Centre Africain de Formation et de Recherche Administratives pour le Développement
La République de Madagascar
Forum Pan-Africain des Secrétaires Généraux de Gouvernements
Thème :
RATIONAL AND EFFECTIVE MANAGEMENT OF FINANCIAL RESOURCES IN
THE PUBLIC SECTOR: PARTICIPATION AND PRO-POOR BUDGETING:
CHALLENGES AND OPPORTUNITIES
By
Mrs. Yanembal Moorghen
Mauritius
26 - 28 Octobre 2006
Antananarivo (Madagascar)
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“African leaders are committed to their continent’s
development where democracy thrives, human rights are
respected and government finances are run soundly”.
- Thabo Mbeki
Introduction
Throughout the world there are movements towards Public Sector Reforms in the light of
numerous challenges arising at local, regional and international levels. Such reforms are being
undertaken for various reasons depending on the countries’ needs and their stages of
development and are also prompted by donors for restructuring of economies. Financial
Reforms are an integral part of such reforms initiatives.
The intent of this paper is to trace the relationship between rational and efficient management of
financial resources and people’s participation in the budgeting process. An additional aim is to
highlight critical success factors for the creation of an enabling environment to promote pro-poor
participation budgeting.
The first part of the paper deals with the evolution of financial reforms. The second part will
highlight the different forms of budgeting with illustrations from different countries. The third
part investigates different instances of pro-poor budgeting and issues of implementation and the
last part focuses on critical success factors that have a significant influence on achieving the
MDG and NEPAD goals.
I. Evolution of Financial Reforms
Since the mid 1970s, Governments have been increasingly concerned to adapt and develop the
structures and values of the Public Service to achieve greater efficiency and more responsive
services. These changes have largely been pushed by continuing economic crisis in developing
and developed countries, which have in turn arisen from deteriorating terms of trade and
excessive borrowings.
The traditional model of administration had its own form of financial management, one aptly
suited to an administrative view of government .The usual form of financial management used
was – and it is still the same in many countries - the traditional budget also called line-item or
input budget. But that system proved to be inadequate as there was emphasis more on input than
on output; it was short-term (one year) and incremental without any critical appraisal and with
no linkage to output .
In response to the above and also due to the inadequacies of the traditional model of
administration, the New Public Management brought the focus on the achievement of results
and the personal responsibility of managers towards the achievements of the three Es’ namely
Economy, Efficiency and Effectiveness.
Hence the 1980’s have seen an array of changes in the public sector including unprecedented
cut-back strategies in expenditure, the drive for efficiency and the various forms of privatization.
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The 1982 Financial Management Initiative of the United kingdom , the 1987 “ Management
Improvement Programme of Australia, the “Government Management” in New Zealand brought
about sweeping financial reforms depending on the state of development of their respective
countries, the state of their economy and their accounting standards coupled with their own
philosophy.
There was emphasis on linking input to output performance budgeting with the introduction of
measures of work performance and performance standards, effects and alternatives. Such
processes assumed different appellations such as performance budgeting, Planning Performance
budgeting, and zero-based budgeting. The system of budgeting is closely linked with the
accounting system and can be a blend of different systems.
Experience of Medium Term Expenditure framework (MTEF)
MTEF is a transparent planning and budget formulation process within which the Cabinet and
central agencies establish credible contracts for allocating public resources to their strategic
priorities while ensuring overall fiscal discipline. MTEF details 3-year rolling expenditure and
revenue plans for all government departments.
MTEFs are receiving renewed attention especially in Africa as they constitute the ideal tools for
translating poverty reductions programs within a coherent macro-economic and fiscal framework.
However, following a comparative assessment of the design and impact of MTEFs effected
(LeHouerou, P. Taliercio .R:2002) on public finance and economic management in nine African
countries namely: Ghana, Guinea, Kenya, Malawi, Mozambique, Rwanda, South Africa,
Tanzania and Uganda the following conclusions were reached :
ELEMENTS OF FINANCIAL MANAGEMENT REFORMS
1.




