28 October 2009

The Challenge of Reforming Budgetary Institutions in Developing Countries

By Richard Allen (via the IMF PFM blog)
  • Would-be reformers greatly underestimate the time taken to implement PFM reforms in LICs. 
  • The experience of now-developed countries suggests that the process of establishing credible and robust budgetary institutions can take many decades, or longer. There is no reason to expect LICs to be different. 
  • Many developing countries -- and their advisors -- are turning their backs on basic systems which are needed before moving on to more advanced reforms. 
  • Because the necessary basics are not in place, many reforms are likely to fail. 
  • While a few countries have made progress, in general, the evidence suggests that weak budgetary institutions tend to be the norm in many LICs. Some countries that were "shining stars" in the 1990s have stagnated or fallen back. 
  • Donors and the international consultants they hire are often part of the problem rather than part of the solution. 
  • Reform action plans tend to be much too complex (e.g., the "platform approach"), and the time periods for completion much too short. Donors compete for a share of the TA pie. Such plans are unlikely to be successful. 
  • Much more attention needs to be given to the political economy constraints to reform since changing budgetary institutions is not at root a technocratic issue. 
  • Not enough attention is given to monitoring and evaluating the results of reform programs, creating the right incentives for reform, and holding officials to account for success and failure. 
  • The presentation gives examples of PFM reforms that should be given priority, and others that should not generally be attempted before basic systems are in place.
    Update: Great discussion by Ranil at AidThoughts on this issue

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