Does the Theory of Change deliver new insights how to overcome the limits of PFM reforms?

The promotion of Public Financial Management (PFM) reforms is a key sector of international development efforts, especially for international donor institutions such as the World Bank or the International Monetary Fund. There... [ view full abstract ]

The promotion of Public Financial Management (PFM) reforms is a key sector of international development efforts, especially for international donor institutions such as the World Bank or the International Monetary Fund. There is a rich body of literature regarding the efforts made in PFM reforms, reflecting the broad variety of issues and methods used. Examples for this wide range of topics are performance budgeting, the transition from cash to accrual accounting including the implementation of international standards such as IPSAS or the promotion of Supreme Audit Institution (SAI) standards such as the Performance Measurement Framework. All these reform efforts have the common objective to strengthen public service delivery, improve macroeconomic stability or enable efficient resource allocation. Standardized analytical instruments, for instance the Public Expenditure and Financial Accountability Framework (PEFA), the IMF Fiscal Transparency Code or the HIPC (Heavily Indebted Poor Countries) expenditure tracking benchmark are attempts, to systematically monitor and analyze the quality of PFM reforms. However, the success of these reforms has been criticized and long-term impact has been doubted. In particular, the development of so-called “best practice” approaches derived from PFM reforms in OECD countries, and their application in developing countries as a one-size-fits-all strategy, have been discussed intensively.

This article promotes to incorporate the framework of the “Theory of Change” approach into the current reform narrative. This approach defines long-term objectives and then works backwards in a collaborative form, to identify the necessary changes and concrete activities and inputs, which would lead to the desired impact through the involvement of the relevant stakeholders. A theory of change is the starting point when setting up to evaluate the impact of a program or policy and was for example applied within the widely renowned work of Abhijit Banerjee and Esther Duflo and their colleagues at J-PAL and IPA, as well as in other institutions around the world.

The aim of this paper therefore is to identify the limits of the “best practice” approach in PFM reforms and bridge the gap between these current practices and the theory of change. As a basis for this analysis, we examined the predominant theoretical perspectives and concepts that lay behind current and past PFM reforms and the major shortcomings of these reform activities. As the application of the theory of change it is a new approach, this study does not attempt to conduct a fully flagged theory of change approach of a certain PFM reform. However, it will outline, as a form of pretest the applicability of the theory of change approach in this context. Thus, the attempt to widen the theoretical framework behind PFM reforms should provide practitioners and scholars alike with new insights on how to strengthen public service delivery, improve macroeconomic stability or enable efficient resource allocation through successful and sustainable PFM reforms.