is so complex to implement, accrual budgeting may not expand beyond a small set of countries. The jury is still out.
Not all reforms are durable or equally valuable. Reforming PFM involves a fair amount of trial and error. Look at the way by which countries have introduced program budgeting and performance budgeting. In most cases, they started with one element of this reform. Over time, they fine-tuned, amended, and added other elements. Along the way, they tried to make these approaches to budgeting simpler, more effective, and more informative.
I would not view reform as something that authorities adopt in one go and then declare that the job is done. Reform proceeds by trial and error. Consider one of the most elementary reforms: introducing a treasury single account. The TSA came about in the United Kingdom in the 18th century and in France in the 19th, but the TSA is a component of PFM that continues to evolve. Many countries still lack a comprehensive TSA. Yet in countries where the TSA is well entrenched, changes in payment systems over last 20 to 30 years have led to new arrangements for implementing the TSA. So even the basic elements of sound PFM are constantly changing and evolving.
Greg: The Fund is just one of many organizations engaged in PFM-oriented TA. Often multiple TA providers operate simultaneously in the same country. Their areas of expertise and modes of delivery, not surprisingly, differ. How should authorities deal with conflicting messages they receive about which reforms to adopt and how to go about carrying them out?
Michel: Promoting PFM reforms in an environment where there are many donors and TA providers, plus many possible reforms to pursue, demands coordination and thinking about prioritization and sequencing. Authorities should insist on this. It is essential to get everyone playing the same melody, even if they add flourishes of harmony. In countries that have had success in PFM reform, there were usually frequent and substantive coordination meetings among TA providers and the government, and opportunities for coordination were actively sought out. Ensuring that coordination takes place in the field is particularly important. The Fund plays its role in coordination, during missions sent from headquarters and, where relevant, through the resident representative, resident TA advisers, and the regional TA centers, of which there are now nine around the world.
Greg: In the end, what is the contribution of TA providers in terms of building capacity and helping reforms to happen, and what are they unable to do?
Michel: TA providers in low-income countries can do a lot through training and building expertise among the authorities. The main thing that they—including the Fund—cannot do is make reforms succeed if the authorities do not own the reforms in the first place. Ownership and the willingness to implement reforms are key to success. A reform that is carried out just because a TA provider recommends it is bound for failure. If the authorities do not understand and actively want the benefits of the reform, they won’t succeed in adopting it.
Greg: So looking back on your time devoted directly to PFM what are you proudest of?
Michel: Let me say that one of the things that I am proud of during my tenure in FAD is having created the PFM Blog, together with Bill Dorotinsky, who is now at the World Bank. Our ambition, expressed in the first post on September 27, 2007, was to share the Fund’s extensive expertise in PFM, contribute to improved understanding of PFM and the impact of PFM reforms, provide a window into the Fund’s work in PFM, and improve communication on our work and on PFM generally.
It is rewarding to see how the blog continues to develop. Along the way, it has reached out to TA providers, authorities, PFM practitioners, academia, and students in nearly 200 countries. The blog has had around 800,000 hits since it started. I am proud that Fund staff and others have been able to disseminate PFM knowledge and expertise and, I hope, to have contributed to reforms and enhanced transparency in many countries.
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.
