Roundtable calls for global finance ministry network

6 Jun 16

Improving the performance of finance ministries around the world was the topic of a roundtable discussion at the UK’s Treasury.

The event, organised by the UK’s Overseas Development Institute, saw the launch of a report by the think-tank that aimed to unearth what makes finance ministries successful. There were also calls from participants for the establishment of an association of finance ministries and a measure to assess their capabilities.

The ODI’s Philip Krause, an author of the report, told PFI the report intended to fill the missing middle between high-level discussions on how finance ministries should approach macroeconomics and lower-level discussions on the tools and instruments of financial management.

“Ministries we have spoken to and studied for this report have all responded very strongly to the idea that organisational structures, management of civil servants and motivation and talent retention are things they all struggle with, yet they are not receiving systematic advice on how to improve them.

“Ministries of finance are very powerful and important but, strangely enough, do not get enough attention from policymakers and advisers. In developing countries, that’s a real issue because this lack of advice has an impact.”

While the report recognised that finance ministries need to be suited to their context, Krause explained that most successful ministries had some traits in common.

These included: concentration of key finance functions within the ministry, as opposed to them being delegated or shared; stability of senior leadership, which enables an organisation to build institutional memory; and the ability to adapt to the difficulties and opportunities in evolving external situations.

Many developing nations struggle with these issues. In low-income countries, for example, the wage gap between the public sector and private or international institutions is substantial, making it difficult to retain talented individuals.

Participants in the roundtable, which included the vice finance minister of Vietnam, the minister of finance from Sierra Leone and representatives from CIPFA, the Institute for Government, the International Monetary Fund and more, supported two suggestions from the ODI.

The first recommendation was the establishment of an association for finance ministries, which, unlike central banks, supreme audit institutions, revenue agencies or other major bodies, do not have any kind of global network, despite their key role. This would enable those working in ministries to connect with their peers overseas, set standards and learn from one another.

The second was the creation of a capabilities assessment, which finance ministries could undergo to identify the most critical constraints on their ability to perform tasks.

Richard Allen, of the IMF’s fiscal affairs department, highlighted matters that affect finance ministries’ performance, including internal and external communication, the flexibility to respond quickly to crises or change, the ability to challenge budget proposals of other spending ministries, and coordination between development planning and budgets.

He noted that developing country finance ministries should work to develop their policy function, and shift their focus away from day-to-day activities such as control and monitoring.

However, the UK Treasury’s Caroline Read cautioned against jumping straight to this conclusion regarding developing countries, where issues of corruption and capacity dictate how much control can be ceded to focus on high-level policy.

Richard Douglas, senior central government advisor at CIPFA, also highlighted that ministries’ capabilities needed to be orientated around their key functions, which vary depending on context.

Drawing on insights given into the priorities of Vietnam’s finance ministry by its vice minister Hoang Anh Thuan, Douglas pointed out that the country has a wide variety of finance functions that its capabilities need to match.

“Thinking about how finance ministries work with finance functions is a critical part of their success,” he said.

Krause agreed that there was no single way of working that would be successful in every context and added that this was “not just a question of poor countries learning from richer ones”.

“The appetite expressed by, for instance, the UK’s Treasury for a more formal association where they can talk to their peers points to the fact that this is more about not having to reinvent the wheel over and over again and, instead, being able to tap into networks and learn about how other nations have faced new challenges.

“Everybody seems to think that, because finance ministries are one of the most powerful parts of government, they are going to be fine no matter what. That is something that we should challenge, and ensure more investment, time and effort is put into improvement.”

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