Public Financial Management Reform in Ghana (sequencing & prioritisation)

1. Public Financial Management Reform in Ghana(sequencing & prioritisation) Stephen Sharples 21 March 2008 1 Palace Street, London SW1E 5HE Abercrombie House, Eaglesham Road, East Kilbride, Glasgow G75 8EA

2. Coverage of Presentation • Context • The Public Financial Management (PFM) interventions • The main lessons • Some issues for discussion (Observations & ideas drawn from documentation and personal recollections. Interventions over the last 15 years) Objectives • Highlight lessons and consider implications for PFM reform • Identify issues for discussion (prioritisation & sequencing and other issues)

3. Ghana - The Context • “Neo-patrimonial” character of State • Ineffectiveness of civil service major constraint (morale, incentives, politicisation, poor controls) • Pay consumes too much of budget and causes over-runs • Internal resistance to change • High level of donor support with distortionary effects (e.g. salary supplementation) • Macro-economic shocks (cocoa, gold, oil, currency) • Consolidation of democracy • Vibrant media and civil society have emerged • Recent positive developments

4. The PFM Interventions • Introduction of VAT • Upgrading the Integrated Payroll and Personnel Database system (IPPD) • Budget and Public Expenditure Management System (BPEMS) • Medium Term Expenditure Framework (MTEF) • Decentralisation of financial management in the health sector (part of a SWAP)

5. The Introduction of VAT (1993 to 1995) • Features: • Government commitment • Independent VAT service • Good leadership • Effective TC provision • Legislation delayed (in Parliament) • Insufficient public education • High/difficult rate (17.5 %) • Bad timing • Result: • Focus for opposition • Rioting • Cancellation • Lessons: • Need realistic timescale • Factor in political processes • Consider political realities (content & timing)

6. The Re-introduction of VAT (1997 to 2000) • Features: • Government commitment • Independent VAT service • Good leadership (previous project team kept together) • Effective TC provision (same providers - low key role) • Learned from mistakes: • - public education • - 10% rate • Result: • Revenue targets continuously exceeded • Rising revenue ((1999 – 3.85% of GDP, 2004 – 5.55% of GDP) • Good practices • Sustainable organisation • Some further support needed re computer system

7. Integrated Payroll and Personnel Database – replacing earlier system • Features: • Payroll = 60% of expenditure • Old technology on verge of collapse • Underestimated internal resistance to reform • Selected too complex a solution • Insufficient attention to change management • Consultant & contractor selection badly handled • Result: • Project failed repeatedly • DFID cancelled twice • Approx £2.4 million spent – very little to show for it • Lessons: • Don’t let complex technology blind you to the basics • Postscript: • Recent new impetus • Use of 3rd party software to restore reporting/analysis capability

8. Budget and Public Expenditure Management System • Features: • Central component of wider PUFMARP programme • Inadequate needs assessment • Technocratic and over ambitious • Consultant led (at least 40 international consultants involved) • Little government commitment outside Ministry of Finance • Poorly sequenced • Result: • “spent US$30 million and 8 years and still can’t produce basic budget reports” – senior manager from the project. • May have created a capacity gap - technology too sophisticated • Lessons: • Be realistic (technology & timescales) • Consider costs and benefits • Need clear institutional home for project

9. Introduction of Medium Term Expenditure Framework • Features: • Strong on participation • Lack of progress in related areas: • - delays to BPEMs • - civil service reform • - budget timetable • Partial coverage (staff costs excluded) • Problem of allowances / project enclave culture not fully recognised • External macro-economic shocks • Revenue forecasting remained weak • Result: • 1st review – “so far what was achieved was extraordinary….”; but this did not last • Change in budget preparation but did not improve resource allocation. • Premature end to project • Lessons: • MTEF credibility undermined if no predictable funds releases. • Detailed costing work of little demonstrable value • Process skills necessary but not sufficient • Danger of project enclaves

10. Decentralisation of Financial Management within Health Sector • Features: • Control of funds decentralised to Budget Management Centres (BMCs) meeting “readiness criteria” • Local consultants assessed this • Top management committed • Extensive financial management training at local level (+ MBAs in UK) • Staff from best BMCs joined training teams (recognition, travelling allowances, ownership) • Trusted adviser in Ministry • Result: • Not aware of specific evaluation of financial management aspects but overall, SWAP was regarded as best in Africa at the time • Lessons: • Relate pace and sequence to demonstrated capacity • Importance of incentives • Incentives don’t have to cost a lot or involve civil service wide changes

11. Some Lessons • Identify political economy issues up-front • Importance of flexibility on timescales • Importance of incentives - institutional and individual (government and development partners) • Doing well on the process of PFM reform cannot make up for problems with the content • Importance of the relationship between PFM reform and civil service reform • Easier to succeed where – small unit, clear mandate, freedom from system wide constraints

12. Suggested issues for discussion • Can we plan to move at the partner government’s pace? Do our systems and notions of our own accountability get in the way of this? • Is our approach to IFMIS too procurement focussed? Does it undermine flexibility by forcing too many decisions to be made up front? • How can development partners support government programmes, rather than “their” projects within government programmes? • How can PFM reform and civil service reform best reinforce each other? • How can budget support change the dynamics? Does it make it easier to work in partnership on PFM reform?