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Public finance and development: six things to read in January

Written by Mark Miller


Happy new year to all! Here is the first public finance and development round up of the year.

Shedding light on how financial management information systems are working

Over the past thirty years, governments and international organisations have invested substantial financial resources in reforms to financial management information systems (the World Bank alone has invested more than US$2 billion in related projects).

Recent years have seen a lot of useful resources looking at how such projects can be better managed, but there is less research on how these systems are actually affecting the operations of government.

The authors of this new World Bank working paper and their counterparts in the Cambodian and Pakistani governments should be commended for starting to shed some light on these questions. The study compiles detailed information on individual transactions to better understand how much spending is (or is not) being controlled and reported on through the respective systems.

A key finding from the paper is that the systems are being used to process a high volume of low value transactions, but the big-ticket items that make up a significant proportion of total spending are being missed.

Sequencing issues or aid programming issues?

A new blog from Richard Allen revisits some of the debates around the sequencing of PFM reforms. You can almost hear him tearing his hair out as he writes:

‘History suggests that very few countries – developing, emerging, or advanced – can manage successfully more than a very few major reform projects at one time.  By contrast, a PFM reform strategy of one low-income country that I reviewed recently included more than one thousand objectives, outputs, activities and sub-activities… Put aside those mega PFM reform strategies.’

Anybody who has worked with governments in PFM will recognise the type of document he describes. But I’m not sure that it’s the approach to sequencing that drives these kinds of behaviours.

More often than not, these reform strategies are required by donors whose own internal procedures require an activity-by-activity breakdown of how their money will be spent. I suspect the mega reform strategy is here to stay for as long as donors provide their support to comprehensive multi-million dollar governance reform projects linked to specific activities.

Better understanding the links between gender and taxation

ICTD has published three working papers that open up the little-understood topic of links between taxation on gender. My favourite has to be ‘Toilets not taxes’. Not only does it have a fantastic title, but it points to very real issues of how ‘nuisance taxes’ are not evenly distributed (women pay 18 times as much for toilet fees), even if the formal tax system appears fair.

The second paper, looking at Sierra Leone, reinforces the finding that gender inequities are perpetuated through informal revenue collection.

The final paper on Uganda takes an organisational perspective and finds that female tax collectors are performing better than their male counterparts on comparable metrics.

The IMF’s ‘macroeconomic malpractice’ and capacity development strategy

Ex-IMF staffer Peter Doyle writes a searing critique of the IMF’s approach to its macroeconomic stabilisation in this blog in the Financial Times. He uses the example of Jamaica’s current IMF programme targets – running a primary surplus of 7% to GDP as a way of reducing its high debt stock – as ‘macroeconomic malpractice’ that would ‘have Keynes spinning in his grave’.

Whatever one’s views on the position Doyle takes, at a minimum it draws attention to how little critical analysis there is of IMF macroeconomic programmes in low- and middle-income countries today. Given the enormity of the effects of macroeconomic policies on the welfare of citizens, this seems like a major gap in development debates.

On a more positive note, the IMF’s recent review of its approach to capacity development is excellent. Clearly an enormous amount of work has gone in to the review. The external advisory board’s response to the work is particularly worth a look. It provides the IMF with some useful suggestions on how it can complement its effective work in supporting the technical capacity of individuals to develop policy, with a greater focus on supporting organisations to implement policy in a way consistent with social norms.

It also offers ideas on how to better use the wealth of knowledge generated through IMF technical assistance (just 5% of technical assistance reports are published) while protecting the trusted relationship between client and adviser.

Where next for aid transparency?

Recent reflections on the aid transparency agenda have highlighted remarkable successes in improving the amount and quality of information on aid flows, but challenges remain in seeing that information used to hold donors and governments to account.

This new blog by Ruth Levine and Joseph Asunka provides some really nice, concrete ideas on how to see aid information being more widely used. I particularly like their idea of tailoring information about aid flows to the health sector.

Historically, finance ministries have been seen as the champions within government for managing and using aid data. Generating useful information from aid data flows requires significant effort. Yet for many finance ministries the benefits of this information is declining as (i) the relative importance of aid declines as a proportion of total revenue and (ii) budget support declines, meaning they have direct control over a smaller proportion of the overall aid.  

By contrast, for a health ministry, decisions by large donors like the Global Fund can have massive implications for their ability to deliver upon their objectives. Going forward, sector ministries – and the organisations they interact with – are likely to be more natural champions for interrogating aid data.

Revisiting public finances and the social contract

The role that taxation can play in building a social contract has become a key element of the international narrative around the benefits of strengthening domestic resource mobilisation. But there are concerns that such a relationship cannot necessarily be assumed in low- and middle-income countries. Proponents of this narrative will be comforted by evidence from this new ODI working paper, which shows that tax revenue (as opposed to non-tax revenue) and accountability are still positively linked.

While the literature on tax and the governance dividend acknowledges the importance of public spending, much less has been written about how different expenditure policy settings might influence perspectives of the state. This Development Pathways blog cites research on cash transfers in Malawi and Lesotho and highlights how individual perspectives on issues such as ‘fairness’ and ‘equity’ may not always be in line with international narratives on such ideas.

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