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Public-sector reform

Donors must be patient

by Andreas Foerster
In order to make good use of aid, many developing countries need to boost their absorptive capacities. International debate, how­ever, still revolves around the financial levels of assistance, without taking account of capacity bottlenecks. Efforts in Zambia’s public sector show that capacity development is a daunting challenge that requires much longer time horizons. [ By Andreas Foerster ]

Weak institutions of governance constrain development in Africa. Unless the public sector has adequate capacities, it cannot translate taxes or official development assistance (ODA) into effective services, regulations and security. Some even argue that the lack of absorptive capacity is a reason not to increase ODA as was pledged by G8 governments.

Zambia is a country with severe capa­city problems. As in other parts of Africa, the civil service is bloated, and government salaries have gone down in real terms, even though the Zambian state is using almost half of its revenues (or 8.3 % of GDP) for that purpose. Service delivery in the public sector remains weak and unstable. This year, teachers and health workers went on strike for several months.

In the early 1990s, Zambia’s government drafted a Public Service Reform Programme and put the Cabinet Office charge of implementation. The programme enjoys the support of the World Bank and other donors. After donors pooled their efforts in a Sector Wide Approach (SWAP) in 2005, the World Bank, the UK, Sweden and Finland have mobilised $ 30 million. The SWAP explicitly supports four components of the Public-Service Reform Programme: „rightsizing“, pay reform, service delivery and payrol management.

“Rightsizing” is about restructuring ministries in order to strengthen their capacity. In 2002/2003 the number of people in the public service was cut by more than 20 % to approximately 110,000, but such downsizing had adverse consequences on service delivery – especially in rural areas. While trying to resolve these problems through restructuring, the Cabinet Office experienced capacity pro­blems of its own. Three different units were involved, but were operating in isolation. The Cabinet Office recognised its shortcomings and will now restructure itself.

Pay reform is supposed to tackle two important issues. First of all, salary levels are too low to attract and retain essential technical, professional and managerial staff. Second, the system is distorted because various allowances can boost the basic salary by up to 200 %. Therefore, many public servants focus on chasing allowances. Even though a new pay policy with higher base salaries and fewer allowances was approved by the cabinet in 2003, it was not implemented due to strong resistance by labour unions and the Ministry of Finance. After long delay, a fresh pay policy was drafted this year. It is to be submitted to the cabinet soon.

Service-delivery improvement focuses on enhancing performance through a fund that finances innovative approaches. By 2009, a total of 18 mini-projects with an average size of $ 500,000 were being implemented. So far, however, most projects lack a strategic perspective and are implemented outside the regular ministerial procedures. It is unlikely that any of these projects can be mainstreamed without further donor funding.

Payroll management is to benefit from computerisation. All payrolls managed by the Ministry of Finance and the Cabinet Office have been converted to the new system. In the process, ghost workers were eliminated, and the tasks of all ministries were more clearly defined. The plan is to roll out the system to the provincial-level administration; however, this process has taken much longer than anticipated.

A recent review of the reform programme showed that progress remains slow and that more attention needs to be paid to who actually drives reforms. Moreover, donor support should become more flexible and focus on implementation instead of planning. It also became evident, however, that the timeframes politicians and aid agencies operate with (four to five years) are too short for sustainable capacity development in such a complex environment.

Lessons learned

More attention needs to be given to reform drivers because they are key to success. A small group of key stakeholders is essential for reforms to work out. They understand the situation, can accurately diagnose the reasons for poor performance and know best how to deal with resistance. At the political level, the secretary to the cabinet, who had direct access to the president, initially led the reform. After he retired, the Cabinet Office continued to be important, but personal leadership switched between several high-ranking officers. Other stakeholders in the Ministry of Finance as well as the powerful labour union also kept changing.

Capacity-development efforts, more­over, must be implemented in a flexible manner, because it is impossible to anticipate or control strong reform drivers for various reform components. Flexible implementation matters more than programme design, because it is necessary to adjust pragmatically to opportunities as they arise. In practice, however, donors’ focus was on design.

For example, even though the rightsizing component was based on the assumption of a decentralised public service, implementation was not adapted after the Cabinet rejected the decentralisation implementation plan. As a consequence, re-planning at regular intervals should become the default mode. Best fit is more important than best practice.

Flexibility also matters because the Public Sector Reform Programme is highly interrelated with other governance reforms. For instance, IT-based payroll management is of direct relevance to the roll-out of an Integrated Financial Management Information System (IFMIS), which is led by the Ministry of Finance. However, both systems were implemented separately and as a consequence payroll data cannot be used directly in the budgeting process. Furthermore, license fees have to be paid for two separate SAP-based systems.

To give another example: The wage bill is directly affected by pressure from donors to employ more personnel in the health and education sectors. While this is reasonable from a sectoral perspective, it would have been important to point out the consequences early on and and actively dis­cuss the trade-offs of different options. Pay policy became even more distorted when donors began to pay selective top-up salaries for rural health-care staff. So far, the SWAP has not been able to rise to such challenges adequately.

Overall, however, the harmonisation of donors and instruments proved appropriate. The SWAP design is clearly supe­rior to fragmented donor approaches to public-sector reform. It has proved useful to combine budget support and investment lending with long-term technical assistance.

Budget support, for instance, is linked to a performance assessment framework, which includes four indicators that directly relate to public-sector reforms. When the reform programme began to stall, therefore, there already was an incentive in place for the government to get it going again. Investment lending contributed to speeding up administrative action by readily providing the necessary funds. Long-term technical assistance ensured successes in the payroll management component.

However, there is a risk of well-harmonised donors compromising the owner­ship of the national government. In Zambia, the government therefore refused to accept technical assistance for some other reform components.

Overall, the SWAP experience in Zambia shows that big-bang approaches are not promising. In most rich nations, it took decades to establish the foundations of an effective public sector. If donors become impatient with slow reform dynamics in developing countries, they risk doing more harm than good. Bypassing weak government capacity through parallel structures or non-governmental organisations may lead to visible outputs in the short term, but also risks undermining the legitimacy of the public sector. For good reason, the Accra Agenda for Action, in which donor and recipient governments agreed on principles for making ODA more effective, emphasised capacity development.