Organization of Central Finance Functions in Sub-Saharan Africa

 

Posted by Peter Murphy and Richard Allen[1]

The IMF’s Regional Technical Assistance Center for Southern Africa—AFRITAC South (AFS)—organized a one-week seminar on the Organization of Central Finance Functions at the Africa Training Institute in Mauritius from August 15-19, 2016. The seminar was attended by 37 participants from 12 countries[2]. The presenters and facilitators were Peter Murphy (AFS, IMF), Richard Allen (Fiscal Affairs Department, IMF), Renaud Duplay (Ministry of Finance, France), and Francois Vaillancourt (University of Montreal, Canada). The program for the seminar together with relevant materials may be viewed at www.southafritac.org

The seminar was the first event organized by the IMF’s Fiscal Affairs Department or Regional Technical Assistance Centers to focus on a newly developing area of public financial management (PFM), namely the organization of central finance functions in government. The topics discussed were built around the analytical framework developed in a working paper recently published by the IMF’s Fiscal Affairs Department, taking account of related research[3], together with recent studies of public investment management (PIMA), and organizational aspects of fiscal decentralization. Presentations and group working sessions applied this framework to:

• Macro-fiscal functions and their organization;
• The organization of budget formulation and execution functions;
• National development planning and public investment management;
• Accounting, fiscal reporting, and cash management functions and their organization, including IFMIS; and
• Models of fiscal decentralization and their organizational challenges.

Several case studies were presented during the seminar including changes in the functions and organization of the UK finance ministry (HM Treasury) since the 1980s; the organization of budget functions in the French Ministry of Finance; Treasury functions (e.g., the management of government payment and commitment transactions, accounting and fiscal reporting, cash and debt management) and their diverse organizational models across EU member states; the implementation of IFMIS systems across the AFS region as an illustration of organizational challenges in budget execution and fiscal reporting; and public investment management in Chile.

Participants broke out into smaller groups after each of the main sessions to discuss key issues of policy and practice in their home countries, and emerging challenges—technical, administrative, cultural and political—to reform. Among the main conclusions emerging from these discussions were the following:

1. Improving PFM coordination mechanisms in AFS countries, at both political and management level, would increase the effectiveness of macro-fiscal management, budget formulation, and the integration of budget and planning functions. It would also assist medium-term fiscal and expenditure frameworks to fulfill their potential role as core fiscal policy instruments.
2. Better configured organizational structures, strategies and management combined with transparent institutions would help to mitigate current political, management and organizational challenges which adversely affect budget formulation and execution, the prioritization and selection of infrastructure investment projects, and IFMIS implementation. These reforms would assist decision makers to recognize the importance of organization factors on fiscal planning and decision making, as well as increasing their accountability for results.
3. The capability of budget departments in AFS countries needs to be upgraded to match their counterparts in more advanced economies. In particular, a more effective “challenge function” in respect to the budget proposals submitted by the spending agencies, and the monitoring of budget execution, is required. This would assist countries to focus their limited resources on key policy deliverables.
4. The requirement for strengthened IFMIS application and technical management, as well as the staffing and skill sets necessary to support a fully functioning IFMIS, needs to be recognized and addressed in many AFS countries. The performance of IFMIS systems in the region is frequently sub-optimal in terms of key internal control, accounting and fiscal reporting functionalities.
5. Several AFS countries, often with relatively weak economic justification, are moving ahead with fiscal decentralization initiatives for primarily political reasons. The organizational design of PFM systems should ensure that a high priority is given to strengthening central finance functions as a necessary precondition to fiscal decentralization.
6. Mechanisms need to be found to further improve the local capacity and capability of many AFS countries in core PFM areas, including those related to economic and financial analysis, macro-forecasting, budget formulation, accounting and fiscal reporting. This will reduce the ongoing reliance on the employment of external experts.

Overall, the topics discussed at the seminar appeared to strike a strong chord with the participants. Other regional PFM capacity building centers in Africa and elsewhere may want to consider mounting events on a similar theme for their countries. 

[1] Peter Murphy is a PFM Advisor in AFS; Richard Allen is a Visiting Scholar with the Fiscal Affairs Department, IMF.

[2] Angola, Botswana, Comoros, Lesotho, Madagascar, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, and Zambia. Participants mainly represented ministries of finance, from departments and units responsible for macro-fiscal forecasting, budget preparation and execution, national development planning, public investment management, accounting and reporting, and fiscal decentralization.

[3] In particular, R. Allen, Y. Hurcan, P. Murphy, M. Queyranne, and S. Ylaöutinen, November 2015, “The Evolving Functions and Organization of Finance Ministries”, IMF Working Paper, WP/15/232 (Washington DC: International Monetary Fund). Also P. Krause, S. Hadley, S. Mustapha, and B. Welham, June 2016, The Capabilities of Finance Ministries (London: Overseas Development Institute).

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