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

1. How does politics matter in public finance management reform?Edward Hedger, ODI World Bank PFM Workshop21 March 2008

2. 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 better ways of addressing the political dimension of reform • To motivate questions for discussion based on country reform experience

3. 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

4. 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 formal and informal 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

5. Why aren’t more PFM reforms successful? • All public sector governance reforms are difficult • Multiple players and dimensions • Tensions between formal and informal institutions • Existing equilibrium may actually suit the interests of governing elites, operational officials and donors • Vested interests and existing institutions • Pet projects, sectors and organisations • Political agency vs. political institutions

6. Standard requirements for successful PFM reform? • 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

7. A possible classification? • Roles and interaction of reform actors • Supply side of reform: politicians, senior bureaucrats, operational staff, external advisers • Demand side reform: politicians, legislature, opposition parties, civil society groups, general public, international agencies • Nature of technical reform process • Sequence, pace, timing, scale (of reforms) • Type, coverage (of reforms)

8. What really motivates PFM reforms? • Political leadership? • Thailand, South Africa, Tanzania • Technical leadership? • Chile, Mozambique, Bangladesh • Political and bureaucratic leadership? • Uganda, Cambodia, Russian Federation • Domestic reform coalitions? • Philippines, Uganda • International pressure? • Bosnia and Herzegovina  Apparent case for centrality of political commitment

9. Analysing the influence of reform actors and coalitions Support Opposition     Reform    Undecided Source: Grindle (2004)

10. 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 • Plurality: whose support is necessary? • Collective ministerial commitment • Multiple reform champions

11. Donor approaches to the politics of PFM reform … and limitations • Technically-driven strategies that equate politics with ownership • Dominance of technical logic and risk that ownership is a supplementary concern • “Politics matters” approaches to understanding the politics of PFM • Lack of operational implications for reform process • Attempts to make political analysis operational • Donor strategy tools based on expert estimations of reform

12. 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

13. 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 • But we need to consider the motivation and incentives of technocrats • Why would they hazard reform?

14. A broader view of “politics” • Not just politicians who have political agendas • Technocrats, donors, consultants, legislature, public • Dynamic set of interacting political variables • 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

15. Developing a more strategic approach to reform • Holistic view of political, institutional and technical factors • PFM reforms in context of wider governance reforms • Technical improvements that reinforce political motivation • Adaptive reform-minded coalitions, with coinciding objectives • Comparative advantage of different actors in reform process • Sustaining reform momentum through raised public expectations

16. Which are the key reform variables? • Tactical considerations for reform strategy: • 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 Source: ODI & Smoke

17. Linking up the technical and political dimensions of reform • Technical logic and political expediency • Understanding and managing potential political risks to apex power-holders • Sequencing reforms to target political and technical benefits • Balancing normative and pragmatic approaches: successful second-best reforms • Balancing synergistic effects with demonstrative effects

18. Reframing our understanding of the politics of PFM reform • Ex ante diagnostic of country-specific opportunities for and constraints to reform • Which actors matter and how? • How can/should they be involved, and at which stages? • What are the likely sources of support and pressure for and against reform? • How can these be taken into account? • Understanding contextual circumstances, and institutional and political relationships, that may promote of impede PFM reform