2011 Recent Innovations in Public Financial Management and Procurement PDF

Innovative Trends in Public Governance in Asia
A.-V. Anttiroiko et al. (Eds.)

IOS Press, 2011
© 2011 The authors and IOS Press. All rights reserved.
doi: 10.3233/978-1-60750-729-1-24
Recent Innovations in Public Financial

Management and Procurement

Clay G. Wescott1
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erned. The following chapter begins with the question: How have global economic
governance regimes affected the development of public governance in the region?
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at how external forces have affected the redesign of governments and governance
models. It draws on evidence from recent evaluations of World Bank and other
international partner support to understand why governments and their international
partners fostered certain types of innovations, including participatory expenditure
reviews, use of performance information, accelerated disbursements, cutting costs
through tighter central controls, hard budget constraints, medium-term expenditure
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ment information systems, contracting out public services, merit-based posting of
staff in key positions, and salary top ups. It examines what advances have been made
and the challenges faced. It concludes with suggestions for further research.
Introduction
Asia’s success at promoting economic growth and poverty reduction is well known. Sus-

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since the 1990s, has transformed the region. The East Asian region led the world in 2009
Copyright © 2011. IOS Press. All rights reserved.
with its 7% p.a. growth rate, and South Asia was the second-fastest growing region at
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in poverty, dropping in East Asia from 55% to 17% (headcount index, based on $1.25 per
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poverty reduction is unprecedented in world history, and considerable scholarship has
gone into understanding the explanations for it. Among the reasons that have been put
forward are sound macroeconomic policies, substantial and well-planned infrastructure
investment, able coordination between business and government, rapid increases in the
quantities of physical capital and labor, and increases in total factor productivity (World
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or the governments they represent.
Innovative Trends in Public Governance in Asia, edited by A-V. Anttiroiko, et al., IOS Press, 2011. ProQuest Ebook Central,
http://ebookcentral.proquest.com/lib/auckland/detail.action?docID=784596.
Created from auckland on 2019-04-10 23:51:32.
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Young 1995).
These outcomes were accompanied, particularly in high growth East Asian countries,
by the governance model of the “developmental state”, which promotes rapid economic
growth and poverty reduction through deliberate state policies. A key factor in this model

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nanced by short-term, external debt, the darker side of business/government cooperation

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accountability in government. In the years since, countries in the region have made major
strides in addressing these challenges through governance innovations, though consid-
erable work remains (cf. Wescott, Bowornwathana & Jones 2009; Bowornwathana &
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The following will try to better understand how and why these recent innovations
have been rolled out, with a particular focus on how global economic governance re-
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procurement (PFMP), looking at how external forces have affected the innovation in this
area. It draws on evidence from recent evaluations of World Bank and other international
partner support to understand why governments and their international partners fostered
certain types of innovations, and the advances made and challenges faced. It concludes
with suggestions for further research.2
Global economic governance regimes
Global economic governance regimes are increasingly affecting governance innovation

in Asia, as they are in other parts of the world. International development agencies and
other investors want comparative governance measurements to help in making sound in-
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mainly on per capita income and population. Poor countries tended to get more aid per
capita than better off ones, and small countries more than larger ones (both to compensate
them for increased risks, and because the cost of running an aid program in a country
dictates a minimum expenditure level, leading to the highest aid allocations per capita in
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more carefully, and is supplemented by foreign investment from state-owned companies,

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tracted to countries meeting certain international governance standards.
To measure adherence to these standards, international agencies carry out govern-
ance assessments to understand the informal practices as well as formal rules, and insti-
tutional and political contexts that shape governance processes (DfID 2007). Schneider
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and interpretive, each with advantages and disadvantages. Quantitative studies such as
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Binder et al. (1971), Kaufmann et al. (1999a; 1999b; 2002; 2003; 2005; 2009) and Inter-

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and comparability over time and across regions. Comparing governance components in
a country over time, they can indicate progress; comparing countries at the same level
of development, they can indicate weaknesses that could be prioritized for reform. How-
ever, the accuracy of such indicators can be contested. The construction, aggregation
and weighting of governance indicators may not be grounded in explicit theory, and may
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others argues that some countries can develop fast with weak governance institutions. In
others, rapid development makes governance worse for some time, though the pendulum
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about which institutional innovations can work best and in what sequence, given a coun-
try’s circumstances.
Among other challenges of such surveys, those surveyed may have professional or
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lack of knowledge of the place or issue being assessed (Besancon 2003). Errors can also
come from lack of: controls for language, culture and context to ensure that questions
are answered in the same way; appropriate assessment of measurement error; stability
of questions over time; stability of countries measured; and clarity in reporting and in-
terpretation of changes in absolute vs. relative levels of performance (Hood et al. 2007).
Arndt and Oman (2006) argue that the aggregate indicators could be presented in a more
transparent manner, and their conclusions drawn from “expert” surveys checked against
parallel surveys of other stakeholders.
Qualitative studies (e.g. World Bank, ADB & DfID 2005 and Wescott 2001b) take
a comparative and historical view to understand in rich detail the context, sequence of
changes, and externalities that produced the governance structures and political culture of
a given country. Case studies highlight lessons such as the importance of clear political
direction and support to drive reform and innovation forward (Dixon 2005). Analytical
frameworks can be used to assess where a country is on a continuum of state strength
and capacity, which can in turn help to identify reform priorities (Grindle 2007). Other
tools take interview data from country experts, and analyze it using simulation software
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others 2002 and SIDA 2006 carry out such analysis without the software; see Marquette
& Scott 2005 for the limitations of these approaches). Deleon and Resnick-Terry (1999)

