URU, Alm.del - 2006-07 - Bilag 186: Udkast til ny strategi for Danmarks indsats for fremme af god regeringsførelse i den offentlige sektor " Effective and Accountable Public Sector Management - Strategic Priorities for Danish Support to Good Governance"

1. IntroductionImproving all aspects of governance is vital to reducing poverty and promoting sustainabledevelopment for the benefit of poor women, men and children. The public sector is at theheart of this challenge. The quality of public-sector management and administration1is crucialto achieving the Millennium Development Goals, as public-sector entities are, in mostcountries, responsible for delivering services, such as health and education, for laying down aregulatory framework that fosters private-sector development, for ensuring and upholding therule of law, as well as for promoting gender equality.The international community has reiterated this position on numerous occasions and in severaldeclarations, including the High Level Plenary Meeting of the United Nations GeneralAssembly in 2005. The General Assembly also noted that countries bear the primaryresponsibility for their own economic and social development. While developed countries havepledged to increase development assistance, developing countries have made commitments toimprove the management of all resources at hand. International development co-operation cansupport the efforts of developing countries, but ultimately, responsibility rests with thecountries themselves.Processes of change, aimed at improving governance and reducing poverty, take time and haveto be built from within each country. The public sector is obviously at the core of theseprocesses. However, on its own, the public sector cannot deliver results. Civil-society groupsand other non-state actors, such as the private sector and the media, are critical in holding thepublic sector accountable and in advocating needs and priorities.The challenges faced by the public sector are significant. Indeed, in many countries, the publicsector is in a deplorable state. Poor service delivery is a visible sign of this, as is corruption.Capacity must be developed, not necessarily to expand the public sector, but to help nurture aneffective and accountable public sector capable of contributing to the reduction of poverty.A key challenge for development co-operation is to support the efforts of partner countriestowards improving the effectiveness and accountability of the public sector. At the same time,the commitments made by Denmark, alongside other signatories to the Paris Declaration onAid Effectiveness, offer opportunities and pose challenges to donors and their modusoperandi. Clear priorities as well as robust and innovative approaches need to be identified totake advantage of the opportunities and tackle the challenges.So far, donors have unintentionally and occasionally contributed to undermining capacity andownership. Too often, donors, including Denmark, have built up parallel and unsustainablemanagement systems in the sectors for which support is provided, instead of improvingexisting management and administration systems. Furthermore, our approach has often beeninconsistent across sectors and failed to take heed of the general policies and approaches topublic-sector management adopted by the countries’ own government. With this paper,1

Denmark seeks to ensure that its support for the public sector is consistent across sectors aswell as with national policies, procedures and management systems.Denmark is determined to improve Danish aid effectiveness by focusing the use of resources.As a relatively small donor, Denmark will concentrate on a limited number of countries andareas of intervention. Denmark will actively support the division of labour between donors.This will help developing countries, but will also assist Denmark in maintaining and furtherstrengthening its position as a competent, relevant and respected partner in development.The priorities and principles outlined in this paper will guide the focusing and strengthening ofDanish development co-operation in the field of improving governance in the public sector,not only in Denmark’s main countries of bilateral cooperation, but also as regards Danishcontributions at the international level.

2. Purpose and frameworkPurposeDanish support for governance in partner countries stems directly from the overridingobjective of Danish development assistance, namely poverty reduction.The purposes of the present paper are to-define strategic priorities (guiding principles and core areas) for Danish support for improved public-sectormanagement in developing countries, including cooperation both at the level of the individual partner countryand at the level of international organisations and forums, such as regional organisations formed by partnercountries, the European Union, the United Nations, and international financial institutions;serve as a framework for dialogue with partner countries’ governments, various groups in civil society andother non-state actors, as well as other donors, on how best to improve management in the public sector; andguide the further strengthening of capabilities within the Danish Ministry of Foreign Affairs, including theDanish embassies, as regards public-sector management.

FocusThis paper focuses on public-sector management. Obviously, the governance agenda is muchwider than that, encompassing major elements such as human rights and democratisation, themedia, the judicial sector and, more generally, the rule of law. Although these latter issues arerelegated to the background in order to focus this paper and attend to practical concerns in thedesign of governance support, they should not be neglected, as they are intimately related topublic-sector management. Achieving more welfare, less poverty, more just and less unstablesocieties necessitates an understanding of the whole governance agenda, and ultimatelycoherence in all efforts to improve governance.Within its focus on public-sector management, the paper addresses mainly the situation andneeds in those countries of cooperation with which Denmark has entered into long-termpartnership.Core areas of supportDenmark has defined threecore areasof support for public-sector management:---the fight against corruptionlocal service delivery and governancepublic financial management

