Using Country Systems - Is it all or nothing?

Using Country Systems – Is it all or nothing?

The Paris Declaration in March 2005 committed to an agenda to accelerate Country systems – partner country systems will be used to deliver aid as the first option, rather than donor systems. The OECD-DAC define Country Systems as national arrangements that are established in the national legislation including public financial management and procurement.

Bypassing country systems reduces the sustainability of development programs and undermines a partner countries capacity to manage its own development agenda. Disbursing aid through country systems builds partner country capacity to manage development resources and creates more sustainable development programs. For these reasons, the Paris Declaration committed partner countries to strengthening their country systems to the maximum extent possible; and committed donor countries to using these systems wherever possible.

The 2008 survey of monitoring the Paris Declaration, Indicator 2 used to measure and encourage improvements in developing country systems identified that 36% of partner countries participating in the survey had improved the quality of their systems. Indicators 5a and 5b - donors use country PFM and public procurement systems was designed to encourage donors to use country systems showed only a modest increase which does not seem to relate to the improvement of the quality of the country systems. The first recommendation of the 2008 survey is to systematically step-up efforts to use and strengthen country systems as a way of reinforcing country ownership. One of the recommended actions was for further work to be undertaken on prioritizing and communicating capacity development objectives and ensuring that interventions are not isolated instances but institutionalized within a partner-led strategy.

In September 2008 the Accra Agenda for Action (AAA) in order to accelerate and deepen implementation of the Paris Declaration on Aid Effectiveness committed to strengthen and use developing country systems to the maximum extent possible. It recognized that successful development depends to a large extent on a government’s capacity to implement its policies and manage public resources through its own institutions and systems. It concluded that progress in improving the quality of country systems varies considerably among countries; and even when there are good-quality country systems, donors often do not use them. Importantly it is recognized that using country systems promotes their development. To strengthen and increase the use of country systems, the AAA included the following actions:

• Donors agree to use country systems as the first option for aid programs in support of activities managed by the public sector.
• Developing countries and donors will jointly assess the quality of country systems in a country-led process using mutually agreed diagnostic tools.

The AAA has resulted in development partners preparing strategies and plans for strengthening and using country systems. One example from the IDB defines Procurement Country Systems, as incorporating all policies, procedures, instruments, controls, and organizational structures that govern the acquisition of goods, works, and consulting services required by public sector institutions. The fundamental principles that effective country procurement systems need to address are efficiency, transparency, economy, equal opportunities for all eligible bidders, and due diligence. IDB report that in recent years, several countries within their region have taken important steps to modernize their procurement systems. Among the most notable improvements are: extensive reforms of legal and regulatory frameworks; sharing of procurement information via web portals; reforms derived from free trade agreements; the deployment of electronic procurement systems; and the integration of procurement data into automated financial management systems.

As we journey down the road leading to the HLF-4 in Busan, Korea at the end of November, it will interesting to review the progress made, to better understand the issues and how to further strengthen country systems. A recent online questionnaire has shed new light on what the developing world wants and expects from the Busan, the three greatest priorities were; 1) alignment to policies and strategies; 2) capacity development; and 3) management for results. The use of country systems was the fifth greatest priority for partner governments.

The 2011 survey monitoring the Paris Declaration will be published in September and will measure further progress on Country Systems indicator 2 and indicator 5. The Procurement Task Force ‘Preparing for the HLF at Busan and Beyond’ in Cuzco in early May will allow participants to review and discuss case material based on the Procurement Compendium Volume 2 and share experiences of public procurement reform.

As we consider the lessons learned and the opportunities around strengthening country systems, one consideration is that it is ‘all or nothing’ (either country systems are 100% used or not at all), or should it be a more nuanced approach to procurement country systems which is more appropriate, that is incremental, builds on existing capacity, puts controls in place, and takes into account the country context.

It would be good to hear of different experiences of public procurement reform and how country systems have been strengthened as we take the road towards Busan …

Country Systems - The Road to Busan

With the Paris Declaration (PD) Survey currently being finalized, it provides an opportunity to consider the progress made on strengthening country systems and the level to which development partners are using country systems. In the lead up to the HLF-4 in Busan Korea the Procurement Task Force meeting in Cusco in May also provided an opportunity for reviewing progress on the Paris Declaration, in particular, to consider the use of country systems. This can be a sensitive topic with challenges that include balancing ownership and risk management. There are further opportunities to discuss these issues on the road to Busan including the Global Partnership on Country Systems meeting 9-10 June in Manila.

Country systems such as public financial management (PFM) and public procurement are increasingly seen a key policy tools and functions and in addition improves development effectiveness. PFM and procurement play a critical role in the management of public expenditures and there are good examples of fiscal savings. Efficient and transparent PFM and procurement plays an important role in the delivery of services.

