Thursday, August 17, 2017

Catalysing transition through public financial management reform

Public financial management reforms are central to Myanmar’s entire transition. Improvements to social services like garbage collection, investment in new roads and bridges, and raising standards of health and education are all premised on the government being able to raise more revenue and then effectively spend it achieving policy goals. In order for the National League for Democracy government to achieve its goals for economic and political reform, it is therefore a critical area for prioritisation.

The public education system is among the many state institutions that would benefit from reforms to Myanmar’s taxation framework. Photo: EPAThe public education system is among the many state institutions that would benefit from reforms to Myanmar’s taxation framework. Photo: EPA

For instance, Myanmar’s health and education outcomes are currently some of the lowest in the world, yet government expenditure on defence is still greater than education and health combined. At the same time, while Myanmar’s low levels of general government expenditure are in part explained by low income, a 2015 Global Witness report suggests that Myanmar’s jade industry pays little tax, despite being equivalent to around half of Myanmar’s annual GDP. And while raising and spending more is a central consideration for reforming Myanmar’s public finance system, the current issues faced are emblematic of a history of centralised decision-making and socialist planning.

Yet there has been some real progress in reforming public finances since Myanmar’s recent political and economic transition began. Take the current divisions of power. The 2008 constitution, for all its weaknesses, was an imperative first step toward giving the 14 states and regions some control over policy, as it provides them the authority to make laws, raise taxes and influence where money should be spent. As a result, since 2011, each state and region government now has its own parliament, budget and portfolio of responsibilities, which can be implemented through sub-national government departments. This has also been paired by efforts from the Union government to better share public resources, with an increasing proportion of Myanmar’s budget being allocated to state and region governments through Union financial transfers.

At the same time, the previous government also instigated a number of important practical measures designed to mirror these “on-paper” reforms with functional changes in the way decisions around budgets are made. Take the national planning process, which Myanmar uses to frame discussions around achieving the policy goals of government and how budget spending should reflect this. Since state and region governments were first established, sub-national cabinets have played an increasing role in setting targets and creating their own plans, providing an important step away from Myanmar’s history of authoritarian decision-making. As a result, local parliamentarians now have a greater say about how the country’s resources should be spent, and where this revenue should come from.

Such reforms were also initiated at levels closer to the community, with the U Thein Sein government having been instrumental in establishing a range of local committees within Myanmar’s townships. These committees, while arguably being far from democratic, were an important first step to creating local governance structures that at least begin to reflect some community needs. On a practical level they have also been a promising move toward more “bottom-up” planning, with local priorities they identify being used as input into the Union and sub-national budgets as part of the national planning process. These moves have also been enhanced by the more democratic selection of local representatives, with ward and village-tract administrators seeing recent reforms to their selection method.

However, while it is important not to underestimate how far Myanmar’s public financial management reforms have progressed, there is still a long way to go. For instance, at the most basic level, while the Union government budget is now regularly published, state and region budgets often are not.

At the same time, while published budgets provide some indication about which government body is undertaking the expenditure, limited information is available on what they are actually doing with public funds; in other words, how funds are actually spent rather than simply who was responsible. In addition, budgets are only developed on a year-to-year basis as a result of public spending not being determined according to longer-term policy visions. Consequently, even with recent improvements in transparency, for the wider public it is still extremely difficult to meaningfully engage in conversations about how Myanmar’s limited resources can best be used.

At the same time, while the establishment of local committees has been welcomed as an important step, local autonomy and citizen participation is often minimal. For instance, although state and region planning processes do incorporate local input, decisions in many areas are dominated by the chief minister, who is nominated by the president. In addition, most township committees are heavily controlled by officials ultimately under the authority of a Union ministry, such as the General Administration Department’s township administrator. As a result, even with recent efforts to share power, sub-national spending is still heavily controlled by central authorities, thereby again limiting the extent to which local budgets can be tailored to the needs of local communities.

While government finances may not be the first thing that springs to mind when considering Myanmar’s many priorities, it will fundamentally define the resources available to fuel economic and social development. It is therefore critical. However, perhaps more subtly, the reform of Myanmar’s public financial management systems is intimately linked with how economic resources are distributed and political power is shared in a democratic system. As a result, for the incoming government to drive long-term development, building on existing improvements in resource sharing, budget transparency and bottom-up budget consultation all provide critical levers of reform and important avenues to begin repairing Myanmar’s social contract.

Rebuilding trust between the public and government will also be essential. While currently many of Myanmar’s citizens doubt the benefits they receive from taxation, the relatively small size of Myanmar’s budget means government is also constrained in what it can provide.

However, with economic growth and rising incomes comes a clear opportunity to change this. Yet to do this sustainably requires not just that government be able to collect more tax, but also that it do so efficiently and fairly. At the same time, such reforms also need to be paired with the better use of government resources and wider policies to build the accountability of government so economic and political reforms reinforce one another.

Giles Dickenson-Jones is an independent consultant specialising in economic policy. Matthew Arnold is program director for the Asia Foundation in Myanmar.