Focusing on the three core areas does not rule out Danish financial support to other areas ofpublic-sector management. Joint donor funding of broader reform programmes is becomingmore frequent in the partner countries. In such cases, Denmark cannot earmark funds toparticular areas. Such funding will therefore continue to take place on the basis of, among othercriteria, country-specific needs, programme designs, and funding modalities.In several ways, the whole field of public-sector management constitutes the framework forgeneral budget support. Effective and efficient public-sector management, underpinned bystrong accountability mechanisms, is obviously essential to the use of budget support as an aidmodality.Promoting gender equality is a particularly important challenge with regard to the public sector,and will be taken into account consistently when dealing with public-sector management. Allsupport for public-sector management will adhere to the Strategy for Gender Equality inDanish Development Co-operation and the forthcoming guidelines.2Chapter 4 elaborates on the choices made and the core areas of support.Aid effectivenessThe increased priority given to improving public-sector management is directly linked to theaid effectiveness agenda, as stipulated in the Paris Declaration. As is true for all Danishdevelopment assistance, the principles of the Paris Declaration will continue to underpinDenmark's support in the field of public-sector management.Briefly, the principles and their applications in Danish development assistance are:Ownership-Denmark will base its development cooperation on nationally owned and ledstrategies, policies, and plans for improving governance in partner countries.Alignment-Denmark will, to the maximum extent, provide its governance assistance using theadministrative systems, structures and procedures of partner countries, thus seeking tostrengthen these. Support will be included in the national budget, and budget support will beprovided if the necessary conditions are in place3.Harmonisation-Denmark is committed to harmonising its approaches to aid management withother donors. This includes joint analyses and assessments, or using those previously conductedby others,4joint approaches and participation in the promotion of governance in partnercountries, joint financing arrangements, and moving towards an explicit division of labour,focusing on fewer but larger initiatives.http://amg.um.dk/NR/rdonlyres/BFD3562F-9081-4FA6-BBBF-BC50784AE8EB/0/gender_equality.pdfprinciples are outlined in the document ‘Principles for Provision of General Budget Support, May 2006’,link:http://amg.um.dk/NR/rdonlyres/4059F0E9-8692-4863-81B8-F327FEBD293F/0/PrinciplesBudgetSupport.doc4Possible tools of assessment are, for instance, PEFA, procurement assessment, EC Governance Profiles, Oslo UNDPGovernance Centre’s governance assessment framework, analyses by other bilateral donors, such as the ‘Power Studies’ ofSIDA, World Bank Institutional and Governance Reviews (IGR), and the World Bank Governance Indicators. This workwill strive to undertake nationally-owned assessments and to devise nationally-owned governance indicators.23The

3. Key challenges and guiding principlesGovernance is a comprehensive agendaThere are numerous definitions of both governance and good governance, each oneemphasising different elements for different purposes. No definition has been universallyagreed upon, but for the purposes of the present strategy, the definition provided in theCotonou Agreement between the EU and the ACP countries provides a useful point ofreference. According to this definition, good governance is“the transparent and accountablemanagement of human, natural, economic and financial resources for the purposes of equitable and sustainabledevelopment, in the context of a political and institutional environment that upholds human rights, democraticprinciples and the rule of law.”Some core elements can be identified:political commitment, capacity, effectiveness and efficiency,transparency and accountability.These are defining aspects oflegitimacy,and at the same timeconstitute the basis for understanding that the management of a society’s resources, as well asother aspects of governance, are inherently political in nature.Political commitmentAs the management of a society’s resources is essentially a political process, governanceinvolves sensitive and complex issues relating to fundamental and often incompatible orconflicting political interests and the underlying social, cultural and economic structures.Donors have tended to perceive public-sector management as being largely about technical andadministrative issues, neglecting the importance of the political interests and actors involved –and ultimately the need for sustained political leadership to carry through necessary reformsand changes. This has often led to disappointment with public-sector reforms, as technicallywell-designed reforms have underperformed in implementation. The lesson is that an essentialaspect of providing support for public-sector management is to understand the politicalcircumstances of each country, to assess national reform programmes, development strategies,and support options carefully in the light of these, and to take a political approach innegotiations with partners on public-sector management reforms.First and foremost, the fundamental precondition for any reform programme to succeed is thepresence of sustained political commitment. Such commitment is, in turn, an outcome ofcomplex processes.Capacity developmentWhile political commitment to improving public-sector management is a precondition forsustainable change, it is not sufficient. Capacity and capability to perform the functionsassigned to the public sector is an equally necessary requirement. In most partner countries, thecapacity for public-sector management is weak. In a society characterised by high levels ofpoverty, the public sector has very limited means and capacity to perform basic publicfunctions, such as ensuring the enforcement of law and order and providing social services.

