The Issues of Budgetary ReformUnit 3. PFM Reform – Change Management

Module 3.1. Essential tasks, change management

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• Day 1: General presentation of PFM reform

• Day 2 : PFM sub-systems and prioritization amongst them

• Day 3: Change management – Reform sequencing issues – Case study

Course outline

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Module 3.1: objectives

– Examine some essential issues related to the preparation and monitoring of a PFM reform

– Discuss more specifically about change management and capacity reinforcement

Module 3.1 Outline

• Core tasks

• Change management

• Capacity building

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Core tasks (1)

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• Make sure that there is a comprehensive understanding of the current status of the PFM model

• Make sure that there is a realistic assessment of the political commitment to the change

• Make sure that there is a realistic assessment of the political and macroeconomic context, as well as of the constraints in terms of capacity and how, according to theses, a reform may be carried out

• Make sure that there is a comprehensive understanding of the legal and regulatory framework and the institutions, both in order to evaluate where a reform is needed and to what extend a PFM system may be reformed

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• Make sure that there is a comprehensive understanding of the need for reform

• Make sure that change management and capacity building have been accounted for in the preparation of the reform

• Make sure that the institutional arrangements to manage the reform are well outlined and established

• Ensure that the reform activities have been properly sequenced

• Make sure that the modalities for the alignment and coordination of the donors are properly outlined

Core tasks (2)

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• Make sure that the reform programme is fully budgeted and funded

• Make sure that the instrument to finance the programme does not induce a fragmentation or dismantle the sequencing of the reform activities

• Make sure that there is a framework for monitoring and assessment

• Make sure that the reforms are viable

Core tasks (3)

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Strategic considerations Macroeconomic and political context Current PFM status (PEFA) Scope of application of the reform programme – appropriate orientation of

the base (“core functions”) (PEFA) The range of the PFM reform Current status of the legislative and regulatory framework and legislation

reform agenda (can other instruments be used?) Institutional dispositions (“political economy”) Capacity constraints – manpower, technology, administrative financial

network Institutional arrangements for the PFM reform (PEFA ?) Budget for the reform programme, funding modalities and financial

management Monitoring and assessment framework (PEFA and ?)

Strengthening the approach(Paris Declaration)

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– Reform programme carried out by public administrations

– Coordinated donor support

– Monitored progress of the reform through a common pool of information

Evaluating the current capacities of a PFM system

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• Is there a leadership of the Ministry of Finance?• Are the legal and regulatory dispositions enacted in practice?• Is the tax collection effective?• Is there a reliable banking system with national coverage?• Is there an active, functioning private sector?• Are there any identified critical gaps in capacity?

form

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Opportunities for reform• Is there a democratic environment with an active engagement of

the civil society?

• Are the public and the public administrations have Concerned with reducing corruption?

• Is there a political will?

• Have strong engagements for macroeconomic stability and economic growth been taken?

• Have other major reforms been carried out?

• Is there a group of financial specialists and experimented managers, and moreover, do they have the adequate incentives?

• Are there large data networks?

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Threats to PFM reform

• Difficulty in keeping experienced and qualified personnel

• Corruption

• Fragmented funding sources

• Poor reform sequencing

• Fatigue rom previous reforms

Module 3.1 Outline

• Core tasks

• Change management

• Capacity building

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The conditions for change management

• Change will be perceived an legitimate if there is a conjunction of certain factors: dissatisfaction; a vision; and a will for changeo Reminder: Gleicher’s equation

• There must be one or more champions. Without political support and a strong leadership to prevent resistance, the reform will be gutted.o Champion: Finance Minister, Prime Minister, etc.

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Change management (1)

• Set out the expected results• Prepare and publish a reform strategy

• Asses the resources available for reform

• Assess the capacities• Human, material, institutional capacities

• Prevent resistance. Predict in advance the losing party

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• Draw a comprehensive assessment of the context

• Political, civil society• The political aspect of PFM can crate opportunities (push for

reform from the Parliament, the civil society, etc.)• Parliament must be involved in the reform

• Macroeconomic

• Administrative

• Legal

Change management (2)

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• Management dispositions• Effective leadership• Institutional arrangements

• Building consensus• Associate sectorial ministries in the management of the

reform• Find the "FS” of Gleicher (quick wins, immediate results)

• To who’s advantage? The Ministry of Finance? The donors? The sectorial ministries? The Parliament?

• Organise the reform management on a long-term basis

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Change management (3)

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Module 3.1 Outline

• Core tasks

• Change management

• Capacity building

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Capacity building (1)

• An essential aspect

• Three interdependent dimensions• Institutions (formal rules and informal practices• Organisations• Individuals’ skills and motivations

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• Institutions (formal and informal rules): the intent of the reform

• Organisations• Ministry of Finance (+Prime Minister, Plan …)

– Must be in charge of monitoring– Must be organised in such a way that it can carry out dialogue with

other sectors• Sectorial Ministries

– Often put aside in reforms– Or, on the contrary, are the sole focus of donors, who disregard the

system as a whole• A key aspect: the finance-sector dialogue (or finance-sector-

plan)20

Capacity building (2)

• Individuals’ skills and motivations• Upgrading skills

• Technical training• General training and raising awareness

• Incentives• Attracting, retaining and motivating the skilled individuals• Low compensation is a problem in many DC (though not so much

in the Maghreb), but financial constraints reduce the possibilities for substantial salary raises

• Other forms of incentives?– Eg. Promotions, – Be careful in the patronage-dominated systems

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Capacity building (3)

Key messages

• A national will is essential to any budgetary reform

• Great care must go into change management

• Capacity building is a key issue, that must go beyond simple training actions

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