Finance and Planning – Together or Apart?

— V. Bhardwaj

Now that the need for a Planning Commission to achieve a proper cohesion in our vision, strategies and implementation capacities is being felt, the issue of the demerging of the planning division from MOFEE is again topical. With more reliance placed on government intervention than on markets, a new, specific and separate role for the planning Ministry/Commission, different from the days of allocative planning, is the demand of the day – A Planning Commission or Ministry that provides a broad picture of the economy, its likely direction and pace, a consistent macro-picture, the plans for the development of infrastructure and the provision of public goods and services. This calls for an integrated planning framework for allocating public investment, for designing implementation strategies to see that outcomes are realised cost-effectively and monitoring them to see that targeted outcomes are in fact realised. One also needs to understand the impact of government programmes on the economy and the welfare of people. It requires policy analysis that involves asking an if-then question. It is time now to do away with the groping years of amateurism to finally adopt more coherent and holistic approaches for policy analysis and for the development of strategic plans within a consistent macroeconomic framework and a medium to long term perspective.

Why the merger: To improve the economic management framework and facilitate the move towards results-based management within a medium term expenditure framework, it was proposed to merge the two ministries into a single Ministry of Finance and Economic Development. The purpose was to optimise use of public resources including skills and capacity, as well as to ensure better co-ordination and consistency in the execution of specific activities and functions. The Ministry of Finance (MOF) was responsible for overall budget and expenditure management. The Ministry of Economic Development (MED) prepared and monitored the Public Sector Investment Programme (PSIP), reviewed sector policies and carried out macroeconomic planning.

Weaknesses of the Ministry of Finance: The Ministry of Finance’s capacity was considered weak at several levels. First, there was little capacity for macroeconomic forecasting and modelling, which is an essential part of the economic management process. Second, the capacity to plan and monitor capital projects was weak. Third, there was no holistic planning for an entire sector or for all of the line ministry’s activities in order to evaluate if actions are consistent with government priorities. No detailed analysis of the existing policies and their costs, as well as a review of other policy options that may enable government to achieve policy objectives more effectively.

Strengths of Ministry of Economic Development and Management Audit Bureau: At the same time, the Ministry of Economic Development had a number of sector specialists responsible for the planning and monitoring of the Public Sector Investment Programme (PSIP). Sector specialists were also responsible for sector policy analysis and review, while the majority of the sector ministries lack skills and capacity in the area of policy analysis, monitoring and evaluation, and results based management. In the past, economists were seconded from the Ministry of Economic Development to sector ministries. The Management Audit Bureau in the Ministry of Finance has extensive experience and skills in strategic planning and management. It was also thought that the resources of this office could be used as in-house consultancy services to support the introduction of the MTEF and PBB.

MED had been responsible for advising government on issues of national development and on economic policy reforms to enhance overall economic efficiency and improved growth. Economic Development has been conducting periodic reviews to assess economic performance and drawing up development plans and strategies to further the socio-economic objectives of government. The Ministry was also advising government on bilateral cooperation issues. Aid and project coordination is a major function of the Ministry as it is the focal point for various international funding agencies.

The special Katsuni report on MED points to the “the capacity and will of MED to initiate changes and seek strategic alliances both at the domestic and regional levels. The Team is not aware whether all key policy agencies in Mauritius have embraced MED’s vision for an Outward-Focussed public sector. Political will and the cooperation of other agencies and economic actors will be necessary to give these initiatives the required domestic push for their further development. The Team, however, is absolutely convinced, of the necessity for such initiatives if the horizons for future progress are to widen. ” (Note: MED took the initiatives in suggesting a whole process of budgetary reforms that included the MTEF and PBB in the New Economic Agenda)

Acrimonious beginnings: The two cadres of economists and economic analysts were integrated without clearly putting structures in place that would take advantage of their specialist skills and there was no clarity on tasks, jobs and skill requirements for the new assignments. When the staff of MED joined the MOF for implementing MTEF/PBB they noted that the culture of budgeting had not changed. Budgeting was still incremental and adversarial, with line ministries fighting to get the most resources out of MOFEE, which in turn becomes enmeshed in arguing the fine detail of budget submissions. MOFEE has not yet succeeded in getting line ministries to take responsibility for their own priorities. Instead of economists working in sector teams, guided by specific TORs, and acting as drivers in their respective teams and working on policies, developing monitorable indicators and the costing of programmes, etc., they were reduced to being glorified finance officers carrying out mainly mundane day-to-day administrative work and the routine fire-fighting of line ministries.

