The World Bank PREMnotes December Know What 2012 to Deliver NUMBER 1 Special Series on Strengthening PFM in Postconflict Countries: Lessons for PFM Practitioners and Country Programming Staff Verena Fritz Myriad challenges, but also opportunities, surround public financial management (PFM) reforms in postconflict environments. This note provides recommendations that focus on the special characteristics of postconflict environments and their implications for the design and implementation of PFM reform initiatives, and on links to the wider goals of state-building and service delivery. This note principally draws on a cross-country review of the design, implementation, and impact of public financial management (PFM) reforms in eight postconflict states. Focusing on the PFM reform experience over a 7–10 year period from the early 2000s to 2010, the goal of the study was to understand what has worked in countries’ efforts to strengthen PFM systems, and how PFM strengthening impacts wider state-building goals.1 Postconflict countries share many of the PFM (i) Progress on strengthening PFM in post- reform challenges also encountered in noncon- conflict countries is possible: four out flict contexts, while some issues tend to be more of eight cases made significant progress pronounced, especially the initial near absence of and a further two achieved intermediate capacity in many situations. On the positive side, progress over the reviewed period. There postconflict periods can offer windows of oppor- can be real opportunities for strengthening tunity, when governments, citizens, and donors PFM in postconflict situations where some have positive expectations about the potential to enabling drivers and incentives for reforms build or rebuild states. are in place: seeking international recogni- This note summarizes the main findings and tion, or significant aid and possibly security presents the key implications that emerged from support, or where leaders are interested in the cross-country analysis (figure 1). This note strengthening the state and guarding against also includes an “at-a-glance” overview of reform the potential recurrence of conflict. While trajectories, drivers, and impacts across the eight these drivers are present in a number of post- countries on which the analysis was based, and conflict cases, they are not universal. Govern- identifies key context dimensions and implica- ments, such as the Democratic Republic of tions for approaching PFM reforms that can be Congo’s, that are preoccupied with regime applied to other cases. survival or benefitting from large natural resource rents tend to be less motivated and Key Findings from the able to pursue PFM reforms. Furthermore, Cross-Country Analysis exploring other potential drivers expected on Strengthening PFM to motivate PFM reforms, the study finds Six key messages emerged from the cross-country that the level of internally generated revenue analysis: did not have a clear impact on the degree to FROM THE POVERTY REDUCTION AND ECONOMIC MANAGEMENT NETWORK Figure 1. Summary of Key Findings across the Results Chain Contextual factors PFM reform domain Related public sector Impact domain (varying) reforms Budget legislation not Development of state Political commitment due needed early, but benefi- National–subnational rela- resilience and reduction to higher order goals cial for consolidation tions often remain in flux, of corruption show some (especially seeking inde- posing challenges for the expected association with Most frequent and signifi- pendence, security, and/ PFM agenda; greater need PFM reforms cant progress on budget or aid reliance on external for attention to subnational execution, especially Improvements in service partners) levels reporting, accounting, cash delivery are observed Often, bureaucratic inertia management, and treasury Civil service reforms often across cases, but show weaker than in nonfragile automation; less progress lagging with negative no clear association with countries on internal control and effects on turnover and/ PFM reforms (countries audit and procurement or ability to integrate local doing better on PFM do Middle-income status facili- technical assistants into not make extra gains on tates capacity development Less progress on budget the civil service service delivery) planning—medium-term expenditure frameworks and program budgeting (where attempted) Aid/donor support and incentives Overall, donor support of PFM reforms has beneficial impacts. Public Expenditure and Financial Accountability assessments have brought improvements in generating a common analytic base. However, there is still limited use of aid modalities to continuously incen- tivize PFM strengthening; still a typically fragmented approach to capacity development; and also some disconnects with support to other public sector reform domains (especially decentralization) and support to sectors. Source: Author’s illustration. which PFM progress was made, in contrast to decision-making culture that is far from postcon- widely held assumptions. flict countries’ realities. However, practitioners (ii) Across the budget cycle, budget execution re- continue to search for ways to link fiscal inputs forms progressed further in more countries than and outputs and to make budgets more informa- reforms related to budget planning or budget tive than traditional line item budgets, but that accountability. Postconflict situations can offer a would be sufficiently simple and feasible even in window of