Public Financial Management
State Financial Management Project, Mozambique
Evaluation Findings and Lessons
Presentation by Ron McGill of Crown AgentsGRIPS Development ForumTokyo, 9 December 2005

1Introduction
Purpose and ContentPart 12

Introduction• Purpose of the presentation•

Share findings from evaluation•

Highlight any lessons•

What worked and why•

What might be avoided

3

3

Content• Describe project•

Purpose and scope•

Approach•Phases• Terms of reference (of evaluation)• Circumstances at start• Findings• Lessons44

Context
Project Description, Phases, Approach andEvaluation Terms of ReferencePart 25

Description of Project• Swedish Sida Funded• Ministry of Planning and Finance (MPF), Mozambique• Mid 1988 to December 2003 – 15 years!
• Reform and build capacity in:•Budget preparation•

Accounting and reporting•

Control expenditure in accordance with the budget• Support Components:

6•

Training•

Computerisation

6

SFMP Phases

7

7

Swedish Approach• Goal or ambition:•“opportunity for political allocation of resources…”•“management control…”, including•“evaluation of effects of activities covered by the statebudget…” (i.e. results based)• Strong adherence to:8•Partnership between government and donor•

Government ownership of reform•

Long-term commitment – 10-15 years

8Terms of reference for evaluation• 10 years (1994-2003)• Efficiency and effectiveness• Relevance in addressing weaknesses• Coherence to reform needs• Trade off between ownership and results• Comparison of accounting model•

SFMP project model; and•replacement model• Lessons
99Context – the starting point• “Disarray”•Old fashioned law, regulation•

Uncertainty about procedures•

Irregularity•

Lack of political process•

No state accounts since 1975•

Human capacity weaknesses•

No computers or computer literacy• Serious weakness - Staff knowledge and discipline
1010

Donor Controversy• Impatient for improvements• IMF/WB reports continued to highlight weaknesses• Questions:•

What was the project doing?

•

Why was it taking so long?

• IMF installed own adviser• Replacement project instigated• MPF withdrew support to project extension

11

11

Findings
Achievement, Impact and Conclusions
Part 312

Project History
Civil WarMarketEcon

SwedenAccrualAccounts

Elections1994
MPF formed

1988 ------ 1993

1994 ------ 1996

Phase 1

1994
Moved toBudget
Dept

BudgetProject

Introduced
Computers
Proposal for
ModifiedAccrual
Accounting
Rejected

Scope
Broadened
toBudgetAccounting
Audit
10-15
Year
HorizonTraining Expert
startedReformCoordination
Unit
createdStart of Joint
Donor
Review

1997 ------ 1998

Taken overBy Public
Accounting
Dept
Accounting
Computerised

Expenditue
Management
Reform Stragy
Budget & Accounts
Frame Laws
Introduced
Computerisationof Accounting(budget execution)
salaries & pensions
Accounts Presented
To
Parliament

WB Criticise
State ofPFM.
HIPIC
completion

2000 ------ 2001

Reform Coord
Becomes PFM
Devlopment
Sida and EU
Support phase out
Donors Common
Fund Formed

2002 ------ 2003
Off-budget revenues
Brought into accounts

Quarterly Budget
Reports
Off-budget revenue
Identification began

New Model
Concept
Presented but
not introduced

Amendment of Budget
Classifications

Alternative Model
Accepted

Draft &Introduction ofNew Law

IT tender cancelled
New Model training
given

Major Training in MoF
Line Ministries &Provinces

1313

Achievement and Impact• Got a lot right in recognising:

14•Long-term nature of what was being attempted•

Cautious gradual approach wanted by MPF•

Need for ownership and close integration•

Limit of capacity of MPF

14

Achievement and Impact (2)• documented public accounting system• new law for budget and accounts• training department equipped with strategy, policy andprocedure• major training programme country-wide• enhanced human capacity• computerisation of key functions• presentation of state accounts (1998 - first time since 1975)• quarterly budget execution reports (from 2000)• modernised model, chart of accounts and new law in 2002

1515

Achievement and Impact (3)• We judged the project as providing:•Reduction in risk in use of public funds•

Platform for change and modernisation•

Positive impact as:•Capacity building•

Improvement over time

• Different measure is needed as a:

16•

Modernisation project with•

Hard outputs

16

Conclusions - positive• Swedish support had been:•Sustained•

Patient•

Committed•

Integral to MPF•

Strong on ownership and participative• Close working relationships and trust• Built capacity

1717

Conclusions - negative• Initially - progress slow because:•Lack of rigour in planning•

Caution on part of MPF•

Lack of institutional capacity•

Imbalance in incentive structure• Later phases•

18

Breakdown in communication and understanding around•

Policy objectives•

Technicalities of model - principally accrual accounting

18

Lessons
Part 4

19

Long term commitment – how was thispossible?
• Sida approach and philosophy:•Partnership•

Changes will take time•

Prepared for 10-15 year commitment• Matched MPF view:

20•

Capacity weaknesses•

Need for gradual, incremental change•

Avoiding risk and loss of control•

Building on success20

Long term commitment – how was thispossible? (2)• Difficult lesson from Phase 1••

Swedish consultants advocated radical solution:•

Accrual, Double-entry•

Heavily computerised

Rejected by MPF• Both parties accepted:•Gradualist approach - reinstate existing system•

