Effective PFM Reform in Difficult Circumstances is Possible
Small Island Developing States are at the nexus of climate and economic vulnerability. Natural disasters inflict economic shocks to dominant industries like tourism and fishing, which stresses public finances. Revenue is volatile and numerous unexpected expenditures are often required. This is particularly significant because Public Financial Management (PFM) systems and institutional capacity is often low in Small Island Developing States.
Recent events in Tonga have again highlighted just how critical PFM reform in these nations is.
Pic: Tonga Geological Services
Why is Public Financial Management a Problem in Small Island States?
Small Island Developing States (SIDS) suffer from a crippling brain drain. Indeed, econometric analysis confirms that smallness has a strong impact on emigration rates. On average, 50% of high-skilled labour in Small Island States have left their country, and the brain drain exceeds 75% in a few cases1.
Work by the International Monetary Fund on SIDS in the Pacific region shows that PFM reforms have suffered from the small size of these States, low capacity, poorly designed PFM roadmaps, variable political support for reform, and vulnerability to natural disasters2.
The Public Expenditure and Financial Accountability Secretariat says that with small numbers of staff and high staff turnover limiting potential for sustainable gains from standard capacity building solutions, broader options for meeting capacity gaps should be considered3.
How to Achieve PFM Reform in Small Island Developing States
Despite the significant skills shortages, we have found that a steady, activation progressive approach does work.
Our experience in countries like Timor-Leste, Antigua et Barbudaet Sri Lanka covers the breadth of public finance needs. We have likewise worked for many years in Guyane and Suriname which are also considered to fall into the SIDS category4. And we have found many similarities between SIDS and land-locked customers like Kosovo et Ouganda.
Years of on-the-ground support to these customer governments has shown that the implementation of a highly configurable Planification des ressources publiques (GRP) system, combined with a strong local support team and a Lead-Assist-Guide approach to le renforcement des capacités is critical for successful PFM reform.
Challenges Faced by Small Island States
Small Island States have a double edged sword hanging over them given their dependency on a single industry (e.g. tourism, fishing, etc) and the sensitivity of these industries to climate change and global events such as COVID-19.
Source : World Travel and Tourism Council
According to the OECD, some tourism-dependent SIDS are expected to experience particularly severe GDP contractions: in Antigua and Barbuda, Belize, Fiji, Maldives and Saint Lucia, GDP is expected to shrink by 16% or more, making the current crisis the worst in recorded history5.
Source : OCDE
For fisheries-dependent SIDS expected GDP drops range between 0.5% and 4.5% while natural-resource dependent SIDS will also be negatively affected by the fall in commodity prices and supply chain issues, and all will suffer from public revenues being negatively affected by the related fall in export earnings6.
Source : Nations Unies
Additionally, these countries have limited fiscal space for much needed infrastructure investments. This is exacerbated the high cost of investment and maintenance, difficult access and environmental vulnerability7.
How Can SIDS Achieve Critical PFM Reform?
From our experience, we see five key elements for successful PFM reform in Small Island Developing States.
SIDS need to:
- Develop country-specific reform roadmaps
- Focus on critical things done well
- Leverage assessments to motivate change
- Build on progress to motivate future reform
- Design government capacity building programs and certifications to make government the preferred professional employers with attractive career paths
How Does FreeBalance Help SIDS to Sequence PFM Reform?
Whilst reform priorities differ among SIDS, we have seen some commonalities and sequencing patterns.
Firstly, massive configurabilité is a prerequisite. Systems such as the Responsabilité de FreeBalance Suite™ enable governments to adapt functionality in concert with phased legal reform that has been planned in sync with the contexte national.
Our Government Resource Planning (PRV) software – designed for government, by government – is much easier to adapt, and less expensive to support than COTS software designed for business or Enterprise Resource Planning (ERP) that includes some public sector functionality.
In addition, FreeBalance provides both implementation services and GRP software. This commits us to our government customers as opposed to the traditional system integration model where consultants deal directly with government and COTS vendors operate at arms length outside of the project’s governance structures.
We provide PFM experts to governments rather that consultants familiar with COTS software but with little understanding of PFM complexity. We are also committed to a “glocal” model, hiring locally in countries, augmented by international mentors to reduce government costs while better understanding social and cultural contexts.
Notre approche permet une réforme durable, menée par le pays, avec l'appropriation par le gouvernement de la feuille de route de la GFP, fondée sur des bonnes pratiques appropriées liées au contexte unique du pays.
Séquence suggérée pour la réforme de la GFP dans les petits États insulaires en développement
- Fondamentaux: Combler les lacunes importantes en matière de finances publiques, renforcer les capacités des services publics, analyser le contexte national pour établir des plans d'action séquentiels.
- Généralement plus tôt que plus tardLes objectifs sont les suivants : contrôle des dépenses, normes internationales fondées sur la comptabilité de caisse et soutien au compte unique du Trésor (CST) ; amélioration de la comptabilité et de l'établissement de rapports, logiciels modernes
- Généralement plus tard que tôtGestion des ressources humaines : gestion des liquidités, planification budgétaire, intégration de la budgétisation des programmes, paie, audit, administration fiscale
- Généralement de deuxième ou troisième génération: Cadres de dépenses à moyen terme (CDMT), intégration des entreprises publiques, passation de marchés, gestion des performances, transparence fiscale, ressources humaines, actifs.
Bonnes pratiques recommandent que le contexte des PEID détermine l'ordre des priorités, car certains pays ont besoin de processus de GFP plus avancés plus tôt.
- Pays dépendants des ressources naturelles devrait s'attaquer plus rapidement à la mobilisation des ressources et à la transparence, et éventuellement imposer des règles fiscales pour les dépenses afin d'utiliser plus efficacement la fiscalité et les redevances pour la diversification économique
- Pays à faible altitude devrait s'attaquer à la planification des investissements publics pour l'adaptation au climat
Conclusion
Le bilan est qu'une réforme efficace de la gestion des finances publiques est possible dans les petits États insulaires en développement lorsqu'elle est axée sur le contexte national et qu'elle s'appuie sur des logiciels adaptables et des services de conseil pertinents.
Prendre contact pour une discussion personnelle sur la façon dont FreeBalance peut aider votre pays dans son processus de réforme de la gestion des finances publiques.