opportunity for reforms related to bud- challenging environments. get execution, such as introducing a single treasury (iii) Existing approaches have found relatively success- account or an improved chart of accounts, because ful ways of supplementing capacity gaps in the bureaucratic processes and practices are often short to medium term, but longer-term capacity development has often remained inadequate, less entrenched. Among the three broad aspects especially in lower-income postconflict countries. of the budget cycle—planning, execution, and Local, regional, or international technical assis- accounting and audit—reforms targeting budget tants have been deployed to supplement initially accountability were the least advanced in most very weak PFM capacity in Kosovo, Sierra Leone, cases. While budget accountability is regarded Liberia, and Afghanistan. International techni- as very important to bolster state legitimacy in cal assistants have also been used to strengthen postconflict environments, this aspect of the integrity and fiduciary oversight, notably as part budget cycle is most dependent on political com- of Liberia’s Governance and Economic Manage- mitment and on the wider functioning of checks ment Assistance Program. However, after the 5-to- and balance systems.2 Advanced budget planning 10 year time horizons observed in the analysis, reforms, such as program budgeting, were not suc- the only cases that achieved substantial progress cessful in those countries in which they were tried. with developing domestic capacity were the two Program budget designs tend to be too complex, middle-income economies, Kosovo and West and the approach presumes a managerial and Bank and Gaza. 2 PREMNOTE DECEMBER 2012 Table 1. Overview of Country Experiences and Trajectories Reform drivers: Results of PFM Overall government motivation strengthening by 2010 state- Progress on basic Country/ and ability to pursue & specific building education and health economy PFM reforms Capacity achievements progress services (%) Afghanistan Need for international Low at outset, challeng- Advanced reforms Still Primary enrolment aid and security support; ing to build; extensive achieved, including considered 2000: 19 2010: 97 limited government use of technical as- AFMIS; less on external very fragile coherence sistants audit Measles immunization 2000: 27 2010: 62 Cambodia Some need for inter- Low at outset, challeng- Intermediate reforms Stabilizing Primary enrolment national aid support; ing to build; little use of achieved, especially 2000: 106 2010:127 substantial government technical assistants, but improved cash man- coherence significant use of salary agement/ TSA; slow Measles immunization top-ups progress on (planned) FMIS 2000: 65 2010: 93 Congo, Dem. Declining need for Low at outset, challeng- Limited reforms Still Primary enrolment Rep. of international aid sup- ing to build; some use of achieved considered 2000: 48 2010: 64 port given significant technical assistants very fragile natural resource rents; Measles immunization government struggling for survival 2000: 46 2010: 68 Kosovo Seeking international Low at outset, opportuni- Advanced reforms Stabilizing Insufficient data available recognition (achieved in ties due to middle- achieved across most 2008), EU approxima- income status; extensive aspects of budget cycle, tion; relative government use of technical assis- including external audit coherence tants at early stages Liberia Seeking international Low at outset, challeng- Intermediate reforms Stabilizing Primary enrolment aid and some security ing to build; extensive achieved; stronger 2000: 112 2010: 96 support, including major use of technical as- efforts since 2006; prog- debt relief sistants ress on external audit Measles immunization 2000: 65 2010: 93 Sierra Leone Seeking international Low at outset, challeng- Advanced reforms Stabilizing Primary enrolment aid and some security ing to build; extensive achieved; establishment 2000: 70 2010: 125 support, including major use of technical assis- of IFMIS debt relief tants and top-ups Measles immunization 2000: 37 2010: 82 Tajikistan Some need for inter- Low at outset, challeng- Limited reforms Stabiliz- Primary enrolment national aid support; ing to build; limited use achieved, mainly on ing, but 2000: 97 2010: 102 government stable, but of technical assistants treasury functions recurring some threat of renewed tensions Measles immunization violence 2000: 88 2010: 94 West Bank Seeking international Low at outset, opportuni- Advanced reforms Subject to Primary enrolment and Gaza recognition and major ties due to middle- achieved, emphasis on interna- aid support income status; little use budget execution, less tional 2000: 98 2010: 91 of technical assistants in progress on account- agreement line positions (combined ability Measles immunization with modest use of n/a technical assistants) Source: Author’s compilation. a. Indicators for primary gross enrollment rates (education) and measles immunization—percent of children 12–23 months (health). (iv) The analysis indicates that there is no standard se- as Kosovo, it was possible to undertake a rapid quence; reform design and progression depended and complete overhaul of PFM systems—due to a on existing PFM systems, characteristics of the combination of local leadership seeking external country, and commitment by political and techni- support that enabled substantial early and con- cal leaders. In some postconflict countries, such tinued engagement and