Improving the Management of Inputs:
Introducing Capital Charging Capital charging is the accounting for the full cost of capital assets used in the provision of goods and
services. This allows a calculation of the time cost of goods and services enabling comparison with other
providers to be made.
Improving Estate Management Estate Management is the land, buildings, equipment and infrastructure used by government. This
represents in all countries a massive accrued investment.
Improving physical Asset Management The physical assets of government are land, buildings and the variety of value objects procured or used by
departments in the course of carrying out their activities. These include stationery, maintenance and other
stores, office equipment, including computers, vehicles and machinery and military equipment.
Improving the procurement process Procurement is the overall process of acquiring goods and services to meet customer needs. Procurement
consists of a cycle, which starts when the need is identified and ends when the goods and services are paid
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for.
Using activity based costing Activity based/costs are the total value of resources used in producing goods and services. Accurate
costing is an essential part of sound financial management with accurate costing goods and services can be
priced correctly. Costs are made up of direct or variable costs (raw material, direct labour) and indirect
or fixed cost, sometimes known as overheads (e.g. rent, taxes, administrative or financial costs).

2.

Focusing on outputs:
Achieving an output orientation An output orientation entails defining output such as policy advice, provision of services in terms of
quality, quantity, cost and time. (radical development).
Delegation of Financial Management Delegation is one of the areas of broad strategic choice involving the transfer of authority for certain
financial decisions from Central Government to departments to promote accountability and value for
money (e.g. budget)

3.

Improving Management Information
Strengthening external Audits External Audit is a check, a process of verification of an organisation’s accounts and records by an
independent authority
Strengthening internal auditing systems Internal Audit is an independent assessment of the effectiveness of management systems to ensure that
departmental objectives are achieved and resources are used economically and effectively.
Introducing accrual-based accounting While cash-based accounts give an accurate view of an entity’s cash flow, accrual-based accounting gives a
fuller picture of the operating and overall financial position. Accrual - relates to the period in which costs
are incurred or revenue earned, regardless of when or where money changes hand. It keeps track of assets
and liabilities and records changes in their values.

Source: Commonwealth Secretariat “Current good practices and new developments in Public Sector Service
management 2002

MTEFs alone cannot deliver improved public expenditure management (PEM) in
countries where other key aspects of budget management, notably budget execution and
reporting remain weak.

MTEFs should be integrated as part of a package of reforms programmes

A comprehensive detailed diagnosis of budget management systems and processes need
to precede MTEF;

The overall PEM has to be sequenced and MTEFs have to be phased in terms of technical
dimensions and piloted in terms of scope

MTEFs should be integrated in the budget process from the very start;

There is the need to set up appropriate structures to handle MTEF;
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
Although each country’s situation is distinct, reforms are best managed by a set of
overlapping mutually reinforcing organizational structures partly through the Ministry of
Finance which should have ultimate responsibility;

Political motivations and incentives are primordial for the successful implementation of
MTEFs
The Six Stages of a Comprehensive MTEF
STAGE
CHARACTERISTICS
I
Development of Macroeconomic/Fiscal
Framework

II.
Development of Sectoral programs

III
Development of Sectoral Expenditure
Frameworks

IV.
Definition of Sector Resource
Allocations

Setting medium term budget -ceilings (cabinet
approval )
V.
Preparation of Sectoral Budgets

Medium–term sectoral programs based on
budget ceilings
VI.
Final Political Approval

Presentation of budget estimates to cabinet and
parliament for approval
Macroeconomic model that projects revenues
and expenditure in the medium term (multiyear)
Agreement on sector objectives, outputs and
activities, Review and development of
programs and sub-programs; Program cost
estimation
Analysis of inter-and intra-sectoral tradeoffs,
Consensus- building on strategic resource
allocation
Source: PEM Handbook (World bank, 1998a: 47-51) adapted.
Public Financial Management (PFM) reforms should THUS aim at strengthening basic financial
controls before adopting ambitious modernization efforts namely credible budget that delivers
resource reliably; improved internal controls, budget execution and performance accountability.
The budget is the most important part of Financial management responding to both economic
and finance imperatives in the allocation and distribution of resources and stabilization of the
economy as well as undertaking the financial evaluation of total government and public activity
expenditures within budget receipts and expenditures. Financial management finds full
expression in improvements to the budgetary process, the budget being the final expression of
expected or estimated financial activity for a particular period.
II.
Implementation Challenges: Getting the fundamentals right
Reforms including financial ones have to be couched within a broader enabling environment
where every stakeholder holds himself accountable for input as well as resulting impact and
outcomes. However, the primary accountability rests on the government.
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“The first jobs of states is to get the fundamentals which lie at the core of any government’s
mission without which sustainable shared, poverty-reducing development is impossible:





