During a recent Association for Budgeting and Financial Management (ABFM) Conference in Seattle, a panel of scholars and practitioners discussed how institutional factors affect the planning and sequencing of PB reform[3]. Case studies from Afghanistan, the Philippines, Poland, the Chinese city of Jiaozuo and the province of Guandong were presented and discussed, as well as evidence from various other countries in Africa, the Middle East and Asia. The discussion led to a preliminary consensus on a number of issues:
- Donor-driven PB reform may severely damage basic budgeting functions in countries where PFM processes and capacity are already weak. The Afghan case demonstrates that by adding complexity to the system (e.g. a tenfold increase in required documentation that often went untranslated from English) and the absence of computerized accounting systems led to a large increase in the number of errors and disputes related to budget allocations. This resulted in budget execution virtually coming to a standstill, thus dealing a serious blow to an already frail budgetary process.
- More genuine and durable outcomes from PB reform are likely to be achieved when the motivation for reform is internalized – e.g., a drive by the government to improve fiscal transparency or reduce waste or fraud – rather than driven by external circumstances, e.g., an attempt by government to obtain grants from a donor, or membership of an international organization such as the EU.
- Home grown and incremental reform seems to have a higher likelihood of success as it enables the objectives and design of the PB system to be customized, and to take into account local institutional factors. This can sometimes lead to surprising and promising innovations such as in Jiaozuo, where the finance department hired independent experts to conduct performance assessments.
- Cultural factors - such as an emphasis on stability, seniority, rule compliance and avoiding embarrassment to leaders - can play an important role. In former communist countries such as Poland civil servants felt reluctant to embrace a PB infrastructure that was built around political goals, because the administrative class had recently engaged in a struggle to affirm its neutral role in policy-making, and its independence from the political class.
- Coupling PB reform with fiscal decentralization is a particularly risky strategy as it tends to fragment and weaken already scarce analytical capacity.
- A political system where the executive branch dominates the legislative branch further blurs the increasingly vague separation between performance management and performance budgeting. This lesson applies especially in countries where the legislature has only a limited impact on budget allocation and appropriations. Perhaps ironically, such conditions seem to better fit today’s notion that PB is most likely to achieve results through the use of performance information within the executive branch.
Recognizing the relevance of local institutional circumstances, and using this knowledge to determine the right form and sequence of PB reform is the next great challenge for governments and practitioners. The discussion in Seattle was an early attempt to use academic evidence from PB implementation to feed this debate, on which further study and analysis is required.
[1] Maarten de Jong PhD. is a senior budget specialist at the Netherlands Ministry of Finance and has been involved in TA and research projects in over 10 countries on behalf of the Netherlands, the World Bank, the IMF, the OECD and the EC. m.jong@minfin.nl
[2] Alfred T. Ho is Professor of Public Administration at the University of Kansas at Lawrence. His research topics include budgeting and performance management, and he has worked on projects with IBM, the ADB, and various local governments in the US and China. alfredho@ku.edualfredho@ku.edu
[3] This discussion took place on October 8, 2016. Members of the panel were Alfred T. Ho (University of Kansas), Maarten de Jong (Ministry of Finance of the Netherlands), Wenbin Li (South China University of Science and Technology), , Arwiphawee Srithongrung (Wichita State University), Kurt Thurmaier (Northern Illinois University), Mary Venner (University of Canberra), and Zaozao Zhao (Chinese Academy of Social Sciences).
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.
