Returning senior economist lists reform program successes
The Government’s Public Financial Management (PFM) Reform Program is one of the major economic and governance initiatives that the World Bank and other development partners support. The World Bank Newsletter had the opportunity to interview Dr. Robert Taliercio, Senior Country Economist for Cambodia, about his work on Cambodia’s PFM reform over the past five years. In August 2007 he left Cambodia after 3.5 years to return to the Bank’s headquarters in Washington, DC.
Q. You have worked for Cambodia for about five years. Would you mind telling us about your work program?
Sure. As Senior Country Economist I was responsible for overall economic monitoring, leading our dialogue with the Government and other development partners (DPs) on some key policy reforms, through the first Poverty Reduction and Growth Operation (PRGO), which was approved in July 2007, and handling our engagement on economic management, focusing on public finance. A lot of my time was spent on PFM because it was regarded by DPs and Government officials as a major bottleneck to improving public sector performance. Many Bank staff felt Dr. Robert Taliercio, departing World Bank in 2002 that one of the most pressing constraints on the public sector was PFM, whether you were talking about health, roads, agriculture, or education. So I was tasked with analyzing the situation [see the Integrated Fiduciary Assessment and Public Expenditure Review, 2003; it’s available on the website www.worldbank.org/kh and coming up with an approach for the Bank to assist the Government to address the problems.
Q. Your mentioned PFM. What is it?
PFM refers to a government’s systems to “tax and spend.” It includes everything from raising revenue through tax (and non-tax) and customs administrations to planning, executing, reviewing, and auditing spending. It also refers to the external oversight exercised by the supreme audit institution (the National Audit Authority) and the parliament (specifically the National Assembly’s Second Commission), both of which have very important roles to play.
Q. How did you rate the PFM system when you first started to work in Cambodia?
In 2002 Cambodia’s system was very weak, even in comparative perspective. Cambodia’s system fell far short of meeting even a minimum number of international benchmarks for a sound PFM system. At the same time there had been a number of initiatives to improve the system, but they weren’t getting much traction. On the DP side, DPs were overburdening the Ministry of Economy and Finance (MEF) with uncoordinated support, giving contradictory advice, and hadn’t helped MEF take a strategic view of the problems. On the government side ownership of the reform was weak and also uncoordinated.
Q. How was the PFM Reform Program designed to address the challenges that
Cambodia faces?
The major innovation (which seems obvious but is not practiced enough) was that it was designed with the Government in the lead and the DPs very actively supporting the process. MEF’s senior management and line staff were actively involved—thus resulting in a process that was both “top down” and “bottom up” at the same time. This resulted in MEF having ownership of the program. The same held for the DPs involved. The other important aspect was to take a strategic approach. Reform in low income, post-conflict countries can take time. The strategic approach entailed prioritizing problem solving and moving sequentially through priorities over time toward the new system. The first place to start was with the credibility of the budget, that is, the ability of the system to deliver resources to spending agencies in a timely and predictable fashion. The third key issue was to improve Government-DP and DP-DP coordination through a sector wide approach (SWAp).
Q. How do you regard the implementation over the last two years?
After the initial “investment” period from 2003-2005, implementation of the PFM Reform Program accelerated in 2006 and is now moving forward in a very deliberate and solid manner. Major reforms commenced in January 2007, include: a streamlining of budget execution procedures, the introduction of program budgeting and a new ministry strategic budget framework, and the adoption of a new chart of accounts. These follow significant reforms in
2005: the amount of customs revenue collected through the banking system increased (from zero in 2004 to nearly one third in 2006); more than three-quarters of all Tax Department revenue is now collected through the banking system; about three-quarters of Treasury payments to suppliers in Phnom Penh and Sihanoukville are now made by check instead of cash; the stock of old expenditure arrears has been reduced by over 40 percent; the procurement process has been streamlined, tightened, and made more competitive with the passing of a new sub-decree in late 2006; the Government is setting up internal audit departments in a dozen line ministries; and, for the first time in Cambodia, a pilot program has been launched to pay civil servants through commercial banks instead of by cash [see the
Poverty Reduction and Growth Operation program document for more detail: www.worldbank.org/kh].
Q. How effective has the PFM SWAP been in supporting the Government?
I’d say it’s been highly effective. MEF is clearly in the lead with a very coordinated DP group behind it. The PFM technical working group (TWG) is working well and is underpinned by MEF’s Reform Committee, which is aided by a motivated secretariat. On the DP side the Development
Partner Committee (DPC) meets monthly and is regarded as one of the most effective DP groups. The DPC is supported by a secretariat run by the Bank and also co-financed by AusAID, UK-DFID, and the European Commission (EC) through a multi-donor trust fund. The two secretariats really keep things moving on a day to day basis. And perhaps most importantly, as Senior Minister Keat Chhon had asked, DPs are “speaking with one voice.” In effect, this means that we have arrived at a point where we have mechanisms in place to ensure that we agree on solutions and approaches before going to the government.
Q. What are your recommendations for the PFM Reform Program going forward?
I just highlight these three challenges: civil service reform, line ministry engagement, and oil revenue management. In some sense the most pressing problem is civil service reform, because if civil servants don’t have the right incentives in terms of pay and employment then it will be difficult for any program to succeed. MEF has designed an innovative approach— the Merit Based Pay Initiative (MBPI)—that rewards civil servants with higher pay for better performance. There is a lot of interest in many line ministries and I hope they move quickly to implement the MBPI. The second challenge is making sure line ministries are fully engaged in the reform program in terms of both ownership and technical support. The third challenge is getting a handle on oil revenue management. All of this work is already under way and so the challenge is to deepen it and ensure that a “learning by doing” approach is adopted so that the reforms can evolve over time.
(Source: The World Bank Cambodia Newsletter, Volume 5, Number 10, October 2007)