A foundation of Law
A benign policy environment including macro-economic stability
Investment in people and infrastructure
Protection of the vulnerable
Protection of the natural environment”
(World Development Report 1997: The States in a changing World: P50)
In addition to the core duties, the need to address domestic as well as other repurcussionary
direct and indirect effects due to the globalized world remain a constant challenge to the
government.
The impact of globalization has resulted in opportunities but also challenges creating an uneven
playing field between rich and poor countries. Global effects as summed up in the ten
Copenhagen Challenges namely migration, climate change, communicable diseases, malnutrition
and hunger, financial instability, governance and corruption; education, sanitation and water;
subsidies and trade barriers and conflict are being felt at varying degrees worldwide especially
for developing countries.
In addition to the above, although overlapping and not mutually exclusive, MDG and NEPAD
goals have to be addressed equally taking into consideration challenges of governance for the
consolidation of democracy and the rule of Law; enhancement of implementation of public
sector reforms that are based on adaptations to socio-economic and cultural contexts,
enhancement of citizens ‘participation in the decision- making process and the promotion of
good governance, ethics, transparency and accountability .
Washington State Budget : Leadership in Action
Washington state headed by Governor Christine Gregoire consists of 112 Agencies, Boards and Commissions
representing a range of services for a population of 6 million and a workforce of 56,000 Public officers.
The budget is based on the Priorities of Government (POA)
which focus on the following : Education, Health, Government Accountability, Environment and Economic Development
and Transportation.
Government Accountability Management Framework(GMAP)
The Government Management Accountability Framework (GMAP) is a highly strategic decision-making platform where
the Governor together with her close Advisers and the Director of the Department of Personnel, personally presides over
the discussions with the Heads of Agencies. She holds them personally responsible to make judicious use of resources
and to deliver results based-actions on informed decisions through reliable data. In these GMAP only Agency Directors
relating to the above Priorities report on their Agencies’ activities and makes use of a series of tools to create a common
reporting system such as the human resource logic framework, the risk management model and statistical analysis of
charts. Quarterly reviews are held to ensure that timely and remedial action is taken in the light of decisions conveyed.
GMAP thus shows visibility at the highest level on how government programs are working and whether citizens are
receiving value for their tax dollars.
Internal GMAP All other Agencies that do not report directly to the Governor through the GMAP are expected to work out
their own internal GMAP to ensure that the expected outcome are constantly monitored and corrective action taken
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accordingly
Office of Financial Management (OFM) The Office of the Governor includes the OFM which plays a key role in the
financial responsibilities of the State of Washington. In line with the Budget and Accounting Act, the OFM is required to
establish a Generally Accepted Accounting Principles (GAAP)-based accounting system and procedures and to provide
for accountability of the state's assets and compliance to its laws and regulations.
The OFM uses the State Administrative and Accounting Manual (SAAM) system which provides control and accountability
over financial and administrative affairs of the State of Washington, and assists agencies in gathering and maintaining
information needed for the preparation of financial statements .In addition to maintaining the financial system, the OFM
coordinates all agencies’ activities in providing guidelines to enable them to work out their budget and their strategic
plans and performance measures , in facilitating procurement practices, and preparing them to prevent and mitigate risk.
Strategic plan and performance measures for budget
Guidelines are submitted to all agencies in respect of the standard format for the elaboration of their strategic plan
relating to mission statement, goals and objectives, performance measures, performance assessments appraisal of
external environment, assessment of internal capacity, financial health and technology portfolio management
instructions. Performance measures relate to output measure, immediate, intermediate and ultimate outcomes In