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scholars turned their attention to mapping the intricate sequences of governance reform
a country has gone through, and what are the appropriate next steps, given the complex
interactions that have happened already. The disadvantage is that there are too many
variables with too many complex sequences to do time-series or cross-country compari-
sons of the type done in quantitative studies; thus quantitative studies have again become
prominent from the mid-1990s to today.
Interpretive studies start with the question of what is the meaning of governance or
a component of such in a particular context, and then how can it be improved on these
terms. These studies have the advantage of taking a fresh, innovative worldview, but
may not allow for hypothesis testing as in quantitative studies. For example, Kaul (2006)
posits a seismic shift where nation states are morphing to become “intermediary states”,
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needing to respond to both domestic and external policy demands, including competitive
pressure from other states seeking mobile factors of production. Traditional state func-
tions are being taken over by multinational businesses and public-private partnerships.
Regional and global public goods are getting more attention. Public governance in Asia is
evolving and adjusting to these trends.
Another issue arising from this work is the evidence that international assistance can
have the unintended consequence of weakening governance, because governments can

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need to provide a conducive business climate, and to provide accountability to their citi-
zens3 (though they may be held accountable by international donors) (Brautigam 1992;
Craig & Porter 2003). Aid can divert scarce skills from government, encourage corrup-

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can also weaken administrative effectiveness through high transaction costs, the fragmen-
tation and weak coordination of donor projects, the lack of integration in the budget pro-
cess, moral hazard, soft budget constraints, and unrestrained future claims on recurrent
budgets to maintain donor investments (Knack 2001, Godfrey et al. 2002, Brautigam &
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Using International Country Risk Guide (ICRG) governance data, Brautigam and
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ing ICRG data to argue that more aid may be associated with less corruption, perhaps
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effect on rule of law (negative effect from technical cooperation) and on voice and ac-
countability (positive effect from proportion of grant element).

One aspect of public governance being increasingly monitored by international agen-

cies is the manner in which public resources are used by governments. The goal is to
strengthen a function central to economic development and poverty reduction, and to
help to mitigate the negative consequences of aid discussed above. PFMP includes agree-
ments about what resources become public revenue or assets, how they are allocated, who
is held accountable for the results of these decisions, and by what means accountability is
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cation and accountability processes. Asian jurisdictions typically include some public re-
sources in such systems, and exclude others. Revenue may be included (trade and income
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taxes) or excluded (speed money, bribes to secure contracts, proceeds of government

land and natural resource sales, and funds from donors). Expenditures may be included
(education and health), included with minimal details (military) or excluded (contingent

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exclusion, and the processes used for managing both types of revenues and expenditures,
may be very different from country to country, depending on geographic size and fea-
tures, the balance of power among contending parties, historical path dependence, level
of economic development, the scale of external assistance and history of engagement
with donors, the role of natural resource extraction and narcotics, and institutional and
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strategic resource allocation, good operational management, and due process (Campos
& Pradham 1996), and give at least lip service to principles of good governance such as
accountability, transparency, predictability and participation (Asian Development Bank
1996).
We will now seek to better understand some of the international debates that have

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evidence of what innovations have been carried out, the impact of these innovations, and
some remaining challenges.
Key debates
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OECD experience

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improving performance are recurring themes in these countries (see, for example, Hoover
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factors such as the increasing portion of budgets earmarked for entitlements and debt
repayment (Schick 2009).
Public expenditure cuts were part of the loan agreement between the Government
of the UK and the International Monetary Fund (IMF) in 1976, and spread to most Or-
ganization for Economic Co-operation and Development (OECD) countries, along with
a corresponding concern for getting greater value for money. These challenges may have
been exacerbated by a crisis in legitimacy, with declining public trust in the ability of
government to effectively manage public affairs and solve socio-economic problems.
Countries responded to these pressures by moving beyond past practices of approv-
ing, tracking and accounting for annual spending on inputs, to more systemic and in-
tegrated approaches of strategic allocation, operational management, and performance
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management” (Hood 1991) and related formulations (Osborne & Gabler 1992; Mintzberg
1996; Hatry 1999; Moynihan & Ingraham 2003; Foltin 2005).
The innovations adopted included, inter alia, cutting costs through tighter central
controls, hard budget constraints, multiyear budgets, greater use of performance informa-
tion, accrual accounting, performance auditing, computerized information systems, and
enhanced use of market mechanisms.
A challenge for PFMP innovations is to achieve maximum transparency. This is en-
hanced through a single budget document including all policies and assumptions that
is available to the public and that allows independent agencies to verify forecasts and
projections of the budget impact of taxing and spending (Alesina & Perotti 1996). As
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funds in activities in their budgets (OECD & World Bank 2003: question 5.2.b). A related
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the budget process (Tanaka 2007).
A challenge in analyzing these innovations is that the reform claims of governments
are often far ahead of actual implementation. Budgeting is a political process, and an-
nouncing that reforms are underway is far easier than actually carrying them out. A review
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panding use of information technology, but a reduced emphasis on priority rankings and

