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May 27, 2011

Five Years of Sustainable PFM Development in the Pacific

Posted by Suhas Joshi

Vast distances, tiny populations, convoluted flight paths and lots of plastic airline meals —that is what working for the IMF’s Pacific Financial Technical Assistance Center (PFTAC) based in Fiji involves. The assignment has been a great challenge not merely because of the vast distances and the uncertain flight schedules — once going to the small island of Niue the plane circled for 75 minutes but could not land because the landing lights could not be switched on and had to return to our point of departure four hours away. The main issues, however, have been building capacity in a low capacity environment, burdened with continuous emigration of the smartest and the most capable.

I have been the IMF’s PFM Advisor at PTFAC for exactly 4 years, 11 months and 2 days. My terms of reference were broadly formulated promoting PFM reform in the 15 PFTAC member countries. It’s been a great experience for me. Have I had an impact? Yes, I believe I have. Have I had failures? Yes, that certainly is part of capacity building here in the Pacific.

PFTAC’s approach has been to be responsive to demand for PFM capacity building originating from the countries themselves. The countries must see the need, otherwise reforms are doomed to fail. With assistance from the IMF’s Fiscal Affairs Department (FAD) and a number of donors TA was provided in the areas of Medium-term Budgeting, Cash and Commitment control, Macroeconomic analysis, IFMIS development, Internal Audit, and IPSAS based cash accounting, amongst others.

In the last five years considerable progress has been made in:

  • Medium-term budgeting in Samoa and the Cook Islands: through a combination of sustained technical advice and training in both central and line ministries we supported the introduction of medium-term budgeting in Samoa. As a result, the authorities have been able to present two successive budgets with forward estimates for each spending ministry. In the Cook Islands, a similar approach was taken. Medium-term projections are now being made by line ministries and are being incorporated into the budget. PFTAC assistance has been slowly tapered off as the authorities assumed full control of the process and is expected to be undertaken independently for FY 2011.
  • Introducing IPSAS based cash accounting in Fiji and the Solomon Islands and accounts based on IPSAS Cash have now been submitted in both countries to the respective Auditor Generals for Audit.
  • Improving fiscal reporting in Tonga. The Tongan component of a PFTAC regional program of assessment and assistance on Integrated Financial Management Information Systems (IFMIS) led to an identification of sub-optimal utilization of the Tongan IFMIS. We facilitated further interaction between the Tongan Ministry of Finance and Planning and the software provider which resulted in the design and production of new management reports. As a result, Finance Ministry staff will be better able to monitor emerging fiscal pressures which were a key issue in the recent downturn emerging from the recent global economic crisis.
  • At the request of the regional Finance Ministers, PFTAC, in collaboration with the Pacific Forum Secretariat, drafted a public financial management roadmap that sets out realistic reform milestones and good practice for reform management and donor coordination.
  • A PFTAC regional study on internal auditing laid the foundation for a large regional ADB TA project to enhance internal audit in a number of PICs, with PFTAC continuing to lend strategic and country specific advice.
  • A similar study was undertaken on IFMIS in six countries and a "lessons learnt document" was developed and circulated.
  • Implementing strategic advice: some development partner projects have been designed around the implementation of PFTAC diagnostic advice (e.g., ADB support to medium-term budgeting in Palau and Cook Islands, and PFM reform in Kiribati, New Zealand support to macrofiscal reporting in Vanuatu, Australia support on the development of financial instructions in Solomon Islands).
  • Specific contributions were made to work led by other donors: for instance leading the PFM element in the World Bank led PER in the Solomon Islands, PFM training in Tonga and Vanuatu.
  • Cash management and commitment control was introduced in a few countries, albeit with limited success.
  • Recently PEFA has been added to the repertoire of PFTAC work and PEFA trainings in the Marshall Islands and Federated States of Micronesia have been conducted. A PEFA is currently underway in Cook Islands and another is planned in June in Niue.
  • Training has been provided in cash management, IFMIS, Internal Audit to middle level officials, and for Finance Secretary level officers PFTAC arranged one week attachments to the U.S. Treasury and the Australian Department of Finance and Disinvestment.
  • The development of regional professional association — the Pacific Islands Financial Managers Association (PIFMA) which held its fifth meeting at Port Vila in 2010. This has provided an excellent vehicle for dissemination of ideas around the Pacific.

A lot of work was done but much remains to be done. However, the success of PFM reform in the Pacific lies in a clear understanding of constraints and above all in patience.

Pacific countries can basically be categorized into three- advanced ones with relatively good PFM systems, ones with reasonably acceptable systems and lastly, the struggling ones with very low local capacity and even lower, technologically challenged systems. It is important in the Pacific to recognize the broader environmental dimension of the country before attempting reforms. For certain countries high technology may, at first flush, look like a good solution to overcome staff problems but sustainability is a major area of concern with trained officials moving on to greener pastures either in the private sector or abroad with great regularity. A better categorization, which takes into account the environmental and cultural dimension of working in the Pacific, and the level of in-country technological progress, would be:

1. Countries with low capacity and low technology

2. Countries with high capacity but low technology

3. Countries with high technology and high capacity

Few countries have high technology and low capacity, at present, although this could potentially happen with the sudden departure of several individuals simultaneously and cannot be ruled out.

One of the major problem which all Pacific island countries face is the possibility of trained personnel leaving for better opportunities at short notice and the difficulty to sustain reforms. This could happen with officials moving laterally within the country whether in the public or the private sector (this at least retains talent in country), or immigrating to other countries. This issue can only be addressed by recognizing that the effort spent on training of staff is a constant in the Pacific and merely because a group of excellent talent exists at present is no reason to relax the training effort. It also means a continued emphasis on development of training and instruction manuals which are easy to understand and be implemented by a new group of officials who may not have had a chance of a formal handover by their predecessors.

Given these constraints it is also important to recognize that what will work best in the Pacific is not the cutting edge reform (imagine accrual accounting) but sustainable reform (say IPSAS based Cash Accounting).

The PFTAC experience has also shown that reforms are most sustainable when the TA provider appreciates that he or she is merely a catalyst in the entire process rather than a primary "doer" or "implementer" of reforms. Philosophically it may be said that one should not let one’s "ego" stand in the way of sustainable reform. It is important for the recipient country to appreciate that the reform process is their own and not an imposition from outside by another agency or donor. This may frustrate some and appear a slow process to others, and is frequently a motivation for pushing reforms too much, too quickly. However, experience in the Pacific has shown that the most sustainable reform process is one where initial training is provided, manuals developed and then tasks are set for country officials to perform. These tasks are monitored closely by the TA provider, through regular reports and email interaction, and further assistance provided only after the set tasks are completed. More TA is then provided to take the reform process further, next steps taken and more tasks set for country officials to complete before further TA is provided. It is this iterative process that provides the best results. Slow though this process may be, but it is the most steady and sustainable path to reform.

 

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Comments

Well said Suhas! The TA providers should ideally act as a catalyst; but the advocacy and hand-holding requires more active role by them; at least in the initial period. Yes introducing reforms in phases or progressively helps in the low capacity scenario.

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