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19 Challenges to Implementation

Author(s):
Marc Robinson
Published Date:
October 2007
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Author(s)
Jack Diamond

Parts One and Two of this volume have distinguished among different types of performance budgeting (PB), and have assessed the various means employed to ensure that these efforts have improved the efficiency and effectiveness of government spending. Part Three focuses on the question of how countries have introduced PB, the typical challenges faced in implementation, how these have been overcome, and the lessons that can be learned by other countries who wish to introduce PB reforms.

Although interpreted differently by different countries, the challenge faced by countries in introducing PB arises from the common feature of this reform that it is usually interpreted as systemic. Although essentially it has to do with the way we budget—it is recognized as something more—it involves the entire budget process from the planning, budget preparation, and budget implementation to the ex-post evaluation phase. Following from its systemic nature, introducing PB involves a change in budget management, and, perhaps even more, represents something of a “cultural change” within the government sector. This is particularly pronounced in Chapters 20 and 21 that present case studies of France and Russia—both countries whose previous budgetary systems have influenced and formed models for many other countries. Both chapters argue that because the approach is comprehensive it needs to be reinforced by wider systemic changes, not only in government work practices, but in the institutional structure of government, its legal framework, and its human resource base. Ultimately it involves changes in motivation and the way performance is defined and enforced. In short, most contemporary forms of performance budgeting have close synergies with broader “managing-for-results” reforms (see Chapter 1).

These characteristics, its breadth and depth, point to a lengthy implementation process and one that must advance on a number of fronts, and not only within the budget process—features which are evident in the chapters presented in this part. In particular the Russian case study, documented by Elena Belyanova, Ole Hovland, and Alexey Lavrov in Chapter 21, perhaps most stresses the scope of the required reform effort, by a country with an ambitious reform program, and one undertaken on a massive scale. The recognition that introducing performance-based budgeting requires more than reforming budget processes but involves wider institutional and regulatory reforms is clearly brought out in this chapter. The candid discussion of the difficulties encountered and the tasks remaining, as well as the call for a more realistic timetable, are most instructive for other countries following a similar path. Similarly, Benoît Chevauchez’s description of the French experience in Chapter 20 stresses the systemic view, arguing that introducing PB has implied modernizing the whole public administration. Accordingly, this has led policy-makers to pursue broader changes in three key areas: civil service reform, the organization of government, and the interaction between elected officials, ministers, and public servants—all challenges which the French currently face.

In this review of the implementation problems posed by this major reform, it is possible to identify some important lessons. First, the introduction of PB requires suitable preconditions within the public expenditure management system. It should be remembered that countries most successful in introducing these reforms started from a solid base in their budget system. Their systems were capable of controlling expenditure within budget appropriations, in adjusting fiscal aggregates to meet macroeconomic objectives, and only then were PB techniques introduced to enhance the efficiency and effectiveness of government spending. The need for a solid public financial management platform on which to base PB reforms should be emphasized.

Second, successful implementation has required careful planning and organization, both on the supply and the demand side. This reform should be considered not as a mere “add on” to other budget work, but as a dedicated activity, viewed as a major investment project requiring substantial human and financial resources. On the supply side it has usually involved a specialized reform team pushing for reform, and simultaneously the cultivation of the demand for these reforms by major stakeholders, both within and outside the budget system. Inevitably the costs involved are up-front, while the benefits tend to be longer-term and not as tangible.

As a consequence, the third lesson is the importance of the sequencing and pace of the reforms. While there is a danger in advancing too timidly there are obvious risks in advancing too fast. The chapters in this part give examples of both what might be termed the “big-bang” approach (for example, Russia) as opposed to a more phased, or sequential, approach (for example, France). Ultimately, the desirability of each approach is likely to be country specific and depend on the environment in which the reforms are launched. However, it will be evident that the big-bang approach appears the riskier of the two.

