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October 15, 2019

How Budget Managers Make Sense of PFM Reforms

Johannblog
Posted by Johann Seiwald[1]

Exploring the impact of PFM reforms is still an underdeveloped area. In general, impact can be assessed through financial indicators such as forecasting errors or changes in budget composition or growth. Another approach is to analyze the perception of the change outcomes by key practitioners (for example, financial managers, economists, and accountants) and other actors. A recent study investigates how 34 senior managers responsible for PFM reforms in the UK, Austria, and Italy made sense of the perceived change outcomes. The main research question is: How do these actors perceive the reforms and how efficiently do they use the financial and budgetary information that is generated for decision making? Managers from ministries responsible for Finance, Agriculture, and Higher Education were interviewed about their experience of the design and implementation of a range of accounting and budget reforms. (https://onlinelibrary.wiley.com/doi/full/10.1111/abac.12168)

Three types of change were identified. Comprehensive or radical change happens when not only structures, systems and tools change, but also the attitudes and behavior of the government officials engaged in operating them. When only the structures and the systems change, but not behavior, the study identifies ‘incremental change’ as having taken place. ‘No change’ occurs when the managers perceived neither a change in the financial procedures or tools, nor in the efficient use and understanding of the financial information.

In general, the findings suggest that Italian and Austrian interviewees were more likely to perceive changes as having a more significant impact on financial outputs and outcomes than their UK counterparts. This was the case for both radical and incremental changes It may be partly explained by the fact that in the UK, where the public sector has internationally been at the forefront of PFM reforms, many changes happened earlier and have become well integrated into the behavior of British financial managers and accountants. These practitioners also tend to have a higher level of professional qualifications and greater experience of private-sector practices than in the other countries, and were therefore able to adapt their behavior more easily to the reforms.

Radical change is likely to be associated with a rational debate about the merits of enhanced planning, more efficient use of resources, and the need for sustainable public finances. This indicates that policy makers proposing reforms should be careful in articulating a clear and convincing strategy for introducing and adopting their proposed measures. The reforms are more likely to be accepted and well implemented if practitioners and other perceive them as having a well-considered and rational basis, and if the authorities successfully articulate the reforms’ economic and financial rationale inside the government and to the wider public.

Reforms that are perceived as imposed externally (for example by EU laws or regulations) often struggle to achieve an impact, or are even seen as a reason why change has not occurred. The authors of the study conclude that actors are more likely to see substantive and successful change when the reforms are presented as part of a rational strategy to achieve clearly defined economic and fiscal objectives, supported by coherent narratives, and are not presented or perceived as being externally imposed. It is recognized, of course, that senior managers in government need to provide strong leadership to garner support, provide early momentum, and ensure progress is maintained.

 

[1] Johann Seiwald is a Senior Budget Expert at the Austrian Parliamentary Budget Office and was previously a Senior Economist at the IMF’s Fiscal Affairs Department.

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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