Public Financial Management Good Practice GRP Reform Sequencing

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PFM Domain GRPSEQUENCING

Good Practice PFMGOOD PRACTICES

Applicable DEVELOPING COUNTRY GOVERNMENTS

FreeBalance Public Financial Management

Good Practices

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why is sequencing

PFM reform

considered a bestpractice?

Research has shown a statistically relevant link between good governance

indicators and development. For example, countries whose governments

achieve higher good governance indicators tend to have higher GDP per capita

and longer average life expectancy.

The quality of public financial management (PFM) systems is a key determinant

of government effectiveness. The capacity to direct, manage and track public

spending allows governments to pursue their national objectives and account

for the use of public resources and donor funds.

There is some consensus thatbasics matter more than best practicein PFM.

Reformsshould be sequencedbasedon the country contextbecause of the

complexity ofimplementing too much change at once. There is avirtue to

sequencing. Yet, there remains some concern of theplatform approachfor

sequencing, the notion of leapfroggingand anover-emphasis on technicalPFM.

Although often thought asconsultant-speak, the approach of small wins

rather than the big bang approach is considered a good practice in the PFM

community.

PFM diagnostic tools likePublic Expenditure and Financial Accountability(PEFA)

provide good insight but are not prescriptive and donot answer the much more

difficult question of how to sequence PFM reforms. These assessments tend to

betechnology neutral.

It often appears that country context, sequencing methods and PFM reform

momentum is more of art form than a science.

The platform approach to PFM sequencing is designed to suit unique country conditions.

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what is the

implication ofsequencing PFM

reform to GRP?

Financial Management Information Systems (FMIS), or Government Resource

Planning (GRP) is recognized as a technology tool to assist in PFM reform. Theestablishment of an FMIS has consequently become an important benchmark

for the countrys budget reform agenda, often regarded as a precondition for

achieving effective management of the budgetary resources. Although it is not

a panacea, the benefits of an FMIS could be argued to be profound.

GRP and e-government technology enables PFM, wherethe real benefit of e-

government lies not in the use of technology per se, but in its application to

processes of transformation.

The challenge for GRP technology is to adapt to meet country conditions such

as human capacity, while enabling future modernization and reform because

many reformshave taken up to two centuries to evolve from where manydeveloping countries find themselves today, to where the developed countries

are today.

Countries with higher HDI tend to have higher PEFA scores. PFM reform progress results inimproved

government effectiveness.Capacity building is considered a pre-requisite for PFM reform.

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can sequencing

priorities be less

art and morescience?

The information necessary to understand the country context is more readily

available thanks to open data and analysis from International Financial

Institutions. And, there has been some work toidentify high-level PFM reformsequencingsuch as the need to implement core functions first such as adopting

theTreasury Single Accountand focus onbudget execution prior to budget

preparation.

Third party ratings fromRevenue Watch,Open Budget Partnership,

Transparency International,Freedom Houseand other organizations provide

insight into the country context. It has become easier to identify priorities for

reform such as revenue transparency and support for theExtractive Industries

Transparency Initiative(EITI) inresource-dependent countriesor the need for aid

transparency and support for theInternational Aid Transparency Initiative(IATI)

in countries with a high percentage ofOfficial Development Assistance(ODA)

relative to the government budget.

FreeBalance government customers that have undergone PEFA assessment enjoy better scores than

countries with higher HDI who do not use FreeBalance software. FreeBalance customers have been

recognized forachievements of substantial reform.

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Increasing mobile global penetration is changing the accountability gap dynamic in developing countries.

does technology

enable PFM reform

and modernization?

Technology is seen as an enabler fortransformation in government. Technology

shoulduse a gradual and flexible process.

There have been numerous technology failures indeveloped and developingcountries where implementations failed to achieve results, were delivered late,

were provided over-budget or were unable to adapt to reform.

Many implementations of software for GRP needshave not been financially

sustainable by governments.