the ability to make good DECEMBER 2012 PREMNOTE 3 progress with developing capacity in a middle- with significant reform credentials and government income context. In other cases, changes have been actions to strengthen the ministry of finance insti- much more incremental, often involving various tutionally or establish better donor coordination false starts. There are also differences in what around the PFM reform agenda. Although presidents succeeds where. For example, four case study or prime ministers rarely take a specific interest in countries successfully implemented a financial PFM reforms as such, higher order motivations and management information system (FMIS), while incentives of the government, such as state-building the same reform was planned but did not prog- or seeking international support, for which PFM re- ress for several years in Cambodia—despite the forms play an instrumental role, matter. Governments country’s relatively good record on PFM reforms facing constant threats to their survival and govern- overall. Also, it has sometimes been assumed that ments with large natural resource rents immediately adopting a legal framework for PFM should hap- at their disposal are less likely to pursue effective PFM pen early during the reform process. However, the reforms. The degree of political commitment can also analysis shows that, in reality, new organic budget impact the extent to which stakeholders strive to solve legislation is typically adopted three to five years real problems through PFM reforms as opposed to into the postconflict period, once law formulation engaging in more superficial reform efforts (see also and adoption processes have been established. World Bank [2012c]). (v) Analysis and monitoring of progress of PFM’s There are three stylized situations: (evolving) status are important to guide reform ef- • Incentives and commitment to PFM reforms are forts in postconflict countries. Public expenditure substantial. In such environments, stakeholders and financial accountability (PEFA) assessments can seek the most progress, such as locking in have started to play a valuable role in generating gains in budget execution systems, combined with comprehensive, shared analysis and monitoring initial steps on budget planning, and to the extent of progress. However, regular PEFA assessments possible, on budget accountability (for example, do not cover certain aspects that are particularly initial supreme audit institution [SAI] develop- important in postconflict countries. These aspects ment). Even for high-potential environments, it include progress on capacity development, regu- is important not to outpace local capacity and the larity of wage payments in the public sector and political capital available for PFM reforms, as well the degree of leakage in transfers of funds versus as to support reform champions in identifying the actual execution of budgets, among others. the most urgent bottlenecks, rather than simply (vi) There is a missing link between progress on pursuing reform templates derived from elsewhere. PFM reforms and progress in improving service • Partial and fluctuating commitment to improving delivery (performance), and approaches to PFM PFM, such as in countries seeking substantial aid reforms have been relatively centrally focused in support while simultaneously facing disincentives. most countries. While most postconflict countries Appropriate strategies include a mix of rebuilding show improvements in service delivery indicators, institutions and (re)establishing basic processes, countries making more progress on PFM reforms such as a written and approved budget and budget do not demonstrate any additional benefits with execution reporting, while investing in the demand regard to these wider impacts (see table 1, columns for reforms and understanding of reform options 4 and 6). that can help address key bottlenecks among technical experts, political decision makers, and Implications for Strengthening civil society. PFM in Postconflict Countries • Weak or absent government commitment. A sensible approach is to focus on some initial steps, Implication 1: Determining (and revisiting) the while engaging in a multistakeholder dialogue on level of government commitment to reform potential benefits of strengthened PFM systems, to A fundamental initial consideration is the relative lock in at least incremental gains and seek to build strength of the political incentives driving the pursuit momentum. However, in the short to medium of PFM reforms. This seems to be the most important term, the impacts on government effectiveness and driver that distinguishes more and less successful integrity are likely to be limited (see also table 3 experiences. Specific signals of government commit- setting out possible reform approaches in different ment can be the appointment of finance ministers country contexts). 