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May 24, 2021

PFM and Service Delivery – What’s New, What’s Missing, What’s Next

Public service delivery
Posted by Sierd Hadley, Tom Hart, and Mark Miller[1]

For over a decade there has been growing interest in linking PFM reforms to better service delivery results. A new paper by ODI argues that the discussion of PFM and service delivery has narrowed too far, and that a change in approach is needed to make the most of this growing agenda.

An important agenda, at an important time

The increased focus on PFM and service delivery is motivated by the need to improve public expenditure on basic services like health, education and water.

While evidence that better PFM supports improvements in service delivery is inconclusive, research shows that issues such as unreliable funding flows to health centres and inefficient drug procurement are common in low- and middle-income countries. The impact of the COVID-19 pandemic on government finances has exposed these challenges further, as governments seek to mobilize and then deploy resources to help affected citizens and businesses and to roll out vaccines. Budgets have also become more constrained and governments will face difficult decisions over what to fund in the coming years.

The focus on PFM and service delivery is, therefore, a welcome addition to the global dialogue on “building back better”.

…with important limitations…

At the same time, the existing discussions risk missing the forest for the trees. The interest in linking the ‘PFM system’ (typically the national budget cycle) with service delivery performance in specific sectors (especially the health sector) presents two challenges:

  1. It encourages a comprehensive sector-by-sector view of PFM systems instead of focusing on common sub-systems across sectors, which risks overburdening the finance ministry in the process; and
  2. It overlooks the fact that the allocation and use of public expenditures is shaped by a wide range of systems, and that the relative importance of the national budget process varies between countries and sectors.

We offer three proposals to reshape the agenda in a way that will support a better discussion on the options to improve spending on key public services.

Help finance ministries by focusing on systems, not sectors

The interest in linking PFM to specific sector needs has raised demand for broad sectoral PFM analysis (for PFM and health, PFM and education, and so forth). This trend risks repeating mistakes of the 1990s with uncoordinated and overlapping diagnostics that leave finance ministries overwhelmed or unwilling to engage on critical issues.

Just as there is an emerging literature on public investment management, rather than separate literatures on PFM and transport, energy or other similar sectors, international organisations could start by working to alleviate common barriers to service provision across different sectors.

Adopt a broader ‘public finance’ lens to analyse sector specific concerns

While the PFM system is important, the analysis of spending challenges in specific sectors should adopt a ‘public finance’ lens rather than a narrow PFM approach.

Improving the allocation and use of resources will often involve other systems. In Tanzania, for example, spending inequities were driven by wage budgets and explained by the challenges with retaining staff in critical local governments and the lack of incentives to deploy staff to ‘hard to reach’ areas. Such challenges are not uncommon, even in advanced economies, and do not always fit well with the simplified frameworks that assume spending allocations are shaped mainly by the routines of the budget cycle.

A public finance approach would also need to reduce the traditional distinction between policy and administration. Many of the most important questions for sectors sit at the intersection of this divide: concerned not just with ‘what’ is to be done, and ‘how’ but by ‘whom’. Who should be responsible for deciding on how sector resources are allocated? How much discretion should be delegated to local governments or to front-line providers? And how can public spending be made more equitable across different regions?

Analyse problems in context and adopt a more inclusive approach

The shift to a public finance lens also necessitates a stronger country focus. If analysis should be rooted in an understanding of how public funds are allocated through different systems and decision-making channels, then it needs to look at this across different economic and political contexts. The wide variations in governance and funding for services across countries and sectors will make it difficult to benchmark systems to good practice models. Progress could be made on this by broadening the range of countries that lessons are drawn from, and by better understanding of variations in PFM practices and performance, for example across different line ministries.

Analysing problems and developing potential solutions also requires deeper collaboration and learning across disciplines (e.g., political science), professions (e.g., human resources), sectors (e.g., education). For PFM experts this might mean working closely with experts on expenditure policy or with teams from different sectors to address challenges and identify solutions. Forging a common language, understanding and way of working across these groups will no doubt be challenging, but we believe it will be necessary to make progress on these issues.

A new working paper series and call for papers

As our starting contribution to this vision, we are launching a new ODI Working Paper Series on ‘Public Finance and Service Delivery’ with support from the Bill & Melinda Gates Foundation. We will be welcoming submissions from a wide range of experts, practitioners, and researchers from all disciplinary backgrounds. Please get in touch if you want to learn more about this and forthcoming dialogues using this email address: DPFresearchcall@odi.org.uk.

 

[1] ODI, London.

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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