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because, inter alia, systems are: “…too ambitious, too cumbersome, and too distant from
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work better in some departments and for some programs than others, and they did leave
a useful residue of data and analytical capacity” (Pollitt 2001). Further, while there has
been a heightened discourse and better tracking of inputs and outputs in many jurisdic-

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Developing country experience

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tal investments governments were seeking to make. The United Nations started offering
advice on tax administration in the 1950s, the US Foreign Tax Assistance Program was

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on taxation, public budgeting and accounting. The Musgrave Commission in Colombia
came up with a revenue target as the difference between private savings and foreign in-
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(Goode 1993), building on the dominant thinking of the time of state-led development.
On the expenditure side, a host of challenges gained attention largely following the

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penditure and resource planning (e.g. weak priorities and linkage with macroeconomic
framework), inconsistent budget structures (e.g. inconsistencies and weak links between
capital and recurrent budgets), budget implementation (e.g. weak cash management) and
accounting and reporting (e.g. absence of commitment accounting), and selective innova-
tions to improve performance and allocation.
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duced during the crisis needed to be replaced in many cases with decentralized controls

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This also linked with greater citizen demand for improved service delivery and greater
accountability for results through contractual and other mechanisms (Premchand 1990,
31–7). Countries also sought to reduce high, progressive income taxes, import duties and
export taxes and replace them, for example, with a value added tax that would help facili-
tate market directed allocation of resources, while being broadly politically acceptable,
and administratively feasible (Goode 1993).
These demands from the developing world were a response in part to the recent
thinking in OECD countries outlined above on how to adapt new tools to carry out delib-
erate changes in the structure and processes of the public sector to get them to run better.
Development agencies also changed their views over this period, increasingly re-

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the development results from these resources were likely to be less than desired. Do-
nors became increasingly aware that the distinction between development and recurrent
spending was less important than once thought: teachers’ salaries were just as important
as school construction for achieving education. They realized that project-centered aid

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opment required not only physical investment, but also good public sector management
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There was increasing awareness that outcomes depend on the nature of budgetary
institutions (von Hagen 2005), and that governments need not only a strong budgetary
authority, but also a capable legislature, in some cases supported by civil society budget
groups (Krafchik 2003; Lienert 2005; Robinson 2006; DfID et al. 2007). There is some
evidence of recent increasing work by multilateral donors in these areas (Santiso 2006).
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novations, often with support from the World Bank and other international partners. The
following will assess various aspects of these innovations to get a sense of progress to
date, and remaining challenges.
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Diagnosis and strategy
There has been a sharp increase in the scale and depth of diagnostic work in the region,
with support from the World Bank and other partners. In the 1990s, the Bank helped gov-
ernments through public expenditure reviews (PERs), technical assistance, and invest-
ment and program lending, often in cooperation with partners such as the IMF and the
United Kingdom’s Department for International Development (DfID). PERs (formerly
Public Investment Reviews) had evolved to assess both investment and current expendi-
ture, in line with the realization that both types of spending made vital contributions to
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of resources consistent with policy priorities (budget making), with little direct attention
to operational management (budget execution).
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of the institutional context, including the process of budgetary decision making and dif-
ferences between formal and actual practice, and this improvement has continued to the
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paper, international benchmarks, indicators and related reports have emerged to enhance
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Codes from 1999, the Highly-Indebted Poor Country Tracking Assessment And Action
Plan (World Bank & IMF 2006), the Public Expenditure and Financial Accountability
(PEFA) Framework (World Bank 2005d), and the Open Budget Indicators. These can
be termed “second generation” governance indicators. In comparison to broader govern-
ance measures such as those of the World Bank Institute and Transparency International,
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transparent in composition and aggregation (Knack et al. 2003). This work has been use-
ful in identifying reform challenges across countries in a consistent manner. Additional
diagnostic reports have been added giving focused attention to certain aspects, including
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tools from other donors such as European Commission (2001) Audits and Assessments of
Fiduciary Risk (see Annex 1 and 2 for comparative coverage of indicators and reports).
Many of 19 Institutional and Governance Reviews completed by the Bank from 2001 to
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Analytical work of all types has increased over the period under review. The number
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observance of standards and codes from 1 to 110, and other studies from 3 to 19. These
studies increased as a proportion of total analytical work by the Bank from 11 percent
to 15 percent over the same period. A common weakness of these reports is inadequate
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governments is reportedly the Code on Fiscal Transparency (World Bank & IMF 2005).
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side, PERs have more variation in coverage than other types of reports, but have generally
increased the extent of analysis over the review period since the 1990s, with a particular
emphasis on the budget formulation phase. Provincial PERs introduced in some coun-
tries also include useful analysis and recommendations (e.g. World Bank 1996a; 2005c;
2006a).
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quality, with steady improvement in quality noted following publication of respective
guidelines, and increasing donor collaboration. However, as previously noted by Al-
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among units preparing them, and avoided confusing situations of clients getting multiple

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work that considers the impact of corrupt practices, a strengthened role for country and
other donor stakeholders, and more indicators to track and measure results and reform
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curement reviews contribute to a greater focus on PFMP in subsequent country assistance
strategies, and that they contribute to increased PFMP lending. Assistance strategies in
13 of the 22 countries proposed development policy lending with PFMP prior actions
and conditions, while only four strategies proposed such lending prior to the completion
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strategies with proposed PFMP investment lending than was the case previously.
And yet, risk assessments were not always the primary consideration in the choice
of instruments in country strategies. For example, Bangladesh received budget support

