Report on GRIPS Development Forum PFM Seminar No.4
State Financial Management Project (SFMP), Mozambique-- Findings and Lessons from Final Evaluation of the SIDA Funded Project --Programme¾ Speaker: Mr. Ron McGill (Principal Adviser, Human and Institutional Development
Department, Public Finance Management Directorate, Crown Agents)¾ Time: December 9, 2005 (Friday) 15:00-18:00¾ Venue: National Graduate Institute for Policy Studies (GRIPS), Seminar Room 4A¾ Programme
15:00-15:10 “Introduction of the Seminar” GRIPS Development Forum
15:10-15:25 “A Quick Introduction to Crown Agents and its PFM Work”
Mr. Luke Gander, Chief Representative, Crown Agents/Japan
15:25-16:25 “State Financial Management Project (SFMP), Mozambique – Findings andLessons from Final Evaluation of the SIDA Funded Project”
Mr. Ron McGill, Principal Adviser, Crown Agents/UK Headquarter
16:25-16:35 Coffee Break
16:35-18:00 Questions and Answers¾ Participants: 33 aid professionals(See Annex 1 for Invitation Letter)(See Annex 2 for List of Participants)

Summary of Presentation
Luke Gander¾ The speaker first explained the mission and structure of Crown Agents (CA). It is a public interest
organization, consisting of Crown Agents Ltd. and Crown Agents Foundation. CA Ltd. acts on acommercial basis and is owned by the foundation. The four main areas of CA Ltd. activities are:public financial management (PFM), supply chain management, financial services, and disaster
relief/humanitarian assistance. Mr. Gander then outlined a holistic view of PFM and explained
specific areas where CA Ltd. has accumulated expertise, such as tax administration in Lesotho,
customs modernization and debt management in Angola.
(See Handout 1)
Ron McGill¾ (Context – Part 2) The speaker first described the PFM reform project in Mozambique, supportedby the Swedish International Development Authority (SIDA), which consisted of several phasesover 15 years. He then described the context and SIDA’s approach, as well as the TOR for theevaluation undertaken by CA. (The evaluation covered only the 10-year period from 1994-2003.)
At the initiation of the project, the PFM system in Mozambique had serious weaknesses,
especially the lack of staff knowledge and discipline. The project faced some controversy in its
final phase, with the donors impatient for improvements, IMF initiative to install its own advisor
and the instigation of an alternative or replacement project. As a result, the Ministry of Public
Finance (MPF) of Mozambique withdrew their support to a further extension of the project anddecided to terminate it.
¾ (Findings – Part 3) The speaker first highlighted the positive aspects of the project such as its
sustained, patient and committed approach, the trustful relationship between SIDA and MPM andthe strong achievement in capacity building. Such positive impacts were attributed to SIDA’s
recognition of: (i) the long-term nature of the reform; (ii) the cautious gradual approach wanted byMPF; (iii) the need to respect country ownership, and so on. At the same time, he highlighted
certain negative aspects of the project such as the lack of rigour in planning, slow progress and in
the final phase the breakdown in communication with MPF on technicalities of the model andpriorities.
¾ (Lessons – Part 4) The speaker first analyzed the factors which had positively contributed to theproject outcome – long-term commitment, ownership etc. SIDA approach and philosophy
matched MPF’s view (e.g., preference for a gradualist approach rather a radical one, based on thelessons from the phase 1 failure), which fostered the long-term commitment of MPF.
Sustainability of the project stemmed from shared and consultative approach, including periodic
joint reviews by MPF and SIDA. It was argued that these aspects contributed to a lack ofambition and slow progress. MPF had commitment and ownership in the first half of the project
because the project had been participative, consultative, and built on partnership. It had started
before external pressure for change came, and MPF commitment continued to be strengthened asexternal pressure mounted. However, the speaker questioned MPF’s ownership for the period
1999--2003, including its full acceptance of the new accounting model.
¾ The speaker also analyzed the factors which had negatively contributed to the project, especiallyin the latter half of the project – the lack of a holistic approach to reform, lack of rigour inplanning and ultimately a breakdown in communication and understanding. In his view, thesefactors resulted in the termination of the project.
¾ Finally, the speaker stressed critical lessons that can be drawn from this evaluation –– theimportance of getting the basics right first, avoidance of heavy reliance on technical solutions, theimportance of ownership, the need for context and country specific solutions and an overall
strategy in which project components fit, and improved donor coordination and technicalunderstanding.
(See Handout 2)