Last, but perhaps most problematic, since PB involves a wider systemic change in the way government does business, its introduction typically requires parallel changes in the organizational and administrative structure of government and the legal framework in which it operates. As a consequence budget reform needs to be paralleled by administrative and civil service reforms. If these are not in place, or do not advance fast enough, these wider conditioning factors may act as a brake on reform. Let us examine each of these issues in turn.

Preconditions should be established

There has been increasing recognition that PB reforms should be based on a solid financial management platform within government institutions. This “micro basis” of wider budget system reforms is easy to take for granted, but is problematic if neglected. In particular three areas have generally been found weak, especially in middle-income countries, but have not always been adequately emphasized: the internal control systems in budget institutions; mechanisms to meet the heavier demands for information, particularly of a performance nature; and the need for full costing of all government activities and programs. It is perhaps instructive to review the implementation problems caused by neglecting such prerequisites, which are touched on by several of the chapters in this part.

The essence of the PB approach is to let managers manage by devolving resource decision-making to the operational level. In moving away from the more traditional centralized controls, there it is often the need to strengthen institutions’ internal control mechanisms to avoid any new financial freedoms, brought about by the dismantling of central controls, resulting in less effective use of funds. At the same time, this should be mirrored by a changing role for the central budget office, as discussed below.

Clearly PB is a heavy user of information. Detailed and robust financial information is demanded of managers to adequately track the costs of their operations, and at the same time additional performance information is required to relate these costs to their outputs and outcomes. In turn this implies PB management should be based on a firm IT platform. At its most general this will include software to assist in budget formulation, budget execution, and accounting operations. Specific demands of PB management will also require a progressive shift in the type of information used. This will be away from the traditional focus on annual cash requirements and uses, towards a more medium-term financial planning framework, with modification of existing information systems to capture additional performance data. In this move, as evidenced in some chapters in this volume, there are often difficult methodological problems faced in deriving indicators of performance, in setting and justifying target values for these indicators, and in deciding on how information will be combined and on how reporting systems will be designed. An important point stressed by Philip Joyce in Chapter 23, is not only that there is a need for appropriate information in order to make budgeting more results focused, but also that information needs to be properly used to make decisions. Again Joyce stresses the systemic nature of these reforms—there are multiple decisions to be made at every stage of the budget process, from its approval to final ex-post evaluation.

Kate Ashcroft, in Chapter 24, dealing with developing formulae for funding performance in higher education in low-income countries, gives an in-depth perspective on the importance of developing indicators flexible enough to allow incentives to managers but at the same time being practical enough to be applied.

While analyzing the principles underlying such formulae, much of the focus of the chapter is on the compromises required by poor or absent data and the lack of modern management systems in low-income countries. One of these compromises is the need for first developing indicators based on lower-level rather than high-level outcomes (for example, completed courses of study, rather than graduates employed in professional capacities). Another compromise is not to link funding too closely to performance in the short run, to allow institutions to adapt to different levels of funding and not be destabilized. Ashcroft offers many examples of funding formulas across the world based on inputs, outputs, or outcomes. Of course, not all higher education systems are funded by formulas, but the practice is growing and for good reasons: their transparency; their ability to fund complex systems; and their usefulness in focusing institutions on their core educational missions or goals, and so enforcing accountability. The essential point is that the design of the formula should allow it to be employed to promote better performance. Additionally, incentive funding can be set aside separately, so-called “top-slicing” available funds, to be targeted to different activities without disrupting the main formula. Of course, such targeting also demands more information.

At the same time there must be adequate mechanisms to fully cost programs and activities, so that they can be related to their outputs, and then to their ultimate benefits, in order to judge program performance. This approach involves public sector managers becoming more like private sector managers, required to capture the full costs of their operations. In turn, this has usually implied an accelerated move away from traditional cash accounting to at least partial accrual accounting. The case for moving to full accruals is less clear. For the few countries that have attempted it, the latter move has almost universally proved time consuming and costly, both financially and in terms of human resources. To adopt even partial accrual accounting has usually meant changes in budget classification and the adoption of new computerized accounting packages adapted from the private sector. Establishing these preconditions is highlighted in the Russian case study. In cases where full accruals has been introduced it has also meant the hiring of private sector accountants familiar with accrual concepts, typically in short supply, to supplement or even replace existing government accountants. Not surprisingly some countries have opted for the compromise position of only moving, at least initially, to a partial accrual accounting regime. It can be argued, therefore, that although performance budgeting does not require accruals, the approach will work better if over time accounting is moved, preferably in stages, onto an accrual basis.