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clear evidence that budget support was more susceptible to corruption than other forms of
aid (IDD and Associates 2006).
A particularly notable addition to the toolkit is the PEFA Framework, being imple-
mented through a partnership of eight cooperating development partners including the
Bank. 56 countries have completed one or more PEFA assessments and authorized them
to be published on the PEFA website (PEFA Secretariat 2010). PEFA Framework includes
a set of dimensions and indicators for measuring performance, and a framework for re-
porting. Building on the three budgetary outcomes discussed above, the indicators and di-
mensions measure progress in six broad areas: budget credibility, comprehensiveness and
transparency, alignment with policy, predictability and control, accounting and reporting,
and external scrutiny and audit. Although there is not a PEFA indicator for corruption, im-
provements in certain dimensions can help reduce opportunities for corruption. PEFA and
other related tools are useful because they measure actual practice, rather than perception
or reputation, and they look at actions that would be the immediate objectives of reform.
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assessments has improved diagnostics over time, and particularly since 2000. For exam-
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Bank 1999) provided detailed analysis of challenges and many good recommendations.
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Because Cambodia was a relatively new client where it was judged a participatory PER
wouldn’t have been feasible, the PER was done entirely by Bank staff. Although of over-
all high quality, there was no time-bound, plan for carrying out the recommendations.
There were also important areas omitted from the analysis. For example, cash manage-
ment problems in Cambodia resulted in part from the need to pay arrears accrued in the
previous year with current year budgets. As a result, current year commitments couldn’t
be paid, and became arrears for the following year. Cash shortages were exacerbated
by the ability of powerful Cambodians to reduce or avoid taxation. Although revenue
estimates took these factors into account, the timing of revenue collection was highly un-
certain. This, in turn, led to a situation where the bulk of expenditures were made in De-
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year. This problem wasn’t acknowledged in the PER, nor was it understood during IMF
diagnostic work at the same time, in preparation for the IMF-led, multi-donor Technical
Cooperation Assistance Program. Partly as a result (other factors included weak donor
coordination, and partial understanding of innovations by key counterparts), innovations
to improve cash disbursements over the next few years delivered fewer results than ex-
pected until technical advisors and their counterparts realized the extent of the problem
and took action (IMF 2005).
The Cambodia Institutional and Financial Assessment and PER combined a more
comprehensive analysis and recommendations (e.g. the arrears problem is fully dis-
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on top of 15 ongoing reform activities. The review was a joint document with the Asian
Development Bank, and had participation from other key donors as well, along with gov-
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ambitious agenda could only succeed with careful prioritization and sequencing, particu-
larly when one considers recommendations (to an extent overlapping) from other studies,
such as the 11 recommended actions for procurement reform in the procurement review,
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formance Review. Many recommendations suggested adopting participatory approaches
to foster demand for transparency and accountability.
Mongolia’s PER acknowledges Government intentions to build a performance-ori-
ented public sector through advanced tools such as performance-based pay and contracts,
performance-based budgeting, accrual budgeting and accounting, and performance moni-

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procurement and asset management, and second on basic performance management steps
including budget planning and output costing. And it recommends piloting these basic
improvements in a promising, service-delivery ministry or agency (World Bank 2002b).
In another example, a PER for Bangladesh (World Bank 1991) focused on two of the
three PFMP priorities (Campos & Pradhan 1996): allocation of resources consistent with

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erational management is a two page section, admittedly very preliminary in nature, await-
ing decisions by the government, listing the broad responsibilities of key government
departments. This PER is cited in the President’s Report of the Bank’s only public sector
reform adjustment operation of that decade, the Public Resource Management Credit
(World Bank 1992), along with the previous PER and related studies.
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The next Bangladesh PER (World Bank 1996c) had a similar focus, but an expanded
(7 page) institutional section with recommendations on improving budgeting, account-

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These recommendations were not addressed by Bank projects in the late 90s, since there
weren’t any, nor were they mentioned in the PER update (World Bank 1997), but some
were addressed by DfID support. At least one recommendation was successfully imple-
mented with help from the Innovations in Budgeting and Expenditure Control project
(1996–2002), supported by DfID: greatly improving accuracy and timeliness in the pro-
duction of accounts, budget reports and budget presentations, allowing actual expendi-
tures to be compared with budgets at the ministry and national levels (World Bank 2002a,
"'
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Government of an independent Public Expenditure Review Commission, charged with
reviewing all aspects of public expenditure and reporting to the government and Parlia-
ment. Yet, the 2003 PER points out that most of the key institutional recommendations of

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2003b, 25). The section on core institutional issues is expanded to 21 pages, including
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PER had incorporated an excellent diagnostic of institutional challenges, and a menu
of innovations to tackle them. However, there was no indication of the institutional and
political economy barriers to change; nor was there a change management strategy that
could be used to successfully implement the recommendations6. An investment project
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in the PER, but again the change management strategy isn’t clear for combating political
economic barriers to change (some are listed as “critical risks and possible controversial
aspects”, but there is no indication of how the risks will be addressed).
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rated “B”, providing a foundation of good practice to build on. Recommendations are
given on how to improve Bangladesh’s ratings for the lagging indicators, and many are
incorporated in a government action plan (Government of Bangladesh 2006). However,
there is no guidance offered by the Bank on political economic barriers likely to constrain
future reform implementation, and how to address them.
Another aspect of diagnostic work has tried to increase country commitment to

