Public Financial Management Reform in Ghana by xhc20678


									Public Financial Management Reform in
     (sequencing & prioritisation)

                                                           Stephen Sharples
                                                             21 March 2008

                          1 Palace Street, London SW1E 5HE
           Abercrombie House, Eaglesham Road, East Kilbride, Glasgow G75 8EA
Coverage of Presentation
•   Context
•   The Public Financial Management (PFM) interventions
•   The main lessons
•   Some issues for discussion

    (Observations & ideas drawn from documentation and personal
    recollections. Interventions over the last 15 years)

     •   Highlight lessons and consider implications for PFM reform

     •   Identify issues for discussion

     (prioritisation & sequencing and other issues)

                                                                      Page 1
Ghana - The Context

   • “Neo-patrimonial” character of State
   • Ineffectiveness of civil service major constraint
       (morale, incentives, politicisation, poor controls)
   •   Pay consumes too much of budget and causes
   •   Internal resistance to change
   •   High level of donor support with distortionary
       effects (e.g. salary supplementation)
   •   Macro-economic shocks (cocoa, gold, oil, currency)
   •   Consolidation of democracy
   •   Vibrant media and civil society have emerged
   •   Recent positive developments

                                                         Page 2
The PFM Interventions
    • Introduction of VAT
    • Upgrading the Integrated Payroll and
      Personnel Database system (IPPD)
    • Budget and Public Expenditure
      Management System (BPEMS)
    • Medium Term Expenditure Framework
    • Decentralisation of financial management
      in the health sector (part of a SWAP)

                                             Page 3
The Introduction of VAT
(1993 to 1995)

   •Government commitment                 Result:

   •Independent VAT service               •Focus for opposition

   •Good leadership                       •Rioting

   •Effective TC provision                •Cancellation

   •Legislation delayed (in Parliament)   Lessons:

   •Insufficient public education         •Need realistic timescale

   •High/difficult rate (17.5 %)          •Factor in political
   •Bad timing
                                          •Consider political realities
                                          (content & timing)

                                                                  Page 4
The Re-introduction of VAT
(1997 to 2000)

   Features:                            Result:
   •Government commitment               •Revenue targets
                                        continuously exceeded
   •Independent VAT service
                                        •Rising revenue ((1999 –
   •Good leadership (previous project   3.85% of GDP, 2004 – 5.55%
   team kept together)                  of GDP)
                                        •Good practices
   •Effective TC provision (same
   providers - low key role)            •Sustainable organisation

   •Learned from mistakes:              •Some further support
                                        needed re computer system
     - public education
     - 10% rate

                                                                Page 5
Integrated Payroll and Personnel
Database – replacing earlier system

   Features:                                           Result:
   •Payroll = 60% of expenditure                       •Project failed repeatedly
   •Old technology on verge of collapse                •DFID cancelled twice
   • Underestimated internal resistance                •Approx £2.4 million spent
   to reform                                           – very little to show for it
   • Selected too complex a solution                   Lessons:
   •Insufficient attention to change                   •Don’t let complex
   management                                          technology blind you to the
   •Consultant & contractor selection
   badly handled

                     •Recent new impetus
                     •Use of 3rd party software to restore reporting/analysis capability

                                                                                  Page 6
Budget and Public Expenditure
Management System

   Features:                             Result:
   •Central component of wider           •“spent US$30 million and 8
   PUFMARP programme                     years and still can’t produce
                                         basic budget reports” – senior
   •Inadequate needs assessment          manager from the project.

   •Technocratic and over ambitious      •May have created a capacity
                                         gap - technology too
   •Consultant led (at least 40          sophisticated
   international consultants involved)
   •Little government commitment         •Be realistic (technology &
   outside Ministry of Finance           timescales)
   •Poorly sequenced                     •Consider costs and benefits
                                         •Need clear institutional home
                                         for project

                                                                   Page 7
Introduction of Medium Term
Expenditure Framework
  Features:                                  Result:
  •Strong on participation                   •1st review – “so far what was
                                             achieved was extraordinary….”;
  •Lack of progress in related areas:
                                             but this did not last
    - delays to BPEMs
                                             •Change in budget preparation
    - civil service reform                   but did not improve resource
    - budget timetable
                                             •Premature end to project
  •Partial coverage (staff costs excluded)
  •Problem of allowances / project enclave   Lessons:
  culture not fully recognised               •MTEF credibility undermined if
  •External macro-economic shocks            no predictable funds releases.

  •Revenue forecasting remained weak         •Detailed costing work of little
                                             demonstrable value
                                             •Process skills necessary but
                                             not sufficient
                                             •Danger of project enclaves

                                                                       Page 8
Decentralisation of Financial
Management within Health Sector

   Features:                                Result:
   •Control of funds decentralised to       •Not aware of specific
   Budget Management Centres (BMCs)         evaluation of financial
   meeting “readiness criteria”             management aspects but
                                            overall, SWAP was regarded as
   •Local consultants assessed this
                                            best in Africa at the time
   •Top management committed
   •Extensive financial management
   training at local level (+ MBAs in UK)   •Relate pace and sequence to
                                            demonstrated capacity
   •Staff from best BMCs joined training
   teams (recognition, travelling           •Importance of incentives
   allowances, ownership)                   •Incentives don’t have to cost
   •Trusted adviser in Ministry             a lot or involve civil service
                                            wide changes

                                                                     Page 9
Some Lessons

     • Identify political economy issues up-front
     • Importance of flexibility on timescales
     • Importance of incentives - institutional and
       individual (government and development partners)
     • Doing well on the process of PFM reform cannot
       make up for problems with the content
     • Importance of the relationship between PFM reform
       and civil service reform
     • Easier to succeed where – small unit, clear mandate,
       freedom from system wide constraints

                                                      Page 10
Suggested issues for discussion

       • Can we plan to move at the partner government’s
           pace? Do our systems and notions of our own
           accountability get in the way of this?
       •   Is our approach to IFMIS too procurement
           focussed? Does it undermine flexibility by forcing
           too many decisions to be made up front?
       •   How can development partners support
           government programmes, rather than “their”
           projects within government programmes?
       •   How can PFM reform and civil service reform best
           reinforce each other?
       •   How can budget support change the dynamics?
           Does it make it easier to work in partnership on
           PFM reform?

                                                           Page 11

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