Over the past 20 years, efforts to improve public financial management (PFM) across Africa have yielded significant results. National development priorities, advances in technology, international standards and sustainability goals have all driven reforms that have improved transparency. Even so, the pace of reform and the quality of results vary widely from country to country as combinations of system-wide issues such as corruption and institution-specific factors have undermined reform efforts.
A new report from ACCA, PFM Performance in Africa, examines the systemic and operational factors that are impeding PFM systems and reforms in Africa, and the role of the accountancy profession in building strong PFM systems. The report draws from the views of more than 30 public sector executives and spotlights key institutions across Uganda, Kenya, Ghana, South Africa and Mauritius.
Major budget challenges include skills gaps and short-term spending priorities
Shared themes
The report analyses the strengths and weaknesses of PFM systems on a country-wide and institution basis, looking for common themes in the challenges and solutions that could be prioritised in order to improve PFM performance.
In Uganda, for example, the 2015 Public Finance Management Act secured the foundation for significant reforms including programme-based budgeting and an integrated financial management system. The report acknowledges that the ‘institutionalisation of public expenditure and financial accountability in Uganda has aided a broad range of performance assessments in public finance management, including the performance of sustainable development indicators’. But it also points out that progress has been impeded by poor coordination between agencies across sectors, a misalignment between policies and budgets, and gaps in monitoring and evaluation across ministries, departments and agencies throughout the budget cycle.
Lacks and gaps
In total, the report identifies 17 major challenges that impact PFM performance. The factors affecting budget reliability include outdated software (a lack of non-recurring expenditure budgets prevents upgrades or licence updates), technical capacity gaps in budgeting and forecasting skills, and short-term expenditure needs overriding budget plans.
Corrupt practices such as ‘budget padding’, which leads to funds being diverted and wasteful spending, as well as gaps in soft skills and ethics training, also impact transparency in public finance. Meanwhile inaccurate estimates and records relating to government assets and liabilities, combined with weak debt-management strategies based on faulty debt figures, often have a detrimental effect on the management of assets and liabilities.
Failures in accountability and transparency reduce fiscal sustainability
Accrual helps
From a technical accounting perspective, the report points out that ‘the move from cash to full accrual accounting remains a slow journey for many countries in Africa, with some operating a modified accrual or modified cash basis and others operating with varying bases of accounting at national and sub-national levels’. A poll of the research’s roundtable participants indicated that 56% currently use cash accounting. Institutions reporting under International Public Sector Accounting Standards (IPSAS) which have fully transitioned to accrual accounting are considered better prepared to adopt the expected public sector sustainability reporting standards.
Drags on reform
The report lists four major ways in which these key systemic and operational challenges affect PFM systems and the overall success of reform efforts:
- Impact on coordination. Effective coordination is critical in determining the pace of progress, quality of monitoring and evaluation, and the realisation of reform objectives. Weak coordination leads to duplication of efforts, contradictory policies and poor value for money from committed resources.
- Impact on people. Corruption and the non-prioritisation of people’s needs in the public sector greatly shape the underperforming work culture, low levels of professionalisation and poor talent retention commonly seen within the civil service across Africa.
- Impact on data integrity. Budget reliability hinges on the credibility of its components and preparation process. Failures in accountability and transparency diminish public trust and international credibility, reducing the fiscal sustainability of a nation.
- Impact on resource efficiency. In spite of huge investments, the inefficient use of human, financial, technological and natural resources leads to waste, poor management of revenue and liabilities and reduced capacity for effective service delivery at both national and subnational levels.
Fifteen fixes
To address these four categories, the report offers 15 key recommendations, listed in the graphic below, which it hopes will enhance PFM performance and the overall success of reform efforts.
These 15 recommendations have the power to drive up PFM levels in Africa. They will allow the accountancy profession to deliver sustainable reform, and provide a stable financial foundation for strong institutions and systems that can optimise the public services the continent needs and deserves.