It was not surprising that one economist had commented that “they have made a joke of the Programme Based Budgeting and the Public Sector Investment Programme (PSIP), proceeding by trial and error, without any substantive analysis by economists to support the haphazard cuts in expenditures and to explain the rationale of a prioritized list of much-needed infrastructure projects. (In many countries this function is carried out by a Planning Commission or the Ministry of Planning; here the MOFEE is judge and party on the basis of policies that are not encrusted in a medium to long term vision or Plan).”

The merger which was supposed to optimize the use of the specialist skills of the economists has turned out to be to the latter’s disadvantage; they are underemployed in what they were best at — strategic planning and policies. This function has been taken over by foreign consultants who have been flourishing all over the place supported by recruits under the capacity building programme (costing around Rs 300,000 per month per consultant) and the Service to Mauritius programme. This is not surprising coming from the textbook reformists who do not trust local talents and believe that the government sector is manned mainly by “political agents and complicit civil servants who hijack parastatals and administrators and who continue the colonial legacy to minimize change…” Underlying this crusade is their strong conviction that government is acting “… as a communal safety valve”.

Failure in implementation of PBB: Today it is clear that the merger is failing to deliver the MTEF/PBB that would have ensured the efficiency and effectiveness of government expenditures. The whole thing was imposed on line ministries; there was no ownership. The PBB has remained theoretical and looks good on bookshelves without any usefulness to solve practical issues. The theoretical reformists have fulfilled their contract vis-à-vis their donor friends — the EU, the IMF and the World Bank. They have succeeded, on paper, the transition to a still embryonic wayward PBB system with its whole set of voluminous documents borrowed from elsewhere. Our PBB, it is argued, has not been adapted to the needs and realities of our public service. The format of the PBB is neither realistic nor meaningful. The spending agencies do not believe in the programmes and targets set out in the PBB and lack the administrative capacity to set targets, evaluate results and make use of performance assessments in their resource allocation and management decisions.

They tend to ridicule the Ministry of Finance by pointing out that the latter is still painfully trying to make out the differentiation between outputs (what they can control) and outcomes (and what they can only influence). Some of the cheerleaders of the textbook reformists have rushed in to defend them by pointing out the elaborate goals laid out in the PBB. The example given is that of the Ministry of Education which had as goal in 2009 “to raise the pass rate in ZEP schools from the low 37%”. The line ministries are indeed right in ridiculing the Ministry of Finance for, even with the help of experts at monthly rates of Rs 300,000, it has not yet been able to tell the difference between outcomes and outputs. Raising pass rates in ZEP schools depends on the cohort during that specific year and may not be related to the inputs made. The Ministry should be held to account for delivering the services they provide and not for outcomes they cannot control.

Despite whatever the apologists for our textbook reformists may say, the main stakeholders of the education sector decry the measures adopted to patch up the ZEP system: « C’est n’est pas en instaurant un ZEP Council, qui est censé se réunir deux fois l’an, que le ministre Bunwaree résoudra les problèmes des ZEP ». Others are of the opinion that — « le gouvernement a cru bien faire en copiant le système éducatif français. C’est un échec cuisant. » They are proposing a different curriculum and programme for the ZEP schools that will extend over eight rather than the present six years of primary schooling. It is not by merely setting outputs in the PBB that our purely theoretical reformists would ensure that right services are being delivered. It is at the policy level that further work has to be done; one of our columnists had rightly asked: “Have we really tried these? Have we exhausted all the possibilities of improving the ZEP system?”

