Public Finance and Economic Growth in Developing Countries: Lessons from Ethiopia's Reforms by Stephen B. Peterson (New York: Routledge, 2015), xxxi + 328 pp, $104 hardback; $55 Kindle.
| Date | 01 February 2016 |
| Published date | 01 February 2016 |
| DOI | http://doi.org/10.1002/pad.1745 |
| Author | George Guess |
BOOK REVIEW
Public Finance and Economic Growth in Developing Countries: Lessons from Ethiopia’s Reforms by Stephen B. Peterson
(New York: Routledge, 2015), xxxi + 328 pp, $104 hardback; $55 Kindle.
This is a thoughtful, superbly written chronicle of a successful fiscal reform project in Ethiopia (1998–2008) by the author who
was involved for 16 years as project designer, participant, director/ implementer, consultant, and later evaluator. Few fiscal
reform analyses benefit from such in-depth insights that apply policy and administrative theory to practice in the public finance
and development fields. It provides invaluable lessons for reformers guided by the author’s own frameworks that review the
nuances of project drivers (e.g., context and ownership), platforms (e.g., transactional, legal, and policy), and phases of reform
(e.g., design, pilot, and rollout). An important key to success of the 12-year $34m USAID project, called Decentralization Sup-
port Activity Project (DSA), was the cultural context of discipline and a new regime that after 17 years of civil war needed
legitimacy and a free hand in design/implementation of financial reforms. That meant the new regime carefully scrutinized
who was to be allowed into the local reform tent. The regime viewed management of public money as the heart of sovereignty
and was suspicious of foreigner prescriptions and imported techniques. It made sure that any resources taken from aid agencies
contributed to doing the right things rightly. Conditions were right in that reform was urgent, and the DSA team was trusted. The
context was a weak state that urgently needed to establish control and legitimacy. The means to this end was a rationalization
program to establish central control of the public finances and increase capacity of regional officials to implement development
projects. Uniquely, this regime took ownership of the DSA project by ensuring that it would be built into the noted Ethiopian
cultural features of discipline and conservatism while keeping at bay the Bretton Woods institutions and their obsessions with
macro-economic control (i.e., budget cutbacks) in exchange for the reform support. Added to the complexity of its task was that
in the interest of enhancing its legitimacy through state modernization, the regime was implementing a political decentralization
program at the same time as the public finance reform.
A major theme running through the book is the need to distinguish public finance administration (PFA) from management
(PFM). Given the lack of institutional and organizational capacity in government, this fiscal reform focuses on the former as a
precondition for the latter. That meant emphasis on operational systems of accounting and budgeting, financial management in-
formation systems (FMIS), expenditure planning, linkage of current and capital budgets, and the development of a needs-based
unit cost performance transfer system. Such deliverables would ensure transactional control and proper stewardship of public
money. That would increase administrative capacity and enhance fiscal management, allowing greater professional discretion
to achieve policy ends, including such basic activities as performance measurement.
Not unexpectedly in the Ethiopian context, informal practices are more important than formal legal institutional rules. For
example, the DSA team found that formal rules did not cover how block grants consisting of co-mingled central treasury and
foreign aid funds should be disbursed. Nor did the rules cover how unspent portions should be re-allocated at the end of the year.
Then they found that the formal chains of command normal in even poor countries between ministries of finance and spending
ministries did not apply. The ministry of finance considered itself nothing more than a post office, sending out budget notices
and funds. It lacked the basic hierarchical respect found in most countries from subordinate ministries, departments, and tiers of
government, which meant delayed spending reports and weakened expenditure control. This organizational deficiency con-
fused the structure of inter-governmental fiscal relations between tiers of government needed for effective decentralization.
The team also discovered that ministries lacked permanent secretaries, or technocrats responsible for funds and personnel.
That vacuum was filled by senior appointed officials that often became feudal barons and blocked reform progress. In short,
given the fragmentation of financial administration between tiers, within tiers and within agencies of each tier, the DSA team
had to figure out how to bridge the organizational crevasses obstructing reform progress. The task was complicated by the
cautious cohort of public officials working on the PFA reform that had survived 17 years under a ruthless partisan dictatorship
largely by keeping their heads down. Vicious party politics also diminished official interest in making decisions to be more
responsive and accountable. As to the basic question of whether senior officials would actually support the fiscal reform, the
project team discovered that while part of the political culture superficially seemed to be an impediment (conservative), the
prevailing uncertainty allowed the operational dimension of that culture (i.e., discipline) to embrace change. All it took for
success was to harness local leadership with these enabling features of the culture. Though a daunting challenge, the team
selected the right regional leadership that energized ground operations and sustained the project.
public administration and development
Public Admin. Dev. 36,65–67 (2016)
Published online in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/pad.1745
Copyright © 2016 John Wiley & Sons, Ltd.
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