1
Lessons on Sequencing Financial Management and
Accountability Systems
in Decentralized Post-Conflict/Low Capacity Contexts: the
Case of Rwanda*
David Sewell
January, 2004
*Draft. Not to be Cited
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ACRONYMS
AFRITAC-East
BNR
CDF
CEPEX
CFAA
CSR
DCDP
DFID
FAD
FDP
GIF
HIPC
HIPC AAP:
LABSF
MDGs
MINALOC
MINECOFIN
MININFRA
MTEF
NTB
OAG
OBL
PEM
PFM
PETS
PSCBP
PRSP
RALGA
RF
RRA
SIBET
USAID
VAT
Africa Technical Assistance Center –East (IMF)
Banque National du Rwanda (National Bank of Rwanda)
Common Development Fund
Central Projects and External Finance Bureau
Country Financial Accountability Assessment
Caisse Sociale du Rwanda (Social Security Fund)
Decentralization and Community Development Project
Department for International Development (U.K.)
Fiscal Affairs Department (IMF)
Fiscal Decentralization Project
General Inspectorate of Finance
Highly Indebted Poor Countries (Initiative)
Assessment and Action Plan for public financial management
Local Authorities Budget Support Fund
Millennium Development Goals
Ministry for Local Government and Social Affairs
Ministry of Finance and Economic Planning
Ministry of Infrastructure
Medium-Term Expenditure Framework
National Tender Board
Office of the Auditor General
Organic Budget Law
Public expenditure management
Public financial management
Public Expenditure Tracking Surveys
Public Sector Capacity Building Project
Poverty Reduction Strategy Paper
Rwandese Association of Local Government Authorities
Rwandan Francs
Rwanda Revenue Authority
Système du Budget de l’État (budget execution system)
United States Agency for International Development
Value-Added Tax
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LESSONS ON SEQUENCING FINANCIAL MANAGEMENT
AND ACCOUNTABILITY SYSTEMS
IN DECENTRALIZED POST-CONFLICT/LOW CAPACITY
CONTEXTS: THE CASE OF RWANDA
Introduction
This is one of two case studies undertaken by the author for the World Bank’s PRMPS
unit as a member of a team that is considering issues which arise in the sequencing of
financial management and accountability measures in post-conflict or low-capacity
countries where decentralization is taking place. The work was financed by a World
Bank-Netherlands Partnership Program Global and Regional Initiatives grant. Terms of
reference for the study are given in Annex A.1
Rwanda was one of two countries selected for case studies and visited by the mission
team in October 2004, the other country being Sierra Leone. Both of these countries have
emerged from vicious civil conflicts in the last decade with a common analysis that
centralization had played a large part in bringing about the conflicts and decentralization
was needed to address causes of the problem. In both cases, decentralization is being
accompanied by reforms in financial management and accountability.
Rwanda’s Recent History
How did Rwanda come to be in its present situation? The civil war and genocide that
accompanied it in Rwanda from 1990-1994 are without equal in recent history. While
estimates vary, a frequently cited figure is that close to 1 million people perished in the
genocide. The Poverty Reduction Strategy Paper (PRSP) of the GoR in 2002 noted that
another three million were driven into exile and 107, 000 were imprisoned.
To get an idea of the relative scale of these tragic events, the population of Rwanda was
only 8.2 million in 2002. So the genocide more than decimated the population and drove
more than a third into exile.
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The other member of the team, Antonio Carvalho, is reporting separately on the importance of
decentralized information and communications technology for financial management and accountability in
post-conflict and low-capacity situations. For inputs into this paper, the writer would also like to thank
Joseph Kizito, Mohamed Toure, Kampeta Sayinzoga, Duncan Last, Dana Weist and Kai Kaiser.
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Substantial destruction of infrastructure and physical capital also took place, increasing
poverty. But more than physical capital was destroyed. According to the 2002 Rwanda
Country Assistance Strategy
The professional and technically skilled people (doctors, teachers, nurses, etc)
were singled out for killing in the genocide. While the majority of the refugees
have returned, the educated and qualified among them have largely remained in
exile.2
This development is of some importance to the present study. In terms of our inquiry, a
post-conflict country need not necessarily be synonymous with a low-capacity country.
A principal contributing factor to the “German economic miracle” after WW II, for
instance, is said to have been that critical “human capital” in the form of highly trained
professionals was available to spur growth, despite the fact that destruction of
infrastructure and physical capital had been immense. Rwanda was obviously less
fortunate in this respect in recovery from its own tragic history.
The conflict in Rwanda officially ended in 1999, with the signing of the Lusaka Peace
Treaty, although implementation of the treaty only began in 2001. But the security threat
around Rwanda’s borders continues even at the time of writing and regional instability
remains a menace to peace and development.3 There is some question, indeed, as to
whether Rwanda can even now be considered to be a post-conflict country,
And Rwanda has other problems that were exacerbated by the conflict. Many thousands
suffer from resulting mental and physical handicaps as a result of the conflict. And
Rwanda is heavily affected by the HIV/AIDS epidemic: around one in seven of those in
the prime labor force years have HIV/AIDS. 4
One of the consequences of this tragic history is the extent of poverty in Rwanda. By
2002, several years after the conflict officially ended and after a period that included
substantial economic growth, the GoR’s PRSP showed that 60% of the households in
Rwanda population were living below the poverty line.
The Government of National Unity that was formed after the Lusaka Accord embarked
on an ambitious program of reconstruction and reconciliation. The National Unity and
Reconciliation Commission (URC) initiated a countrywide dialogue identifying poor
justice, governance and leadership, and poverty as the major obstacles to national unity.
These consultations gave impetus to the efforts to reform institutions so as to foster good
governance, including the decentralization of government.
At the national level, a new Constitution was approved in a countrywide referendum in
May 2003 and national elections followed in August 2003. But well before this the GoR
2
World Bank, Country Assistance Strategy for the Republic of Rwanda, November 21, 2002, Report No.
24501-RW, p.2, para. 7.
3
See for instance the Washington Post, “Congo, Rwanda at Brink of War as Border Fighting Surges,”
Dec.16, 2004, p. A-26.
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The 2002 Rwanda CAS reports a 13.7% incidence of HIV/AIDS among the population aged 15-49.
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had taken substantial steps to decentralize government in Rwanda. In part, this emphasis
on decentralization arose because the former system of centralized government, which
was considered to have encouraged unquestioning obedience to orders from above, was
seen as an origin of the genocide.5 Previously, local administrations had consisted of 354
communes, with their officials being centrally appointed. In 2000-2001, the GoR first
adopted a National Decentralization Policy and then a Fiscal and Financial
Decentralization Policy and in the same years the National Assembly passed
decentralization laws, involving devolution of powers to 106 elected local governments
(107 including Kigali) and deconcentration to eleven provinces.6 Devolution involves the
allocation of political decisionmaking power to subnational governments. The latter are
given the authority to decide what is done as well as the power to implement it and are
accountable to their own electorates for their actions. Deconcentration means the
dispersion of responsibilities within a central government, to regional branch offices or
local administrative units.
Elections were held for the new district administrations in March 2001 and in the
remainder of the year the elected assemblies in the new districts were mostly occupied
with forming their governments and recruiting technical staff. The first year of normal
operations for the district councils was 2002. The district governments immediately
assumed the functions previously carried out by the communes that preceded them. These
are the core functions of local governments throughout the world: those of transportation
(local roads), environmental services (local water, sewers, solid waste collection), and
regulation of local land use and commerce.7
The first set of functions that are being devolved to local governments are the social
services of health, education and social welfare. The next largest sector to be devolved is
agriculture. More will be said subsequently about the financial management implications
of devolving these substantial sectors of public spending to local governments
Outline of the Paper.
