A reality check for budgets?

5 December 2013

‘To see what is in front of your nose requires a constant struggle’ (George Orwell)

The Centre for Aid and Public Expenditure’s recent conference ‘Budgeting in the real world’ brought together over 100 government officials, donors, academics and researchers working on public financial management.  Our intention was to keep it interesting, so the conference deliberately asked some hard questions:

  • Can anything really be done to support better budgeting in poor countries? 
  • Can outsiders (guess who!) do anything to help? 
  • Even if you can build the best budget system in the world, will it actually deliver any improvements in development outcomes?
  • Is it worth spending millions on massive public financial management reform projects?

Given that many people in the room have dedicated their careers (and livelihoods) to the issue, we anticipated a response to the questions being – respectively – ‘of course, ‘naturally, ‘yes’ and ‘DEFINITELY, YES!’. So, we were really questioning the fundamental assumptions of the sector – the equivalent of knocking over someone’s drink and then saying ‘let’s take it outside’. Or so we thought. Granted, the international public financial management community are not really fighting types, but one of the most striking conclusions from the conference was the willingness to reconsider the basics. We found there was a broad consensus along the lines of, respectively, ‘maybe’, ‘perhaps’, ‘it depends’ and ‘perhaps not’.

The conference asked these questions precisely because debates about how to manage public finances have shifted substantially in the past two decades. At the CAPE conference, speaker after speaker seemed to agree – broadly – on what emerged as the conference consensus. In common with many other areas of governance reform, we have moved from talking about ‘best practice’ to ‘best fit’. Public financial management programmes that aim to change the world are out. Locally owned approaches that aim to solve locally identified issues through ‘problem-driven iterative adaptation’ are in. Country ownership matters, not the amount of money behind a project. If senior government officials and ministers don’t see an incentive in delivering reform, it is unlikely to happen. Complex reforms like medium-term expenditure frameworks and results-based budgeting risk putting the cart before the horse. We need to get back to basics. It’s the functional capability of a finance ministry that matters, not the technical elegance of their laws, manuals and regulations.

These points are not new, and much of this ‘good-enough governance’ thinking has been around for a while. What made it real was that, for some people in the room, this was not simply an academic discussion. Instead, it accurately explained the reality of their day-to-day work. For example, Antoinette Sayeh and Luisa Diogo – both former Ministers of Finance in fragile African states – gave speeches saying similar things about the need to manage reform expectations, to look at fixing the basics first and to build up capability within finance institutions over the long term. Audience members represented finance ministries from countries as varied as Liberia, Nepal, Zambia, Morocco and Albania and, notably, none of them disagreed with these points. Several participants spoke with authority about the frustrations they faced working in countries where this approach was not being followed. In short, the emerging consensus seemed to strike a chord with all those most involved in reforming public finances on the ground.

‘Reality is something you rise above’ (Liza Minnelli)

However, most participants were confident that international development community is not going to let something like ‘reality’ get in the way of what they want to do. This would set a terrible precedent! Next you’ll be saying that aid should be politically informed and take into account local realities. (Just think what will happen!) But joking (?) aside – if there is something like agreement on the outlines of a better approach to public financial management, why does it seem so hard to make this happen in the real world? Participants at the conference noted several times that, despite the right words being said at senior level, many programmes on the ground did not seem to reflect this better way of operating.

There seems to be a transmission problem between the conclusions of high-level policy debates in PFM, and the way people operate on the ground. There could be several reasons for this. On the demand side, there is a risk – to which the conference itself was perhaps vulnerable – in assuming that the political will to improve the management of public finances is already in place. In some countries (resource rich and governance poor) this simply might not exist. Or, if there is political will, taking the time (perhaps years) to painstakingly build the relationships with current senior finance ministry officials to determine what they really want to see in their PFM systems might be simply too difficult (and, frankly, boring). On the supply side, many donor staff are not expert enough (if anyone is) to judge what reforms really command government support, and which are there for show. Throwing an all-singing all-dancing public financial management reform programme at a wall and hoping some of it will stick might therefore be a rational response to donor HQ pressure to ‘do something on PFM’. There is a lack of real intelligence about what’s going on.

What is the alternative? ODI has looked at new models of aid delivery, for example, ‘arm’s length’ aid. In this approach, donors provide advice and a small amount of money, but government takes the lead in determining that it wants to know, in what order and for what specific purpose. Donors get assurance from an external managing agent that their funds are being used correctly but, otherwise, the content of the advice to government remains confidential. A similar model is being employed successfully by the Budget Strengthening Initiative in several fragile states. This kind of approach may not be scalable, at least at first, and it may not provide the rapid and visible results that donors currently ask for. But it is a more sensible approach to dealing with a world where most of the expert answers to questions about public financial management are, in reality, ‘maybe’, ‘perhaps’, ‘it depends’ and ‘perhaps not’.