It’s Time to Democratize Public Finance Management Systems in African States

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It’s Time to Democratize Public Finance Management Systems in African States

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Bibliographic details

• Authors: Ken Opalo
• Published: February 4, 2022

Overview

• Author: Ken Opalo; F&D Special Feature: Africa at a Crossroads: Learning from the Past and Looking to the Future; December 2021.
• Central thesis: Weak public finance management (PFM) systems in African states—on revenue, spending, and borrowing—impede growth and development, and durable reform requires democratizing PFM to reflect emerging electoral fiscal pacts rather than relying solely on technocratic fixes.

Key findings and statistics

• Revenue performance:
  • In 2018, the average tax collection as a share of gross domestic production in Africa was 16.5 percent.
  • Country variation cited: 6.3 percent in Nigeria and 32.4 percent in the Seychelles.
• Spending and oversight:
  • Weak legislative oversight concentrates budget appropriation, implementation, and oversight power in the executive, causing a portion of collected revenue not to reach public goods and services.
  • Public funds are diverted to poorly planned “white elephant” projects, corruption, and waste.
• Borrowing and transparency:
  • Recent increases in public debt in a number of African countries raise concerns about a lack of transparency and accountability.
• Public perceptions:
  • Round 7 of the Afrobarometer Survey (2016-18) of thirty-four countries: only 36.1% of respondents approved of government performance on corruption.
  • A clear majority of respondents agreed that the president should be monitored by the legislature (survey referenced).

Analysis of political drivers

• PFM systems reflect societies’ implied fiscal pacts and the electoral fiscal pact in African states:
  • Politicians must invest in visible and attributable public goods and services to legitimately stay in power or win elections.
  • Electoral competition (including in electoral autocracies) has heightened demand for roads, electricity, public schools, accessible healthcare, agricultural subsidies and extension services, social protection, and other public goods and services.
  • Successes (e.g., universal primary education under the millennium development goals) have generated additional public demand for secondary and tertiary education.
• Democratization of PFM will introduce “inefficiencies”:
  • Such inefficiencies are framed as features necessary for institutions (legislatures, oversight bodies) to develop habits and norms for democratic PFM.
  • Circumventing legislative input will stunt institutional development and impose large long-run costs, given rising public demands.
• Political risks of inaction:
  • Demographic and political trends (rising populations, rapid urbanization, increasing electoral competition) increase pressure on governments; unresponsive governments risk populist pressure, popular revolt, coups, or mass uprisings.

Policy recommendations and operational guidance

• Reframe technical assistance:
  • Multilateral institutions (including the IMF) must appreciate political pressures facing African politicians and align technical assistance with politicians’ incentives.
  • Technical assistance should avoid offering orthodox reforms ignorant of local contexts and then blaming “a lack of political will.”
• Broaden country engagement beyond executives:
  • Meet regularly with legislatures and relevant players, not only with treasuries and central banks.
  • Leverage statutory requirements that mandate legislative input in taxation, budget appropriation, debt procurement, and other PFM functions.
  • Build broad relationships across legislature committees responsible for taxation, appropriation, and core spending sectors (agriculture, education, healthcare, infrastructure).
• Address perceptions and the political economy of corruption:
  • Target reforms to public perceptions and understanding of core drivers of corruption: low budget absorption capacity, political cronyism, and features of the electoral exchange.
  • Distinguish between “transaction costs” corruption that can be regulated and run-of-the-mill theft of public resources; treat corruption as embedded in distributive politics rather than purely moral/legal problems.
  • Recognize links among public sector corruption, private sector lobbying, campaign finance, constituent service, and intra-elite political payments.
• Invest in local idea generation:
  • Support and build relationships with local policy think tanks to generate locally tailored policy ideas about productive public spending.
  • Use embedded think tanks to increase political feasibility and representativeness of reforms.

Implications and scenarios

• If PFM remains technocratic and insulated from political demands:
  • Likely failure to meet rising public demands; increased risk of fiscal inefficiency, corruption, and social unrest.
• If PFM is democratized through legislative engagement and politically informed technical assistance:
  • Short-term inefficiencies may occur but will foster long-term institutional development, greater public confidence, and more responsive allocation of public goods and services.
• Role of multilateral institutions:
  • Can increase the odds of feasible reforms by aligning assistance with political incentives, engaging legislatures, and partnering with local policy institutions.

Ken Opalo, F&D Magazine, December 2021.