The rest of this paper will assess the principal areas of public financial management in
Rwanda: budget preparation and planning; budget execution; and accounting and
reporting, auditing and external scrutiny. As required by our terms of reference, special
attention will be paid to the sequencing of financial management and accountability
measures. The paper will also pay particular attention to financial management
applications and decentralization in Rwanda’s local governments.
“Decentralisation is central to the creation of democratic structures of governance in Rwanda.
Encouraging people to work together at a local level is central to overcoming the divisions that have been
so destructive in the past. We are creating a sense of local ownership of public programmes, which has
been lacking. Decentralisation also allows local Governments to respond to local needs, and can increase
the accountability of Government to the people.” Government of Rwanda: Poverty Reduction Strategy
Paper. Ministry of Finance and Economic Planning, June 2002, p.62.
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As is common throughout the world for capital cities or regions, there are also separate provisions for
Rwanda’s capital of Kigali.
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Elsewhere, these core local government services might also include local public safety (police protection
for property, fire protection).
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Developments in Financial Management
A brief account of the more important post-conflict developments over time in financial
management and accountability in Rwanda will now be set out. The interaction between
the GoR and the development partners will be emphasized. In 2002, donors provided
88% of Rwanda’s development budget and 53% of its recurrent budget, for a total of 55%
of public expenditures. This substantial input of resources by the development partners
has been accompanied by a joint emphasis with the GoR on increasing accountability and
transparency.
There were three major developments in 1998. Perhaps most important in terms of a new
institutional framework for financial accountability was the establishment of the Office of
the Auditor General (OAG). This is only one of two Offices of the Auditor General in
Francophone African countries, and the most distinctive feature of the Office (as opposed
to the Cour des Comptes which preceded it in Rwanda) is that it reports to Parliament and
not the Executive. In May 2003, Rwanda’s new Constitution formally established this
reporting relationship to Parliament, and the OAG completed its first report to Parliament
in January 2004. The OAG conducted 30 audit missions of key ministries in 2002, and 60
in 2003, which included a number of districts. The Governments of Sweden and the
Netherlands have assisted the OAG with capacity building.
The National Tender Board (NTB) was also created in 1998 to oversee procurement. And
in the same year, the Central Projects and External Finance Bureau (CEPEX) was
established as a semi-autonomous body within MINECOFIN to improve the
coordination of investment projects with donors.
In 2000, the GoR adopted a medium term expenditure framework (MTEF), which is a
policy-determined limit to the total expenditures that are to be undertaken during
determining spending. In Rwanda’s case, the MTEF determines spending for a 3-5 year
period. Such a medium or longer-term perspective on budgeting is said to have been at
the heart of successful budget reform in much of the world over the past two decades. 8
The MTEF is seen as integral to execution of the PRSP. The MTEF was introduced in the
2001 Budget with the assistance of DFID and the World Bank. Its implementation has
been supported by sectoral public expenditure reviews by the Bank and other
development partners, including social sector expenditure reviews in 1999 and 2000, and
reviews of the transport and agriculture sectors in 2002.
Several diagnostic studies of Rwanda’s fiduciary framework have been undertaken. In
2001, the Bank and the Fund carried out the first of two Assessment and Action Plans for
public financial management in Rwanda under the Heavily Indebted Poor Countries
Initiative. HIPC AAPs provide a checklist of PEM achievements and deficiencies and
give an account of the three main areas of budgeting—budget preparation, budget
execution, and budget reporting. They go beyond analysis of the adequacy of PEM
The Bank’s September 2004 Poverty Reduction Support Credit and Grant (PRSC) document considers
adoption of the MTEF to be “a comprehensive framework to further PEM reform” (para.44).
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systems and also create action plans to correct deficiencies and indicate what additional
technical assistance should be provided to support the action plan. A second HIPC AAP
was undertaken in 2004 to update the findings in the 2001 study and its findings will be
reported subsequently.
Following the 2001 HIPC, the World Bank and DFID sponsored the Financial
Accountability Review and Action Plan (FARAP), a limited version of the more usual
Country Financial Accountability Assessment (CFAA) undertaken by the Bank. The
FARAP diagnostic mission was conducted in 2002, and the report issued in February
2003. The EU sponsored a follow-up to the FARAP, with recommendations on its
implementation.9 Also in 2003, the IMF’s Fiscal Affairs Department issued its principal
financial accountability document for Rwanda, the Report on the Observance of Standards
and Codes, Fiscal Transparency Module (ROSC).
Since the decentralization process was started in 2001, major steps have been taken to
develop financial capacity in the elected local administrations. They include installation
of the local budgetary and accounting system which was sponsored by USAID, and
training accountants from all districts in use of the system.10 Similarly, training in MTEF
techniques was provided to all districts. 11 RALGA, the Rwanda Association of Local
Governments, has played a pivotal role in provision of this training. Another major step
was the publication of the Financial Management and Accounting Procedures Manual for
Local Administrations. The manual covers all phases of budgetary management
including preparation and execution of budgets and internal control, accounting, auditing
and reporting.
A useful measure of public expenditure management of fairly recent development that
has been applied in Rwanda is that of Public Expenditure Tracking Surveys (PETS).
These surveys determine the extent to which funds reach the facilities that provide
services to final consumers. The sole PETS that has been done in Rwanda was of the
flows of resources to and from the providers of public services in the health and
education sectors in Rwanda in 1998 and 1999. The 2004 HIPC AAP finds that this
PETS usefully supplemented internal controls.
One of the most important developments in financial management occurred in November
2003, with the signing of the Partnership Framework for Harmonization and Alignment
of Budget Support. This is a memorandum of understanding between the GoR and donors
providing budget support (as opposed to say, support for specific projects). The
Framework will lead to better coordination of external funding of the budget. An aspect
of the Framework that is of importance in its own right is that donors agree to harmonize
9
Government of Rwanda and European Commission, Development of a Public Financial Management
Capacity Building and Technical Input Plan. Rapport Provisoire, by Jean François Bauer and Bernard
Biche, IDC, 22 Mars 2004.
10
See Ricardo Valderama, “Budget Execution and Financial Position of Local Governments in Rwanda.”
ARD Rwanda Fiscal Decentralization Project, July 2004.
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Obidegwu says that commitment to the METF training was greater in the districts than among the leaders
of many central government ministries See Chukwuma Obidegwu,. “The Medium-Term Expenditure
Framework: The Challenge of Budget Integration.” p.45
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their practices with respect to public financial management and government fiduciary
arrangements.
In collaboration with the World Bank, the GoR in 2003 completed a Country
Procurement Issues Paper (CPIP), which is analogous to the Country Procurement
Assessment Reviews other countries have undertaken with the World Bank. The Paper
involves a number of recommendations to improve the procurement environment so as to
make it conform more closely to international standards.
An expenditure monitoring system (the monthly “flash” reports on actual and budgeted
expenditures) was also established in 2003.
2004 HIPC AAP.
As noted above, a second HIPC AAP was undertaken in 2004 to update the findings of
the 2001 study. It is perhaps the most useful and recent assessment of Rwanda’s PEM
system. Its findings are of importance to the themes of the present paper and will be
briefly summarized.