4 PREMNOTE DECEMBER 2012 Across these scenarios, the relatively high turnover Strengthening budget accountability can help to of finance ministers suggests that donor efforts have to reinforce the overall impact of PFM reforms in post- contend with a high likelihood that any potential re- conflict settings—but progress is likely to be challeng- form champion will change. The experience reviewed ing. Because they require the greatest degree of govern- indicates that many ministers of finance only stay in ment commitment, budget accountability reforms are office for one to three years. Ministers of finance may likely to remain imperfect, but should be pursued or be selected strategically as a key interface with the remain part of the country dialogue. Institutionally, international (aid) community. Postconflict countries SAIs often need to be created in postconflict environ- with consolidating authoritarian regimes tend to have ments, including the development of a legal base and longer-serving ministers of finance, but with varying of appropriate capacity. In three of the eight case and often more limited reform commitment. Fluctua- study countries (Kosovo, Liberia, and Sierra Leone), tions in commitment to PFM reforms over time, and more substantial progress was made, including with the opening and closing of windows of opportunity, establishing an adequate legal mandate for the SAIs. A should be expected. In particular, the international key additional obstacle to the effectiveness of SAIs is community should use situations in which countries the weakness of parliaments and of ex post reviews of are particularly reliant on its support wisely. Once the budget by parliament and relevant subcommittees important goals such as independence or major debt (where these have been created). Enabling an SAI to relief are achieved, incentives for pursuing systemic make its reports public can be an important measure, improvements in PFM often recede. and is also in line with international standards as for- mulated by the International Organisation of Supreme Implication 2: Working across the budget cycle with Audit Institutions (INTOSAI).3 a core focus on execution reforms Many postconflict environments offer windows of op- Implication 3: Sustained attention to developing portunity for significant progress on budget execution capacity, and a stronger link to overall human reforms and these should be used effectively. Budget resource reforms execution includes charts of accounts and budget clas- During the initial postconflict period, capacity is a sification, cash management, including the introduc- major but not a binding constraint to strengthen- tion of Treasury Single Accounts [TSAs], improved ing PFM—however, it remains a persistent feature, recording and reporting systems, and, where possible, especially in lower-income countries, and challenges FMIS and internal controls (table 2). The latter, more the consolidation of PFM progress. At early stages, advanced reform steps are likely to be feasible in coun- stop-gap measures often enable progress, particularly tries with stronger reform commitment. Extending capacity substitution through extensive use of techni- execution systems to subnational levels is important cal assistants in line positions, and/or capacity supple- to support the reach of the state as well as the state’s mentation, that is, the payment of top-ups funded actual ability to spend and to record disaggregated ex- by donor agencies. Challenges arise in transitioning penditures. The latter goal also implies caution about to more long-term solutions. Simply avoiding such excessive layers of controls. stop-gap measures does not help, because capacity For budget planning reforms, substantial engage- simply remains more constrained. Middle-income ment with stakeholders beyond the ministry of finance postconflict countries have the advantage of a greater is essential, as is avoiding overly complex approaches. general pool of available skills, out of which spe- Domestic reformers and external supporters frequent- cific PFM expertise can be developed. In low-income ly find the idea of program budgets appealing, but countries, capacity development takes a long time. actual reform practice has tended to be too complex However, dedicated approaches to build capacity in and challenging, especially for volatile postconflict Afghanistan, Liberia, and Sierra Leone have shown environments. Medium-Term Fiscal Frameworks positive results. Reforms should therefore make early (MTFFs) may be useful if the economic situation is investments to start the foundations for expanding stable and if there is an interest and basic ability to capacity and pursue these over time. Some nonfragile pursue fiscal stability with a multiyear perspective low-income countries have found schools of public (see also World Bank [2013]). Adequate participation administration and similar training institutions to of sector ministries and other stakeholders, including offer an effective means of long-run capacity develop- parliaments, is crucial for the successful adoption and ment; Liberia has initiated such an institution with implementation of budget planning reforms. some initial success (Lawson 2012). DECEMBER 2012 PREMNOTE 5 Table 2. Progress on FMIS Development Country Status of financial management information system (FMIS) Afghanistan Cash-based Afghanistan Financial Management Information System (AFMIS) implemented in 2002 for execution of operating budget, covering central government, using Freebalance software Rolled out to all 46 ministries and departments (MDAs) and 34 sub-national-level governments from 2004 to 2010 Highly centralized control in Ministry of Finance; with automated controls to ensure consistency among allotments, commitments, cash availability, and disbursements Cambodia Introduction of FMIS built into platform-approach action plan Efforts since 2006; but to date no system in place; donor procurement procedures contributed to delays Still in preparatory phase Congo, Dem. Rep. of Only basic, computerized expenditure management system since 2003/4 and payroll systems