** This post is written by Ewoud Nijhof, Krishna Ramesh, Torben Fischer at IDinsight and Adil Ababou at the Bill & Melinda Gates Foundation. **

  • The problem: Ministries of finance and development partners often do not define and implement an optimal set of rules to ensure their public financial management systems facilitate effective and efficient service delivery.
  • Why it matters: Changing how ministries operate public financial management systems can ensure that service providers use allocated spending in more effective, efficient and equitable ways.
  • The solution: IDinsight's learning partnerships, a problem-driven and evidence-based approach to technical assistance, can help ministries of finance shift their focus from facilitating the preparation and implementation of budgets to monitoring resulting social outcomes.

When teachers are not paid (on time), or money is spent building hospitals but not on training enough nurses, basic public services will - eventually - stop functioning. Similarly, without data on the impact from fiscal policies, for example fuel price subsidies, those least in need may benefit the most, making them less economically efficient.

Rarely do civil servants have the time to constructively investigate whether proposed budgets are allocated to improve social outcomes for citizens.

Government services can only be expected to work for citizens if the underlying systems for allocating and managing resources, also known as Public Financial Management or PFM systems, facilitate equitable and efficient service delivery. Through our work at IDinsight, and borrowing lessons from the Overseas Development Institute (ODI), the Collaborative Africa Budget Reform Initiative (CABRI), the International Budget Partnership (IBP) and others, we see an opportunity for budget departments at national and subnational levels to better use data and evidence to improve public service delivery.

Getting spending right

The ODI’s analysis of education spending in Ghana is a case in point: the Ghanaian government did well on process and was close to international benchmarks for the relative amount of spending on education. However, an assessment of the budget allocations showed that funding went mostly to secondary and tertiary education, while funding per student in primary education had declined over time. The analysis also showed that children from richer households benefited relatively more from government spending than those from poorer households, mainly due to this skewed expenditure pattern.

Bogged-down civil servants implementing PFM frameworks in low- and middle-income countries can easily get caught up in intricate logistics, planning and management. Rarely do civil servants have the time to constructively investigate whether proposed budgets are allocated to improve social outcomes for citizens. Instead, ministries of finance have to focus on day-to-day deadlines, political negotiations, transactional processes, and complying with budgeting frameworks. Practically, this means ministries have to focus their available capacity on routine tasks such as ensuring civil servants are actually paid (on time), processing transfers across budget lines, presenting ministerial budgets to parliaments in time for approval, and keeping records on bank transfers and procurement.

In order to plan and facilitate longer-term PFM reforms, many ministries of finance receive technical assistance from PFM experts. Research shows that a significant share of the annual development funding, estimated somewhere between $0.4bn and $1.3bn per year, goes towards PFM reforms and capacity building. In practice, this support may result in more work and processes for civil servants, potentially undermining their capacity to deliver. There is also surprisingly little evidence that these investments in PFM lead directly to improvements in social outcomes. Funders, governments, and CSOs need to find better ways of making PFM work for development outcomes.

Identifying the problem

So why are conventional models of technical assistance and reforms in public finance not working? Conventional solutions, such as programme-based, outcome-based, or gender-sensitive budgeting frameworks are important and potentially helpful to improve the social impact of PFM systems. At the same time, such frameworks are difficult to implement within an already overburdened civil service.

An evaluation of the IMF's technical assistance in West Africa, for example, rated that approach as “good”, but also identified challenges in effectiveness and sustainability due to the limited resources of targeted departments that received the assistance. Clearly, such reforms can also be pursued as a goal in their own right, rather than being linked to problems that matter for politicians or their supporters. A practical example of this challenge is illustrated by research from the ODI in Nepal, where PFM reforms indeed improved the timeliness of expenditure reporting, resulting in continued donor funding, but did not add to improving actual service delivery in the health sector.

This lack of evidence on the impact of PFM reforms and technical assistance is increasingly recognised by experts in public finance and different sectors. Several actors in this space are starting to explore how PFM systems could be leveraged to further improve service delivery. A limited but growing evidence base shows that an approach that focuses on problem-solving by using evidence, rather than following established norms and organisational frameworks, can be effective and efficient. We see value in further validating this approach across contexts so that it can leverage public finance to improve social outcomes.

Doing things better

Our hypothesis is that budgeting departments primarily need improved problem-solving capability that fosters the integration of better evidence into existing decision-making processes. By setting up an embedded learning approach, agents can work iteratively to address existing bottlenecks and gather evidence on where additional capacity and/or changes in existing rules or norms are needed. Such an approach is likely to get less resistance because it builds on what works in the local context, centres around the civil servants and achieves results by focusing on final outcomes, instead of aligning with external frameworks. Our working theory is that an evidence-driven, iterative learning process can bridge PFM and service delivery, and institutionalise that bridge between budget departments and implementers.

There is preliminary evidence that shows the effectiveness of how a problem-driven and evidence-based approach can improve public finance systems. CABRI, through its “Building PFM Capabilities” programme, has managed to work with civil servants to identify PFM bottlenecks and worked towards context-specific solutions in less than a year by taking a problem-driven approach to solving specific problems across multiple Ministries of Finance in Africa. Similarly, ODI’s work with governments across Africa, with a model that gives governments greater ownership over the support they receive, is showing promising results. Using a similar approach outside of PFM, IDinsight has worked with governments to institutionalise evidence capacity, reflecting on several years of using this learning partnership approach and how it can be improved further across contexts. For more on how we applied this approach, read about our work on India's Aspirational Districts Programme.

If we expect ministries of finance to take more of an outcome-based perspective to contribute to improved service, we propose a different, evidence-driven approach to test and iterate on context-specific solutions. Different organisations merging technical and practical approaches to problem-solving have already shown promising - albeit preliminary - results. For this reason, it is necessary to further build the evidence base around approaches and to understand both limiting and enabling factors.

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