How do you create incentives for responsible use of information? What other supplementary mechanisms are needed to take advantage of integrated financial management systems (IFMS)? This paper by the World Bank discusses potentials and limitations of IFMS to support improvements in public expenditure management (PEM). It argues that IFMS is not a panacea – for it to be an effective tool of public expenditure management, certain basics of budgeting should be taken care of first.
One of the most commonly used forms of Bank support for public sector reform within the modernisation paradigm is the introduction of computerised integrated financial management systems. An IFMS is fundamentally an approach to improving public financial management from a narrower accounting and automation perspective. While a good IFMS operation is designed to reengineer and rationalise financial management processes, the relative emphasis is decidedly on improving the quality of information and its flow between different aspects of government financial management. The premise is that better information will lead to developing better institutions that facilitate better decisions and, eventually, better outcomes. Thus IFMS operations are sometimes seen as building blocks or catalyst for broader institutional reforms of the public expenditure management systems. In the Latin America & the Caribbean Region, the World Bank has generally eschewed a broad approach to reforming budgetary systems and more or less focused on promoting the IFMS approach. This pattern contrasts with a more ambitious approach pursued in Africa and parts of Europe.
IFMS can enhance transparency but the budget should be transparent with or without IFMS.
- There is a risk that when IFMS operations are prepared in haste or without sufficient prior diagnostic work, some simple basics that could relatively easily be tackled are ignored, leaving with it persistent weaknesses in aspects of PEM.
- Good information is a necessary condition for improving PEM, and IFMS can contribute greatly, though whether the system needs to be fully integrated or even computerised in all circumstances can be questioned.
- A PEM system is a complex human system, and the objective is to develop a self-sustaining, self-correcting financial management system in the country. An IFMS is but one component of this complex system.
- PEM reform is an institutional reform, and as such broader governance and institutional factors need to be taken into account in its design and implementation.
- Re-engineering of budgeting and financial management processes is almost always a necessity in implementing an IFMS-driven PEM reform.
It is important to moderate expectations of what an IFMS can achieve, and the limitations to it attaining its full potential.
- The growing awareness of and concern about governance and institutional factors as they affect reform dynamics should inform design and implementation of IFMS reforms just as much as they should guide a more overtly political change process such as decentralisation.
- Specifics will vary from one country to another, and operational knowledge of how to use technical solutions to discipline political decision-making is still under-developed.
- Donors also need to pay greater attention to the political economy of PEM reform and accumulate operationally relevant knowledge of conditions that facilitate reform implementation and of effective reform strategies.
- IFMS can reveal hitherto unrecognised problems and obstacles, and thus be a catalyst for additional and broader reforms.