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Main Points Discussed
Comparison with Ghana¾ The chairman invited the first comments from Mr. Alhassan Iddrisu, a student in the doctoral
course at GRIPS. As staff of the Ministry of Finance and Economic Planning in Ghana, Mr.
Iddrisu was involved in the Public Financial Management Reform Program (PUFMARP), acting
as the counterpart to donor agencies. He appreciated the usefulness of this evaluation study andcommended the way the study was conducted by the CA team.
¾ Mr. Alhassan noted that the Mozambique case and the Ghanaian case had similarities in terms ofthe nature of their PFM-related problems and high commitment by the government to PFM
reforms. At the same time, he cited several differences in terms of the intensity of donor
coordination and the government’s perception of the reform program. (While PUFMARP wassupported by all the major donors, SFMP was not. The Mozambique government was morecautious to SFMP recognizing their weak technical capacity. On the other hand, the Ghanaian
government opted for a very ambitious program.) He stressed the importance of having allrelevant donors together under a single comprehensive PFM reform program, consistent with thenational objectives, in order to reduce transaction costs. Moreover, multi-donor budget support
may be useful to reduce donor controversy by avoiding the championship of a particular donor.
PFM assistance design¾ Some participants requested for the information on: (i) the composition of SFMP expert team (amix of external and local consultants); and (ii) the degree of contribution of the Medium-TermExpenditure Framework (MTEF) to the outcome of SFMP reform in Mozambique. Mr. McGill
responded that SFMP team consisted of only external consultants working with MPF counterparts.
MTEF had not been a focus of SIDA assistance in Mozambique at that time but was later
introduced under DFID support.
¾ A participant questioned the methodology used for evaluating the efficiency and effectiveness ofSFMP. The speaker responded that owing to a lack of a clear project plan and indicators the main
focus of this evaluation had been to assess the overall achievement and impact of SFMP on
Mozambique’s PFM rather than its efficiency and effectiveness.
¾ A participant questioned what had happened after the termination of SFMP in 2003 and whether
the IMF had learned the lessons from SFMP. The speaker responded that MPF concentrated on theintroduction of a single treasury account and abolishing hundreds of government accounts. Theyalso emphasized the central control against budget and the reporting needs of MPF. Suchapproach differs from SFMP, which in its later phase emphasized the management accounting
needs of the spending departments by the introduction of an IFMIS (Integrated Financial
Management Information System) to be rolled out across government.
¾ A participant questioned whether SIDA provided salary top-up of the MPF officials and if so, how
the evaluation team evaluates its effect on the reform incentives of MPF. The speaker responded
that SIDA did not provide salary top-up through SFMP, but made some allowances to the senior
government officials attending various technical committees. He was not quite sure about that
influence but overall questioned the balance of incentives in the project.

3¾ A participant questioned whether and how SFMP dealt with the policy issues on human resource
management other than human resource development. The speaker responded that whilst theproject made an important training contribution there was no link with human resource
management policy. He agreed that this was a difficult area to deal with, because the central
economic agency like MPF was dependent on progress in overall civil service reform and could
not readily address incentive and motivation issues in isolation.
Donor behavior¾ A participant noted that for any programs to succeed, donors and a partner country should identify
and analyze the weaknesses of PFM systems in a partner country as one team, and donors should
avoid a donor-driven model and let a partner country recognize the weaknesses by themselves.
She also questioned to what extent donors in Mozambique cared about the relationship between
philosophy of partnership and the program design. The speaker agreed on the importance ofownership for success of any programs and stated that donors in Mozambique had been aware of
the need for MPF’s ownership. He also noted that donors still had to do something in the case apartner country did not “own” solution for addressing its weaknesses.
¾ Noting that bilateral donors are usually less influential than multilateral donors, a participantquestioned how SFMP avoided the interventions by the IMF and the World Bank. The speaker
responded that SFMP had started before other donors started their assistance in Mozambique; thus
coordination was not an issue until the later phases of SFMP. The need for coordination emerged
as other donors increased support to Mozambique and sought to contribute PFM components.
Unusually the World Bank was not in a lead role and it was IMF that took initiative and pressed
for more rapid reform.
¾ A participant questioned: (i) whether it is possible for donors to agree on all the aspects of PFM
reforms because they are technically complex and management culture differs among donors; and(ii) how the government could avoid conflicts among donors on respective approaches to PFM
assistance. The speaker responded that the extent of aid harmonization and coordination criticallydepended on personalities of the officials of donor agencies in the field. On this point, Mr. Iddrisu(from Ghana) also stressed the importance of donor coordination to make the wholecomprehensive reform program effective and reduce transaction costs. (For example, donors needto agree on a particular accounting model and the software to be introduced.) Nevertheless,donor coordination is not enough, and an integrated approach is necessary for successful PFMreforms. Referring to the Ghanaian experience, Mr. Iddrisu stated that while MTEF was highly
successful, this was not enough to move PUFMARP forward. MTEF was only one component of
the comprehensive PFM reform, i.e., PFUMARP, and the other components, such as budget
execution and accounting (BPEMS), lagged behind. Each component must be closely linked withthe others.
Recipient capacity¾ A participant questioned whether the evaluation team had examined MPF’s absorptive capacity
for SFMP. The speaker fully agreed on the fundamental importance of absorptive capacity ofpartner countries and stated that this issue was at heart of their evaluation. Under the project, alarge proportion of staff in the Mozambique government have received training to strengthen their4

