Tag Archives: Overseas Development Institute

The State of Public Financial Management Reform

Doug Hadden, VP Products

There were some interesting observations about Public Financial Management (PFM) reform at the recent Centre for Aid and Public Expenditure Conference (CAPE) held in London at the Overseas Development Institute (ODI) and shared on line. 

PFM Reform Success

  • PFM reform success has improved but is no more successful than any other reform
  • There is a broad distribution in PFM reform success
  • There remains some debate about what works and what doesn't
Successful PFM Reform Characteristics
  • Legal reform is easy, implementation is difficult 
  • Developing countries need to avoid many so-called Public Financial Management (PFM) "best practices" and need to concentrate on basics first 
  • There is a need for measurements for successful functional change rather than successful form change (some debate over whether this is possible and whether this is exchanging one orthodoxy for another)
  • Many PFM reform plans are overly optimistic in terms of how much can be accomplished and how soon
  • Sequencing reform needs to be based on the country context (i.e. what is the problem to be solved), needs quick winsto gain political support and requires patience because reform took some time in developed countries 
  • There is a need to analyze informal and formal processes when examining ministries of finance and determining the sequence for PFM reform
  • Soft skills of change management, leadership and persuasion are critical to achieve PFM reform success
  • PFM reform projects need room to adapt in order to better address problems

External Factors: Donors and PFM Reform

  • Donors are often a source of the problem in lack of PFM reform by funding so many initiatives (meeting fatigue) and by a lack of aid transparency & coordination (there was some debate over whether donor hiring of the best and brightest from finance ministries was a good or back thing
  • Donors are reluctant to use country systems even though this is considered a good practice for reducing transaction costs and improving government capacity
  • There is a lack of technical assistance in the areas where budget capacity most lacking
  • Many of the themes from this and other conferences are similar yet donors have not adapted processes to meet the lesson learned

Manuel Pietra, President & CEO of FreeBalance, to Participate in International Conference on Public Financial Management in ‘Fragile States’

Overseas Development InstituteConference to explore the role of finance and public financial management reform to accelerate the transition out of fragility 

Ottawa, Canada (November 15, 2010)FreeBalance, a global Government Resource Planning (GRP) software company, announced that it will be participating in the sixth annual conference on development finance and public financial management reform. The conference is jointly organised by the Centre for Aid and Public Expenditure at the Overseas Development Institute (ODI) and the International Monetary Fund (IMF) Fiscal Affairs Department. The sixth annual conference will focus on the practical and policy aspects of how to use finance to support fragile states in their transition out of fragility. The invitation-only conference will bring together government policy makers, international agencies, practitioners, and academics. The lessons learned will be captured in audio recordings, video footage and a conference report that will be disseminated after the conference.

Public Financial Management (PFM) discussion during the two-day event will be focused on delivering effective financial, developing local financial management capacity, the role of transparency and accountability, and lessons learned in PFM reform in fragile states. Guest speakers at the event include representatives finance ministries from FreeBalance customers including Afghanistan, the Democratic Republic of Timor-Leste, Sierra Leone, Uganda, and Liberia. Panelists and speakers will include representatives from the IMF, the World Bank, ODI, the African Development Bank and the Organisation for Economic Cooperation and Development (OECD).

“FreeBalance is pleased to have been invited to participate in the Cape Conference 2010 event,” said Manuel Pietra, President & CEO at FreeBalance. “Our mission as a company is to help countries around the world leverage technology to support economic growth and development. Many of our customers are participating in this event and we fully support the collaborative exchange of lessons learned and good practices.”

FreeBalance is a global provider of software solutions for PFM, where PFM is an essential part of the international development process. FreeBalance solutions support government modernization, fiscal decentralization, and public finance reform across all levels of government.

FreeBalance customers span the globe and the user community includes public financial management professionals in 18 countries, including Afghanistan, Iraq, Kosovo, Liberia, Mongolia, Namibia, Pakistan, Panama, Sierra Leone, Southern Sudan, Timor-Leste, and Uganda among others. FreeBalance operates in 15 customer time zones. FreeBalance has more than 60,000 users around the world. FreeBalance software manages a global civil service workforce of 1,500,000, and also manages a quarter trillion ($US) annual budgets worldwide.

About FreeBalance
FreeBalance helps governments around the world leverage robust Government Resource Planning (GRP) technology to accelerate country growth. FreeBalance software solutions for public financial and human resource management support reform and modernization to improve governance, transparency and accountability. Good governance is required to improve development results. For more information, visit www.freebalance.com.


Practical Approaches to the Aid Effectiveness Agenda published

SamMoonDoug Hadden, VP Products

The Overseas Development Institute,  International Budget Partnership and Publish What You Fund has published a study that shows how aid information can be aligned and integrated with recipient country budgets.
The report authored by Samuel Mooon (pictured on the left at the recent IATI Technical Advisory Group meeting)  with the assistance of Zachary Mills takes a practical approach.

Why Use Country Systems?

The Accra Agenda for Action mandates the use of country systems by development partners.  According to the authors, “the Paris Declaration and the Accra Agenda for Action emphasise and formalise the importance of aligning aid with recipient government priorities and delivering aid through government systems. Yet, a significant amount of aid, in some countries the vast majority, is not delivered through the national budget. Indeed, many recipient governments are not even aware of large amounts of the aid directed to their countries. Generic donor ‘sector’ categorisations of aid are often applied at country level, even though these do not relate meaningfully to recipient governments’ sectoral or administrative budget classifications.” The use of country Integrated Financial Management Information Systems (IFMIS) can reduce transaction costs, improve transparency and harmonize aid to improve results.