A lot has happened since Paris and there are good stories to tell, however PD survey is likely to show there is still a lack of response on use of country systems by development partners, taking into account progress on strengthening them. One of the reasons is the different perceptions of risks by development partners. Another emerging message is that effective procurement and PFM systems are a key part of development. There is a concern that moving to better use of country systems could increase donor costs, but this should be offset by reduced transaction costs for development partners and efficiencies in new funding mechanisms for climate change adaptation.

Some of the themes to being considered on the road to Busan include; i) that the use of country systems remain a priority for Partner Countries; ii) country systems were not just about budget support but programs and projects as well; iii) that it was not ‘all or nothing’ there were examples where different components of country systems were being used; iv) how to reduce the resistance of development partners to using country systems; v) the partner countries priority for stronger alignment could be enhanced by using country systems; vi) that the PD was not a ‘blue print’ and there was a need for diversity to reflect the needs of SIDS, Fragile States and LDCs; and vii) that aid leverage partly through the use of country systems can enhance domestic resource mobilization by increasing tax revenues.

Use of Country Systems

The concept of using country systems is based on principle of country ownership and the need to reduce transaction costs on partner. Harmonization was seen as a way to reduce the burden on country partners having to deal with specific procurement rules of each donor in parallel with their own country system. If countries own a set of procurement rules and procedures that would satisfy all donors, the system could then be used to administer donor-financed procurement as well. This approach promised to have the added benefit of making it easier for donors to co-finance operations and to supervise procurement activities thus reducing the transaction costs in the long run. Most importantly, it appeared to provide a strong incentive for countries to bring their systems to an acceptable international standard and thus scale up development by improving all government expenditures not just those funded by donors. The OECD have led the efforts for this initiative with the cooperation of multilaterals, recipient and donor countries.

A principle of country systems capacity development is a focus on results. This requires a dialogue that is driven by a focus on tangible results in terms of effectiveness and efficiency of service delivery and regulatory performance. The results include achieving:
•Value for money (e.g. in the delivery of health services through the purchase of pharmaceuticals)
•Regulatory performance (e.g. transparent and efficient systems with processes in place for accountability and performance management).
Such results can easily lead to economic gains that exceed the cost of capacity development efforts.

Country Systems is it all or Nothing?

The Paris Declaration implies that systems can be partially acceptable when it states that donors should strive to accept them “to the maximum possible extent”. So is the “all or nothing” approach feasible in practice? Certain donors have indicated their willingness to accept segments or elements of Country Systems that meet their standards: (e.g. accepting the country procurement system for goods consultants but not for works).

Procurement Task Force Meeting

The Procurement Task Force when it met in May discussed the issues of using country systems and considered these from a partner country and development partner perspectives and drew the following conclusions:
• The decision to use country systems by development partners was primarily a political decision
• Where partner countries were aiming for 100% use of country systems development partners needed to harmonize their requirements, there is the need for second generation reforms to allow country partners to strengthen controls, and ensure integrity of the procurement process.
• Fragile and small states and might have to rely on using development partner systems or only use country systems for certain transactions
• There was a need to harmonize the assessment tools for procurement systems, with clear and universal definitions of compliance.
• Where there is an assessment tool it would need to clear who would conduct the assessment and who would vet if the compliance level had been reached. It would be important for capacity development responses to be able to address the identify gaps.
• Different perceptions of the use country systems make harmonization and 100% use difficult to achieve.
Developing international standards for public procurement country systems should be given consideration, this would need to be supported by capacity development aligned to the international standards.

What is Important?

There is recognition that good governance is a key driver of economic growth and development. Efficient and effective Country Systems are a fundamental component of good governance and is intrinsically connected and dependent on effective functioning of other parts of the broader public sector framework. Political commitment is essential to sustainable country systems reform, and that one of the critical elements of success for country system reforms is country ownership and leadership in their design and implementation.

Procurement Task Force - Cusco Declaration

The Cusco Declaration following the Procurement Task Force meeting in May urged for action to accelerate and sustain achievements on the procurement reforms since the Paris Declaration. It made eight recommendations including:
• Strengthen national procurement system by providing adequate human and financial resources and promoting increased professionalism.
• Strengthen capacity development resulting in well preforming procurement systems.
• Encourage all Countries and Development Partners to work in a coordinated manner and to adopt a pragmatic approach in their progressive use of country systems.

The continuing journey to the High Level Forum in Busan

As the journey on the road to HLF-4 in Busan continues there has been some interesting milestones including; 1) The Independent Evaluation of the Paris Declaration Phase 2, which provides an appraisal of efforts to improve aid effectiveness, which provides evidence to support the decision making in Busan; 2) The partner countries’ vision and priority issues for HLF-4, this utilizes the experiences of partner countries and evidence as well as the above survey and the Survey on Monitoring the Paris Declaration to provides a country perspective; and 3) Global Partnership on Country Systems Meeting, this shared best practice on strengthening country systems and started to look forward to how partnerships could strengthen and support effective states.