The 2004 HIPC assessment was undertaken in response to the request of the Executive
Boards of the World Bank and the IMF for another comprehensive assessment of all
HIPC countries. The 2004 assessment includes an indicator on procurement, which was
not separately treated in the 2001 assessment. The 2004 HIPC AAP also focused on the
central government’s capacity to track pro-poor spending, the issues arising from the
program of decentralization, and public accounting practices.
In 2004, Rwanda satisfied 9 of the 16 HIPC benchmarks; a performance which situates it
in the middle group of HIPC countries. Rwanda’s performance was strongest in budget
preparation and planning, where it satisfied 5 of the 7 benchmarks, and weakest in budget
execution, where it only satisfied 1 of the 4 benchmarks. Rwanda’s performance in
relation to the HIPC benchmarks is shown in Table 1 of Annex B. The deficiencies that
were found in PEM in 2004 can be briefly outlined and assessed.
Two principal problems were found in budget preparation. First, “own” revenues
generated by extrabudgetary funds amounting to 12.5%-15% of their revenues are not
reported in the budget. Some major activities are involved, including Rwanda’s pension
and road funds.
But the principal problem found in budget formulation was that treatment of donor funds
is inadequate, and it will be recalled that donor funding amounts to over half of public
outlays in Rwanda. All donor funds are included in budget reports, but the HIPC AAP
finds that “it is difficult to identify exactly where and how well these funds are being
spent.” There are also problems of classification in that the development budget includes
many recurrent expenditures. Again, this problem arises from “incoherent reporting of
donor-funded projects.” Some donor funding is recorded in the district budgets but is
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missed in the national budget and some in-kind assistance is included in budget
projections but not always reflected in reported spending.
On budget execution, significant stocks of arrears arose in the period before and
immediately after the genocide and continue to exist. There is also a smaller stock of
annual arrears, and it is noteworthy that this arises principally from the uncertainties of
timing of external budget support funds.
Viewing Rwanda in a wider context, the writer is inclined to think lack of budget
discipline is likely to be a lesser problem than elsewhere. The Rwandans have a culture
of budget discipline:12 their dedication to living within their means—which is what is
implied by cash budgeting—being an example. But as will be seen, cash budgeting does
lead to other problems in financial management.
Although line ministries, provinces and districts all have internal auditors, the HIPC AAP
assesses internal control as being ineffective because the roles and responsibilities of the
internal auditors remain unclear. Nor is the quality of fiscal information assured by
regular reconciliation of government bank accounts with government’s accounting
records. Public accounting issues were found to be of “urgent concern.”
As noted above, the 2004 HIPC AAP finds that the PETS for 1998/99 usefully
supplemented internal controls. The writer observes, however, that the PETS did not
track salaries and wages and these amount to more than 80% of recurrent costs. Wage
and salary costs will be tracked in the forthcoming 2005 PETS, however, thus rectifying
this deficiency.
A separate analysis of the PETS for 1998/99 by Fofack, Obidegwu and Ngong adds to the
remarks in the 2004 HIPC AAP.13 Substantial delays were found in the process of
transfers of public resources from the central administration to primary beneficiaries. The
Survey found that large and variable discrepancies existed between the amounts
transferred by the treasury to regional health and education offices for local
administration of facilities, and the corresponding amounts recorded in the books of these
offices. According to Fofack and his colleagues, the Survey found “rampant lack of
accountability in these offices,” with poor bookkeeping and lack of internal financial
controls and auditing requirements. The discrepancies could have been due, therefore,
either to leakages in the system or simply to unreliable bookkeeping. But in any case,
Fofack et al. find that “the lack of accountability created an atmosphere for leakages and
mismanagement of funds.”14
See Chukwuma Obidegwu, “The Medium-Term Expenditure Framework: The Challenge of Budget
Integration,” p.44.
13
Hippolyte Fofack , Chukwuma Obidegwu and Robert Ngong “Public Expenditure Performance in
Rwanda: Evidence from a Public Expenditure Tracking Study in the Health and Education Sectors,” Africa
Region Working Paper Series No. 45, March 2003 .
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In another fair comment, the Fofack analysis asserts that “the failure of accountability was not limited to
local education and health offices and was probably pervasive in the departments of ministries and other
government agencies. The PETS findings have simply highlighted the problem that has been known to
exist.”
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With respect to budget reporting, the HIPC report found that there were no regular fiscal
reports that track poverty-reducing spending. And the public procurement system was not
considered to be efficient and effective. There is a competitive tendering process, but the
AAP found that it is undermined by a weak governance environment that lacks adequate
internal controls to enforce the rules.
To sum up, it is significant that many of the major problems found by HIPC in both
budget formulation and execution arise from donor funding, and this subject will be
further examined below.
Current Initiatives
Legislation.
At the time of writing of this paper in January 2005, further legislative developments
were occurring. For instance, the provisions of the Constitution call for the Auditor
General’s independence, but the FARAP had identified deficiencies in this respect in the
legal framework establishing the OAG. Revisions to the Audit Act are now under
consideration to rectify this problem. A second important piece of legislation still under
consideration by Parliament is the Organic Budget Law. This was submitted to
Parliament in June 2004, and accompanying financial instructions were issued in May
2004. Inter alia, the Organic Budget Law provides the framework for a shift to a
decentralized system of financial management in which control is exercised ex-post
through the OAG. Following on the CPIP, a new Procurement Law has also been drafted.
Improvements in Accounting.
The current consensus among donors is that the most needed public financial
management improvements involve improving public accounting. The IMF’s ROSC in
2003 wanted the GoR to concentrate on “the basics” of public financial management,
which it defined as developing a high quality government accounting system, and good
internal and external audit. The 2004 HIPC AAP also found that public accounting issues
are of “urgent concern” and highlights a number of immediate actions that can be taken
to improve accounting standards and practices. Finally, the Bank’s 2004 PRSC paper
concludes that “the biggest medium-term challenge [in public financial management] is
to develop a decentralized, integrated, high quality accounting system” (para 112). At the
time of the mission for the present paper in late 2004, a study of public accounting needs
was ongoing and was led by the EU.
Other Developments in Revenue Collection and Decentralization
While the above changes were taking place, significant developments were also occurring
in related financial fields. For instance, the Rwanda Revenue Authority (RRA) was
established in 1998 as a semi-autonomous agency for revenue collection. A VAT was
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introduced in 2001 as a principal revenue-raising instrument and the VAT rate was
subsequently increased from15% to18% in 2003.
The GOR commissioned an evaluation of its decentralization policy by the Dutch
consultants VNG International, which reported in September 2003, at the same time as
the five year Decentralization Implementation Program was introduced.15 An IMF study
was also undertaken in 2003 “to review the allocation of fiscal responsibilities between
levels of government and to prepare an action plan for the management of the fiscal
decentralization process currently underway.”16
Intergovernmental Transfers
Rwanda’s two main intergovernmental transfers, the Local Authorities Budget Support
Fund (LABSF) and the Community Development Fund (CDF), have been instituted to
finance local government recurrent and capital expenditures respectively. Both are meant
to provide local governments with a steady flow of funds through a set share of national
domestic revenues. Legally mandated flows in 2004 for LABSF and the CDF were 5.3
and 10 percent of national revenues (excluding donor funds) respectively.
