Editor's Note: The Art & Science of PFM Reform
by Hisham Waly
Manager, Financial Management, MENA, The World Bank
Good cooking involves more than state-of-the-art equipment, fancy utensils, colorful cookbooks from around the world, or even being educated at the best international culinary schools. Rather, cooking is primarily about passion, practice, patience, and experimentation. It is about listening, smelling, and learning from other cultures. It requires a willingness to take risks, accepting that failure is part of the process, and understanding the nature of trial and error. A good cook is someone who can go into a kitchen with the bare essentials and come up with a satisfying meal. It helps if s/he has good technique, is able to spot fresh food in season, and has ideas about how to incorporate ingredients into a dish. Many famous cooks start cooking out of necessity, but later this necessity becomes a pleasure. A chef in a restaurant can reach the top of the field, but will require a trained team that can produce fine meals every day. Good chefs believe in their team. Most importantly, good chefs understand that cooking is part art and part science.
As the sketch on the cover of this magazine depicts, public financial management (PFM) reform is quite similar to cooking. You need to start with basic and essential reforms, then gradually move to intermediate and advanced reforms. In cooking you need to find your way around the kitchen before planning a big party or cooking complicated dishes; in PFM as well, it is unwise to launch multiple large-scale projects at the same time as this is technically challenging, entails intensive coordination with multiple stakeholders, and does not allow for absorptive capacity to grow as the reform initiative expands.
All good cooks know that no matter how good their technique (e.g., knife skills), the quality of their dish can be affected by other elements—such as humidity and weather—that are in many cases beyond their control. Likewise, with regard to PFM reform, there has been a growing recognition that success depends on the nontechnical context—that is, political, economic, institutional, and organizational factors. They are usually the elephant in the room: most practitioners know how important they are, but tend to pretend that they do not exist and that can have serious consequences. A skilled and politically savvy Minister of Finance—a “chef”—to champion and lead the reform is crucial, although wise chefs realize that their team and other stakeholders are also key to successful reform. Most importantly, good PFM reform practitioners understand that reform is part art and part science.
In our cover story, while we recognize that circumstances vary from country to country and that PFM reforms are complex to design and implement, we share some useful principles for PFM reform that we have drawn from personal experiences and readings. We then interview Richard Allen about his new book, The International Handbook of Public Financial Management, and his views on the status of PFM reform in the developing world. We also interview Renaud Seligmann, Manager of the West and Central Africa Financial Management Unit, to discuss PFM reform from the front lines of development. Manuel Vargas, Lead Financial Management Specialist in MENA, reflects on the development of financial management systems, specifically the internal audit function, for social safety net programs. Then we shed some light on two PFM Bank-funded operations in MENA.
As I wrote in the last issue, for us the most important thing is to learn from you about your priorities and areas where we can help you solve some of the problems you face in financial management. For this reason, we developed the Connecting Voices website, the online Community of Practice Maarefah, and this quarterly magazine. To continue the conversation on PFM reforms in MENA and other topics, we plan to hold our annual conference, The Exchange, in the United Arab Emirates on June 10-12. The Exchange provides a channel for dialogue, enabling MENA countries to share experiences and relevant practices in financial management. In reflecting on the focus for this year’s Exchange, we note the important role that financial management institutions play in both the public and private sectors in facilitating the achievement of poverty reduction and boosting shared prosperity in strong MENA countries. That’s why our Exchange this year will have the title “Strengthening Financial Management Institutions – Strengthening MENA.” We will be sending the invitations for The Exchange on April 1, and we look forward to welcoming you in the UAE.