Examining public financial management in fragile states


By Salema Hafiz, Acting Divisional Director, International, CIPFA

What do we mean when we talk about fragile states? Weak governance frameworks, ineffective parliamentary systems and the absence of political accountability are all factors that contribute to the concept of fragility. In contrast to stable nations, which are less vulnerable to collapse or conflict as a result of social or economic shocks, fragile states may experience sudden social upheaval and violence as a reaction to change. Without consistent government, the management of public funds in fragile states is often dogged by inefficiencies, inaccuracies and economic crime. Citizens can be left vulnerable to extreme hardship if these issues surrounding public sector finance are not addressed.

The Fragile States Index (FSI), published annually by the Fund for Peace, classifies nations according to their level of stability. The index weightings are based on a number of different indicators including economic decline and the provision of public services to citizens. Each nation included in the FSI is given a numerical ranking, from those considered most ‘sustainable’ to ‘very high alert’. The 2019 FSI gives the highest rankings to Finland, Norway and Switzerland – branding them the world’s most sustainable nations.

Conversely, the FSI named Yemen the most fragile state in 2019, followed closely by Somalia and South Sudan. Each of these nations has suffered from violent conflict, leaving their citizens in varying degrees of poverty and insecurity. Broadly, these fragile states have poor infrastructure and weak public financial management bodies, among other issues that are both causes and effects of political instability.

Financial management issues characteristic of fragile states include widespread corruption, fraud, low tax collection and highly bureaucratic environments that result in slow decision making. At CIPFA, we’re doing our part to help address fragility in several countries around the world. By reducing the fragility of governments through better financial management, we can improve citizens’ access to vital public services, regardless of borders. 

There has been some success in bolstering the ability of fragile states to effectively manage their finances. However while poverty rates have reduced on a global scale, the number of poor people living in fragile states is still increasing. To combat issues related to fragility, we’ve focused our efforts on developing leadership, professional accounting training, improving institutional and governance structures and strengthening legislation on financial oversight. In addition to improving the state of public financial management, our efforts aim to build up citizens’ confidence in the responsiveness of the state.

One such example is our recent work in Somaliland. Somaliland is a self-declared state in the Horn of Africa that is internationally recognised as an autonomous region of Somalia. The state has historically been plagued by terrorism at the hands of militant groups in opposition to the federal government, resulting in a badly damaged economy and heightened security risks. These intermittent periods of volatility put severe strain on public budgets and have limited the effectiveness of government services. Fortunately, some progress has been made in recent years.

CIPFA’s International Public Financial Management (IPFM) Certificate worked to increase stability by providing students with the knowledge, skills and abilities for robust public financial management.

More specifically, CIPFA training was provided to budget preparation officials, procurement officers, accountants and auditors from Somaliland’s Ministry of Finance, as well as other ministries.

Tajikistan is an example of a fragile state in which CIPFA is currently providing financial management training. In the past, Tajikistan has faced widespread corruption due to the weak rule of law and lack of institutional transparency. Though improved from previous years, the post-Soviet nation is currently categorised with an ‘elevated warning’ on the FSI, ranked as the 65th most fragile state. Our work in Tajikistan is designed to increase political stability and organisational integrity by supporting the institutional development of the country’s Supreme Audit Institution, the Chamber of Accounts.

By January 2021, the project will introduce international audit standards built around five principles: modernising public financial management processes; strengthening the public procurement system; establishing an external audit entity; public administrative reforms; and a component for management of the project.

Together, these projects highlight the first steps to improve the public sector in fragile states. Although each country and government is unique in its own way, shared traits and challenges among fragile states and governments are clear – one of which is consistently the inability to adequately manage public finances. It might be impossible to completely eradicate the causes of fragility throughout the developing world, but we can provide education and training to empower financial institutions in these nations to make informed decisions – ultimately leading to greater social cohesion, enhanced security and better public services for those who are most vulnerable.

This article first appeared in Accountancy Age.

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