addition, some agencies with certain proprietary funds are given guidelines to prepare their Business plans.
Risk Management
The enterprise Risk Management Maturity model is a proactive policy initiative, which extends beyond the management of
risks based solely on claims and litigation experience .It claims to mitigate the nine different types of risk, especially in
the tort-related risk areas specific to Agencies through early detection and minimization of such risks, which are within
state’s control. The risk assessment model is thus a strategic tool to make savings relating to such risks as catastrophic,
non-tort litigation, compliance, reputational, emerging /shifting, systemic causes of incidents, financial, operational, human
capital and negligence. Moving towards mastery in the risk management continuum model will be the challenge of
Agencies.
The Washington Smart Buying Partnership Initiative
The Washington Smart Buying Partnership initiative seeks to analyze spending patterns of state government for
centralized and bulk contractual purchases with potential for savings. The large categories of such purchases provide a
standard policy for purchase thus facilitating Agencies’ purchases according to established principles. Such policy, in
addition to facilitating and standardizing procurement exercise and reduces cost through economies of scale minimizes
personal intervention with suppliers and transaction costs.
http:// www.smartbuying.wa.gov
Citizen’s voice. Citizens are invited to participate in the Budget through the Citizens’ Initiative. Citizens evaluate
Government activities through the Citizen’s forum State Government Performance and Talks.
So how does Government reconcile these competing demands and find adequate resources
to fulfill all these obligations with emphasis on pro-poor strategies? Can it act on it own?
“Recent moves towards “participatory” budgeting have raised hopes and expectations that
spending and revenue generation can be made more pro-poor if informed citizens and their nontraditional political organizations participate directly in budgeting decisions”( Brautigam, D
2004)
Participation is a central element of democracy and increasingly, citizens’ participation in
economic policy is advocated a way of making government spending more pro-poor. Different
types of interventions have raised hopes of greater participation by ordinary citizens. Do they
really participate and are they consulted? If in the affirmative how?
This brings us to three fundamental issues, which stand out?
1.
Who participates?
Participation can involve civil society organizations, tripartite organizations of labor and
business, donors, Unions and political parties. Participation can assume different forms: Direct
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participation occurs when informed citizens debate fiscal priorities and submit conclusions as are
the cases in Brazil’s Porto Alegre and Ireland‘s National Economic and Social Council as direct
participation in fiscal policy. There is direct participation of democratic pro-poor economic
policy as in the cases of Mauritius, Costa Rica and Chile. Indirect participation is reflected when
citizens elect members of Parliament formally and act through informal-mechanisms as through
civil society organizations/protest and other forms of voice outlets.
2.
What kind of institutional framework is necessary for participation to be pro-poor?
Pro-poor budgeting is facilitated if the government is manned by pro-poor political parties in
power coupled with the existence of institutions, which promote accountability, and transparency
as represented by independent auditing mechanisms and other institutions as the media, Internet,
public meetings and consultations.
3.
Does participation occur for both revenue and expenditures sides of the Budget?
Participation focused on the social expenditure side of the budget may neglect the revenue side
and this might miss opportunities to strengthen the sustainability of the pro-poor spending as
well as accountability. A sustainable pro-poor economic strategy requires the inclusion of the
business sector as a partner to contribute in the revenues. Informed citizens establishing the link
between revenue generation and spending will be in a better situation to assess government‘s
actions.
ICT as a enabler
For citizens:
ICT improves the delivery and easy access of services to citizens, facilitates the transmission of
information, reduces transaction costs, connects citizens and adds value to the transaction
For Government: ICT provides a central management information system for informed decision-making
Lessons learned of a review of experiences of participatory budgeting and pro-poor policymaking in Brazil, Ireland , Chile, Mauritius and Costa Rica
Participatory budgeting can:

