Transcript Sequencing for Success

Sequencing for Success
Cambodia’s Public Financial
Management Reform Program – The
Platform Approach
‘Sequencing and Politics in PFM Reform’
March 21, 2008
Rob Taliercio, Sr. Economist, ECSPE
The Public Financial Management
Reform Program in Cambodia
 Launched in December 2004
 Over its first three years of implementation, the
PFMRP has yielded major achievements, including:







significant streamlining of budget execution procedures
introduction of program budgeting pilots
adoption of a new chart of accounts
much greater use of the banking system for revenue
collection and payments, including civil service salaries
reduction in the stock of old expenditure arrears by
more than 2/3
procurement process has been streamlined, tightened,
and made more competitive with the passing of a new
sub-decree
establishment of internal audit departments in a dozen
line ministries
2
Explaining a good outcome
 Outcome: Consistent implementation of a
PFM reform program in a low income, post
conflict setting (in this case Cambodia)
 This is interesting because of failures of:



PFM programs in many countries
Other reform programs in Cambodia (CSR)
Previous PFM reform program in Cambodia
3
Pre-PFMRP situation
 Technical Cooperation Assistance Program



2001-2004, $ 6.7 million, division of labor
approach by donors
Largely unsuccessful in PFM
Reasons (from IMF and UNDP ex post
reports):


Lack of a functioning civil service/incentives
Lack of political will? (weak ownership)
 Problem: separate, non-prioritized, and
voluminous lists of recommendations
4
The approach

2003 Integrated Fiduciary Assessment and
Public Expenditure Review (IFAPER)

Consensual problem definition – analysis of
constraints


This should be the role of the PER
Consensus building by participatory
approach with Government and other donors

Top down and bottom up approaches
5
IFAPER – four key findings
 Fiscal revenue ratios among the lowest in the world
(revenue/GDP at 11.7 in 2001)
 Weaknesses in PFM system have high costs in terms
of allocative and operational efficiency and have
created unacceptably high levels of fiduciary risk to
public funds (corruption)
 Poverty reduction is severely hampered by the limited
effectiveness of public spending due to weak link
between policy and the budget
 Civil service is plagued by low pay and poor
management, and thus low capacity
6
Where to begin?
 IFAPER findings are fairly typical of LICUS PFM
systems in that the systemic weaknesses pervade
the public sector

But given low capacity all weaknesses cannot be
addressed at once
 Typical approach is to compile a priority list of
reforms in each PFM sub-system/stage, but no sense
of priorities across sub-systems

E.g. formulation, execution, reporting, audit
 Often leads to development of a fairly predictable list
of recommended reforms over a three year period

E.g. 21 page matrix of reforms over 2 years (LICUS)
7
Strategy Development 1– Envisioning
reform: where to and how fast?
 The PFMRP put forth the objective of instilling
much higher standards of accountability and
management in the mobilization of public
resources and effectiveness and efficiency in
their use to implement the PRSP.
 Long term objective to exceed regional
standards and meet best international
standards.
 PFM Vision 2015 (ten year program)
8
Strategy Development 2 – Laying out
the route: how to prioritize?
 The binding constraint in 2003 was that frontline
budget managers did not have any reliability or
predictability with regard to the receipt of budget
funds






Macro and revenue forecasts were unreliable
Significant revenue and expenditure were not on
budget (managed through informal or parallel
procedures)
Commitment and payment approval processes were
very cumbersome
Procurement procedures were complicated
No effective means of managing cash; most payments
in cash
Large stock of arrears built up
9
Evidence of dysfunction:
back-loading and salary payments
Table 3: The Back-loading Problem: Percentage of Expenditures Posted in December, 2000
and 2001
Economic/Sector
2000
Central
Civil Recurrent
Ch. 10: Salaries
Ch. 11: Operating Costs
Ch. 13: Specific Program Activities
Capital Domestic Financing
43.4
11.6
38.2
47.7
10.8
Defense and Security
Education
Health
Agriculture
Rural Development
17.2
63.2
59.7
41.2
31.5
2001
Provincial
Central
22.8
19.4
25.0
100.0
Provincial
31.6
14.1
42.2
47.3
18.2
18.5
34.7
71.4
30.7
13.2
21.1
31.7
18.6
22.1
29.9
23.7
34.9
70.0
30.2
43.6
28.0
27.4
Source: Bank estimates based on MEF TOFE.
Figure 1. Monthly Salary Payments in MOH, 2001
300,000
250,000
Riel
200,000
Central average
150,000
Provincial average
100,000
Central-monthly
50,000
Provincial-monthly
0
-50,000
J
F
M
A
M
J
J
A
S
O
N
D
Month
10
Priority # 1 – Deliver funds
predictably and reliably
 Make the budget credible as an instrument of
strategic and day to day management of
public resources by delivering funds to
managers in a reliable and predictable
manner
 This became Platform 1 (and the reform
mantra)
11
Platform 1 activities (A)
 Improve budget comprehensiveness and integration
Identify and capture off-budget resources
 Integrate: capital/recurrent, special execution procedures,
and central/provincial
 Improve budget realism and sustainability
 Develop overarching resource mobilization policy
 Improve macro-fiscal framework and revenue forecasts
 Strengthen debt management
 Streamline spending process
 Streamline approval processes
 Progressively deconcentrate commitment and payment
authority
 Make greater use of banking system (reduce cash use)
 Consolidate accounts into TSA
 Eliminate stock of arrears

12
Platform 1 activities (B)
 Ensure control of arrears
Strengthen commitment control in line with budget and cash
management plan
Revise procurement procedures
 Strengthen legal framework and increase reliance on
competitive procedures
 Reengineer processes
Control and improve budget supplementaries
 Ensure supplementary spending based on realistic financing
options
Initial organizational reform of MEF
 Integrate/abolish/create some departments
Capacity development, including pilot civil service reform





13
Priority # 2 – Improve financial
accountability
 The budget was widely regarded as rife with
corruption

Taxation, spending, payroll
 Reform measures needed to
 Clarify lines of accountability
 Improve accounting
 Improve reporting
 Improve auditing
 Platform 2 (Medium Term) – Provide effective
financial accountability by strengthening internal
controls and accountability systems at all levels
(better data, disciplines, transparency)
14
Platforms 3 and 4
 Platform 3 (Medium Term) – Link policies with the
budget: develop capacity to connect policy priorities
and service delivery targets with budget formulation
and execution.