Apart from the collection of performance data, managers must also ensure the timeliness of the data and its accessibility to allow various stakeholders, including civil society organizations and the general public, to monitor their performance. In turn this requires creating mechanisms to monitor program implementation, ex ante and within the fiscal year, as well as ex-post evaluation of the impact of programs. This should be complemented by procedures to ensure the integrity of all such functions. In turn this requires internal audit to be strengthened, to cover not only financial accounting and reporting but also correct measurement and reporting of non-financial indicators. In a similar way external audit should be performance-oriented. The case of Bogota clearly indicates the importance of the PB budget scrutiny by the legislative council, backed strongly by the external audit body (Contraloria), in highlighting budgetary issues and strengthening political oversight of the activities and outcomes achieved by the city administration. Joyce, in his chapter, argues that one of the ways that legislative bodies can impede performance is through the excessive use of budget controls. Rather it is essential that they engage in oversight designed to focus on performance. The elements are described: setting clear overall goals and direction for programs; focusing on appropriate performance and cost information; and exercising their oversight function on performance in a comprehensive way, so that it “allows legislatures to couple the grant of substantive policy-making with the capacity to discover what the executive branch has done with that power.” Joyce admits, however, that such systematic oversight occurs less frequently than more episodic forms of legislative review.

Reform process needs to be mobilized

To ensure the adoption and the sustainability of PB reforms, it is important to fully appreciate that the workload of civil servants is likely to increase substantially. This is especially true in emerging market and developing countries. The requisite initial investment in systems could in the short run create resistance to reform. Civil servants can too easily view reform as a burden; especially in the initial phases when workload escalates without evident returns. There is also a longer-term problem—the cost of maintaining these systems is visible but gains are often less tangible.

In overcoming this resistance, the success in implementing PB reforms appears to rest critically on the change of management skills required to engineer the shift from one type of budget system to another. From this perspective some elements for successful implementation can be identified. First, there is the need to establish visible high-level commitment at the political level. Second, there is the need to form a consensus within the system that change is needed. Third, by building up and mobilizing this consensus, efforts must be made to ensure that it is strong enough to allow a common approach to be “sold” to the main stakeholders in the budget system and accepted as a central element of government policy. Fourth, and perhaps most important, a reform team has to be identified and empowered to carry out the reform led by a suitably powerful “champion” of the reforms. Fifth, there is also the need for a plan for sustaining the reform momentum, to institutionalize the changes so they become part of the management culture.

As indicated in the Bogota case study by Israel Fainboim Yaker in Chapter 22, the creation of a special unit in the Finance Secretariat to design and implement PB was of critical importance to the overall success of the reform. It should be underlined that this unit received political support from the highest level of the administration. In Russia, adopting a “big-bang” approach, Belyanova et al. report that while top-down pressure has been intense, a problem encountered has been that the implementation of reforms has been a shared responsibility between different institutions, sometimes difficult to coordinate. These case studies highlight the importance of a plan and the need for wider efforts to promote and institutionalize reforms.

To ensure that reforms were institutionalized it has usually been necessary to create the appropriate environment within the budget system and external to it. The latter has implied removing any institutional and legal constraints. Accordingly, most successful PB reform initiatives have led to changes in the way government is organized, and have been anchored on fundamental changes in budget system laws. We will return to this aspect later. Perhaps even more critical has been the creation of a suitable reform environment within the budget system.