since 2006 Frequent use of emergency procedures Kosovo Kosovo Financial Management Information System (KFMIS) introduced in 2000/2001, using Freebalance software Cash-based accounting system from 2004 Supported production of regular, timely, comprehensive, and accurate in-year and annual financial reporting Liberia Implementation of an initial customized budget management package and interim commitment control system (LECAP) in 2007 Separate financial management software package (Sun Accounting system) in 2008; plans to extend Sun Ac- counting package to cover commitment control and budget module were dropped in 2009 in favor of move to comprehensive new FMIS Actual FMIS implementation and start delayed repeatedly Sierra Leone Basic Financial Management Accounting System in use from 1998 Initial FMIS developed since 2003 and in use from 2005, starting in the Accountant-General’s Department; payroll module implemented 2006 Rolled out to ministries and departments, but separate FMIS in use for subnational levels Strengthened the hard budget control by the Ministry of Finance, but expenditure control not comprehensive— personnel, statutories, and imprests remain outside the system Tajikistan Customized treasury software package operational from 2001 Introduction and installation of complementary budget information system in 2004 System upgraded in 2009 for rollout to sub-national-level governments, No full FMIS not attempted—work required on classifications, chart of accounts, and information technology infrastructure Plans for FMIS implementation by 2015 West Bank and Gaza FMIS designed and implemented from 2007 (building on local solution already in use in education sector) Processing of payments through FMIS restarted from 2008 Covered accounting functions first, rolled out to sector ministries in 2009 From 2010, FMIS used for all cash payments and commitment controls established at spending units, as well as budget module for preparation of annual budget Source: Author’s compilations. At the same time, capacity development is only Implication 4: A focus on identifying bottlenecks one part of the solution. Reforms to civil service pay and pursuing realistic reform steps rather than and management are also needed to reduce turnover pursuing optimal or standard sequences and to improve staff incentives. While such reforms Rather than pursuing a standard or optimal sequence are frequently hard to achieve, donor agencies can do of PFM reforms, it is important to support the plan- more to ensure that they are part of the reform agenda. ning and implementation of reform phases based on Some progress, for example, on pay or on integrating a clear identification of bottlenecks and with realistic local technical assistants or trainees into the regular timelines and reform steps. Reform phases may be public service, may be possible even while wider civil envisaged for as short as 18 months and for up to service reforms remain incomplete. three to four years. Shorter reform plans are likely to 6 PREMNOTE DECEMBER 2012 be best suited to early postconflict situations, followed offer an interim solution, rather than parachuting early by longer phases later on. Developing PFM reform OBLs based on international best practice, but with plans for longer than four years is often not sensible little or no domestic debate and buy-in.6 given the high likelihood that key stakeholders will In terms of institutional arrangements, the integra- change and also that reform progress will vary and tion and recording of aid in public accounts should deviate from initial plans.4 An approach that is both receive greater attention, while the integration of plan- pragmatic and evidence driven includes clarifying the ning and (recurrent) finance functions is desirable, status and key shortcomings as well as the potential to but should be pursued with care. Official development absorb change at the outset of each new reform phase, assistance (ODA) can account for half or more of to- informed by joint analytic work—rather than start- tal public expenditure in postconflict countries. It is ing from a predefined set of reforms. Furthermore, crucial to bring more aid “on budget” by capturing aid teams should consider combining a focus on selected resources in the national budget documents, and show- reform areas with greater immediate feasibility, such ing their sectoral and ideally their geographic break- as improvements in budget recording and reporting, down. At a minimum, this creates an informational with efforts in probably more challenging areas such as base that enables discussions about the allocation of starting the foundations for effective external audit or all (or at least, most) resources, national and external. discussions about how to evolve budget planning pro- The integration of institutional responsibilities for cesses. This path seeks tangible gains in areas offering budgeting—that is, merging finance and planning the greatest potential for traction while also pursuing functions where they reside in separate ministries or the groundwork for progress in complementary parts agencies—is desirable. However, donors should avoid of PFM. The aim is for the government and donors to fostering superficial “institutional charades,” and also agree on a collection of realistic step changes in PFM focus on the need to develop significant planning and within a realistic time horizon. monitoring capacities.7 Typical risks include seeking to tackle some In some postconflict countries, sovereignty