Increase the flow of information, promote greater transparency and serve an important
education function;

Influence policy when combined with informed media and civil society organizations at
every stage of the budget cycle namely formulation, implementation, auditing and
evaluating the impact and outcome of pro-poor strategies;

Promote active and full participation of the Legislative branch in debating and modifying
the budget proposals;

Provide opportunities for civil society groups to participate in the budget circle;
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III.

Widen budget debates beyond the circles of analysts and experts to ordinary citizens

Empower pro-poor political parties and coalitions actors in their revenue role to hold
government accountable for its spending;

Be facilitated by effective system audits;

Be complemented by information disclosures and press freedom laws

Be more effective when the degree of capacity in civil society and media make sense of
auditing reports.
EVALUATION AND MONITORING
There is a growing appreciation within the development community of the benefits of monitoring
and evaluation. There is the need to evaluate government activities as the results of such
activities can provide government officials, civil society and other stakeholders means for
learning from experiences, improve service delivery, plan and allocate resources as well as part
of the process of accountability. Evaluation is a powerful tool for learning about what works and
what does not work especially in a world of scarce resources at any point during the life cycle of
a project or program.
The MTEF framework facilitates monitoring and programme evaluation as the future predictions
provide a baseline for assessing the effectiveness of past years programme. The real test of
MTEF is to the extent to which it contributes to better economic and social outcomes for the
population. Evaluation helps establish the causal links between outputs and outcomes and this
type of continuous evaluation and monitoring is mainly effected by the Ministry of Finance with
Line Ministries.
However, Monitoring and Evaluation (M&E) should be viewed from a greater perspective of
Public Sector reforms and its institutionalization will only help to reinforce the culture of
performance management systems. For an M&E mechanism to be effective, it is primordial to
have reliable database management information systems with relevant performance
information .The use of ICT as a driver in information systems as a central data base will greatly
help to construct a common data base linking the systems to critical players within the
Governments.
Evaluation is the concern not only of Government Agencies but also of other stakeholders
including International Organizations. Public monitoring and reporting on how public service
providers perform reinforces M&E systems. End-users’ perception as to whether services are
wanted, useful and effectively delivered is taken into account in a democratic society.
Civil society, which has some expertise, carries out its own Monitoring and evaluation in
response to published Audit Reports, through direct feedback in the media. In certain countries,
more institutionalized civil society mechanisms exist to enforce accountability.
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As regards International Organizations, the World Bank has developed a series of good practices
to carry out Poverty and Social Impact Analysis to support development policy options. Such
evaluation analyzes intended and unintended consequences of policy interventions (ex-ante,
during implementation and ex-post) on the well being of different social groups with a particular
focus on the poor and the vulnerable. A series of tools and methods is available for the analysis
of poverty and social impact of reforms. An example is the Report Cards used in Bangalore. The
assessment of the Impact of Bangalore Citizen Report Cards on the performance of public
Agencies finds that citizen’s report cards have been an important vehicle for society’s voice in
Bangalore and that they have a significant impact on the quality of public services.
(Adikeshavalu R. 2004).
IV.
THE WAY FORWARD








Diagnosis/Needs assessment at country level in terms of democracy, rule of law and good
governance and taking into consideration NEPAD and MDG goals as well as local needs
and external challenges
Develop a vision for development
Catalytical role of international agencies to assist in the development of home-grown
strategies
Financial reforms should be part of a broader reform initiative
Setting up of high level monitoring mechanism like GMAP
Setting up of Implementation and Monitoring mechanisms both at central and
departmental levels
Celebrate quick wins.
Develop partnership with other countries for sharing and benchmarking.
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Pro-poor budgeting in Mauritius

Has parliamentary democracy since 1968

Has institutionalized consultations through the Ministry of Finance prior to the
budget with major stakeholders such as the Unions, Business Associations, Social
welfare NGOS, the private sector as represented by the Joint Economic Council

Invites written submissions through the press on budget proposals

Important role of the media to sensitize the whole population on the budget
speech highlighting the policies and broad orientations of Government in terms of
revenues and expenditures made in the National Assembly

Budget measures are debated in line with the President’s Address in the National
Assembly and amendments are made if any, before the Appropriation Bill is
passed and enacted
Budget 2006/2007
Challenges:
External shocks:
Internal shocks:
oil, sugar and textile crunches
government debt, budget deficits, high rate of
unemployment and Low investment
Prioritization of projects to address the needs of the poor through the following:

Financial assistance to the needy (old age, handicapped and others not gainfully
employed)
 Empowering those who are active to develop their skills by providing training and
retraining for multi-skilling jobs, incentives, grants and loans
 Ensure that the redistributive policy is fair and equitable that meets targeted
vulnerable groups
 Create an enabling environment and a favourable business climate and minimize
administrative hassle to start a business
 Promote public private partnership
Budget casted within MTEF framework



40 fundamental reforms effected in areas of economic restructuring, investment
and business environment, fiscal stewardship and social justice and equity.
Reorganization of the Ministry of Finance and Economic Development
Review of existing regulations and elaboration of Finance Act and Business
Facilitation Act
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Lessons learned /Critical success factors




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




Political commitment
Leadership role of Administrators
Availability of resources
Role of change agents
Administrative capability/expertise
Institutional capacity
Communication strategy with stakeholders
Timing
Participation (public officers/citizens)
Database performance information system
CONCLUSION
Against the backdrop of the challenges facing public services worldwide and the different
experiences of countries in addressing issues of MDG and NEPAD Goals, a plethora of
experiences and good practices can be benchmarked and customized to fit the contextual specific
conditions prevailing in different countries. Government should ensure that financial reforms, as
part of the broader reform initiatives ensure fairness and equity in line with democratic principles
of good governance, transparency, participation and accountability.
On the other hand, the contribution of the private sector as an engine of growth, as well as other
major stakeholders including a responsible press and media should be recognized as valuable
partners to develop concerted efforts for the overall benefits of the poor.
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