This is where the Ministry of Finance fails repeatedly. Despite what the cheerleaders may say to boost up the sagging spirits of our theoretical reformists and mobilising their whole armada to patch up the cracks at MOFEE, the whole approach to the MTEF/PBB taken by the Ministry is totally off target. The Director of Audit has rightly remarked that “PBB is a new system where successful countries have taken years to implement. This reform requires the collaboration and cooperation of one and all, MOFEE and all the line ministries. It involves a shift of mindset and a change in culture. These changes do not happen overnight. It is a long-term process. There is no need to rush but to be steady and systematic in the implementation of the PBB. Staff should be allowed the time to assimilate the new system. The overarching aim should be gradual, cumulative progress year on year. Otherwise the whole reform will run the risk of remaining an administrative exercise.”

He further notes that there is need to “… .decentralise the decision making process, ensure the much needed monitoring, ownership and implementation of programmes. One step further in the decentralisation of decision making could be to empower, for example, the School Head Teacher to manage his school as a cost centre to achieve the desired outputs.”

These steps have not been followed in the implementation of our PBB as conceptualised and initiated by the ex-MED. Strategic plans are not being used as planning and management tools. The link between the MTEF/Annual Budget requirements, the strategic planning of ministries, and the operational and individual action plans, has yet to be worked out. Frontrunners Singapore and Malaysia have built their present-day systems of results-focused programme budgeting, administrative autonomy and performance accountability over a period of 30 years after ensuring that they have their costs properly estimated. Chile has more recently introduced its system of performance accountability for public agencies by degrees, only linking it formally to the budget in recent times. South Africa introduced a relatively comprehensive system of results targeting and programme budgeting in 1999 which, however, still lacks explicit linkage between funding and specific programme targets.

Instead of rushing in to impose the IMF-WM-EU dictated PBB, they should have listened to proper local advice that had advocated a gradual and decentralized approach. Some of the trade unions of the Civil Service are of the same opinion and they go even further to lay the blame on the textbook reformists for the chaotic situation in the Civil service and at MOFEE itself. They had rushed into a total merger of MED, MOF and MAB rather than a phased approach of trying at first a more practical functional merger.

The Economic Planning function, which the country badly needs now more than ever, would have remained a separate unit and provided the appropriate support in terms of policy analysis and recommendations. Furthermore, instead of turning Accountants or Financial Management Analysts of MAB into budget officers, they should have retained their earlier function of investigating administrative systems and procedures to identify inefficient and outdated bureaucratic procedures in the Public Sector, and monitor the performance of departments and parastatal bodies to detect cases of waste and mismanagement of public funds. If all these units had been allowed to play their role we would not have been in such a mess today.

The following para, from “Mauritius: The New Economic Agenda and Fiscal Sustainability, World Bank, 2004”, may perhaps help to see things in a different light altogether:

“Early on, some countries sought to resolve the tension by combining finance and planning in a single super ministry, while retaining a planning process. In sub-Saharan Africa, Botswana did this in 1970 and has retained this structure ever since. Nigeria and Ghana have kept them separate – until very recently for the latter – though in both the planning function is weak. Malawi, Tanzania, Uganda, and Zambia fused theirs in the wake of structural adjustment, and strong MTEF-led budgeting prevails in two of them. Kenya alternated, partly for political reasons. South Africa toyed with the idea of a separate economic planning body, before opting for a strong National Treasury and a best practice MTEF process. In South Asia, separate planning commissions have continued without interruption, though their influence has declined. Malaysia and Thailand continue multi-year planning, though with increased emphasis on the budget and operational performance in service delivery. In Singapore and Hong Kong, a medium term budget process dominates. In Latin America, traditional planning bodies retain influence, though some adaptation is taking place. Brazil maintains a strong planning framework, with separate planning and finance institutions. For Colombia, the organizational issue lies ahead as the finance ministry moves to create a MTEF alongside a traditional planning commission. In transition countries economic planning has been either downgraded or abolished. Some more advanced countries like Germany (except in former GDR) retain an economy ministry focusing on economic policy, principally for the industrial sector. Many others have never had one, or if they did, the experience is long forgotten.”

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