1. THE EVALUATION OF THE PARIS DECLARATION PHASE 2

One of the aims of the Paris Declaration in 2005 was aimed at improving effectiveness in the area of the efficiency of aid delivery. The Evaluation considered this ‘yard stick’ of change and summarized that;

Overall, the picture on efficiency gains is mixed, but so far disappointing in relation to the original hopes of rapidly reduced burdens in managing aid. There has been generally little reduction to date in those burdens where Declaration-style cooperation has been applied – and even increased loads are noted in a few cases. At the same time, many Declaration-style mechanisms and practices are allowing for a much better overview of aid by the partner country and donors. When matched by sufficiently robust country systems, they have increased the country ability to handle more strategic support, particularly at the sectoral level.

The Evaluation recognizes the demands on partner countries and the challenges of capacity development and that more needs to be done to strengthen country systems;

The complex, long-term challenges of capacity development are the most important constraints for most countries, and these do not allow for ‘quick fixes’ or bureaucratically engineered solutions. However, partner countries can do more to identify priorities for strengthening capacities in targeted areas. Donors and agencies in turn can do more to support those priorities in coordinated ways, to strengthen country systems by using them and to reduce donor practices that undermine the development of sustainable capacity.

2. PARTNER COUNTRIES’ VISION AND PRIORITY ISSUES FOR HLF 4

This provides a partner country perspective and was prepared by a representative group of partner country officials to the OECD-DAC Working Party on Aid Effectiveness and has been endorsed by ministers of eleven partner countries. The assessment identifies progress and challenges at the country-level, including this perspective on country systems;

Many of our countries have achieved and continue to achieve much progress in reforming country systems (procurement, public financial management, and auditing systems) as an important objective and as a means of supporting alignment of ODA with our national priorities. More needs to be done to reach higher standards and also to encourage other countries to initiate systems’ reforms; but these call for more joint actions, including fuller use of the reformed systems by our Development Partners, including the delivery of aid through budget support.

The paper concludes with a powerful list of priority issues from partner countries for Busan which include;

The use of country systems tops the list. It has simply become urgent that development partners show more trust in the reformed systems and, where further change is required, actively collaborate to achieve mutually acceptable systems. We believe that greater use of our systems calls for changes by both sides to adapt rules and procedures and to review existing risk assessments. The recurrent use of parallel project implementation units (PIUs) continues to undermine whatever limited national capacities exist and agreement should be reached on the phasing out of PIUs and replacing them with investing in country systems.[/i">

Similarly, capacity development (of which strengthening country systems is an important component) warrants a change in how this crucial objective is handled under development assistance. We urge our DPs to refrain from pursuing supply‐driven technical assistance (despite good intentions) and to respond to our demand‐driven and need‐based initiatives. We also emphasise that there is more to capacity development than training, important as training is. The strengthening of development institutions (government and non‐government) is a key challenge requiring more attention. We have to show greater leadership in articulating our needs and invite our DPs to join us in implementing agreed plans. 

3. Global Partnership on Country Systems Meeting, 9-10 June 2011, Manila, Philippines

This allowed further opportunities for sharing best practices on strengthening and using country. It also provided a platform for consultation on the importance of partnerships to strengthen and support effective states. The meeting concluded with a consensus that;

highlighted a move from the theme of more effective aid to more effective states 

Supporting effective states will require a more comprehensive approach than that taken since Paris for strengthening procurement and PFM country systems. It will build on lessons learned from country systems, of what has worked and what has not. It will involve the participation of local government, CSOs and the private sector. It will require capacity development to facilitate broader public sector reform including a more integrated approach with clear incentives to manage and sustain change.

It will be interesting to see how this is further developed in the Working Party on Aid Effectiveness meetings and other fora as the journey to Busan continues.

Strengthening Country Systems to Creating Effective States;

Post Busan HLF-4 will provide a number of opportunities for capacity development (CD) to have a significant strategic impact building on the work already conducted in strengthening country systems. The focus on development effectiveness is likely to be beyond ODA and include government revenues, climate finance and utilize aid as a catalyst to achieve results and allow greater accountability and transparency. Central to supporting effective states is an holistic approach to public sector management is the core state functions including; programming; financial management; procurement; results management, human resource management and M&E.

It is important to build on the work developed to strengthen country systems resulting from the Paris Declaration and the Accra Agenda for Action. Some of the lessons learned are that these functions are policy tools of strategic importance, to ensure that public expenditure is planned and conducted as part of a fiscal framework, to achieve policy outcomes e.g. the shift towards a low carbon economy. An effective state is based on the principle of ‘value for money’ which can be defined as a combination of the 3 E’s Economy, Efficiency and Effectiveness. Improved performance management will depend on an integrated approach to reforms in the above functional areas as well as; 1) the professionalization of the public service; 2) the development of the financial sector; and 3) supporting the private sector so it can contribute.