Understand•Document

•

Train

21

21

Long term commitment – how was thispossible? (3)• Answer to question:•

Sida’s philosophy and the MPF gradualist approach came
together•Partnership• Lesson:•22

Get the basics right first22

Who led the design?
• Following rejection of phase 1:•

Left deliberately vague•

High level statements of purpose•“open-ended indication of direction”• In theory ministry made proposals for continuation• In practice contracting team prepared in consultation•

Very integrated project•

Clear ownership of the ministry• At least for first half of project!
23

23

How was it sustained?
• Virtue of proceeding in a manner that was:•Shared and consultative•

Subject to periodic joint review• However this led to:•

Lack of ambition; and•slow progress• Not balancing inherent risks by ensuring24•Clarity of purpose•

Clear outputs•

Time based plan•

Targets, indicators

24

Commitment and Ownership• Critical success factors - extent achieved?
•We concluded there was commitment•

Started before external pressure for change•

Strengthened as external pressure mounted• But only for the first half of the project• We Questioned:•Ownership for the period 1999 – 2003•

Full acceptance of new accounting model

2525Ownership 1999 -2003• Paradoxical•

Accepted plan for the period•

Passed new law in 2002

• Nevertheless, we believe there was26•

Incomplete buy-in to implications•

Confusion and misunderstanding over technicalities•

Different emphasis or prioritisation

26

High Level Goals•“management control”•“evaluation of effects of activities covered by the statebudget” – i.e. results based• Team emphasised:•Management accounting of spending departments• MPF concerned with:•

Centralised control•

Reporting on use of funds• Difference led to termination!

2727

Holistic Approach• Too technically focused•

Big effort in training•

Unable to address HR management issues•

Threatened sustainability• Projects should be:

28•

More holistic•

Part of an overall development strategy

28Organic Structure of MPF
togetht yet putonelzz“a puer”
Project
BoardVacuum

SFMP

29

29

Comprehensive Reform Plan
• Lesson – projects should sit within an overall strategy
and business plan, addressing•

technical reform issues•

as well as institutional/organisational issues such as:•

business purpose and functions;•structure;•management;•

HR management and development.

• Lesson – plan based on a comprehensive diagnostic

3030

Context and Country Specific• Reflect:•The law•

Tradition•

Capacity•

Processes•

Informal rules that apply

31

31

SFMP Phases – Success and Failure

3232Unsuitable Model?
• We concluded:•Not trying to impose “Swedish” model•

Model was feasible and operable•

Chart of accounts - an adaptation of Portuguese system•

Package IFMIS – plans well thought through•Track record in addressing capacity needs•

Not imposing accrual accounting in short or medium term

33

33

Too Much to Accept? - Perceptions• Undue emphasis on accrual standard•

As the goal•

Synonymous with modernisation•Consistent with the project objectives• Add to this34•

Misunderstanding•

Clash of personalities•

Some breakdown in donor communication•

Unprecedented pressure from the IMF

34

Replacement Model• “Vision” or “Philosophy” not shared• Replacement Model•

Dropped emphasis on•

Spending department management accounting•

Decentralised expenditure control• Reverted to centralised control and reporting• First priority became – single treasury account35

35

Avoid Technical Solutions• Lesson – where capacity is weak avoid•

reliance on the modernizing technical solutions•

placing undue importance on concepts such as:••

Accrual accounting•

Performance budgeting

•

MTEF

investing them with “magical” powers of solving allproblems• Lesson - design the solution in the country context

3636

Donor Coordination and TechnicalUnderstanding• Restricted scope for single bilateral donor• Multi-donor interests must be•

Better coordinated•

Disputes avoided•

Technically informed• Support should be•

Placed behind a government owned strategy•

Support the strategy (with projects or finance)•Set up quality assurance arrangements

3737

Conclusion on “Goals”• “political allocation of resources” and “results based budgeting”• Weaknesses in management and budgeting capacity a risk to:•availability of resources to carry out policy objectives•

capacity to specify a budget other than along organisational lines•

links between budget allocations and expected results•

greater accountability by linking intended results to outputs andoutcomes, rather than just inputs.

• Not just a question of:38•

technical capacity and understanding; but•

management culture•

Allowing managerial discretion in the use of inputs•

Delegation and accountability
38

Migration Path
• For environments lacking••technical capacity•

information necessary•

required standard of accounting and reporting•

the ability to attribute costs to activities

Question:•Is performance budgeting appropriate?

•Is accrual accounting required?

39

39

Cash versus Accrual• Accrual accounting:40•

Do not overstate the case•

Establish basic controls and compliance with law•

Recognise risks•

Only in context of wider public sector management reforms•

Substantial upgrade in computer and human capacities•

Accomplish in stages – a very long term option

40Performance Targets• Suggest shorter term path should be:•bring discussion of objectives and activities into the debate
about expenditure allocations at the time of budget
preparation•encourage efforts towards improved performance by
establishing performance targets•

provide the basis for the development of performancebudgeting, as capacity allows

41

41Conclusion• Important capacity development project• Progressed in spirit of partnership• Delivered slow progress• Has a list of achievements• Established a basis for modernisation• Ultimate objectives:

42•

A lot for MPF to accept•

Not necessarily shared

42

Conclusion 2• Project terminated leaving lessons:43•

Get the basics right first•

Do not over rely on technical solutions•

Importance of ownership•

Need for•Context and country specific solutions•

Overall strategy in which project components fit•

Donor coordination and technical understanding

43