over reform areas prematurely or without sufficient gov- public funds has been shared with the international ernment commitment, and overloading the reform community for a period of time (for example, in agenda. A simple formula such as “basics first” is ap- Kosovo and Liberia). Such arrangements are most pealing and has sound aspects, but it does not provide urgently needed where problems with integrity a complete solution (Schick 1998). In postconflict run deep, posing a tangible threat to the legitimacy countries, it is not sensible to delay a concern with of a reemerging state. They are most likely to be ac- improved service delivery until control over inputs— cepted by governments that have a strong incentive to in the sense of budget credibility combined with maintain a close relationship with the international internal control and audit—has been fully established community. Such temporary arrangements can have because it is likely to remain incomplete for extended positive impacts in terms of locking in some systemic periods of time. Furthermore, donors should refrain improvements in PFM systems, and can offer a win- from premature reforms, such as pushing for the win opportunity for new governments, citizens, development of an MTEF while the macroeconomic and the international community. However, exit ar- and security situations are still volatile. Priority rangements and the sustainability of improvements should be given to reforms that improve the ability require careful attention. to see what the government is spending money on There are weaker forms of such arrangements—for across the stages of the budget cycle, improving cash example, primarily covering public expenditures management, and extending systems throughout funded by aid (through fiduciary agents), regularized the country.5 sharing of actual expenditure records with donor agen- Developing new, organic budget legislation is often cies, and joint monitoring of funds reaching frontline not an early priority, and effective legislation is more providers or arrangements for strengthening the SAI. likely to be developed some years into the postconflict These may be accepted in a wider range of environ- period. Delay in reforming organic budget laws (OBLs, ments—while their effects are more limited. also called budget framework laws) typically does not Coordination of PFM reforms and their support hold back system reforms, especially reforms of bud- by aid agencies is important, even if frequently chal- get execution systems. Moreover, some delay is often lenging. A majority of governments in postconflict needed until legislative processes are in place. Where situations will have only a limited ability to take a firm no applicable rules exist at the outset, regulations may lead and coordinate donor support. The following DECEMBER 2012 PREMNOTE 7 suggestions can help meet coordination needs despite can inadvertently contribute to an overloading of the this challenge: reform agenda. (i) assistance agencies with the greatest technical expertise should share analytic work and result- Implication 6: PFM reforms to earlier and more ing reform proposals with others that also provide substantially reach into sectors and subnational substantial financing in a timely way; levels (ii) a limited number of larger and more encompass- The study identifies a missing link between progress ing support operations is preferable to the reverse; on PFM reforms and progress with improving service and delivery. This finding is in line with the increasingly (iii) upfront efforts to pool funding into larger pro- widespread recognition of and concern that PFM re- grams are preferable.8 forms tend to have an overly centralized focus. This Looser arrangements, such as coordination via tech- poses a real challenge, since improvements in service nical working groups may not be a good solution. Such delivery are part of the rationale for supporting PFM arrangements continuously absorb time, and are less reforms. To create a stronger link, it is important to likely to result in effective coordination—in particular include investments in sector PFM reforms, both in if many donors are involved, and if responsibility for design and in implementation—such as the develop- PFM programs is split between consultant teams on the ment of classifications that are accepted and actually ground, technical expert teams based regionally or at used by sector ministries to plan and record their ex- headquarters, and decision makers on aid allocations penditures. Support for PFM capabilities at subnational yet elsewhere. levels is likewise a very important investment starting in relatively early stages. As pointed out above, such Implication 5: Investing in joint analysis and investments are facilitated by larger, more encompass- monitoring of progress to guide reform efforts ing operations—possibly based on pooled funds—that Joint analysis of PFM systems and their current status can coherently cover regional governments (rather help guide PFM reform efforts. Since 2005, PEFA than multiple operations bringing varying support to has become the standard assessment tool, and one different regions). that is also useful for postconflict countries. PEFA Extending PFM reform efforts more into sectors assessments should be supplemented with analysis and subnational levels is sensible across countries, that addresses key issues of concern in postconflict even though emerging intergovernmental systems environments—such as whether pay regularly