It is obvious that these funds are, of course, merely a small part of spending on health
education and the social services. As Kaiser indicates, responsibilities for these functions
are not clearly delineated at present.17 Teachers’ salaries, for instance, make up the bulk
of educational expenditures, are paid by the central government and administered through
the budgets of the deconcentrated provincial governments. Similarly, capital
expenditures for schools are administered through the CDF in the central government
budget.
While the stated intention of the GoR is to devolve health, education and the social
services to the district councils, it is worth exploring what devolution would entail. Were
there to be full devolution of powers in the three areas of health, education and welfare
spending, the budget of the central government would be reduced by a quarter and the
collective budgets of the district councils would increase tenfold.
To this writer, it is inconceivable that these resources will be raised by the central
government and simply handed over to the district councils without ties. There are
legitimate national interests that need to be advanced in these fields.18 Such national
interests can be pursued without micromanagement of the functions concerned, however,
by judicious use of transfers whose receipt is conditional on meeting defined national
15
VNG International, Appraisal of the Decentralization Process in Rwanda. Ministry of Local Government,
Information and Social Affairs, September 2003.
This study is, however, classified as “strictly confidential.” See Robert Gillingham, Duncan Last, Ronald
Neumann and Russell Robinson, “Rwanda: Managing Fiscal Decentralization”, IMF Fiscal Affairs
Department, August 2003.
17
Kai Kaiser, “Fiscal Equalization in Rwanda: Challenges for Decentralized Financial Management,
Reporting, and Enhanced Equalization”, draft, July 12th, 2004, para. 68.
18
To state the obvious, a nation with this history must have a vital interest in the curriculum of primary and
secondary education and its influence on nation-building.
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standards and criteria. There is wide international experience that could be drawn on to
fashion such grants.
The desire to preserve autonomy for local governments arises for other reasons. One can
have sympathy with the districts, which are expected to comply with the equivalent of
many unfunded mandates coming down from the national and international levels. In
addition to carrying out their purely local functions, for instance, the local governments
are also expected to contribute to achievement of the Millennium Development and
Poverty Reduction Strategy goals, as well as Rwanda’s Vision 2020.
At present, Kigali is probably the only local government with sufficient own-source
revenues to have a substantially independent voice in its own affairs. In future, however,
as prosperity increases in Rwanda more district councils are likely to acquire the financial
independence that sustains local autonomy. Such potentially self-sufficient districts will
need to be given an incentive to implement legitimate national goals in the area of social
services such as health and education. When local governments are responsible elsewhere
for such services that have effects that spill over outside the local community, they are
usually supported financially by national governments. The central government can
encourage the provision of services with such externalities by offering to share particular
costs provided that the project or program meets certain conditions or minimum standards.
According to the PRSC paper (para 112), the Bank plans to undertake analytic work in
2005 to help the GoR decide questions such as the nature and size of block grants to be
transferred to districts and related performance indicators and the optimal balance
between central guidance and local flexibility over the near and long-term.
The Availability of Financial Management Skills.
Background.
There is no doubt that Rwanda needs more people with financial management skills. The
2002 Rwanda Country Assistance Strategy stresses that capacity building in the
decentralized administrations should be a top priority, but the Decentralization and
Community Development Project PCD properly emphasizes that lack of managerial skills
is a more general problem in Rwanda: “There are severe capacity shortages at all levels
in the public sector as well as in the private sector and civil society.”(P.11)
And we have seen that there is a tragic reason for this shortage of skilled professionals, in
that the latter were singled out for killing in the genocide and many fled the country.
Rwanda’s CAS in 2002 noted further that “while the majority of the refugees have
returned, the educated and qualified among them have largely remained in exile.”
Although Rwanda may be a more extreme example than most, its lack of skilled
personnel is a problem that would be common to many post-conflict countries. Where
there is civil conflict, those with marketable skills such as chartered accountants and
information technology specialists are likely to be more mobile and hence able to flee
from conflict.
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Equally, however, many of these skilled emigres will also return when order is restored
and assured—if wage levels compensate for the costs involved.
Has Decentralization Exacerbated the Demand for Financial Management Skills?
Claims that decentralization in Rwanda has increased the demand for financial
management skills, putting stress on the supply of skills to such institutions as the
National Tender Board and the Office of the Auditor General, are common.19 But does it
really follow that decentralization increases the demand for financial management skills?
In the case of procurement, for instance, general training is needed with respect to
procurement decisions, and the NTB has assisted in procurement training and installing
staff with these skills at both central government and district levels. But the NTB itself
oversees the tendering of all larger procurement contracts and there is no apparent reason
why the number of such decisions should increase with decentralization.
In fact, there is a general point to be made here. Whatever the type of decentralization
that is taking place, it is not obvious that the process itself adds to the general demand for
skills. In the case of devolution, where functions are transferred from the central to local
governments, officials who formerly performed the functions can be offered the choice of
moving to local governments. Some senior officials in Sierra Leone who were previously
appointed to administer local administrations were offered this choice when local
councils were elected in that country. In the case of deconcentration, as in Rwanda,
officials who previously performed their functions in the capital could be offered the
choice of moving to the provinces. In either case, decentralization need not be—indeed
should not be-- accompanied by any net increase in personnel. Duplication of staff should
be avoided.
Capacity Building
Training. There is no doubt that a substantial amount of capacity building is nevertheless
needed in Rwanda in financial management and information and communications
technology—both at the central and district government levels. These concerns are being
addressed by the GoR through various strategies such as under the Multi-Sector Capacity
Building Program and the Public Sector Reform Program. The World Bank’s Public
Sector Capacity Building Project and Decentralization and Community Development
Projects, which were scheduled to become operational at the end of 2004, will contribute
to such capacity building.
Much has been accomplished already through the offices of USAID by installing an
excellent local accounting system in Rwanda’s 107 districts and training officials in its
For instance, according to the PRSC (para 124), “lack of proficient procurement staff [in the NTB] is also
being exacerbated by decentralization.” The 2004 HIPC AAP says that “the National Tender Board and the
Office of the Auditor General, two key good governance institutions, are not adequately represented at the
local government level” (p.6.) While the IMF ROSC of 2003 views procurement capacity as being
adequate, it also says that “additional resources may be required to ensure the smooth functioning as the
activities of local governments expand.”
19
14
15
use.20 In terms of what needs to be done next in improving financial management in the
districts, emphasis might be placed on consolidating existing gains: as for instance, by
making sure all districts report on time and addressing the problems of those that do not
and are deprived of transfers for this reason.21
Creation of a special financial management/accounting cadre. There are other means
besides training to increase financial management capacity through institutional change,
however. In fact, there are many complaints of officials who receive financial
management training subsequently leaving for the private sector where rewards are better.
For instance, the assessment of the decentralization process commissioned by the GoR in
2003 found that
Staff turnover in districts and provinces is a serious challenge for human resource
development in local governments. This mainly affects critical areas of financial
management, audit and planning.22
One solution recommended by this assessment of the decentralization process in Rwanda
is that
A well elaborated cadre organique in districts might decrease the staff turnover
that affects critical areas of financial management, audit and planning.23
It is worth noting that Sierra Leone intends to adopt just such a strategy in financial
management capacity building, through the creation of a special financial
management/accounting class in its civil service.
Enclaves and Civil Service Reform. Other institutional changes undertaken to attract
skilled personnel in Rwanda have met with less approval. For instance, one means of
attracting skilled personnel is to create special enclaves that can pay salaries higher than
civil service rules permit. Thus the GoR established CEPEX in July 1999 as a semiautonomous body in MINECOFIN, to lead the process of evaluation and selection of
investment projects for the development budget. Similarly, the Rwanda Revenue
Authority—the country’s tax agency—was created as a semi-autonomous body.