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modest impact on Bank lending, borrower systems, and aid coordination since borrowers
viewed PERs as an internal Bank process, not useful to them. It recommended, inter alia,
greater demand responsiveness and sensitivity to political and institutional constraints.
Subsequent World Bank (2001a) guidelines recommended, where appropriate, substan-
tial participation by clients in PFM data-gathering and analysis to facilitate ownership
by clients of the results of the analysis. They further recommended work to strengthen
weak domestic external review capabilities of local research institutions, NGOs and of
agencies outside the executive. Where such constituency building is not acceptable to
5 For broadly similar recommendations, see also Public Administration Reform Commission 2000.
6 For a review of theory and practice that could inform Asian governments on PFMP change management, see
Fernandez & Rainey 2006.
^_>_` {#
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the executive, only highly focused analytical tasks should be undertaken where there is
strong demand from the executive and a credible commitment to implement reform, with
the example noted of the 1997 China PER.
Fiduciary and procurement reviews also try to bring in stakeholder participation,

4
=

3
=
' -
#7&
4 4

3
4
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=

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=

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The 2000 Vietnam PER is another example of a Bank-led participatory PER. The
concept paper for the PER incorporated inputs from all major stakeholders, and a coun-
=443
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consultants, worked closely with the Bank PER team. Workshops were held to review the
Y#

=4
=#4

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3
one-day plenary workshop bringing together all key stakeholders. Although this process
resulted in Government ownership, this came at the expense of some narrowing of top-
ics, moderating of recommendations, and some additional cost. The participatory process
was further developed in the Vietnam PER of 2005 (Government of Vietnam et al. 2005a;
2005b), which pulls together a more comprehensive diagnostic picture than the previous
PER. Discussions are ongoing with the Government on a possible PEFA; among Govern-
4
$

Y>
=
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of budget support. The Vietnam case could be an example where seeking full diagnostic

=4$$ ==
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7&&"'+-
mains to be seen how much actual implementation of innovations will follow from this
participatory, diagnostic approach.
Bangladesh is a case where the Bank has sought to broaden participation in analyti-
cal work to civil society and think tanks. The World Bank (2001b) stated the intention
of, inter alia, effective dissemination of analytical work, enabling more informed public
debate, and using ‘citizen scorecards’ to monitor performance.
There is some evidence of this in consultations with civil society groups during the
preparation of the Interim Poverty Reduction Strategy Paper, and the incorporating of
labor concerns in the design of the state owned enterprise retrenchment program (World
@7&&#7%"'+ 4 #

=88
4
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4

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cedures, reportedly helped build support for passage of the procurement law, and to help
ensure effective implementation. Success factors included: competitive selection of par-
ticipants, well-targeted incentives (top performers sent to follow-up course in Italy pro-
vided by the International Labor Organization), trainer-trainees contributed to design of
training, and use of participatory didactic techniques. Training was managed by the Cen-
tral Procurement Technical Unit, which also monitored how trainees used skills learned
on the job following training. A local training institute successfully took over the training
after the initial phase. Multiple forms of monitoring and evaluation helped measure the
extent of learning, behavioral and organizational change, and used this to modify and

4 @7&&%$#&"'
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4

by the World Bank did not improve in Bangladesh. Possible reasons include the fact

=
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country; their main incentive is that their manager(s) see(s) it done and consider(s) it to be
of high quality. This is part of a broader issue that under matrix management, according
to Bank staff, the Bank has gotten better at building cutting edge skills, but worse at in-
tegration of knowledge in support of operations at country level. There is also reportedly
low awareness among Bangladesh-based staff of the potential contributions of NGOs
and other actors, concern among Bank staff that such work might constitute political
lobbying forbidden by the Bank’s charter, a feeling among NGOs themselves that they
couldn’t contribute on core governance issues, and threats to NGOs that criticizing the
=44 $

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for alleged links to opposition parties). Recognizing these shortcomings, the 2006–2009
=

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determined effort to expand demand-side approaches to build a broad, national consensus
for innovations.
Design and implementation of PFMP innovations
Going along with the increases in analytical work was a sharp increase in PFMP lending
$@

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has been an increase in total Bank support in the area, and within this, an increase in de-
velopment policy (adjustment) lending. The number of worldwide with substantial PFMP
4 7! ="
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%]
1999 and this increased to about 67 percent during the years 2000–2006. The number of
PFMP conditions increased from 719 over the period 1990–1999 (or about 72 per year) to
1,770 over the period 2000–2006 (about 253 per year).7 Institutional development grants
Y/Y
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7&
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percent of the total number of grants. If one multiplies the commitment amount of each
loan times the share designated as a PFMP theme, the amount we can attribute to PFMP

=
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to 5.66 percent of total World Bank lending. Furthermore, the number of PFMP-focused

=
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applicable developing country settings, and the extent to which they been appropriately
adapted to local conditions. The evidence is mixed.
For example, Vietnam started piloting medium-term expenditure frameworks with
@
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484 3 4 4
= =-
ment spending. Reportedly, these reform processes are helping policy makers become
more aware of mismatches between resource allocations and intended results. However,
7 This listing includes a large number of “Desired Action” conditionalities. If one removes this group, the
4$