The authors also point out that “the ability of citizens to hold their government to account for the services it delivers may be weakened by the provision of aid.”  Governments become more accountable to development partners rather than citizens.  The use of country systems to integrate development partner and government budgets changes the transparency dynamic to focus on citizens. And, citizens participate when taxes are linked to policy and outcomes.

It is difficult to argue with the statement that “a solution at the country level is imperative to effectively align aid with government planning and implementing cycles and to address country-specific concerns.” Integrating the aid lifecycle from donor through to outcome is the focus of the International Aid Transparency Initiative. IATI also promises to make donors accountable.

Can Aid and Government Information Integrate?

 Many stakeholders seem to view the notion of aid and country integration as a theoretic exercise fraught with technical difficulties. The authors point out that “no AIMS has successfully and reliably brought aid information together in a way that interfaces with the national budget.”  The study examined whether current international classification standards can be leveraged including:

There has been much effort in countries to leverage good practices in budget and accounting classifications. The study found that there is complexity associated with linking sectoral requirements and  international classifications against multi-dimension Charts of Accounts (CoA). Yet, the study shows remarkable similarities in budget classifications across 14 governments. And, the study recommends how international standards can be extended to meet integration and harmonization needs. Government CoAs can accommodate standards support through inferred or side concepts that require little or no change to budget operations. Budget preparation and budget execution can operate independent of these classifications so as not to add any complexity. This is currently supported by many governments who are able to support GFS, COFOG and MDG classifications without affecting daily data entry.

The study recommends that donors should provide budget and funding information to facilitate usage by country system rather than the other way around.  “Those countries most dependent on foreign aid and countries with lower capacity will lose out if donors do not publish aid information that is easy to link with recipient government budget systems,” the study asserts.  The study points out that donors have adjusted to national currencies and fiscal years. So the technical exercise can extend to supporting government budget and auditing calendars.

There remains some semantic issues in classifications that need to be overcome. There is no technical reason why development partner, aid information and country systems cannot integrate.

How is FreeBalance Helping with Aid Transparency?

There is interesting observation that I don’t fully agree with: “the ease of mapping aid onto budgets may have an inverse relationship with institutional capacity levels, and lower capacity countries are likely to start at a disadvantage in the attempt to use aid information and build functioning integral AIMS.” Our anecdotal experience is that countries with lower institutional capacity level may be more receptive to supporting the standards that enables aid management integration. They are more willing to use these standards to accelerate capacity building. We see that some of these countries will often roll-out full compliance with standards in a second phase.

As a For Profit Social Enterprise (FOPSE) with numerous country Government Resource Planning (GRP) systems in emerging nations, FreeBalance has been assisting in improving aid transparency. We are active in IATI and have provided technical advice on country systems. We have integrated the FreeBalance Accountability Suite with the Development Gateway Aid Management Program (AMP). We are producing a Transparency Portal product for our customers.  And, we are working with our for-profit and non-profit partners to develop an integrated aid and budget Ministerial Decision Support System.

We see multiple integration points between aid and country systems. In particular, aid management systems should be integrated with the budget preparation process. This provides full transparency on how the government and development partners expect to achieve joint goals. It should also be integrated to track expenditures throughout the lifecycle. And, it should integrate commitments so that development partners are aware of in-progress activities.

Kosovo Improves PEFA Assessment

The Government of Kosovo is committed to Public Financial Management (PFM) reform. PEFA or Public Expenditure and Financial Accountability provides a standard for assessingg public financial management. The PEFA Secretariat provides assessment training and publishes completed reports.  The Government of Kosovo PEFA assessments for 2007 and 2009 are available on-line.

International donors use the 28 government indicators when considering funding projects. (Donors are also assessed in PEFA). Scores range from A to D. Not all scores need to by high. The country context determines priorities.  For example, Norway achieved C or D on eight indicators.

The Government of Kosovo has shown remarkable improvement in PEFA scores from 2007 to 2009. 13 scores improved while only 7 scores decreased. 7 of the 13 improved scores were significant – increasing by more than 1 letter. The indicators roll up to six major measurements:

  • A. Credibility of the budget
  • B. Comprehensiveness and Transparency
  • C(i) Policy-Based Budgeting
  • C(ii) Predictability and Control in Budget Execution
  • C(iii) Accounting, Recording and Reporting
  • C(iv) External Scrutiny and Audit

A recent study, Taking Stock: What do PEFA Assessments tell us about PFM systems across countries, by Paolo de Renzio for the Overseas Development Institute, compared the measurements across 57 studies. Using the same methodology, the Government of Kosovo scores higher than average on the six major measurements.


Comprehensiveness and Transparency in the budget is particularly high in Kosovo. The government is aided by the use of the FreeBalance Government Resource Planning (GRP) software.  According to the 2009 PEFA report:

The strength of the existing PFM system in centred on the successful introduction and implementation of the Financial Management Information System.  This has ensured that commitment control is applied in budget execution and that reporting on budget execution is timely and meets the need of management for effective decision-making.

Of course, the financial management system is a tool. Software from companies like FreeBalance need to be effectively leveraged by governments. And, PEFA assessments rate government reform, practices and legislation. GRP software does not automatically provide PFM reform. This is a government activity and requires commitment. The Government of Kosovo is committed to improving these scores through the Public Financial Management Reform Plan (PFM RAP). This is clearly a Government of Kosovo achievement.

We have had the opportunity to discuss good practices with PFM professionals the the Government of Kosovo. There are numerous lessons learned – these lessons can help other countries to improve PEFA assessments. We will be publishing a full case study in the near future.