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July 30, 2020

 Beyond Doctrine: Refocusing PFM for Vital Public Objectives

NYU Blog
Posted by Edward Hedger, Nick Manning and Allen Schick[1]

Note by the PFM Blog Editors: This article summarizes a recently published Report by an International Working Group at the New York University’s Wagner School. A review of the Report by Richard Allen was published in the International Public Management Review (Vol. 1, No. 1, 2020) and can be downloaded at ipmr.net

“The difficulty lies not so much in developing new ideas as in escaping from the old ones” J.M. Keynes [2]

Countless international reports call attention to the public finance implications of combating climate change and its effects, of reversing the trends in income distribution and inequality, and of transforming the quality and accessibility of public services. Yet there is a disconnect between the entreaties to respond to critical priorities and the constancy of advice provided on managing public finances. Public financial management (PFM) has become almost a settled science – ring-fenced in its own compartments, unchanging in its approaches, and seemingly unaffected by the disruptive winds of 21st century governance and policy objectives.

A new report by an International Working Group at the NYU Wagner School considers why this dislocation occurred. It argues that the emergence of a strong and cohesive “discipline” of PFM ideas and experts provides the explanation – and the key to fixing it.

Aggregate control and fiscal discipline have become entrenched over 25 years as the dominant ideas in PFM. At the same time, a distinct and specialised cadre of professionals grew in international organisations, consulting and accounting firms, universities, research institutes, and think tanks. Career tracks, common lexicon and dedicated qualifications followed. The “PFM discipline” has affirmed and reinforced one guiding set of objectives and the institutional means for achieving them. The recent array of guidance notes and advice on how governments should respond to the Covid-19 crisis illustrates forcefully both the reach and the conviction of contemporary PFM practice.

Yet the results of institutional reforms over the past three decades have been uneven and do not justify the certainty they often attract. Progress in building capable bureaucracies has been slow. It is clear too that the objectives of PFM do not pay enough attention to issues such as service delivery, inequality and citizen well-being. They have neglected or marginalised considerations of fairness and the vital distribution function of public finance. Restoring that focus as well as addressing urgent global challenges such as Covid-19 and climate change are top-order policy priorities.

Managing public functions and finances is challenging in the best of times. Never more so than now. Global uncertainty abounds in 2020 and long-held precepts for government action are being questioned. Policymakers are attempting to “follow the science” in the evolving public health response to Covid-19 and are tearing up the rulebook to spur economic recovery after drastic shutdown measures. There is no serious argument that a single and enduring policy approach or set of bureaucratic arrangements will suffice. Why, by contrast, does such professional certainty attach itself to PFM – the institutions and processes for managing public money?

PFM was not always such a settled science. A prominent statement of objectives some 25 years ago—aggregate fiscal discipline, strategic allocation of resources, and efficient operational delivery—spurred enquiry and debate about the management processes and practices needed to achieve them. Frameworks such as PEFA and TADAT emerged as a practical means of specifying desirable PFM processes and assessing performance. Initially intended to provide focus, over time the objectives became seen as universal and exhaustive and the institutional specifications became standard conventions.

Why did a culture of enquiry and debate about approaches to managing public money give way to a fixed and standardised definition of success and recipe for achieving it? What might a refreshed and less doctrinaire approach, fit for the uncertainty and challenges of the 2020s, look like? The NYU Wagner Working Group took up these questions. It contends that the PFM discipline–with its fixed objectives, conventions and expertise–may be a part of the problem rather than the solution. So, what can be done?

Current practice typically views PFM as a closed system. The desirable outcomes are fixed and universal and they are achievable with a standard set of underlying institutions and processes. Approaches to preparing the annual budget, managing cash and debt, or auditing past expenditure are not much disputed. Variation chiefly concerns the tactics and sequencing of reforms in response to contextual factors, not substantive differences in ends or means.

Some improvement within this paradigm is possible. Technical advice to governments would be strengthened through more systematic sharing of the evidence, knowledge and lessons that underpin proposed interventions. Informed comparison and debate about the design of reforms would allow more active and deliberate choice on the part of client governments. International agencies and advisers would be expected to present credible alternatives, not a one-size-fits-all approach.

These would be positive steps forward. Better evidence might accelerate the pace of learning about how governments can use technical advice to strengthen PFM. Greater contestation of ideas might help to sharpen and refine them. But it is also an agenda limited by its fixed assumptions. 

A more fundamental approach would view PFM as an open system that interacts fluently with all aspects of public policy, from policy choices to service delivery to citizen well-being. It would open up debate about issues usually beyond the PFM discourse. Grand challenges such as eradicating poverty, halting climate change and transforming public infrastructure require the reprioritisation and reallocation of public resources on a scale seldom seen outside of fiscal crisis episodes. Rising inequality demands a rebalancing of fiscal policy norms to consider fairness and the distribution of income and wealth alongside aggregate fiscal objectives.

An open system view of managing public finances requires a willingness to refresh the guiding objectives and to reappraise the conventions that drive technical advice on reforms. It would better reflect the realities of different political and institutional contexts as well as the inevitable tensions and trade-offs among an evolving set of policy objectives.

The PFM discipline can point to some important achievements over the past 25 years, but it may now have hit its limits. Managing public finances in the future must reconnect to service delivery and to real-world outcomes. It must restore and energise the connection to policy objectives, policy changes and policy trade-offs. International support and advice to governments should accordingly make contestation of ideas and debate about reform options more routine.

The NYU Wagner report seeks to catalyse this new thinking and to stimulate debate. It makes a number of proposals to start the shift to a model for managing public finances that is fit for a post-Covid world grappling with economic recovery, inequality and climate change. That task will require escaping from some old ideas as we develop and pursue new ones.

 

[1] Edward Hedger is a consultant with the NYU Wagner School and a Non-Resident Fellow at the Center for Global Development. He was formerly Managing Director at the Overseas Development Institute. Nick Manning formerly served at the World Bank, most recently as Head of Governance and Public Sector Management. Before that he was Head of Public Sector Management and Performance at the OECD. Allen Schick is Distinguished Professor Emeritus at the University of Maryland School of Public Policy. He has also held positions at the Urban Institute, the Brookings Institution, Tufts University and Syracuse University. All served as members of the NYU Wagner Working Group and were co-authors of the report

[2] From the Preface to Keynes, J. M. (1936) The General Theory of Employment, Interest and Money.

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.

Comments

The blog and the NYU Wagner publication provokes one to think how to position PFM systems to be open systems and connect much better with policies. One fundamental precondition for success of PFM systems repositioning away from traditional 'control' focus is general strengthening of Governance and Anti-corruption Environment. Traditional PFM systems and GAC reforms can reinforce each other and encourage PFM professionals experiment with flexibility.

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