The new PB budget model assumes that public officials will cease being administrators of public funds and assume a management role akin to that in the private sector. Unfortunately, this transformation is unlikely to occur without a substantial investment in human resources. The traditional compliance-oriented “command and control” management culture does not foster required PB managerial skills and while enforcing compliance does not encourage managerial responsibility. Management capacity needs to be identified and strengthened, but most important of all, mechanisms must be put in place to reward good performance while at the same time sanctioning poor performance. Put another way, at the same time as there is a need to upgrade basic management expertise there is the need to put into place a system of incentives for such expertise. This is not simple since performance becomes more difficult to judge. Where in the past managers were to be held accountable for the correct use of inputs, now they are to be held accountable for the results of using those inputs. This, as Chevauchez stresses in Chapter 20, has important wider ramifications for policy management, and in particular promotes the need for a clear definition of public policy objectives. Managers are unlikely to accept accountability for objectives that are unclear, inconsistent, and unachievable.

For reforms to be sustainable it may be necessary to strengthen the overall accountability framework. The focus has been on accountability within the executive branch and the need for the accountability of budget managers to be clearly defined and changed. However, this should be recognized as only one aspect of the overall accountability for the use of public funds. In addition there is the need for the executive to give an account to the legislature on how it is meeting its responsibilities as a whole, enforced by an independent external audit body, reporting at least annually, to the executive. However, as Chevauchez has pointed out, from the French experience improved accountability is likely to be wider than this, and may involve fundamentally redefining the roles of parliamentarians, ministers, and civil servants.

Often these latter dimensions of accountability also need to be strengthened. The accountability of the executive often needs to be enhanced by prescribing fuller reporting ex ante and ex post of fiscal policy strategies and intentions, as well as providing fuller reporting on the financial and non-financial outcomes. An effort designed to educate legislators on the use of these reports has also often proved beneficial. The external audit office also typically needs to be better resourced, made more clearly independent from the executive, and required to reorient its work to better serve the needs of the legislature (see Chapter 6 on the role of performance auditing). This, in the new PB model, has required the external audit institution to widen the scope of its audits away from narrow financial compliance with more emphasis on value-for-money audits.

A critical element in strengthening accountability and improving the effectiveness of the above approaches is to promote greater transparency within government. For low-income and emerging economies, this is also often an essential aspect of sustaining confidence in the government apparatus. This has become particularly acute with the exposure of fiscal policies to international financial markets arising from the increasing use of market financing of deficits. Such exposure has required many governments to modify past policies and so has assisted in achieving fiscal discipline and improved resource allocation. As argued below, it is also an essential ingredient in establishing the new budget management model.

Pace and sequencing of reforms is important

A realistic timeframe and the proper sequencing of reforms has been recognized as important. Experience from OECD countries warns of the dangers of being over-ambitious and underestimating the time required to complete budget system reforms. For countries with obvious administrative capacity constraints, a gradualist rather than a “big-bang” approach appears unavoidable. Moving from central controls where line ministries have little scope to manage their budgets, but rather administer them under central direction, implies new skills need to be developed or recruited. Accordingly management capacity needs to be strengthened as a prerequisite for devolving management decision-making. A “crawl before you walk and then run” approach inevitably takes time to implement. It also points to an implementation strategy that, rather than attempting blanket coverage, adopts a serial approach based on pilot agencies.

Unfortunately, a cautious step approach to reform could tend to make the reform process appear to lack coherence. All too easily, important legal and institutional initiatives and important programs and projects, while being identified as elements in the reform process, will not appear to fit together into an overall coordinated reform plan. With the incremental approach, it is difficult to specify a clear timetable for the reform process, nor to place emphasis on the sequencing of the individual components of the reform. It also allows more time for the opponents of change to organize themselves and increase resistance to the reform, and there is the ever-present danger of reform fatigue. It is not difficult to appreciate the lure of the “big-bang” approach to reform.

However, many of these drawbacks of a phased approach can be countered by a strong reform team with clearly designated and empowered agents of change. This raises questions about the role of the central budget office as a critical change agent where its work practices will need to undergo a fundamental change to “steer rather than row.” Such a reorientation is often resisted. There are many reasons for this: fear of the unknown, reluctance to give up the power that goes with centralized controls, or simply the MoF having limited capacity for change management. Thus while the reform group may initially have to be located outside the central budget office (although ideally with its full participation), in the longer-run for PB reforms to be sustainable ideally the budget office should become the prime agent of change.