The creation of such semi-autonomous bodies to address the problem of attracting skilled
personnel has not met with general approval. In fact the FARAP Report urged the GoR to
reconsider the rationale behind the establishment of such autonomous or semiThe FARAP report (para. 174, p.44 ) concluded that “the accounting framework envisaged for local
government is better and more comprehensive than that which current exists for the central government.”
As noted in our text, however, efforts have since been made to raise standards in the latter accounting
system.
21
Kaiser notes that “The Directorate of Territorial Administration in Minaloc suggested that LABSF
transfers to districts were being withheld based on non-reporting.” See “Fiscal Equalization in Rwanda:
Challenges for Decentralized Financial Management, Reporting, and Enhanced Equalization”, draft, July
12th, 2004, p.9
22
VNG International, Appraisal of the Decentralization Process in Rwanda: Final Report. Ministry for
Local Government, Information and Social Affairs, September, 2003, sections 3.2
23
Ibid., Section 4.2.
20
15
16
autonomous entities, on the grounds that “setting up such bodies as a means of better
paying their key personnel is no substitute for strategically targeted civil service reform.”
(para 17)
Obtaining Financial Management Skills: Buy or Make Decisions. There is therefore a
consensus that civil service pay scales need to be adapted to attract and retain skilled
financial management professionals in Rwanda’s civil service, whether at the central or
district level. As has also been realized, however, the market may provide an alternative
to obtaining specialist financial management skills from within the civil service. Thus, to
carry out her duties, the Auditor General has been building up the capacity of her office,
but is not reluctant to contract out audits to accounting firms of, for example, the
autonomous public institutions. Nor does the AG confine herself to hiring private sector
auditors from inside the country. The AG’s use of private sector auditors might even be
employed more extensively in audit of the districts, which are fourth on her list of
priorities (after the central government, development projects and autonomous public
institutions.)
And it is to be noted (and applauded) that a specific objective of the Bank’s Public Sector
Capacity Building Project is to help ministries and agencies contract out some services to
NGOs.
Experience in decentralization demonstrates, indeed, that contracting out can be
complementary to and may even be a superior alternative to some capacity development
within the civil service. A number of the more successful local authorities in North
America provide an excellent example of the merits of using market solutions to provide
municipal services. Thus, Southern California is made up of many small inter-connecting
urban communities. Many of these communities are traditional “full-service" cities that
deliver services directly through their own in-house workforce. However, many other
cities - 53 in the County of Los Angeles alone – follow what is known as the contract city
model and leave service delivery to the competitive marketplace. Municipal services are
contracted out to other communities, to regional governments, or to the private sector.
Contract city staffs are small and principally design, monitor, and manage contracts to
provide services to residents. But the costs savings may be substantial compared to the
price of traditional services.24
The Scope of Local Governments: Does Each District in Rwanda
Need to Do it All?
This leads to a more general issue—as to whether all 107 districts in Rwanda need to
duplicate personnel and facilities to carry out their responsibilities. It is certainly
important to establish a clear division of responsibilities for functions between the central
24 The Frontier Center for Public Policy cites the example of Dana Pointe, a contract city with 35,000
residents in Southern California. Whereas a traditional, full service city would employ hundreds of fulltime staff, Dana Pointe has a staff of only twenty-five civic managers. But “the cost of service to its
residents is about a third less than that paid by people in a so-called traditional "full service" city where
government employees deliver most services. “When Smaller is Better - California Contract Cities,”
Policy Series, September 22, 1997.
16
17
and district governments. But it is responsibilities that need to be assigned—not provision
of the services. The example of the Californian contract cities cited above illustrates that
competition in provision of goods and services is, in fact, desirable: monopolies do not
produce good results. It helps to have the possibility of contracting out services to the
private sector, NGOs or even other levels of government.
Some time before the creation of 107 local authorities in 2001, Rwanda had
deconcentrated health care by creating 40 Health Districts to manage health services. An
analysis in 2003 of the PETS survey of the health and education sectors was far from
complimentary to the administration of health care by the central government in these
Health Districts and was far more complimentary to the contribution of localities. Fofack
and his co-authors considered that the most startling finding of the PETS was the very
limited funding by the central government of primary education and health services, with
the result that their operations and maintenance costs were paid for largely by fees for
services and, in the case of primary schools, other contributions by parents. Another
finding of interest was the strong local involvement in managing education and health
facilities. Indeed, Fofack et al. report that “the lack of accountability in the administrative
offices is in contrast with efforts at the facility level to be accountable, presumably due to
local involvement.” 25
Despite this verdict, there is no reason why the functions of the 40 deconcentrated health
districts and the 107 local governments should be incompatible. The decentralization
theorem that provides the economic rationale for decentralization simply says that
governmental functions should be carried out at the lowest level of government at which
they can be executed efficiently.26 There is no reason, however, why the optimal areas for
delivery of local services should coincide exactly with the jurisdictions of the 107 local
councils in Rwanda and plenty of reasons to think that they do not.
The creation of the 40 health districts in Rwanda may, in fact, be regarded as an example
of the possible uses of the special purpose districts that are a feature of successful
decentralization throughout the world. These special purpose districts recognize the fact
that optimal service areas for some functions may cross the borders of local and
subnational political jurisdictions. North American examples are the school districts in
the provinces and states of Canada and the United States. Changes in the areas covered
by these boards have accommodated a massive rural/urban shift in population over the
past century. The New York Port Authority is an example of an interstate special purpose
district in the United States: it crosses the boundaries of three states.
See “Public Expenditure Performance in Rwanda: Evidence from a Public Expenditure Tracking Study
in the Health and Education Sectors,” Africa Region Working Paper Series No. 45, March 2003.
26
The same principle is embodied in the subsidiarity principle embodied in the Maastricht Treaty forming
the European Union.
25
17
18
In fact, the Decentralization Laws of Rwanda make provision for the creation of special
purpose districts,27 and indeed one such has already been created to protect and manage a
two lake area that is spread over four districts.
Further to this point, cooperative arrangements mean that efficient sizes of local
governments can be quite small. The average population of French communes (1300
inhabitants), for instance, is much smaller than the average size of local government
districts in other European states.28 The communes make extensive use of cooperative
arrangements (syndicats intercommunaux) to provide services.
There are obvious possibilities for communities to get together to provide services in
Rwanda. This is a logical role that could be organized by RALGA, the Rwandese
Association of Local Governments. RALGA already lobbies on behalf of local
governments and is extensively involved in training of local officials--particularly in
financial management. Coordinating the supply of local services would be a logical
extension of these roles.
Issues raised by Donor Funding
Instability in Resources
As noted above, development partners supply 55% of Rwanda’s budgetary funds. While
the country is obviously grateful for this level of support, it has entailed two principal
problems. The first concerns stability in the resources made available by development
partners and their timing. Financing flows, particularly budget support from
development partners, have been uneven, leading to late expenditure release by the GoR
itself. And donors’complex aid procedures have contributed to the unpredictability of
disbursements.
