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August 24, 2011

Introducing Reforms and Building Capacity: Lessons from Nepal

Posted by Udaya Pant 
 
At the government’s request, the IMF’s Fiscal Affairs Department (FAD) is supporting Nepal in exploring the feasibility of installing a Treasury Single Account (TSA) regime.  As FAD’s resident Treasury advisor since August 2009, I have worked with counterparts and stakeholders to outline an action plan to progressively consolidate approximately 14-16,000 government accounts held in commercial banks into a TSA at the country’s central bank, the Nepal Rashtra Bank (NRB). This TSA is to be managed by the Financial Comptroller General (FCG) of Ministry of Finance (MOF).  

A Steering Committee under FCG and supporting technical groups are in position to oversee implementation. It was decided by the FCG that the new system must be automated and any new TSA modules should be compatible with existing FMIS systems.

The government had no unique budget allocated for the new automated TSA system so, with modest and hard bargained amounts from the MOF’s own budget, software was developed in-house for implementing pilots in two districts. Simultaneously, resources to support plans for upgrading other supporting IT and communication infrastructure were sought from donors. After observing the success of the two pilots, DFID provided initial funding for strengthening the TSA module in the Budget/FMIS software. This DFID funding will flow through a World Bank supported Multi Donor Trust Fund (MDTF), which in total provides $5,000,000 to the FCGO for these areas. The IMF’s technical assistance for the TSA project is funded by the Japanese government.

The two pilots are doing reasonably well and we now have 38 districts on TSA. By December 2013 all 75 districts covering the whole country will be on board; with full functionality planned at the central level.

The TSA reforms, together with automation of treasury operations, are expected to improve management of disbursements and revenue recording to the point that they reach international standards. Installation of the TSA regime in Nepal began hesitantly but is presently being implemented energetically; the MOF have shown their commitment to the implementation. 

To support full-functioning of the TSA, the reform program also envisages major reforms in the budgeting, budget execution, government banking arrangements, treasury management, and accounting processes.In this respect, TSA implementation will be like the ‘iceberg reform’ that will eventually bring complimentary reforms in budgeting, financial management and internal controls.

Capacity is the Key Issue

The capacity of staff was limited as far as the new systems and reforms were concerned. In terms of capacity building, the staff were very eager to travel abroad to see a functioning TSA.  We were able to get the support of the India Embassy for two groups of 25 persons to travel to India. One visit was completed last year and the second is due now. The MDTF also provides some support for such activities. In the meanwhile we have solely depended on in-house orientation and technical training programs by the FCGO officers and the Advisor. A strategy of having ‘base districts’, as centers of excellence, to support and handhold the peripheral districts has been suggested. This will provide additional ‘change agents’ and vital support to people in the field locations.

The box below summarizes key intended outcomes of TSA in Nepal:

Box 
Political Cycles and Reform

One of the features of Nepal in recent times has been the fluid political situation. Fortunately, the initial intent of implementation of a TSA and related reforms has gained widespread support. The leadership of the Ministry of Finance was a common link and has championed this and other PFM reforms in Nepal. While the political cycle has moved almost a full circle, the reform agenda has remained ‘politically neutral’ and it was easy to convince the MOF and field staffs that the political consensus was available. In this spirit the Project Team even had a presentation for all past and present Finance Ministers and major political parties’ representatives. All of them spoke positively about the reforms, including the implementation of the TSA, and related accounting reforms such as adopting IPSAS and GFS.

 Implementation works in Phases

In spite of the initial success in implementation, there still exist loose ends and risks involved. Frequent turnover in staff, administrative indiscipline, frequent political strikes, changes in governments etc, are major issues in Nepal. There are ‘highs’ and ‘lows’ along the implementation path. The Project Team have had to address a series of issues and encountered unexpected problems and add-on. We cannot possibly add more details here; but the point is that the path of implementing reforms is zigzag and never in a straight line.

Important General Lessons and Points to Ponder

Based on my experiences working with the government of Nepal on TSA implementation, I offer the following insights on introducing reforms:

  • Have a work-plan but be prepared revise plans where required; using bifocal vision.
  • Formal policy level approvals are crucial.
  • Identify the core and peripheral issues for ‘change agents’; train/work with them.
  • Systematic capacity building and developing a sustainable ‘support group’ is crucial.
  • Seminars, workshops, technical papers, informal communication channels help to build understanding and support.
  • English and major international languages are not spoken and understood by all; try to learn and communicate in the local languages - it’s a great help in communicating effectively.
  • Respectable distance is fine but don’t prove to be an ‘alien’ at the workplace.
  • There is no such thing as a ‘standard system’ so adaptations are important but core elements need to be retained.
  • Locale specific laws, requirements, culture need to be considered, as they will impact on the introduction and implementation of reforms.
  • Simplify the approach and systems as simple solutions work better (even complex systems can be simplified).
  • Understand the dynamics of the ‘power’ structure and ‘decision centers’.
  • Informal, social and cross-cultural connections too are important. ‘Yes’ by some might mean ‘no’ for many others.
  • Ownership of the reform agenda, including formal commitment by authorities, is important. Regular monitoring and strategy review by the ‘owner’ is key.
  • Introducing reforms is a ‘blue collar’ job; be ready to soil your hands.
  • The action takes place in the field; be ready to outreach the change agents at all levels.
  • One or two steps at a time; don’t rush and offload of entire agenda at the same time. The CPM method of project management may also be kept at the back of your mind for possible simultaneous actions.
  • Motivation is important; can be arranged by exposure/study visits for the support group and change agents. Then, use them as local support and resources. Ensure the submission of formal reports and ‘de-briefing’ presentations by the participants at end of skill development exercises.
  • Have a firsthand ground-zero picture using SWOT analysis.
  • Change management is 50% ‘mindset management’.
  • Don’t criticize people and systems beyond proportions; but advise and help them to do better and improve. Working on positive attitudes to development is important.
  • A ‘Blossoming effect’ may be achieved by selling the success story; it increases the support for change.

 

 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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