Capacity Development of Institutions;

For capacity development to act as an effective catalyst in achieving national development goals, it needs to take into account the country context. Political and policy engagement are critical upstream to create an enabling environment. Access to and utilisation of knowledge facilitates ‘best fit’ approaches to be developed. Maximizing ‘going to scale’ requires the assessment, planning and implementation of CD of the key functions. The strategy to use CD as a catalyst will need to involve the strengthening networks and multi Stakeholder engagements, leverage of stakeholders and most importantly to be client driven by partner countries. This requires the delivery of a lean offering of country lead, capacity development approaches that are innovative, intuitive and empirical.

Country Context;

Supporting both country partners and development partners to analyse and understand the country context is a critical start point for capacity development and the related change processes. This analysis can help identify and understand the interest, influence, power and relationships between different stakeholders and how they might be affected by change. It could take the form of a country level political economy analysis including; political analysis; social dynamics and the influence of history. Alternatively it could be at a sector level analysing problems that are challenges to delivering particular services. A good understanding of the context will help prioritise the different capacities will be needed. For example, in fragile states where prioritising core state functions to enable the delivery of basic services might be the approach, and in middle income countries (MICs) where the national and local integration of functional capacities is needed to achieve development outcomes in increasingly complex environments. The nature of enhanced core functional capacities is that they underpin the sustainability and resilience of effective states and add value to all change processes.

Policy Level;

Closely linked to the country context is the importance of political engagement to ensure understanding and buy in, to ensure that there are champions for the change process. This takes place at the same time as the technical engagement but could involve a different group of stakeholders e.g. the political engagement could take place with elected officials and the technical engagement with public servants. This creates the space and relationships for policy dialogue to take place and provides opportunities to provide policy advice. It is becoming increasingly important to realize the strategic importance of core government functions such as programming, procurement and M&E as, key vehicles to deliver government policies.

This policy support is a key element of strengthening the Centre of Government, where core functions such as programming, financial management and results based management are central to improving performance and the achievement of development goals.

Going to scale;

When going to scale a critical success factor is that the primary target audience are partner countries, with the purpose to allow them to develop institutions that can deliver results. The support provided by development partners, needs to have an external perspective based on national partner demand and needs. Through partnerships arrangements like the Task Forces for Procurement and Financial Management, a harmonized approach to capacity development of core government functions, based on knowledge sharing that utilizes ‘best fit’ approaches, would ensure that capacity development is an integral component of country development strategies.

OECD DAC Report on “Aid Effectiveness 2005-10: Progress in Implementing the Paris Declaration”

In the Paris Declaration (PD) in 2005, commitments were to make aid more effective in supporting the achievement of development results. A set of clear indicators was put in place for implementing the PD principles with targets to be achieved by 2010. The OECD DAC report draws on the results of the 2011 Survey on Monitoring the PD, in which 78 Countries participated.

The following are some of the highlights from the report that relate to procurement capacity development:

Moderate or mixed progress was made in :-

Efforts to improve support for capacity development have been mixed. While donors met the target on
co-ordinated technical co-operation, support for capacity development often remains supply-driven, rather than responding to developing countries’ needs.[/i">

Donors are using developing country systems more than in 2005, but not to the extent agreed in Paris. In particular, donors are not systematically making greater use of country systems where these systems have been made more reliable.[/i">

Unfortunately the sample size of countries participating in the Reliable Procurement Systems (indicator 2b) is too small to be significant. The report is able to conclude that:-

The qualitative evidence gathered through the survey indicates that most countries have adopted or modernised legal frameworks for procurement since 2005 in line with international standards. Accompanying reform programmes have often led to the establishment of a national procurement agency and several countries have introduced e-procurement. Strengthening regulatory frameworks to ensure greater transparency, accountability and efficiency in procurement remain common challenges.[/i">

Indicator 5b - Using country procurement systems. The results of the 2011 Survey show a moderate increase in the use of partner country’s procurement systems by donors, from 40% of aid for the government sector in 2005, to 44% in 2010. The report summarises one of the main challenges as:-

Most of the countries participating in the Survey reported that concerns about the credibility, efficiency and effectiveness of country procurement systems was a common reason for donors to continue using their own procurement guidelines and mechanisms or to require additional safeguards.[/i">

The Paris Declaration monitoring over the last 5 years has helped identify some important lessons for both development partners and partner countries, which will inform the discussions and decisions in Busan. It is also important evidence that can shape future procurement capacity development to ensure that public procurement can take a strategic role in public sector management to achieve development goals.