This affects decentralization in Rwanda. It has long been known, for instance, that
spending at the district level has been less than budgeted: this was the finding of the
PETS for 1998/1999, for example. More recently, Kaiser observes that in 2003 the Local
Authorities Budget Support Fund (LABSF) that provides funding for recurrent
expenditures disbursed in only 3 out of 4 quarters. And while the Common Development
Fund (CDF) approved an estimated two hundred projects for RF 3.96 billion in 2003,
27
Article 19, Law No. 34/2002 amending Law No. 04-2001 on Organization and Functioning of the
Districts, states that:
District Councils may, upon mutual concertation, decide to work together to initiate, organize or
run the activities of their common interests. That partnership is referred to as “Districts
partnership.” A District Council and Town Council or several District or Town Councils may also
upon concertation undertake such partnership. Instructions that are made by the members to the
Partnership Council are included in a document that mentions the activities to be performed and
specifies the rights and duties of each party.
28
Melville McMillan notes that “the mean district population in England is about 125,000, in Germany it is
20,000...but closer to 9,000 in Norway and 30,000 in Sweden.” A Local Perspective on Fiscal Federalism:
Practices, Experiences and Lessons from Developed Countries. Washington, DC: The World Bank, Public
Economics Division, 1994.
18
19
actual disbursements were only a quarter of this, or RF 1.0 billion.29 Valderrama also
notes that “the variances between actual and budgeted activity appear to be most
pronounced for development as opposed to recurrent) budgets.” The variability of donor
funding has much to do with this finding: as noted above donors supply 88% of the
development budget as opposed to only 53% of the recurrent budget.30
One of the consequences of the greater variability in spending in the development budget
may well have been the postponement of integration of the recurrent and development
budgets. This was originally planned for 2003 but has been postponed until 2006.
The cash budget approach adopted by the GoR to deal with this problem of
unpredictability of timing in the release of donor funds--while indicating the GoR’s
admirable dedication to fiscal discipline-- compromises the budget formulation process
and priority setting. Some of the more promising advances in PEM would not be possible
in Rwanda without additional donor cooperation to deal with this issue. As indicated by
Obidegwu, for instance, it is clear that the success of an MTEF depends substantially on
the willingness of the development partners to provide resource predictability.31
An obvious way of reducing such unpredictability in aid flows is for donors to increase
the amount of aid they give in general budget support and reduce the amount of aid given
for project or targeted spending.
Transaction Costs to the GOR .
The second major issue raised by donor funding involves the transaction costs to the
Government of Rwanda, and these can be substantial. As well as assuring both domestic
taxpayers and development partners that funds are being used for their intended purposes,
well-functioning PEM systems should contribute to reducing reporting requirements by
donors.
The plethora of advice the GoR receives can be overwhelming. Of course it is wellmeaning. And perhaps this is the price a nation might expect to pay when it gets half or
more of its resources from development partners, as is the case for Rwanda. But even
taking these factors into account, the response burden for the GoR can be imagined when
it is noted that Rwanda received 240 separate missions from development partners in the
past year! There is little doubt that the demands that these missions make on Rwandan
officials has the side-effect of a negative impact on the routine performance of the duties
of the latter. And there are two references in the Bank’s recent PRSC paper to another
consequence, “the potential for ‘reform fatigue’, especially in line ministries” (paras.111
and 115).
“Fiscal Equalization in Rwanda: Challenges for Decentralized Financial Management, Reporting, and
Enhanced Equalization”, draft, July 12th, 2004, para.10.
30
Ricardo Valderrama, “Budget Execution and Financial Position of Local Governments in Rwanda,”
ARD Fiscal Decentralization Project, July 2004, p.4
31
See Obidegwu,. “The Medium-Term Expenditure Framework: The Challenge of Budget Integration.”
Both the FARAP and PRSC have also noted that cash budgeting undercuts the MTEF.
29
19
20
The problem of complexity in donor aid procedures is not one that is confined to
Rwanda. With respect to financial accountability in particular, Brooke reported in 2003
that
A review of existing practice found a wide range of measures required by
donors/agencies. Some 60-70 different types of measure were identified. Not only
are they of a widely divergent nature, but they are also applied in different ways.
32
One method of reducing this response burden is for donors to agree on a common
harmonized standard in assessment of fiduciary risks. Efforts to develop such a common
standard have been based on the heavily indebted poor countries (HIPC) initiative of the
World Bank and the IMF, which in turn built on the IMF’s ROSC methodology.
Extending these efforts to get wide international acceptability of a common standard of
fiduciary risks, a working group involving staff from the World Bank, IMF and the
Public Expenditure and Financial Accountability (PEFA) Secretariat of the World Bank
subsequently developed a set of sixteen indicators that can be applied to measure PFM
performance in countries across a wide range of stages of development.33
Efforts to standardize fiduciary risk assessments of donors and reduce instability in donor
aid flows in Rwanda came together in Nov 2003, when the GoR and a number of donors
providing direct budget support signed the Partnership Framework for Harmonization
and Alignment of Budget Support. The donors involved are the UK DFID, the EU, the
African Development Bank (AfDB), Sweden (SIDA), and the World Bank. This
approach signals a major change from the way donor assistance was previously provided
to the GoR. The Framework states that donors agree to harmonize their practices with
respect to requirements for PFM and government fiduciary arrangements.
The principal benefits to the GoR are that it will allow for improved predictability of aid
flows and will also improve donor coordination and reduce transactions costs. In the
latter respect, the Framework also identifies a lead sector or agency in the GoR to manage
preparation of a strategy for the sector with support from a lead donor for the sector. To
give examples of the latter that are particularly relevant to the present work, the lead
donor for decentralization is the Netherlands, for governance the UNDP and for human
resource development and capacity building the Swedish International Development
agency (SIDA). The cluster groups, including government counterparts, meet regularly to
coordinate the approach in the sector.34
Peter Brooke, “The Platform Approach to Public Financial Management Reform and Managing
Fiduciary Risk”, Bannock Consulting for the World bank’s PEFA Secretariat, 2003, p.1.
33
See the PFM Performance Measurement Framework, revised consultative draft, PEFA Secretariat,
February 12, 2004
34
For instance, a Working Group on Rwandan Fiscal Decentralization met to consider decentralization
issues in a Video Conference (Kigali/Washington, DC), on July 13th 2004. Participants included GoR
representatives (from MINECOFIN, MINALOC, MININFRA, CDF, RRA, DCDP), and from the
development partners including the World Bank, USAID, the Government of the Netherlands and UK
DFID.
32
20
21
Other Methods of Reducing Transaction Costs
Availability of Documents. The writer would like too suggest another initiative to reduce
transaction costs for both donors and governments receiving aid, including the GoR.
Some of the analytic work done by development partners is cloaked in secrecy
requirements. Access to such documents has been a persistent issue at the working level
between the Bank and the IMF. 35
Governments are urged to make some of these documents public, such as the HIPC AAPs.
But leaving the decision as to whether to declassify a document to government
bureaucrats is likely to get a decision that errs on the side of extreme caution. What is the
upside to a bureaucrat of such public release?
Effects of these confidentiality restrictions may be to conceal good analytic work that
might make a contribution if more widely known (and perhaps to let some questionable
work go unchallenged), to duplicate analytic efforts and to increase the response burden
of aid recipients, as in the documented cases where questions are repeated by “visiting
firemen” who may not have seen the proscribed work. Another consequence is
unevenness in application of confidentiality requirements among countries. A case of
relevance in the present work relates to the HIPC AAPs. While governments are urged to
make these assessments public, the Government of Sierra Leone has done so but the
Government of Rwanda has not.
