How does politics matter in public finance management reform? Edward Hedger, ODI World Bank PFM Workshop 21 March 2008

Is political commitment important for PFM reform success? How does it matter? –Form of political commitment –Stages in reform process –Types of reforms Reform champions: politicians or technocrats? External assistance: targeting political commitment or technical capability?

Objectives To consider how and why politics relates to PFM and PFM reform To review current approaches to the politics of PFM reform To suggest another way of addressing the political dimension of reform To motivate questions for discussion based on country reform experience

What do we mean by politics … and PFM? Definitions from the political science literature: –who gets what, when and why – Lasswell (1936) –processes that determine the use, production and distribution of resources – Leftwich (1983) Material and financial resources as a key focus of political conflict Public finance management: institutional arrangements governing the mobilisation, allocation and use of public finances… – World Bank Allocation of financial resources is inherently a political process

Important starting points Politics of the budget process vs. the politics of PFM reform –Public finance management is political so PFM reform will also be political –Changing the institutional arrangements (rules of the game) PFM reforms and governance reforms –PFM as subset of public sector governance –Links to civil service reform and decentralisation Political agency vs. political institutions (IDS, 2005)

Why arent more PFM reforms successful? All public sector governance reforms are difficult –Multiple players: MoF, line ministries, SN Governments –Multiple dimensions: PFM, civil service reform, decentralisation, service delivery improvement –Tensions between formal and informal institutions Existing equilibrium may actually suit the interests of governing elites, operational officials and donors –Inertia fuelled by vested interests and sustained by existing institutions –Risk of losing rents, patronage resources and political support –Narrow focus on pet projects, sectors and organisations

Requirements for successful PFM reform? Standard menu of success factors –Political commitment (leadership/support) –Senior technocratic leadership –Organisational and strategic management capability within the public sector –Technical capacity within the public sector –Domestic demand for reform from outside the executive –Appropriate and coherent external technical advice (and pressure) –Logic and coherence of technical reforms

A possible classification of success factors Roles and interaction of reform actors –Supply side of reform: political executive, senior public officials, operational technical staff, external advisers –Demand side reform: political executive, legislature, opposition parties, civil society, media, business groups, general public, international agencies Nature of technical reform process –Sequence, pace, timing, scale (of reforms) –Type, coverage (of reforms)

What we dont know about these success factors What is their relative importance? –How do they interact and complement each other? –Can they substitute or compensate each other? How does country context affect their influence and importance? What balance of technical vs. political considerations? –Is the political dimension of the reform really the most important?

What really motivates PFM reforms? Political leadership? –Thailand, Tanzania Technical leadership? –Chile, Mozambique Political and bureaucratic leadership? –Uganda, Cambodia, Russian Federation Domestic reform coalitions? –Philippines, Uganda International pressure? –Bosnia and Herzegovina Apparent case for centrality of political leadership

Donor approaches to the politics of PFM reform … and limitations Technically-driven strategies that equate politics with ownership –Dominance of technical logic and ownership as supplementary concern Politics matters approaches to understanding the politics of PFM –Lack of operational implications for reform process Attempts to make political analysis operational –External strategy tool based on expert estimations of reform

Two dimensions of political commitment for reform Intensity: what is necessary? –Proactive political leadership –Passive political acceptance Consistency: when is it necessary? –Contingent on the stage of reform: outset, middle, latter stages, or throughout –Contingent on the type of reform: budget presentation, legislative scrutiny, civil society input

PFM reforms without political leadership? Technical reform process contingent upon reform actors Supply-side actors are more important than demand-side actors to the PFM reform process –Domestic supply-side actors drive and sequence reform –International actors supply ideas for reform (and may also try to demand it) –Domestic demand-side actors facilitate and sustain reform

Assessing the case for technocratic agency Strategic management and technical implementation capacity are critical for reform success Proactive political leadership also highly desirable, but maybe not essential Is passive political acceptance enough? Senior technocrats can be instrumental agents of reform –Uniquely positioned to understand and negotiate reform politics –Freemasonry of the senior public service (Manning, 2007) But need to consider the motivation and incentives of technocrats –Why would they hazard reform? –Political institutions vs. political agency

A broader view of politics Not just politicians who have political agendas –Technocrats, donors, consultants, legislature, public –Dynamic set of interacting variables: a complex web of political relationships Different (political) perspectives on same reform –Horizontal and vertical differentiation: sector ministries, SN governments Politics is not an exogenous factor –Intrinsic to entire reform process, not just to specific stages

Linking up the technical and political dimensions of reform Combining technical logic and political expediency –Explicit assessment of political risks to apex power- holders –Sequencing targeted on political and technical benefits –Normative vs. pragmatic approaches: successful second best reforms –With the grain or against the grain approaches: informal institutions –Asymmetric approaches: sector and SN reforms

Linking up the technical and political dimensions of reform Towards a more strategic approach? –PFM reforms in context of wider governance reforms –Holistic view of political, institutional and technical factors –Technical improvements that reinforce political motivation –Adaptive reform-minded coalitions, with coinciding objectives –Comparative advantage of different actors in reform process

Focus on reform variables Political and tactical considerations: –Starting point for reform –Trajectory of reform –Small parallel steps on multiple reform fronts or more major steps only with PFM –Piloting of reforms –Framing the reform in a high profile or a low profile manner –Creating and managing expectations –Developing improved incentives for key actors –Addressing capacity building strategically

Conclusions: reframing the politics of PFM reform A politically-astute approach to PFM reform –A shared diagnosis of issues a shared understanding of objectives/approach –Broad and flexible alliances of prospective reformers –Combining synergistic and demonstrative approaches (Smoke, 2007) Avoiding blueprints: dominance of country context and contingency –No rules for which types or stages of reform are more politically feasible –Certain patterns may hold for certain types of political and institutional context Making the political dimension of reform endogenous and dynamic –Different and changing political agendas of all actors Role of public expectations in building/sustaining reform momentum Appropriate donor involvement (on the supply side)

Is political commitment important for PFM reform success? How does it matter? –Form of political commitment –Stages in reform process –Types of reforms Reform champions: politicians or technocrats? External assistance: targeting political commitment or technical capability?