MTEF, program budgeting, budget analysis
 Platform 4 (Long Term) – Hold managers
accountable for program performance by integrating
processes of accountability and review of financial
and performance management, resulting in greater
external transparency and more effective feedback

IFMIS, accrual accounting, annual budget reports
15
Addressing lead time in reform
measure development
 Some measures are complex and will take years to
develop (e.g., FMIS and program budgeting), so
preparation must start in earlier platforms
 Concept of ‘stages’ to encompass key platform
measures as well as to support installation of
subsequent platform measures
 Stage 1 = Platform 1 measures + necessary
preparatory work for Platforms 2-4

E.g. Stage 1 included CoA redesign, core FMIS design,
MTEF phasing, and program budget pilot
16
Cambodia’s PFMRP: Four Platforms/Stages
PLATFORM 4
Effective program performance accountability
STAGE
FOUR
ENABLES
Accountability for
performance
PLATFORM 3
Fully affordable policy agenda through policy-budget linkage
STAGE
THREE
ENABLES
Focus on what is
done with money
PLATFORM 2
Effective financial accountability
STAGE
TWO
ENABLES
Basis for
accountability.
PLATFORM 1
More credible budget
Comprehensiveness and
integration of
budget.
Strengthen
macro and
revenue
forecasting.
Streamline
spending
processes.
Re-design
accounting
and budgeting
classif. &
coding
system.
Initial design
of FMIS for
core
business
processes.
Define
leadership
(cadre as
opposed to
managerial)
for internal
audit function
(including
standard
settings etc.)
Re-design
budget cycle
and
responsibilities (e.g.
inclusion of
MTEF
process).
Pilot programbased
budgeting and
budget
analysis.
Explore
options for
further fiscal
decentralisati
on.
Initial full
design of
FMIS.
Develop of an
IT management
strategy.
Initial design
of asset
register.
STAGE
ONE
(short
term)
17
Why sequencing?
The logic of prioritization
 Some measures are prerequisites for others
 Given limited capacity, reform activities must
be manageable so senior officials can lead
and staff can design and implementation
 Success will depend in part on the pace of
reform

Balance building momentum with time for
internalization
 Annual budget cycle impacts pace
 Keep sharply focused (temptation to
overload)
18
Why the platform approach?
 Useful metaphor: platforms are constructed
one at a time and on top of each another;
each platform is the base on which to build
the next one
 Idea is to first remedy key operational
deficiencies and then address system
upgrades
 ‘Platform approach’ developed by Peter
Brooke for PEFA Secretariat (2002)
19
Sequencing: issues and challenges
 There’s not usually a tabula rasa
 There are existing reform programs of one sort or
another, as well as existing Government and donor
commitments (have to make some compromises)
 Importance of capacity building and organizational
change strategy

Need to design pilot civil service reform to support
PFMRP
 Defining the boundaries of ‘PFM’
 Can be quite expansive, so need to tailor prioritization
to make it manageable (e.g., tax administration,
customs, external audit, parliament)
 Pressure from donors to include measures that are
inconsistent with the logic of prioritization

E.g. gender budgeting, decentralization
20
Importance of the process
 Building on IFAPER, developed detailed
action plan and deepened ownership




Consolidated Action Plan
 Matrix of Platform 1 actions and sub-actions with
timetable, responsible MEF department, and TA needs
Performance Measurement Framework
 Based on PEFA but adopted to Platform 1
Pilot civil service reform (Merit Based Pay Initiative)
and capacity development strategy
SWAp: formal coordination architecture
 Partnership Principles
 MEF Reform Committee and Development Partner
Committee (and Multi Donor Trust Fund), both with
Secretariats
21
Developing the action plan:
joint missions
 Started Dec. 2003—WB, ADB, DFID, Govt.
Facilitation Team
 Other donors joined on an associated basis—
IMF, EC, AusAID, JICA, France, UNDP, Sida
 Support from PEFA and AusAID
 Donor support grew over time and reluctance
faded
22
Key MEF concerns – unlocking
demand
 Need for ownership not only at management
level but also at technical level


MEF creates RC and RCS
Bottom up and top down engagement
 Centrality of incentive problem

Need for a ‘significant departure from past
practice’
23
The approach

Building on IFAPER, develop detailed action
plan and deepen ownership
1.
2.
3.
4.
CAP
Performance Measurement Framework
MBPI and capacity development strategy
SWAp: coordination mechanisms
24
Launch by Prime Minister in Dec.
2004
 Sees SWAp as way to strengthen ownership
and responsibility, improve efficiency and
reduce waste, and strengthen coordination
 ‘we need to reform the way we implement the
reform program’—PFM built on accumulated
experiences
 ‘seize this rare opportunity’ – different way of
doing business
25
Process design lessons
 High investment costs: time (2.5 years) and
$$



Problem definition phase – IFAPER (18
months), central and sectoral
Solution design phase (post-PER) – joint
missions (12 months)
Process was exceedingly important
 Creating critical mass on donor side – use of
political capital
 High maintenance costs – institutionalizing
DPC and Partnership Principles

RCS and MDTF/DPCS
26