In implementing PB reforms, experience in some emerging market economies suggests the efficacy of a “scissors approach” to implementation: applying pressure from above to encourage managers to change, and increasing capacity from below to allow them to change. Top-down pressure on managers has come from a number of instruments: in-depth evaluations by the MoF of activities where managers are forced to justify the way they do business; institution of an “efficiency dividend,” whereby managers are forced to find savings; improved accounting to ensure managers manage their assets better. However, this increased downward pressure must be matched by an improved ability of managers to adapt to it. Hence the second blade of the scissor: the need for a proactive role on the part of change managers at the center to develop good management in spending departments. This bottom-up approach can take several forms: promoting the idea of better management; developing standards for key management competencies and working with government institutions to apply them; reviewing outputs and performance indicators for each institution and providing specific expertise on demand when required so they can meet such requirements. For example, the Russian case study, while describing a top-down reform strategy, also highlights the importance of establishing a facilitating environment in budget institutions by offering them training and budgetary incentives to motivate them in supporting these reforms.

Providing an enabling environment is essential

The new PB reforms require continuous data-gathering, measurement, reporting, evaluation, and corrective action; that is, it makes “heavy” demands on managers. Consequently some offsetting incentives required. One obvious incentive is increased freedom for program managers, which is a key rationale of the PB approach. There must be some assurance that the information when manufactured can be used for better management decisions—that is, to assure a pay-off there must be flexibility in the budget. This assurance will not be provided if there is no scope for budget flexibility, if say, mandatory spending or “entitlements” consume nearly all the budget. Also the composition of spending is important—many budgets are transfer mechanisms rather than allocations for providing services. The latter are more susceptible to gains in using performance information well.

This also points to the importance of overall fiscal environment. While a sense of fiscal crisis can be a great spur to reform, if that crisis is too severe it will be difficult to invest heavily in longer-term reforms. Accordingly, it may prove easier to implement PB reforms in a resource-rich rather than a resource-poor budgetary environment, when there is some scope for visible pay-off rather than when expenditure cutbacks are required. Simply put, the timing has to be right. The Russian case study highlights that performance-based reforms were only undertaken when the macro-fiscal situation stabilized. The above considerations also point to the importance of introducing PB techniques selectively to those areas of expenditure, such as service provision where the pay-off is more visible to politicians and the public.

To sustain reforms an important challenge is to design comprehensive and effective incentive systems for program managers, typically with major structural constraints. Changes to civil service remuneration often imply fundamental administrative and civil service reforms. As the French case study stresses, this often can prove a most difficult element in reform.

The importance of increased labor flexibility to give public managers the freedom to deliver on their performance targets is a topic also taken up by Matt Davies, Marijn Verhoeven, and Victoria Gunnarsson in Chapter 25. To exercise this freedom the managers require a number of freedoms: the capacity to terminate employment, the capacity to shift people (either between agencies or between programs/activities), and the capacity to control remuneration structure and level. This chapter is important in relating these critical “micro” aspects of wage inflexibility to the aggregate wage bill inflexibility in the public sector as a whole and flexibility with respect to the labor market—recognized as important overall constraints in pursuing public sector management reforms. Their empirical analysis confirms that the wage bill is less flexible than other spending categories, with a consequent cost in terms of the quality of expenditure.

