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Seven lessons on public financial management from the example of Nepal

6th August 2018

When it comes to improving institutions, slow and steady wins the race, says our governance expert Samvel Markosyan

A bicycle passes an earthquake wreckage in Nepal

When public financial management is done well, governments use taxpayer’s money and revenues to run and provide better services for citizens; improved healthcare, better education, stronger infrastructure. Perhaps this is an oversimplification, but it also highlights why good financial movement is really important.

To ultimately help governments providing the high-quality services which citizens deserve, is what motivates our work on governance. At Crown Agents, we have been working with the Nepalese government to help them make lasting changes to the way they manage public money. We provided technical assistance to sectors and institutions across the administration from climate change to education to local government. This work has led to notable improvements in the transparency and coordination of certain government departments, as well as government engagement and ownership of changes. The project has made easier to monitor public finances, enhanced staff capacity and minimised fiduciary risk. But how have we achieved this? I want to share with you seven lessons we learned along the way:

1) Reform is a slow process and small wins should be valued

Change is difficult and there will always be some resistance. However, small, realistic inputs can lead to significant changes. Reform is as much about winning hearts and minds as it is about institutional change, and it takes time to build trust between partners, especially when your express role is to change the way your partners in-government do things. For the sustainability of the improvements made to public financial management in Nepal, more professionalisation is required, along with the creation of official standards. There are very limited numbers of trained professionals in the Civil Service (e.g. CIPS, CIPFA, ACCA etc.) who are able to sustain gains made under externally supported technical assistance. More focus should be placed on institutionalising initiatives rather than relying on individuals, for example through supporting and protecting the key ‘champions’, which would require an intervention in the HR system, to create a cadre within the cadre that would only work in certain prescribed jobs.

2) The importance of flexible and adaptive programming

With the above in mind, it is essential to build positive relationships with all partners, including the donors. That trust and rapport will be important when adaptations need to be made to the programme to improve outcomes. Additionally, with limited resources, it is important to be strategic to maximise impact. Contextual insight and learning must be developed continually. This allows the balance to be struck between holding fast to your purpose and making small adjustments to your programme based on the challenges you are seeing in reality. We tried to be very responsive in Nepal to government needs, which built trust and interest in the project and overall improvements in public financial management.

3) The need for an integrated rather than fragmented approach

It isn’t uncommon for systems to be highly fragmented across different government departments, nor for ministries to be reluctant to work together. Such fragmentation can be a major obstacle to improved public financial management. It is important to consolidate and harmonise the system as far as possible to prevent duplication and achieve economies of scale. Collaboration should be fostered between ministries, including sharing information where relevant. Full integration of government systems may be overly ambitious for a single reform programme but better sequencing of initiatives, interfacing of systems and appropriate timeframes will improve the likelihood of successful modernisation and reform — benefitting all ministries involved. However, the full integration goal is also overly ambitious. And we recommend to the Government of Nepal that better sequencing of initiatives, interfacing of systems and appropriate timeframes would improve the likelihood of successful modernisation and reform.

4) The benefits of having a diverse team

To do PFM reform successfully, it is necessary for the team to include a balance of technical know-how, cultural awareness, access to and openness in government. There is a need to employ different kinds of consultants, including both ‘insiders’ who can open doors and ‘outsiders’ who can more readily challenge culture and practice. Insiders find it more difficult to challenge the culture they helped create – outsiders can face unexpected challenges owing to cultural of institutional conventions. In terms of team diversity, it is also important to include younger, fresher minds too. One of our team’s main strengths in Nepal was in its ‘Village Politicians’. Team members included influential ex-GoN officials. Very close, but objective, relationships were developed between the team and the government, resulting in the team obtaining fantastic access.

5) The importance of building trust and understanding of requirements through face to face contact

Frequent face to face contact allows us to talk through needs and to listen. In one specific example from our recent Nepal work, we learned that if we presented the results of our fiduciary risk assessments in person through workshops, the results made a much bigger impact that just sharing a document. And remember, any documents which intend to obtain a reaction or promote a change of behaviour in the reader should tell a compelling story – it’s never ‘just a report’. The trust and cooperation that the team was able to build with the Government of Nepal resulted in Government becoming more willing to acknowledge issues and the accept assistance over time. There is now a demand for better audit reports in Health for example. This arose from annual auditor / auditee planning workshops held by our project.

6) The government must lead the process, and partners should facilitate this

PFM projects must be as demand-driven as possible; demand-driven initiatives are key so that projects address the most relevant and pertinent issues. If you are providing solutions and expertise which speaks to a real challenge which government ministries and officials are facing, they are naturally going to much more likely to more collaboratively with you to find a solution, because it makes their job easier. It is vital to keep the government in the lead; demand driven initiatives are key. Government officials in certain Ministries in Nepal have become more willing to participate, not just listen, and have demonstrated willingness to acknowledge difficulties and accept technical assistance.

7) The importance of capacity-building to ensure the long-term sustainability of the work done

Looking ahead, all PFM projects should have a consideration for life after the end of the project. Mentoring, coaching, workshops and one-off events are different ways to build capacity. Skills should be transferred to permanent staff to ensure there is not a long-term dependency on technical assistance. Additionally, more opportunities for training and accreditation should be offered to permanent staff to ensure that the services continue to improve beyond the end of PFM reform programmes. There is a need for continuous person-centric capacity development (in consideration of transfer policy of civil service in Nepal, which results in frequent changeover of staff). Most ‘training’ in GoN is techno centric or system centric and is neutralised by postings. More focus on person-centric learning and professionalisation would improve on current training practices.

Crown Agents has recently taken part to the Nepal Public Financial Management and Accountability Programme (PFMA), conducting a series of lesson learning workshops delivered for the Department for International Development. If you think we’ve missed something, or you want to add to our list or further discuss our approach, get in touch with our Director of Governance and Economic Growth Sarah Callaghan –