Unlocking Public Financial Management (PFM) challenges for improved service delivery

Decision-maker’s challenge

Government services can only be expected to work for citizens if sufficient resources are available and the underlying systems for allocating and managing these resources, also known as Public Financial Management or PFM systems, facilitate equitable and efficient service delivery. Strengthening countries’ PFM has been at the core of technical assistance for decades. The global discourse recently reinvigorated the link between PFM and service delivery by highlighting several principles that could complement the conventional trinity of PFM (aggregate fiscal discipline, allocative efficiency, and operational efficiency). However, beyond principles, there needs to be additional tools and approaches for ministries of finance to build their capabilities to design their own policy in light of considerations related to equity, timeliness, and predictability of service delivery under different policy scenarios. Targeting these outcomes requires an evidence-based approach and feedback loops that foster learning and iteration.

In practice, few of the PFM norms and frameworks currently relied on by ministries of finance and other government agencies integrate these additional considerations when making budget allocations. 

IDinsight received funding from the Bill & Melinda Gates Foundation to explore opportunities to support governments in Kenya and Nigeria in the efficient raising and optimal allocation of public resources. IDinsight’s approach focuses on identifying PFM bottlenecks and gathering evidence that PFM actors can use to make necessary changes in existing tax administration and resource allocation processes. This approach builds on the evidence from other actors providing technical assistance focusing on problem-solving by using evidence to leverage PFM systems to improve social outcomes.  In Kenya, IDinsight is partnering with the Institute of Public Finance (IPF) to explore areas of support for counties and national convening actors.

Impact opportunity

Governments are the main providers of essential and critical services, such as healthcare, education, and road infrastructure, among other services. In low and medium-income countries, the demand for these services is often higher than the available constrained resources to provide them. Nigeria’s tax-to-GDP ratio has historically performed well below the average rate of collection of other countries in Africa. In Kenya, the proportion of GDP allocated to recurrent expenditures, such as wages and interest payments, has increased over the years, inhibiting investment in new programs and services. This is illustrated by the 2022/23 proposed development expenditure of 20%, which falls short of 30% of the total budget as directed by the Public Finance Management Act 2015. 

The ultimate goal of IDinsight’s work in public finance is to support government partners in using data and evidence to increase the resources they have available to provide critical services to their citizens – and to be able to learn and iterate on how governments allocate resources towards the provision of these services in the most equitable and efficient ways.  Our hypothesis is that improved public financial management promotes accountability, transparency, and efficient use of public resources. Working upstream on the budgeting process and revenue side can yield significant impacts on lives across a range of sectors.

Our approach

IDinsight proposes working closely with government partners to identify gaps in revenue administration and PFM systems and to co-create solutions through embedded Learning Partnerships. IDinsight’s LPs are extended, open-ended engagements that rely on a broad suite of data and evidence tools to meet our partner’s needs and guide decision-making. An iterative, evidence-driven approach can bridge the gap between PFM and service delivery: it allows revenue authorities, ministries of finance, budget departments, and other government actors involved in the budgeting process to use problem-solving techniques, data, and evidence to address PFM bottlenecks and improve programs and lives.

IDinsight’s LP model is demand-driven and attentive to partners’ evolving needs. The below diagram outlines a high-level Theory of Change (ToC) for IDinsight’s Learning Partnership model. As shown in the ToC diagram, the iterative approach focuses on identifying problems that are important obstacles to the partners’ impact, generating specific evidence to tackle that problem, and feeding that evidence into decision-making, all while appreciating the constraints partners face. By taking a flexible and iterative approach, Learning Partnerships can quickly pivot to meet demand, resulting in relevant, timely solutions that the partner can sustain.

Throughout the engagement, IDinsight will continuously engage with stakeholders to design processes and hone in-house capacity that ensures the government partners are well-equipped to use data and evidence tools even post-engagement.

The results

The project is ongoing.

Relevant resources:

• Article: Here’s how government spending can improve citizen outcomes [Apolitical]
• Introspection report: Embedded learning partnerships – what have we learnt?