Most would agree that prudent and effective Public Finance Management (PFM) is essential in low- and middle income countries. Well-functioning institutions are key to economic growth and development and are a necessary (albeit not sufficient) condition for effective use of development finance. This explains the strong focus on PFM reform that we have seen in aid programmes over the last decades.
Nevertheless, results from such reforms are typically mixed, often with a “de facto” gap where formal laws and rules are introduced while their enforcement, adoption and use remain weak. Reasons behind this “de facto” gap are usually to be found in the processes whereby the new mechanisms are introduced. There is a lack of “realism” in the sense that country contexts are not enough taken into account, political support for reforms not sufficiently built and readiness to change not big enough.
At a more principal level, this lack of realism emerges from too a shallow understanding of how institutions actually change. In addition to changing tangible rules and regulations, underlying norms and cultural-cognitive mechanisms also need to shift – which is a much more cumbersome process.
Some even argue that the only way to forge change in complex settings is to identify and work with “the grain” of how institutions already function. Proper change could only come from within, which implies that all those who are involved in reform processes need to have deep knowledge about the reforming society and its institutions.
PFM reforms are typically supported by groups of donors. With the World Bank, UNDP or other international organisation in the lead, bilateral donors follow suit. However, what do bilateral donors actually contribute to these partnerships other than money?
In the newly launched EBA report “Has Sweden Injected Realism into Public Financial Management Reforms in Partner Countries?” (2015:5), Associate Professor Matt Andrews of Harvard University nurtures the idea that a bilateral donor such as Sweden, which has gone through substantive and successful PFM reforms at home, would have a lot to contribute when it comes to the realism in doing reforms. Building on its own experience – something that the multilateral organisations lack – Sweden could use its own reform experts to better understand how political support is built and how reforms more generally may be adapted to reality.
Having studied part of the history of Sweden’s support to PFM reforms – in Mozambique, Cambodia and more generally in contributing to a global PFM debate – Matt Andrews concludes that Sweden has unfortunately not used this advantage as a domestic PFM reformer to any significant extent. It is true that Sweden actually has tried to contribute realism into PFM reform in partner countries. But it could have done so much more by including domestic reform expertise.
That Sweden has something to contribute based on its own reform experience is after all not such a paternalistic idea as it may sound. Most societies have to deal with generic problems of collective decision making and myopia in government economic policy. Inclusive budget processes and multi-year budgeting may be part of a response to such challenges. The processes of how to get institutions in place may also show substantive similarities across country borders.
Enthusiasm over possibilities for peer-to-peer exchange and learning was visible at the seminar where Matt Andrews’ report was launched (listen to the EBA pod-rAIDio from the event here).Professor Adebayo Olukoshi marked as important the change in focus from the eighties on getting the prices right to the importance of getting institutions and governance reasonably right. While there is a lot to learn from the Swedish experience, it is important that the narrative of the experience is not so stylized that it becomes impossible to learn from. Detailed knowledge actually plays an important role in learning from reform processes. Professor Olukoshi further noted that previous state capacity building efforts often have been quite fragmented and that there is an apparent disconnect of domestic (i.e. Swedish) reformers from the Swedish development cooperation community.
Per Molander agreed on the (organisational) problem that the Swedish reform and cooperation community do not really talk. Molander emphasized that reforms can never be seen as solely technical solutions. No institutional reform will be viable if not accompanied by behavioural change, and mere behavioural change will never be possible without the formal institutions being adapted (i.e. reformed) to support that behaviour. Thus, supporting reform puts high demand on contextual knowledge without which technical knowledge is of limited value.
Pernilla Trägårdh, Director, International Consulting Office, Statistics Sweden, noted a substantial demand for Swedish (or rather Nordic) knowledge and experience within this field, in particular since Nordic partners tend not claim to be the wizards of system design, but rather to aid processes with a long-term, sustainable perspective. Formally, however, Swedish authorities are not authorized to use their own appropriation for these activities, so new forms of partnership may be needed.
The panel, as well as the author, were in agreement of the need and the possibilities for Sweden to be an important actor in this field. This, however, requires changes in the way Swedish agencies work when involved in PFM reforms abroad. New, improved and flexible ways of combining various key competencies have to be found. Improved awareness of, and focus on, Swedish advantages in the PFM field is needed. In short: support to PFM reforms abroad requires a set of Swedish reforms (and, sure, behavioural change).
Given the challenges of a very mixed outcome of reforms, there are room for improvements and no time for complacency. As important as PFM reforms may be, as difficult it is to find strategies and approaches to support such reforms in successful ways.
PFM reform is not as difficult as it sounds. It is more difficult than that. Time to get to work!