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in 2000–06 (about 117 per year).
^_>_` {#
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additional work is needed on improving investment appraisals to achieve greater develop-

ment effectiveness%
` @{ %# %" Public Expenditure Management Handbook begins
$
=¢=
=$

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should control inputs before seeking to control outputs, account for cash before moving
to accrual accounting, and operate a reliable budget for inputs before moving to budget-
ing for results, a comprehensive budget and reliable accounting system before trying

=3
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=
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trying performance auditing (see also Shand 2001; Diamond 2006). Yet, overemphasiz-
ing budget basics can lead to a control-oriented approach that hinders deeper innova-
tions (Andrews 2006). For example, in Timor Leste, overly centralized procurement and
transaction level controls in recent years, combined with weak capacity, have prevented
substantial budgeted funds from being spent (Linpico 2007, 15).
While there is evidence from country cases where governments gave proper attention
to basics in some cases, there are other cases where this was not the case. For example,
in Indonesia, the World Bank (1996b, 2, 5) helped introduce modernized government

= 4
=
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ports produced by the systems are still inadequate both in terms of quantity and quality

& &

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result of this sub-project component can be evaluated only when the systems have been
implemented in all government agencies in all the 27 provinces which is not expected to
happen before the year 2000”.
The systematic roll-out of the new computerized system was not achieved under a
8
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=4 4$

3
were carried over to the second, including the use of double-entry bookkeeping, separa-
tion between capital and current budget items at the program level, and requiring cooper-
ation of spending units to verify data and provide quick feedback on errors. In 2002, after
12 years of reform, the old manual system was still widely used to prepare State Budget

|
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Bank (2007) to comprehensively analyze the quantitative dimensions of budget perfor-
4 # 4 7&&!
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government is proceeding to adopt advanced practices including accrual budgeting and

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of OECD experience with these tools by the World Bank (2000a); by contrast, the latest
PER urges caution in implementing these tools, given the severe capacity constraints
(World Bank 2007, 99).
Another example of over-ambition is reportedly the Indonesia’s Bepeka Audit Mod-
ernization Project, which depended on strong support of key stakeholders; yet Parliament,
<
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on audit reports (World Bank 2005b). Improving and sustaining performance using ad-

3
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rules: for example, sticking to the budget, and following personnel regulations.
%Y44

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Another question to ask is: What are the advantages of supporting initial diagnosis
and innovations at sectoral vs. central levels? The Priority Action Program in Cambodia
is an example with partnering between central and line ministries for improved PFMP,
supported by the Bank and other donors. It builds on the experience of the 1996 Acceler-
X

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} 4
$-
ments to districts health programs through an imprest-like system, shifting from pre-audit
to post-audit of spending. The Priority Action Program, recommended by the 1999 PER
and launched in 2000, scaled up this effort, and expanded it to education, agriculture and
rural development. The result has been better alignment of funds to policy objectives, and
faster disbursement in some operational units. A study of health performance in prov-
inces with and without the program found mixed results, while an education ministry
study found much lower repeat rates for students in provinces having the program. Cash
management challenges such as erratic and delayed disbursement have prevented these

4
==
4 @>X@7&&#]]"'
A related Cambodian initiative supported the contracting out of government health
services to NGOs, an innovation informed by OECD thinking discussed above. A rand-
omized, controlled, study found a one baseline standard deviation improvement in tar-
=4
$

78
#
$#

supervisory visits) in participating districts relative to comparison districts. Government
health funding increased in participating districts, while private expenditure decreased by
about the same amount as residents moved away from unlicensed drug sellers and tradi-
tional healers to government clinics (Bloom et al. 2006).
Another sectoral initiative in Cambodia was the piloting of nascent mid-term ex-
penditure frameworks in education and health with IMF and other support; this experi-
ence is being scaled up to other sectors with support from the Bank and other partners.
Bank staff working on Cambodia underlines that support from the Ministry of Finance
and Economic Planning has been crucial for these sectoral interventions to succeed. Core
ministries need to provide space for sector innovations which then may succeed if the
sector ministry has capacity. These innovations work best in Education and Health, less
so in Agriculture and Rural Development.
Subnational reform has also received Bank support in India. For example, State Fi-
nancial Accountability Assessments were carried out in Andhra Pradesh (jointly with
DfID) and Orissa, followed up by lending to support subnational innovations. Despite

=#
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= 3

4-
proved revenues and transparency in both states, and improved budget execution and
4

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need for strong analytical underpinning for designing effective state level policy based
lending, and the importance of taking political economy factors into account.
> @ $
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lending instruments since 2000, and whether these instruments have been effective in
achieving successful innovations. For example, Indonesia’s Government Financial Man-
agement and Revenue Administration Project is an adaptable program loan with three

=
7&&7&7'`3 4-
tems; budget preparation and execution; public procurement and implementation of pub-
lic sector accounting standards; and the strengthening of the oversight of budget formula-
tion and execution. Although some components have preceded well, the main component,
^_>_` {#
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a new treasury system, was delayed due to procurement issues, an issue with IT-related
projects discussed in the previous section. The delays stemmed from, inter alia, an overly
complex project design, limited availability of counterparts, and mistrust between client
Ministry and the Bank. A more perceptive capacity assessment during loan preparation
could have anticipated these issues, and suggested alternative implementation arrange-
ments that might have prevented ensuing problems (Serame 2007).
Overall country outcomes
>
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4-
=4

