Lack of public financial management skills in South Asia is an obstacle to making the most effective use of abundant funding by donor agencies, says ACCA’s Arif Mirza
This article was first published in the February 2018 International edition of Accounting and Business magazine.
Public financial management is the rather loose term often used to describe the entire accounting function of public services, including financial planning and controls. It is a sector teeming with international and domestic consultants working across numerous projects all around the globe, but especially in developing nations, where the state is the recipient of multilateral and bilateral funds from agencies such as the World Bank, the Asian Development Bank and the United States Agency for International Development (USAID). The recipient state may have no trustworthy accounting and financial management mechanism in place to properly account for and report on how the funds (which can run into billions of dollars and finance everything from hydro dams to power plants) are used.
Even without the need for and supply of funds from multilateral and bilateral agencies, and the requirement for accounting stewardship over that money, developing nations now face a compelling need for better financial management over public funds and their financing of public goods and services, such as healthcare, education, housing, transport and communication.
There is increasing scrutiny of public money by the media. The recent Panama Papers scandal exposed by the International Consortium of Investigative Journalists was a sobering revelation of how many individuals holding public office have siphoned off billions of dollars of public money into private offshore companies and reflects leaky public financial management systems.
Two of the largest bilateral agencies operating in South Asia – the UK’s Department for International Development (DfID) and USAID – have significant amounts of money invested in projects in the MENASA region (Middle East, North Africa, South Asia). The US and UK public are increasingly demanding accountability from their governments, and this requirement cascades down to recipient countries. Better public financial management can be delivered through improvements in training, systems and technology. Increasingly, enterprise resource planning (ERP) systems are being deployed to improve budgeting, planning and spending across all the components of revenue, expenditure and capital spending.
There is a trend for projects executed by some international development agencies to be staffed by officials seconded from government departments, such as the auditor general’s office, and provincial and federal governments, along with consultants brought in from national and international sources. A project can therefore end up with a diverse team with different areas of expertise depending on the nature of the project, but often relies on public sector staff with poor public financial management skills.
One way of bringing in these skills is by employing contracted-in professionals for the project’s duration rather than seconded government employees. However, while contract employees are well paid, they typically lack empowerment – they have little networking clout within the overall environment and are often regarded as outsiders by regular government sector project staff. The best way to strengthen the overall financial performance of projects is therefore to improve the public financial management skills of the regular government staff deployed on such projects.
Quite often the various committees that are arranged around projects and their work, including the release of money for subcontract work such as capacity building, are prey to governance bureaucracy. The committees are frequently populated by a variety of staff from line departments, project workers and sometimes people from supreme audit institutions. The governance challenges in the public sector are heightened by issues of staff seniority and protocols that can undermine frank and honest discussion, with far too much time being dedicated to every small detail.
A further problem is that the sector’s pay scales are way off local market levels: contracted staff can be hired on projects at US$30k a year compared with permanent staff at a third of that rate. Many human resource rules date back to colonial days in South Asia. Professional qualifications are not sufficiently incentivised and there is no predetermined pay rise or promotion scale. Retention, on the other hand, is high, but not on merit. The sector is plagued by nepotism and favouritism. The so-called job for life is alive and well in the public sector across South Asia.
If any single measure can lift the quality of public sector organisations and enterprises in developing nations it is the appointment of highly principled and qualified leaders. The tone at the top carries a great deal of weight in the public sector in South Asia, where seniority and protocol are often the driving forces in state-owned enterprises. Great potential and real examples of excellence doubtless exist, but what is really needed is continuity: replacing an organisation’s leadership every three years may have some merit, but top-quality leadership bringing meaningful change to state-owned enterprises and with a lot still left in the tank may be shown the door because of the three-year rule. In the private sector, it is common for great CEOs to be awarded repeated contract extensions, but it seldom happens in state-owned enterprises.
In a nutshell
The public sector across South Asia is ripe with millions of dollars of project funding contributed by donor agencies. However, increasing media scrutiny is sharpening the sword of public accountability. This, combined with a lack of confidence in their own financial management abilities, is preventing government departments from embarking on projects for fear of making a wrong decision and losing stewardship over the funds. This is now becoming a major obstacle to efficient project funding by multilateral and bilateral agencies.
Arif Mirza is ACCA’s regional head of policy for MENASA
Aid from agencies (2015)
|USAID (US$m)||DfID (US$m)||World Bank (US$m)|
UAE and South Asia
"A lack of confidence in their own public financial management abilities is preventing government departments from embarking on projects"