Chapter 25 also underlines that institutional processes—bureaucratic inertia, centralized pay scales and regulations, the rule of seniority, the importance of allowances and in-kind benefits, nationwide pay settlements, and all-powerful trade unions—contribute to this inflexibility, especially in lower-income countries. Given the generally hostile political environment, governance concerns, and the overriding need to ensure macroeconomic stability, the authors accordingly advocate a gradual approach to reforming public sector management. Davies et al. point to the tendency in OECD countries to reduce centralized controls over public sector employment and wage determination, and to cut powers to central civil service commissions, and so on, and to buttress the more general decentralization in public sector management. At the same time, they argue that some basic preconditions must be met so that such decentralization contributes to the quality of public management rather than simply increases the scope for corruption and nepotism. There should be no doubt that for performance budgeting to succeed, civil servant employment in low-efficiency or low-priority programs must be reduced—whether by redeployment, or by voluntary or involuntary redundancy. To ensure this, the transition to PB requires simultaneous coordinated reforms in traditionally rigid civil service employment regimes, usually with concurrent changes in the way budget institutions are organized and governed (see discussion below). Even if this is recognized it is often difficult to pursue such reforms simultaneously. This is made even more difficult when, as is typically the case, such reforms are designed and led by different teams so that coordination is problematic—a weakness identified in the present Russian reform efforts discussed by Belyanova et al.

Restructuring incentives by concentrating on the stakeholders within the budget system is unlikely to be enough—there is also the need for measures to activate the interests of clients to increase external demand for reform. One important external demand is that of the legislature in pursuing its oversight function. Joyce’s chapter stresses the importance of the type of budget system substantially influences the way the legislature deals with the budget, and hence the scope to apply pressure for reform. While the focus of his chapter is on government systems where the legislature exercises independent control over the budget, there are important insights provided for systems with different degrees of legislative/executive separation in the move to performance budgeting. However, for him there are four critical actions contributing to better public sector performance with independent legislatures: establishing a clear schedule for authorizing or reviewing programs, investing in producing and reviewing performance data, increasing the transparency of legislative decision-making, and recognizing the performance implications of legislative constraints placed on executive branch agencies.

To bolster PB reform, and help to sustain it, clients also need to be empowered, and client feedback strengthened and made more transparent. One channel is through widely publicizing performance standards that should be expected from particular public agencies, and by spelling out the specific steps the public can take to force agencies to meet these standards. The UK Citizen’s Charter attempted to do this at an aggregate level, but such initiatives are possible at a program level. A striking example of client involvement in improvements in public sector management is described in the Bogota case study. The Bogota Como Vamos project was promoted by the country’s largest-circulation newspaper, a charitable foundation, and the Chamber of Commerce, to measure and report on quality of life and hence bring greater transparency to government operations.

The correct institutional underpinning of reform may also be an important factor in its success. In Chapter 20, Chevauchez highlights the importance of launching the new French budget process in 2006 by concentrating reform in the Ministry of the Budget and establishing a general directorate of government modernization to lead the reform process. But reform requires more than restructuring central institutions. Evidently, “managing-for-results” has certain well-defined characteristics: performance is defined in terms of outputs and outcomes and not just in controlling inputs; managers are given defined performance objectives and, often, quantitative targets and their results are measured against these; managers are given incentives and flexibility to achieve these results; and managers are held accountable for results achieved. Stemming from these characteristics it is important that operational authority be devolved from the center to accommodate this new accountability model which in turn has implied a more decentralized institutional structure for government. Often central institutions will need to be reorganized; for example, by removing the fragmentation in budget preparation (recurrent versus development budgets), and to operationalize the program approach as the basis of performance measurement. With a redefinition of programs, top-heavy large departments have often been reorganized around service delivery. In turn, this has often resulted in a decoupling of service providers from policy-makers and has given rise to the creation of “agencies” and other devolved government entities—a growing trend in most OECD countries.

Chevauchez, in the context of the French experience, highlights other common organizational problems faced in implementing these reforms; for example, the disconnect between the program structure and the institutional structure, and, in particular, the thorny question of multipurpose agencies. Another common problem encountered is that of “functional” directorates or support units, which ideally should be allocated to their respective program, but where often the soft option is taken, as in the French case, and a specific program is created for them. Unfortunately, as is rightly pointed out, this approach will delay and may even block the ultimate move to decentralizing such functions to the operating agencies, as is consistent with the PB model. Belyanova et al. emphasize that the Russian budget reforms are anchored on a fundamental restructuring of budget institutions, alongside a parallel reform of the civil service in the attempt to create the environment for greater performance and service orientation within the civil service. Fainboim Yaker also reports on the importance of parallel institutional changes, or what he terms “market-based governance” mechanisms, in supporting Bogota’s performance budgeting reforms. These included the liquidation of a number of public agencies, restructuring entities through radical staff downsizing, the introduction of concessions, and outright privatization.