Enterprise Resource Planning (ERP) software that was designed for many private

industries is costly to adapt to reform.Large-scale public sector ERP

implementations add additional time during the analysis and design phase to

focus on the gap between the commercial process and the required process

ERP and custom-developed GRP solutions can make reform difficult. ERP and

custom-developed softwarerequires significant softwarecomplex codecustomization (BPM scripts, call-outs & software development) to meet

government requirements thatreduces time to results.The ratio of services to

software cost in the public sector is estimated to be three time that in the

private sector or up to 15 times the cost of software.

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is technology

leapfrog possible?

GRP technologyleapfrogispossible in many country contextsparticularly in the

ability to publish open data.

Developing countries often do not have entrenched legacy technologies and canbypass stages in development. Although more developed countries took

centuries to reform, developing countries can benefit from proven good

practices. This gives developing countries the latecomer advantage.

Developing countries are leveraging the convergence of Internet and mobile

technology to overcome the digital divide. The technology is adapted to the

local context typically at lower costs than legacy technology.

Nevertheless, apure technological solution does create reform because

technology can maintain or reinforce an accountability gap.

what are the

incentives forreform?

Governance reform ishighly political and disrupts the traditional power

structures in countries. This dynamic reduces reform momentum. And, there areemerging lessons learnedabout reform incentives.

Improved access to technology has createdorganicprotest phenomenon like the

Arab Springthat assisted in the overthrow of governments. Social media and

mobile technology haveenabled rapid citizen organization. Governments can

crowdsource or be crowdsourced.

Globalization has created an open and competitive environment among

countries. Businesses are more prepared to invest in countries with effective

governance, which manifests itself in legal predictability, low corruption, and

ease of doing business.

International Finance Institutions usegovernance scorecardsfor funding

decisions. This strategy can better align leadership with citizen incentives.

The relative success in global poverty reductiondemonstrates that many

government leaders are concerned about good governance and improving

development results.

what are the

incentives for

implementing GRP?

GRP has agreat potential for increasing predictability, participation,

transparency, and government accountability.

GRP technology can improvebusiness and citizen confidencethrough

transparency and government effectiveness.

GRP technology increases government efficiency andrevenue. This can result inreducing deficits and providing governments with morefiscal space including

reduced cost of borrowing.

GRP technology aligned with e-government initiatives enablescitizen efficacyto

improvecountry stability.

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how does the

technology supply

chain impactreform?

Thetraditional approachof GRP implementations through third-party systems

integration firms with little or no involvement of the software manufacturer

increases implementation risk in developing countries. Some systems integration firms find incentives to increase costs and reduce

financial sustainability. Some software manufacturers form part of devils

triangle

Standardproject management techniques have not overcome difficulties in

implementing softwarein developing or developed countries. GRP

implementations require more concentration oncapacity, communications and

change management.

GRP solutions that rely on code customization add complexity and cost. This

complexity reduces momentum to the pointwhere technology inhibits rather

than enables government transformation.

Software manufacturers who hope to achieve success in GRP must have

appropriate governance mechanismswhereby governments drive product

enhancements.

Holistic methods can provide reform roadmapsbased on thecountry context.

Lessons learned can be used to improve GRP products.

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what are good

practices for PFM

and GRPsequencing?

Conclusions

1. There is growing evidence that PFM sequencing is becoming more of a sciencethan an art form. Open data and governance assessments provide material forsequencing roadmaps.

2. Government human capacity determines reform momentum and reformsustainability.

3. The modernization rate is much faster in developing countries than experiencedin developed countries. This means that the technology approach and

implementation practices need to be aligned to PFM needs to ensure

effectiveness.

There are very few best practices but many good practices in Public Financial Management.

FreeBalance, a global provider ofGovernment Resource Planning(GRP) software and services

shares good practices from experience withdeveloped and developing country governments

around the world.

www.freebalance.com

www freebalance com