reaches differ. Such a broader approach to PFM reform poses civil servants, the level of budget execution balanced challenges, particularly for how to better link sector with risks of leakage, and particular aspects of integrat- reform processes, and assistance provided to the sector, ing reconstruction assistance. Regular monitoring is essential to observe whether the country’s PFM prog- with the development of core government systems. In ress is on track. Analytic work should extend beyond some postconflict countries, debates and policies on in- the central level and core PFM systems and also reach tergovernmental relations remain in flux for extended down to frontline units, including Public Expenditure periods of time, therefore the allocation of responsibili- Tracking Surveys (PETS), to observe whether reforms ties and fiscal resources is not stable, but evolves, often are reaching service delivery functions and to identify in fits and starts. An expanded approach should enable potential disconnects. Analysis should also be comple- greater traction in terms of translating gains on PFM mented with regular monitoring of progress and the reform into gains on service delivery. At a minimum, impacts of PFM reforms.9 Donor collaboration in joint an extended approach will enable better monitoring of analytic work, shared among donors engaged on PFM relevant links in the delivery chain, and better detection reforms and between donors and the government, is of which links in the chain are weak(est). important. This helps reduce the risk of government receiving contradictory advice and incoherent support Conclusion for reforms. Overall, countries in early postconflict periods have Furthermore, PEFA assessments and other PFM- a valuable window of opportunity for bringing im- focused reports need to be followed by a process of proved PFM system into place, but progress is uneven deliberating on implications and distilling reform pri- across countries as well as across different aspects of orities. Without explicit discussion and deliberation, PFM reforms. Going forward, it will be important to the comprehensiveness of the analytic assessments engage in continuous learning of what works, where 8 PREMNOTE DECEMBER 2012 Table 3. Key Context Dimensions and Implications Middle-income/capacity context Low-income/capacity context High reform com- Substantial PFM strengthening opportunity Same as middle-income/capacity context, plus: mitment/incentives Greatest potential for government to lead and manage Stop-gap measures to address capacity constraints are reform progress likely to be needed; these should be supplemented with Particular attention on integrity as a potential challenge efforts directed at sustainable improvements If government integrity is a major challenge, a strengthened Attention to connecting PFM and service delivery gains approach to enhancing integrity via temporary shared sov- from an early stage ereignty arrangements should be considered and proposed to the authorities Intermediate and Intermediate opportunity for PFM reform traction Same as middle-income/capacity context, plus: more volatile com- Reform steps with shorter implementation periods are Stop-gap measures to address capacity constraints are mitment preferable—and are less likely to be affected by volatility likely to be needed/beneficial if accepted; these should in commitment be supplemented with efforts directed at sustainable improvements Opportunities likely to be limited to selected aspects of the budget cycle (execution and/or preparation) Temporary shared sovereignty arrangements may be desir- able to improve integrity, but are less likely to be accepted Long-term reform plans (for example, beyond a govern- ment’s term) are unlikely to be realized Low reform com- Government likely to accept only limited support for PFM Government may accept PFM reform assistance due to mitment/incentives reforms and to engage superficially low-income situation, while failing to enable these reforms to gain traction Investments in building stakeholder interests and apprecia- tion of PFM reforms should be given priority Investments in building stakeholder interests and apprecia- tion of PFM reforms should be a priority, combined with efforts to coordinate donor agencies The combination of low reform commitment and donor involvement due to high need for assistance can generate negative dynamics Temporary shared sovereignty arrangements unlikely to be an option Source: Author’s compilation. and when (table 3). Several directions stand out as PFM reforms, and postconflict state-building. With particular important: Ana Paula Fialho Lopes from the World Bank’s Fragile (i) a focus on options for limited but tangible progress States’ Team, Verena led the cross-country study on in more difficult environments—including more Public Financial Management Reforms in Postconflict intensive knowledge transfer about what worked Countries, on which this note is based. A team from even in such environments and fine-tuning of the Overseas Development Institute led by Ed Hedger car- approaches; ried out the eight country case studies and the initial (ii) an increased focus on connecting efforts to draft of the synthesis report. strengthen PFM and achieving sustained service delivery improvements; and Notes (iii) greater attention to (a) budget accountability and 1. The cross-country study covered eight postconflict (b) capacity development for PFM that is based countries with substantial donor and World Bank