To create an enabling environment it is often necessary to remove any legal impediments to reform. The French case study points to the pivotal role of a new organic budget system law as the organizing framework in implementing reform. It also appears that a number of countries’ budget system reforms were legislatively led, often in the form of fiscal responsibility laws, to force governments to commit credibly and assuage governance concerns. The basic idea of this approach is to create rules and procedures that impose costs on governments for deviating from fiscal responsibility. The pioneer in this field was New Zealand through the Fiscal Responsibility Act of 1994, which has often acted as a model for other countries. However, as a minimum, most countries will find it necessary either to supplement or replace existing legislation that supports a traditional budget process focused on financial compliance and the control of public monies.

It could be argued that the adoption of such legal frameworks is useful in facilitating budget reforms, but by themselves perhaps should not be considered a precondition for successful reform. While the French and Bogota case studies confirm that a suitable legislative framework underpinned the PB reforms, at the same time, to quote Fainboim Yaker,

while it is important for PB to be incorporated into a law, since this would guarantee its permanency across changes of government, this is not a sufficient condition for success. It is the interest generated by the instrument among stakeholders (civil servants, legislature, citizens), and the use they give to it, that will determine its consolidation as a governance tool.

It should also be noted that in their candid assessment of the progress made and remaining tasks faced by the reform process, Belyanova et al. admit the need for further improvements in the legal and regulatory framework of budget management.

Concluding remarks

At first glance this brief survey of the challenges faced in introducing PB may appear quite daunting. However, in themselves each of these steps—establishing a strong public financial management base, organizing the reform process, investing in human resources, adopting a clear phased strategy, and putting in place an enabling legal and institutional environment—has individual merits and a pay-off in its own right. Moreover, it should always be remembered that these are steps that other countries have taken on the road to reforming their budget systems, so there is encouragement as well as lessons to be derived from their experience. The mere fact that PB reforms have been continued and extended in the countries that were first to adopt them should be a spur for those setting out on this reform path.

Nor should the prescription for reform described previously be considered unique or cast in stone. The fact is that all the more advanced countries have started from different initial conditions and have found their own solutions to these reform challenges, modifying and adapting these reforms to meet their own particular circumstances and specific political and economic environment. It is also worth remembering that the last word in budget system reform has not been written, and most likely never will. Even the most advanced PB systems continue to be subjected to new reform initiatives and experimentation. From this perspective, low-and middle-income countries who desire to advance PB reforms as fast as possible should recognize that there is no perfect system that can be taken “off the shelf” and applied without adaptation. What appears to work in one environment may not work in another. Rather, embarking on these reforms should be viewed as a learning process for all participants, and one that, once begun, should be expected to continue for many years into the future before its full results will be felt.

At the same time, while the pay-off may not be immediate, there should be no doubt about the advantages of pursuing these reforms, and the risks to countries in not pursuing them. Globalization in the international economy has had important repercussions for market-based economies, not only for their private sectors but also for their public sectors. The discipline of the global market has imposed constraints on private sector inefficiency and at the same time has also offered incentives for increased efficiency. Globalization has imposed similar discipline on governments. This has come not only directly through the channel of increased market financing of public sector deficits and public sector investments, but also indirectly but no less forcibly. An internationally competitive private sector requires an internationally competitive public sector providing its basic infrastructure of security, public health, an educated workforce, and basic utilities and transportation. PB is an attempt to ensure efficiency in the provision of public services and by so doing not only contributes to the sustainability of fiscal policies but removes constraints on private sector competitiveness.

Experience shows that the ultimate results can be profound. PB may have commenced narrowly by trying to promote improved service delivery, but has often ended up much more fundamentally reviewing what the role of government should be and changing the ground rules on how it should operate.

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