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improved outcomes. Yet there is some evidence to consider. For example, one can look
at countries where the Bank has offered PFMP lending, which in turn is generally backed
up by PFMP analytical support by technical assistance provided by the Bank or other
partners. Out of 75 countries worldwide where the Bank provided PFMP assistance after
1999 and for which Country Performance and Institutional Assessment (CPIA) data is

$
7&&\5%\ "
4 4$7&&\
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mance, 11 (15 percent) showed no change, and 16 (21 percent) showed a deterioration9.
However, there is evidence that some of this improvement may stem from broader forces
(e.g. global and professional standards, business lobbying) leading to improvements in
weak performers. For example, out of 22 countries with 1999 CPIA scores on PFMP at or
below 3.0 (out of a possible 6) where the Bank didn’t provide PFMP assistance (again, for
those with CPIA data in 2006), 7 (32 percent) showed an improvement in PFMP perfor-
4$*Y+>#7 " =#\7% "
a deterioration.
Based on a simple Ordinary Least Squares (OLS) regression, the presence of Bank
Y/Y

=
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Y/Y
between 1999 and 2006 after controlling for the initial CPIA level. However, one should
not, at this stage, interpret these as the causal impact of PFMP projects. These results are
$=
#

=
3

=
4
=
impacts of the programs, nonrandom selection of countries for PFMP support, bias that
result from the selection of the countries that do not receive CPIA ratings, omitted vari-
able biases (e.g. changes in incomes, governments, and so on), and the lack of informa-
tion about non-World Bank supported innovations, and other considerations.
Innovation processes can be further understood by looking in more detail at data at
the country level. For example, in 2002, Cambodia met only three of the Highly-Indebted
Poor Country PFMP benchmarks. A ten-year reform program was approved by the gov-
4
7&&
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four successive reform episodes, where each episode creates the basis for launching the
' 4=
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4
6.9 percent (2003) to 2.6 percent (2006). An assessment in 2005 found that Cambodia
now met 5 of the benchmarks, a modest improvement (IMF & World Bank 2005; World
9 13 countries do not have CPIA data in both years. These are excluded from all totals and percentages. Only
data since 2005 are publically available.
& ^_>_` {#
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Bank & IMF 2006.). Among the reasons for the relative success (e.g. in comparison to
civil service innovations) seems to be merit based posting of staff in key positions, good
team leadership in the Ministry of Economy of Finance, and incentives for these key peo-
4

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privileged information, help for family members in setting up businesses). In addition,
two and one-half years of diagnostic work, dialogue and strategy formulation bringing
together government, and critical mass of donors led by the Bank, helped to clarify clear
reform responsibilities within government and coordination within and across govern-
4'*4$
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lay out key priorities in a time-bound plan. It has become a promising foundation for a
multi-donor effort to provide support, and helped to deliver a modest improvement in per-
formance in 200610. However, the suspension of salary tops for 2010 has slowed the pace.
The merit pay initiative reportedly had a broadly favorable impact on staff motivation and
performance. However, there were issues of jealousy among staff not receiving top ups,
which likely contributed to the suspension. In addition, others found that that extra pay
from salary supplements may have to be shared with supervisors, so that the value of the
incentive to improve staff performance may have been reduced (Pak et al. 2007).
There is further evidence that Bank interventions in some cases avoided unintended
consequences from past practices, while in other cases created unintended consequences
from the new approaches. For example, the Bank has worked aggressively to investi-
gate allegations of corruption in Cambodia concerning procurement in Bank projects; but

= 3
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mentioned as a risk in a demobilization project (World Bank 2001) (nor does the word
appear anywhere in the appraisal document), there was a declaration by the Department
of Institutional Integrity in June 2003 of mis-procurement of motorbikes for demobilized
soldiers by the Project Implementation Unit. On the plus side, the Bank provided the
Government with the full report of the investigation. The Bank debarred the consultants
concerned from future Bank work, and received accelerated repayment from the govern-
44
4;¥7'%4

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closed, and the completion report found the project unsatisfactory (World Bank 2006c).
$

=

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4
8 4

7-
tion of non-eligible expenditures on one contract) valued at US$12.1 million. Disburse-
ment on three projects was partially suspended pending the execution of actions plans,
which were communicated to the government in July 2006.
Cambodia has made progress on the action plans, and all the suspensions were lifted
in February 2007, but on condition that all procurement on Bank projects will be turned
4=
$@'>= 3

step given prevailing corrupt practices in Cambodia, a risk is that there will be less Bank
attention to improving the government’s mainstream procurement systems. These issues
were problematic for another reason: because no details were initially released by the
World Bank, based on the need to protect informants. Leaders claimed that the Bank
10 The 2006 indicator “Quality of Budget and Financial Management” improved from 2.5 in 2005 to 3.0. These
improvements, along with striking improvements in economic management, have helped move Cambodia’s
overall CPIA out of fragile state range in recent years.
^_>_` {#
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well documented 2003 declaration of misprocurement, and the participatory expenditure
review. Problems may have been compounded in February 2007, as not enough details
were publicly offered as to why the projects could now proceed without threat of fur-
ther corruption. The result has been to divert attention from the problem (corruption in
procurement) to the process (non-transparency). In the future, use of a Cambodia-savvy
$