Much of this secrecy may be simply unnecessary. Nothing this writer has seen in
documents relating to Rwanda that are classified as “confidential” or even “strictly
confidential” raised his eyebrows at all. Nor, one feels, are these documents likely to
raise eyebrows in the post-conflict nations themselves. Given the exigencies of their
recent histories, these countries are not likely to be shrinking violets. And in any event,
nations that accept over half of their resources from development partners are likely to be
sufficiently thick-skinned to receive some commentary on their performance with
equanimity.
Above all, these practices are objectionable because they offend the spirit behind the
drive to get greater transparency and accountability that lies at the heart of much public
financial management. The present paper suggests that the Bank not agree to label any of
35
In late 2002, the writer worked on the paper on Bank-Fund Collaboration on Public Expenditure Issues
that went to the Boards of both the Bank and the IMF. The paper involved a survey of those working on
public expenditure issues in the Ministries of Finance of developing countries, the staff of development
agencies and staff of the Bank and Fund themselves. A third of respondents thought problems of
collaboration reduce the effectiveness of the PEM advice of the Bank and the Fund. Bank staff complained
about the "unwillingness of IMF to share relevant reports and other documentation." One comment from
World Bank staff in the Africa region was that:
We in the Bank's AFR region have excellent working relationships with the Fund's area
department but people in FAD (especially those working on fiscal transparency issues) seem to
operate in an excessively secretive environment. They refuse to share documents with us (and
even with their own area departments)
21
22
the PFM documents on which it works as confidential and to impress on client
governments that it expects documents such as the HIPC AAPs to be released to the
public.
The Need for a Plan.
Although Rwanda started its reconstruction earlier than Sierra Leone, it might learn
something from the latter country with respect to the sequencing of PFM in post-conflict
situations.
In both countries there is more than enough to do in the field of PFM and absorption
capacity is limited. Hence there is a need to assign priorities. As noted in a previous
paper, the Government of Sierra Leone does have an Action Plan that assigns such
priorities.
There has been quite a lot of effort by the development partners to establish a PFM action
plan in Rwanda, with priorities being assigned. This started with the FARAP initiative
and the EU follow-up to FARAP and, although in principle all donors are involved, is
supported principally by the EU, DFID, the IMF (AFRITAC-East), as well as a number
of European development partners who give bilateral aid. The FARAP report says that its
“action plan will provide the appropriate sequence of activities and proposals for
institutional capacity building on a sustainable basis.”
The principal--and critical-- difference from the approach being followed in Sierra Leone
is that the GoR does not appear to have assigned priorities, although it has a mechanism
to do so: a national Steering Committee is supposed to coordinate and monitor reforms in
public financial management. The absence of prioritization in Rwanda may be a victim of
the abundance of outside advice and actors, with the outcome that the emphasis is on
doing everything at once. Development and issue of a prioritized PFM plan is an
essential step that the GoR should take.
Adoption of Advanced PEM Techniques
This writer is skeptical about the adoption of some advanced PEM techniques whose
application is being urged in Rwanda and thinks use of such techniques should be deemphasized.
Rwanda may yet be ahead of some developed countries—even perhaps of some of its
development partners—in adoption of some PEM techniques. While it has been said that
a medium or longer-term perspective on budgeting is at the heart of successful budget
reform in much of the world over the past two decades, less than two out of three OECD
countries were recently found to employ medium term expenditure frameworks.36 It is
therefore impressive that the HIPC AAP concluded that Rwanda met the benchmark of
Sixty three per cent of OECD countries answered affirmatively to the question, “Is there a consistent
medium-term fiscal framework stating targets or ceilings for expenditures, deficits and revenues for the
medium-term…” OECD/World Bank Budget Practices and Procedures Database, 2003, available on the
World Bank’s website.
36
22
23
multiyear planning, in that multiyear forecasts are formulated at a program level and are
then used as the starting point for annual budgets.37
Another advanced budgeting technique whose use has been suggested in Rwanda is that
of results-oriented or performance budgeting. The recent PRSC Paper, for instance, wants
results-oriented budgeting developed in education, health, water and energy (para 5).
There is no doubt that the goal of budgeting should eventually shift towards getting
results from the spending of public resources rather than just allocating inputs. While
Rwanda is a long way now from results-oriented budgeting, this goal should always be
kept in mind as being that to which this country and all others should be striving. Nor is it
too early to start toward this goal in Rwanda, for instance, by beginning to incorporate
some performance indicators as part of the budget.
But the writer is entirely in accord with the judgment of the IMF’s ROSC in 2003 that
adoption of results-oriented budgeting should be delayed in Rwanda.38 The record shows
that implementation of results oriented budgeting is challenging enough in OECD
countries, where implementation started in the 1960’s. After continuous work for 40
years, most OECD countries still face difficulties in establishing links between budgets
and results achieved.
Conclusion: the Sequencing of Financial Management Measures
in Rwanda
The Government of Rwanda, with the aid of its development partners, has made
impressive progress since its civil conflict in installing two hallmarks of democratic
societies: responsible local government and accountability for financial management.
It helps that this is a nation that has developed a formidable sense of discipline.39 And the
considerable efforts that it is making to help itself should be taken into account. An 18%
VAT rate speaks volumes in the latter respect.
Despite its formidable accomplishments in the post-conflict period, what the Government
of Rwanda needs in an area such as financial management where much needs to be done,
is a prioritized plan. In this respect, it could learn from the example of the other postconflict country visited by the mission: Sierra Leone.
Perfectionism also needs to be avoided. The GoR should proceed with caution in
considering introduction of some advanced techniques of financial management. This
37
A possible reason for the greater success of medium term expenditure frameworks in Rwanda is because
this is the vehicle whereby the PRSP is being put into effect.
38
“Only at a much later stage should one move towards adopting accrual accounting or output-oriented
budgeting...” International Monetary Fund, Report on the Observance of Standards and Codes, Fiscal
Transparency Module, Rwanda. IMF Fiscal Affairs Department, 2003.
39
A noneconomic example occurred during the mission for this paper, when the government decided to ban
the use of plastic bags on environmental grounds. Compliance was instantaneous. In the Maghreb
countries where the writer also works, one can tell when one is approaching a major town because the
plastic bags on the fence lines by the roads grow thicker.
23
24
writer was forced to wonder how many of these advanced financial management
techniques apply in the countries of the donors who advocate them. Performance or
results-oriented budgeting, for instance, is beyond Rwanda at present—as indeed it is
beyond most OECD countries.
The present paper agrees with in-depth assessments such as that of the IMF ROSC and
the HIPC AAP that a high quality government accounting system is a priority in Rwanda.
Agreement with the IMF ROSC extends to the arguments that other basics of good PFM
are good internal and external audit. Rwanda is well on the way to achieving these goals.
If anything needs to be added to these recommendations, more emphasis might be placed
in Rwanda on using Public Expenditure Tracking Surveys to supplement internal audit.
More effective use has been made of this PEM tool in other African economies, including
the other country visited by the mission, Sierra Leone.
In terms of what needs to be done next in improving financial management in the 107
district governments, emphasis might be placed on the straightforward goal of
consolidating existing gains: as for instance, by making sure all districts issue financial
reports on time and addressing the problems of those that do not and are deprived of
transfers for this reason.
In terms of intergovernmental transfers, this paper has noted that the proposed devolution
of functions and accompanying transfer of resources to local governments is substantial.
But here national interests should be served at the same time as local autonomy is
maintained. Attention needs to be devoted to transfer arrangements that permit national
goals to be attained in areas such as health, education and welfare while avoiding
micromanagement of local governments.
