Some thoughts on issues facing the financial issues and management facing developing countries.

Governance, PFM and Value for Money

By Gregg Pavitt

Improved governance is frequently cited by the international community as an important element to help in the advancement of a developing country, either directly by improving the functioning of government itself (and associated services) or for the halo effect of having a transparent, rules-based government which helps to support and enable a modern functioning economy. Functioning economies depend on a trustworthy and stable environment, grounded in good governance. The best way to improve governance is to improve Public Financial Management – how the resources of the government (taxes, fees, etc.) are raised, allocated, spent, and, importantly, reported on.

IFMIS Implementations – Everybody’s Fault

One of the most critical elements of good public financial management is a robust integrated financial management system (IFMIS) – the accounting and budgeting system that records, tracks, approves and reports on this activity. The international community has supported the implementation of IFMIS systems in developing countries to varying degrees, sometimes with limited success, although it must be noted that governments in the developed world have also had some failures.

Returns are not Maximized

The comment and observation here, based on over a quarter century of real world experience in both the developed and developing world, is that the returns of such efforts are typically not maximized. Too much is spent on initial system development and deployment, which can be on overly ambitious targets (too much too soon) and/or there is resistance to implementation which results in basic system design and implementation taking far longer than necessary. Once the late and over budget IFMIS system is finally in place, the tools to take advantage of such a system are neglected (such as managerial and information tools). Exhaustion, fiscal and mental, has set in. The relatively high value of information that can now be gathered (e.g. targeted and detailed project expenditure reports across districts) is still trapped. Donors and the beneficiary government throw their hands up and declare that it all a waste of time and money.

It Doesn’t Have to be That Way

To improve our governance, we need to improve how we use our PFM tools.

Let us use the simple principle of Value for Money, which is another way of saying spend your efforts and money where the marginal return is highest. With a limited budget for IFMIS, rather scale back the breadth of the project so that the work done is done well and the information can actually be utilized. As Stephen Peterson of Harvard pointed out over a decade ago (Reforming Public Financial Management in Africa), let us improve what is in place rather than merely focus on the next big splashy project. Leverage the information that is there so that the execution part of governance can happen smoothly, quickly, with the staff that the government and its agencies already have.

In the countries where this approach has been taken the results far exceed those of the ‘vanity project’ countries – a fact borne out in the recent report (Managing COVID Funds – The Accountability Gap) from the International Budget Partnership. Places like the Philippines where legislative oversight guaranteed debate and transparency of COVID spending showed that even in a crisis it is possible to follow due process and maintain basic functional accountability processes.

Governance Matters – And is Worth the Effort

In short, good governance is important, but sometimes less is more. Focus on PFM reforms that are relevant to the country context, walk before you can run, and make sure you’re getting value for money.