44

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Conclusions and next steps
The increased PFMP lending and analytical work from the World Bank and other donors
can be linked with many innovations, including, inter alia, participatory expenditure re-
views, PEFA assessments, use of performance information, accelerated disbursements,
cutting costs through tighter central controls, hard budget constraints, medium-term ex-

4 #4
|
=4#4 8$3
4-
agement information systems, contracting out public services, merit-based posting of
staff in key positions, and salary top ups. However, this work might have moved further
had there been simpler project designs, greater available of capable staff, more attention
to particular institutional and governance constraints in countries, greater attention to
addressing basic systems before moving to advanced tools, less mistrust between gov-
ernments and international partners, and better risk management of unintended conse-
quences.
Further insights on innovation constraints might follow from cross-country analysis
Y>
=
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$7>
8Y
3-
tries, and are completed but not yet published for many others. Andrews (2009) suggests
that PEFA dimensions can be usefully analyzed by dividing them into 3 sets of categories,
each with two opposing types. Each dimension is rated during a PEFA assessment on an
A to D score. Andrews divides dimensions into types based on what is required to get a B
*'`3 4'='
=4
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3
4
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3 # =4
monitoring of autonomous government agencies and public enterprises). The former can
be achieved with a new law or new practice, while the latter requires behavioral change.
` 4'='$=
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budget, timeliness and reliability of budgetary information to subnational governments)
and downstream (unreported extra-budgetary expenditure, collection and reporting of

3==4"
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in the budget cycle, and are more straightforward to achieve; the latter take place later

#4
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83

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requiring action by deconcentrated entities (e.g. timely budget approval by the legisla-
ture, existence of sector strategies with multi-year costing of recurrent and investment
expenditure). The former includes dimensions that can be carried out by central authori-
ties, like the Ministry of Finance, while the latter includes dimensions that require action
by multiple actors.
7 ^_>_` {#
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There is considerable overlap among de jure, upstream and concentrated types of

dimensions, representing the formal parts of a system. Likewise, there is overlap among
de facto, downstream and deconcentrated types of dimensions, representing the harder to
achieve, functional parts. While progress is needed in both sets of types to achieve suc-
cessful innovation, we would expect that progress would be more rapid for the former
#$=$#
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available PEFA data. Such an analysis could help to better inform the optimal phasing of
innovations to maximize functional improvement.
Finally, the preceding analysis mainly focuses on evidence of technical processes
followed and PFMP innovations achieved. Theoretical and empirical research suggests
that following such processes and achieving such innovations reduces the risk of cor-
ruption, and increases the likelihood that desired outcomes and impact will be achieved,
including more responsive and accountable service delivery to the poor, contributing to
pro-poor growth, poverty reduction, empowerment and social inclusion of poor. How-
ever, this body of research is based on normative assumptions of what constitutes good
practice that may not always apply in weak governance countries, where formal practices
and systems may be undermined by informal and innovative practices pursued by key ac-
tors to protect their perceived interests. Such informal practices are not well documented
in the types of reports to which this research had access, and better documenting them
would be a worthy subject for researchers in the years ahead (Wescott 2009).
Selected acronyms
CPIA – Country Performance and Institutional Assessment

DfID – Department for International Development (UK)
PEFA – Public Expenditure and Financial Accountability
PER – Public Expenditure Review
PFMP – Public Financial Management and Procurement
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2011 Recent Innovations in Public Financial Management and Procurement PDF

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Innovative Trends in Public Governance in Asia

A.-V. Anttiroiko et al. (Eds.)

Recent Innovations in Public Financial

Global economic governance regimes

Global economic governance regimes are increasingly affecting governance innovation

One aspect of public governance being increasingly monitored by international agen-

3 Resource-rich countries face similar challenges (Collier 2007)

taxes) or excluded (speed money, bribes to secure contracts, proceeds of government

` 4$

Developing country experience

Diagnosis and strategy

>=4$ $*

Another aspect of diagnostic work has tried to increase country commitment to

Design and implementation of PFMP innovations

additional work is needed on improving investment appraisals to achieve greater develop-

government is proceeding to adopt advanced practices including accrual budgeting and

Overall country outcomes

Conclusions and next steps

There is considerable overlap among de jure, upstream and concentrated types of

CPIA – Country Performance and Institutional Assessment

You might also like

2011 Recent Innovations in Public Financial Management and Procurement PDF

Uploaded by

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Copyright

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2011 Recent Innovations in Public Financial Management and Procurement PDF

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Copyright:

Available Formats

Innovative Trends in Public Governance in Asia

A.-V. Anttiroiko et al. (Eds.)

Recent Innovations in Public Financial

Global economic governance regimes

Global economic governance regimes are increasingly affecting governance innovation

One aspect of public governance being increasingly monitored by international agen-

3 Resource-rich countries face similar challenges (Collier 2007)

taxes) or excluded (speed money, bribes to secure contracts, proceeds of government

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Developing country experience

Diagnosis and strategy

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Another aspect of diagnostic work has tried to increase country commitment to

Design and implementation of PFMP innovations

additional work is needed on improving investment appraisals to achieve greater develop-

government is proceeding to adopt advanced practices including accrual budgeting and

Overall country outcomes

Conclusions and next steps

There is considerable overlap among de jure, upstream and concentrated types of

CPIA – Country Performance and Institutional Assessment

You might also like

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