Aligning Government Resource Planning or Integrated Financial Management Systems with Public Financial Management reform

1. FreeBalance®
Public Financial Management
Good Practices
PFM Domain GRP SEQUENCING
Good Practice PFM GOOD PRACTICES
Applicable DEVELOPING COUNTRY GOVERNMENTS

2. why is sequencing  Research has shown a statistically relevant link between good governance
PFM reform indicators and development. For example, countries whose governments
considered a “best achieve higher good governance indicators tend to have higher GDP per capita
practice”? and longer average life expectancy.
 The quality of public financial management (PFM) systems is a key determinant
of government effectiveness. The capacity to direct, manage and track public
spending allows governments to pursue their national objectives and account
for the use of public resources and donor funds.
 There is some consensus that basics matter more than best practice in PFM.
Reforms should be sequenced based on the country context because of the
complexity of implementing too much change at once. There is a virtue to
sequencing. Yet, there remains some concern of the platform approach for
sequencing, the notion of leapfrogging and an over-emphasis on technical
PFM.
 Although often thought as consultant-speak, the approach of “small wins”
rather than the “big bang” approach is considered a good practice in the PFM
community.
 PFM diagnostic tools like Public Expenditure and Financial Accountability (PEFA)
provide good insight but are not prescriptive and do not answer the much more
difficult question of how to sequence PFM reforms. These assessments tend to
be technology neutral.
 It often appears that “country context,” sequencing methods and PFM reform
momentum is more of art form than a science.
The “platform” approach to PFM sequencing is designed to suit unique country conditions.
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3. what is the  Financial Management Information Systems (FMIS), or Government Resource
implication of Planning (GRP) is recognized as a technology tool to assist in PFM reform. The
sequencing PFM establishment of an FMIS has consequently become an important benchmark
reform to GRP? for the country’s budget reform agenda, often regarded as a precondition for
achieving effective management of the budgetary resources. Although it is not
a panacea, the benefits of an FMIS could be argued to be profound.
 GRP and e-government technology enables PFM, where the real benefit of e-
government lies not in the use of technology per se, but in its application to
processes of transformation.
 The challenge for GRP technology is to adapt to meet country conditions such
as human capacity, while enabling future modernization and reform because
many reforms have taken up to two centuries to evolve from where many
developing countries find themselves today, to where the developed countries
are today.
Countries with higher HDI tend to have higher PEFA scores. PFM reform progress results in improved
government effectiveness. Capacity building is considered a pre-requisite for PFM reform.
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4. can sequencing  The information necessary to understand the country context is more readily
priorities be less available thanks to open data and analysis from International Financial
“art” and more Institutions. And, there has been some work to identify high-level PFM reform
“science”? sequencing such as the need to implement core functions first such as adopting
the Treasury Single Account and focus on budget execution prior to budget
preparation.
 Third party ratings from Revenue Watch, Open Budget Partnership,
Transparency International, Freedom House and other organizations provide
insight into the country context. It has become easier to identify priorities for
reform such as revenue transparency and support for the Extractive Industries
Transparency Initiative (EITI) in resource-dependent countries or the need for aid
transparency and support for the International Aid Transparency Initiative (IATI)
in countries with a high percentage of Official Development Assistance (ODA)
relative to the government budget.
FreeBalance government customers that have undergone PEFA assessment enjoy better scores than
countries with higher HDI who do not use FreeBalance software. FreeBalance customers have been
recognized for achievements of substantial reform.
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5. Increasing mobile global penetration is changing the accountability gap dynamic in developing countries.
does technology  Technology is seen as an enabler for transformation in government. Technology
enable PFM reform should use a gradual and flexible process .
and modernization?  There have been numerous technology failures in developed and developing
countries where implementations failed to achieve results, were delivered late,
were provided over-budget or were unable to adapt to reform.
 Many implementations of software for GRP needs have not been financially
sustainable by governments.
 Enterprise Resource Planning (ERP) software that was designed for many private
industries is costly to adapt to reform. Large-scale public sector ERP
implementations add additional time during the analysis and design phase to
focus on the gap between the commercial process and the required process
 ERP and custom-developed GRP solutions can make reform difficult. ERP and
custom-developed software requires significant software complex code
customization (BPM scripts, call-outs & software development) to meet
government requirements that reduces time to results. The ratio of services to
software cost in the public sector is estimated to be three time that in the
private sector or up to 15 times the cost of software.
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6. is technology  GRP technology leapfrog is possible in many country contexts particularly in the
leapfrog possible? ability to publish open data.
 Developing countries often do not have entrenched legacy technologies and can
bypass stages in development. Although more developed countries took
centuries to reform, developing countries can benefit from proven good
practices. This gives developing countries the “latecomer” advantage.
 Developing countries are leveraging the convergence of Internet and mobile
technology to overcome the “digital divide”. The technology is adapted to the
local context – typically at lower costs than legacy technology.
 Nevertheless, a pure technological solution does create reform because
technology can maintain or reinforce an accountability gap.
what are the  Governance reform is highly political and disrupts the traditional power
incentives for structures in countries. This dynamic reduces reform momentum. And, there are
reform? emerging lessons learned about reform incentives.
 Improved access to technology has created organic protest phenomenon like the
Arab Spring that assisted in the overthrow of governments. Social media and
mobile technology have enabled rapid citizen organization. Governments can
“crowdsource” or be “crowdsourced.”
 Globalization has created an open and competitive environment among
countries. Businesses are more prepared to invest in countries with effective
governance, which manifests itself in legal predictability, low corruption, and
ease of doing business.
 International Finance Institutions use governance scorecards for funding
decisions. This strategy can better align leadership with citizen incentives.
 The relative success in global poverty reduction demonstrates that many
government leaders are concerned about good governance and improving
development results.
what are the  GRP has a great potential for increasing predictability, participation,
incentives for transparency, and government accountability.
implementing GRP?  GRP technology can improve business and citizen confidence through
transparency and government effectiveness.
 GRP technology increases government efficiency and revenue. This can result in
reducing deficits and providing governments with more fiscal space including
reduced cost of borrowing.
 GRP technology aligned with e-government initiatives enables citizen efficacy to
improve country stability.
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7. how does the  The traditional approach of GRP implementations through third-party systems
technology supply integration firms with little or no involvement of the software manufacturer
chain impact increases implementation risk in developing countries.
reform?  Some systems integration firms find incentives to increase costs and reduce
financial sustainability. Some software manufacturers form part of “devil’s
triangle”
 Standard project management techniques have not overcome difficulties in
implementing software in developing or developed countries. GRP
implementations require more concentration on capacity, communications and
change management.
 GRP solutions that rely on code customization add complexity and cost. This
complexity reduces momentum to the point where technology inhibits rather
than enables government transformation.
 Software manufacturers who hope to achieve success in GRP must have
appropriate governance mechanisms whereby governments drive product
enhancements.
 Holistic methods can provide reform roadmaps based on the country context.
Lessons learned can be used to improve GRP products.
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8. what are good Conclusions
practices for PFM 1. There is growing evidence that PFM sequencing is becoming more of a science
and GRP than an art form. Open data and governance assessments provide material for
sequencing? sequencing roadmaps.
2. Government human capacity determines reform momentum and reform
sustainability.
3. The modernization rate is much faster in developing countries than experienced
in developed countries. This means that the technology approach and
implementation practices need to be aligned to PFM needs to ensure
effectiveness.
There are very few “best practices” but many “good practices” in Public Financial Management.
FreeBalance, a global provider of Government Resource Planning (GRP) software and services
shares good practices from experience with developed and developing country governments
around the world.
www.freebalance.com
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www.freebalance.com