on a long-term vision. engagement, including six low- income and two Efforts in these directions can serve today’s middle-income economies—Afghanistan, Cambodia, postconflict countries on their path toward greater Democratic Republic of Congo, Kosovo, Liberia, Sierra resilience, as well as countries newly emerging from Leone, Tajikistan, and West Bank and Gaza. Study conflict and embarking on PFM reforms. findings are presented in the Public Financial Manage- ment Reforms in Post Conflict Countries: Synthesis Report About the Author (World Bank 2012a). Verena Fritz is a Senior Governance Specialist with the 2. The external auditing stage of the budget cycle in- PREM Governance and Public Sector Management Unit volves a Supreme Audit Institution (such as an Office at the World Bank. She specializes in governance, of the Auditor General) and parliament, which dis- DECEMBER 2012 PREMNOTE 9 cusses and follows up on these audit findings. The role References and Further Reading of parliament is frequently still evolving in postconflict Allen, R. 2009. “The Challenge of Reforming Budgetary In- countries, and the legislature’s technical capacity and stitutions in Developing Countries.” IMF Working Paper its political clout and incentives to hold the executive 09/96, Washington, DC. to account are often limited. Dener, Cem, Joanna Alexandra Watkins, and William Leslie 3. See www.intosai.org, Principle 6 of the Mexico Dorotinsky. 2011. Financial Management Information Declaration on SAI Independence. Systems: 25 Years of World Bank Experience on What Works and What Doesn’t. Washington, DC: World Bank. 4. Platform approaches can be helpful to provide DFID (Department for International Development, UK). a longer-term indicative map of progression, but 2005. “A Platform Approach to Improving Public Finan- stakeholders should be realistic about their ability cial Management.” Briefing, London. to make very long-term commitments to a preset IMF (International Monetary Fund). 2009. Budget Classifi- reform agenda. cation. Fiscal Affairs Department Technical Notes and Manuals, Washington, DC. 5. This is consistent with the World Bank’s 2012 ———. 2011. Chart of Accounts: A Critical Element of the Public Public Sector Management Approach that advocates Financial Management Framework. Fiscal Affairs Depart- for a stronger focus on a problem-solving approach, ment Technical Notes and Manuals, Washington, DC. rather than seeking the implementation of specific Lawson, A. 2012 Evaluation of Public Financial Management institutional forms. Reform in Burkina Faso, Ghana, and Malawi 2001–2010. 6. Note that legislation frequently but not always fol- Joint evaluation report by AfDB, DANIDA, and SIDA; Stockholm: SIDA. lows established institutional legacies, for example, OECD-PDG (Organisation for Economic Co-operation and Francophone-style legislation in the Democratic Re- Development Partnership for Democratic Governance). public of Congo, UK-Anglophone traditions in Sierra 2010. Handbook: Contracting Out Government Functions Leone, but a radical departure from Yugoslav legacies and Services in Post-Conflict and Fragile Situations. Paris: in Kosovo. OECD. Pattanayak, S., and I. Fainboim. 2011. Treasury Single Account: 7. Among the eight case study countries, four had An Essential Tool for Government Cash Management. IMF merged planning and finance functions into one min- Technical Notes and Manuals, Washington, DC: IMF. istry of finance by 2010, and five by 2012. However, Schick, A. 1998. A Contemporary Approach to Public Expendi- several nonfragile low- and middle-income countries ture Management. Washington, DC: World Bank. http:// www.5m.com.tr/en/kaynaklar/AcontemporaryApproach- have unmerged these functions in recent years, for toPublicExpenditureManagement.pdf. example, Cameroon and Mongolia, suggesting that World Bank. 2012a. Public Financial Management Reforms in mergers may not be permanent, especially if under- Post-Conflict Countries—Synthesis Report. Washington, DC. taken in reaction to external incentives and demands. World Bank. 2012b. Beyond the Annual Budget: Global 8. Smaller contributors may be willing to bring their Experience with Medium Term Expenditure Frameworks. Washington, DC. funding into a larger pool. World Bank. 2012c. The World Bank’s Approach to Public Sector 9. This can entail annual monitoring of results, such as Management 2011–2020: Better Results from Public Sector a decline in deviations between planned and executed Institutions. Washington, DC. budgets (along the lines of PEFA performance indica- World Bank. 2013. Beyond the Annual Budget—A Review of Global Experience with Medium-Term Expenditure Frame- tors 1 and 2); as well as intermediate results such as works . Washington, DC. http://www.amazon.com/ the actual and correct use of expenditure recording Beyond-Annual-Budget-Expenditure-Development/dp/ systems by various sectors. 0821396250#reader_0821396250. This note series is intended to summarize good practices and key policy findings on PREM-related topics. The views expressed in the notes are those of the authors and do not necessarily reflect those of the World Bank. PREMnotes are widely distributed to Bank staff and are also available on the PREM Web site (http://www.worldbank.org/prem). If you are interested in writing a PREMnote, email your idea to Madjiguene Seck at mseck@worldbank.org. For additional copies of this PREMnote please contact the PREM Advisory Service at x87736. 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