capacity.
¾ In light of reform sequencing, a participant asked the speaker’s views on pros or cons of: (i)decentralized vs. centralized approaches to expenditure control; and (ii) accrual account vs. cash
basis account, as reform sequencing. She also questioned whether there was donor agreement on
which option would be most suitable to the Mozambique situation. The speaker responded that
this had to be country specific and that whilst a decentralization strategy might give potential for
greater efficiency within spending units, it might also increase risks for misuse because of
capacity constraints. Good reporting from each spending unit might prevent such risks. It is thus
important to look at the balance between risks and recipient capacity. He was of the view that
accrual accounting was only an option where capacity allowed and then only in a phased,
long-term programme. Regarding the issue of donor’s understanding of accounting models, thespeaker stated that it was difficult for donors to be fully appraised on the technical issues and that
it was important for them to get the right advice when faced with options and decisions.
¾ A participant questioned whether there was political opposition against PFM reform from somegroups inside the government. The speaker responded that he did not detect any opposition andthat the project had managed opposition relatively well but that there had been differing views on
approach and prioritization.
Other issues¾ A participant questioned whether there were impediments or obstacles imposed on CA’sevaluation work by the Swedish agencies concerned. The speaker responded that there were noimpediments. In fact, the two national agencies (audit and accounting) in Sweden were involvedin the project as contractors, and had built good relationship with MPF and other contractors. He
also commended Sida for their transparent approach¾ A participant, who worked in Mozambique until recently, provided the additional information on
SFMP and the country context. Mozambique experienced civil war for 16 years (until 1992), andits institutions including MFP had been extremely fragile. This is why the PFM reforms in the1990s had met many difficulties, and donors came to recognize the need for better coordination inorder to make their aid effective and reduce transaction costs. From 2000, nine donors (includingSweden) started to coordinate for PFM reforms. These also included the World Bank and otherbilateral donors.
Summary by Luke Gander¾ Lastly, Luke Gander summarized the important lessons for donors to support PFM reform asfollows:(i) the need to understand and work in the country-specific context;(ii) the need to “get the basics right first” through diagnostic work as well as throughimplementation stage of assistance programs;(iii) the need not to over-reach technically.
(iv) the need to develop a holistic concept. Even when an incremental approach is more
appropriate and feasible from the capacity and absorbability point of view, it should still take place
within an overall plan (or master strategy)5

(v) the need for PFM TA to be done in the context of the master strategy, even if provided
bilaterally by a single donor.
(vi) the need to include a human resource management program with good incentives policies andtechniques.
(vii) the importance of considering the possibility of introducing techniques or methodologies,
which can be upgraded in the future.
(viii) the need for donor coordination. Donors should recognize that there are no other options thanclose coordination among themselves.

Reflection
GRIPS Development Forum¾ The seminar presentation was very useful because the participants could share lessons from theMozambique case, including factors required for the sustainable and effective implementation of
PFM reform programs. Key lessons emerging from the seminar include: (i) the design of a PFM
reform program should be holistic, based on a comprehensive diagnostic of the nature of theproblems and include both institutional and technical components; (ii) it is critical for donors toshare the philosophy and visions for a reform program with a partner government; (iii) donor
assistance to PFM should be based on gradual approach so that a partner government can absorb
the assistance; and (iv) donor(s) and a partner government should be sensitive about controversy,
which might arise from impatience for improvements, lack of coordination, personal conflicts andso on. Thus, it is critically important for donors to better understand the country-specific context.
¾ All of the above lessons can be greatly affected by the country-specific context and behavior ofeach donor active in the field. Therefore, we consider it necessary to continue accumulatingknowledge and insight into the PFM reform experiences in other partner countries so thatJapanese aid practitioners can draw implications for designing PFM assistance program.
Additional case studies, which shed light on the above aspects, including the views of partnercountries on donor coordination, could be potential candidates for future GRIPS PFM seminars.
Crown Agents¾ Crown Agents would like to record their thanks to four parties. Firstly, gratitude to theMozambique Ministry of Planning and Finance who provided every facility to assist theevaluation.
Secondly, indebtedness to SIDA for their openness and transparency incommissioning the evaluation and for their real desire for lessons to be learned. Thanks are due
too, to the participants for their kind attention during the seminar and for the lively discussion thatensued – something that makes a seminar of this type so worthwhile. Finally, appreciation to
GRIPS for their initiative in hosting these seminars, for all the arrangements made during theweek and for their hospitality. It is hoped that the output from the seminar will prove useful to
the Japanese ODA as the agencies increase their involvement in PFM issues.

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