In this respect, the central government might give some thought to the constraints it
operates under itself as a result of the substantial proportion of its budget that is provided
by donors. The fact that 88% of the development (or capital) budget is provided by
donors, for instance, is perhaps the biggest obstacle to the necessary step of integrating
the development and recurrent budgets.
But coordination with donors has led to some sensible loosening of constraints on the
GoR. The Partnership Framework for Harmonization and Alignment of Budget Support
has been a major step forward, both in making more aid available as general budget
support and in agreement on a common standard of fiduciary requirements for donors.
Although the major donors are in the Partnership, more of the bilateral development
partners could also get on board. This type of agreement is something that should be
pursued with vigor in other post-conflict and low-capacity countries.
And even more could be done by donors to lower the response burden on countries such
as Rwanda. The number of missions this country receives is staggering and anything that
would reduce potential duplication of effort by development partners would help. A
reassessment of the confidentiality classification attached to documents by particular
development partners would assist in this respect and is long overdue. Such secrecy does
24
25
not sit well with the drive to get greater transparency and accountability that lies at the
heart of much public financial management.
In terms of using financial management, Rwanda obviously needs to augment capacity by
training, such means as creating a financial management cadre in the local and central
bureaucracies and pushing ahead with civil service reform that rewards financial
management skills appropriately. By the latter means Rwanda may be able to attract back
more of the skilled workers who fled in the civil conflict. And in particular, contracting
out should be pursued more wholeheartedly. The ideal would be to have a marketplace
where the private sector, NGOs and even other levels of government compete in
providing such skills as an alternative to the local government districts doing everything
for themselves.
Indeed, use might be made of the market in extending financial management reforms in
more institutional ways. The 107 districts may be the appropriate political jurisdictions
for responsible local government but they do not need to duplicate provision of every
service and their jurisdictions may differ from optimal areas for providing some services.
Special purpose districts, cooperative arrangements and contracting out are all ways of
getting economical provision of services while maintaining responsible local government.
25
26
Bibliography
Brooke, Peter. “The Platform Approach to Public Financial Management Reform and
Managing Fiduciary Risk”, Bannock Consulting, 2003.
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Performance in Rwanda: Evidence from a Public Expenditure Tracking Study in the
Health and Education Sectors.” Africa Region Working Paper Series No. 45, March 2003
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Gillingham Robert, Duncan Last, Ronald Neumann and Russell Robinson. “Rwanda:
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Management, Reporting, and Enhanced Equalization.” Draft, July 12th, 2004.
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Valderrama, Ricardo. “Budget Execution and Financial Position of Local Governments in
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__________ and IMF staff. Rwanda: Tracking Poverty-Reducing Spending: Second Assessment
and Action Plan, July 2004.
26
27
Annex A
TERMS OF REFERENCE
Lessons on Sequencing Financial Management and Accountability Systems
in Decentralized Post-Conflict/Low Capacity Contexts
Background
Effective financial management and accountability arrangements (FMAAs) are a key
ingredient to improve public service delivery at various levels of government. FMAA
measures include procedures and systems for budgeting (planning, formulation and
execution) and forecasting (including annual budgets, MTEFs, and revenue forecasting),
accounting standards, treasury management, audit and accountability functions, and
financial reporting (to both local and central users). Post-conflict/low capacity
environments pose particular challenges given the need to enhance access and quality of
public services to avert renewed conflict, and the generally weak institutional capacity.
The PREM Public Sector Group, with regional colleagues, is keen to provide a better
understanding of what financial management reforms are “needed” (intergovernmental,
central and local) and how to prioritize and sequence reforms by developing the capacity
to choose among them in post-conflict/low-capacity contexts.
To inform this broader agenda, work being conducted with the support of a BankNetherlands Partnership Program (BNPP) Global and Regional Initiatives grant will: (i)
provide a framework/stocktaking of local FMAA arrangements for public service
delivery, and (ii) analyze the cases of Rwanda and Sierra Leone, in terms of lessons from
past sequencing to current achievements, and potential lessons for prioritization and
future sequencing.
The overall activity will examine three components: (i) prioritization and sequencing of
decentralized FMAA, (ii) decentralized Information and Communications Technology
(ICT) for FMAA, and (iii) local revenue mobilization options. Each of these components
will be synthesized with regard to the overall decentralization framework, including
prioritizing and sequencing expenditure assignments, intergovernmental transfers, and
other critical elements.
Level of Effort and Timing
For this assignment, 30-35 days of effort are expected over the period 15 September – 15
November 2004. Effort would include travel and field work in Rwanda and Sierra Leone.
Requirements

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Extensive background experience in FMAA and decentralization issues
Strong analytical skills
Regional experience in low-capacity/post-conflict context, Rwanda/Sierra Leone
(preferred)
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
Good verbal and written communication skills in English (required) and verbal skills
in French (preferred)
Specific Tasks
Working closely with World Bank PRMPS staff (Dana Weist, Kai Kaiser and others);
Rwanda country team staff (Kene Ezemanari and Joseph Kizito); and Sierra Leone
country team staff (Yongmei Zhou) the consultant will:
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Write a 10-15 page report of the sequencing and achievements of FMAA and
decentralization/deconcentration in various countries based on a desk review of
project documents, donor assessments, staff interviews (documents to be
provided/specified), and the case studies listed below.
Travel to Rwanda and Sierra Leone to participate in two, 1-week missions (plus travel
time to/from base station), ideally in late September/early October 2004. These trips
will be scheduled in conjunction with country-team missions (e.g., to assess
decentralized financial management issues and priorities in Rwanda, as part of the
PRSC and overall country dialogue).
Prepare two, 10-15 page case studies of FMAA in Rwanda and Sierra Leone to
include (i) current achievements in country-level FMAA, (ii) gaps and priorities, (iii)
generic lessons about effective FMAA interventions and sequencing/prioritization
priorities and sequencing
The consultant may also be asked to present their findings to World Bank staff members
working in Washington, DC.
Reporting
The consultant will report to Dana Weist (Lead Public Sector Specialist, PRMPS).
Outputs
The outputs of the activity include:
[i] Stocktaking and Synthesis of FMAA Lessons for Low Capacity/Post-Conflict
Contexts (10-15 pages)
[ii] Rwanda Case Study (10-15 pages)
[iii] Sierra Leone Case Study (10-15 pages)
[iv] BBL presentation in Washington DC
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Annex B. Table 1. Extent to Which HIPC Benchmarks were Met in 2004
Rwanda
I. Budget Preparation
1: Coverage of the budget or fiscal reporting entity.

2: Degree of spending funded by inadequately reported extrabudgetary sources.

3: Reliability of budget as guide to the future.

4: Inclusion of donor funds in budget and fiscal reports

5: Budget expenditures adequately classified
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6: Poverty reducing expenditures identified as priority programs in the budget
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7: Medium-term forecasts integrated into budget formulation.

II. Budget Execution
8: Arrears evidence of problems
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9: Internal control system is effective
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10: Internal control supplemented by public expenditure tracking surveys.

11: Quality of fiscal information assured by regular reconciliation of bank
accounts with accounting records.
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III. Budget Reporting
12: Internal fiscal reporting regular and timely.
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13: Regular fiscal reports track poverty-reducing spending
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14: Transactions recorded in a timely fashion
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15: Audited financial information is timely

IV Public Procurement System
16. Public procurement system is efficient and effective
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