Capacity is not only a matter of staff numbers and skills. It also depends on the quality ofmanagement at the organisational level within the public sector, and on the relationship withthe rest of society, i.e. citizens, civil-society groups and other non-state actors, such as theprivate sector. As a donor providing support for processes of change and for reform in thepublic sector, Denmark and its international and national partners need to continue to step upthe search for more effective ways of fostering capacity development.Efficiency and effectivenessAn essential part of effective and accountable public-sector management is to transformavailable resources into maximum impact in accordance with political priorities.Increasing theefficiencyof the public sector is about producing the outputs expected from thepublic sector more cheaply (in terms of financial, human, and natural inputs). Public-sectoreffectivenessis about the quality and quantity of the outcomes and impact of the public sector’sactivities, as measured against the objectives and priorities laid down for the public sector byaccountable political leaders.Yet, in most if not all Danish partner countries, this constitutes a significant challenge. Thescarcity of resources exacerbates the clashes between divergent interests over the use ofresources. At the same time, political leaders and the public sector are often not responsive tothe needs of citizens, because they are not held to account by citizens, civil society and othernon-state actors, such as the private sector and the media. Under these circumstances, theseparation between the political and the administrative spheres may become particularlydifficult to maintain. The resulting political interference, even in the day-to-day operations ofthe public sector, is detrimental to achieving the desired increases in efficiency andeffectiveness. This situation is often aggravated by capacity problems. Donors’ insistence ontheir own models of governance and on their own systems for development programmes haveput further strain on the public sector and contributed to undermining ownership andaccountability.TransparencyThe attainment and maintenance of the needed gains in efficiency and effectiveness is closelyrelated to the public sector’s degree of transparency and the strength of accountability betweenthe public sector, on the one hand, and citizen, civil society and other non-state actors on theother. In the absence of the essentials of good governance, effective and accountable public-sector management is difficult to attain and sustain.The foundation of transparency is access to information. Information needs to flow across theorganisations of the public sector in order for public-sector leaders to take rational and well-informed decisions. Equally important, information is needed for citizens, civil society andother non-state actors to take rational decisions themselves, and to exact effectiveaccountability from the public sector regarding the way in which it takes decisions and managessociety’s resources. Timely and comprehensive access to reliable and relevant informationabout the decisions and actions (or lack hereof) of the government and the public sector is avital prerequisite in this regard.

Measures to increase transparency are therefore to be regarded as essential elements of allefforts to improve public-sector management. Often, such measures may even fall within theimmediate gains that can be achieved in the context of more comprehensive reforms.It is also important that donors be transparent about the amount and kind of support provided.Publicising data on development assistance in individual partner countries, among otheractions, is a relatively easy donor step to improve transparency.AccountabilityThe fundamental accountability relationship in any democratic society is between those whogovern and those who are governed, or between the government and public sector as a whole(often called the ‘supply side’) and the rest of society (the ‘demand side’).Relationships of accountability, however, exist between all stakeholders in a society, forming acomplicated web of relationships of which some are formal and others informal, some arelegitimate and others illegitimate, even illegal. Obviously, these relationships are not alwayscompatible with each other, and many of them belong to competing systems of accountability.Accordingly, the formal system of democratic accountability is inhibited to varying degrees, andis adversely affected by other systems of accountability. Where such informal relationshipsattain political significance, not only the effectiveness of public-sector management, but evenbasic democratic rules may be under threat. The poor and otherwise disadvantaged stand tolose, if these other relationships of accountability are allowed to dominate.Corruption,whether political or administrative, is one important aspect of such illegitimateaccountability relationships, which compromise democracy as well as the performance of thepublic sector. Corruption also weakens the public sector’slegitimacyin the eyes of the rest ofsociety.Independent public organisations, such as the judiciary, anti-corruption commissions and theombudsman, may contribute significantly to countering this weakening of legitimacy, if they aresecured sufficient capacity to carry out their mandates, and if their independence is protected.As experience shows, however, these public organisations depend on the pressures anddemands for better governance from civil society and other non-state actors.Civil society and other non-state actors, such as political parties, trade unions, the private sectorand the media, play an important role in demanding accountability from government. At thesame time, civil society and other non-state actors are as diverse as society at large, and havedifferent functions to perform in exacting accountability, depending on their roles andmandates. Often, many of these actors do not have the necessary capacity to monitor andeffectively hold government and the public sector to account. Supporting these actors, inaddition to the public sector itself, is therefore an essential element in the fight againstcorruption in particular and for better governance in general.

Weaklegitimacyalso exacerbates the scarcity of resources in the public sector, as it reduces thewillingness to contribute in the form of taxes at the national and local level, drains publicrevenue and, more generally, makes citizens less disposed to respect the legal and socialframework represented by the public sector. Therefore, measures to enhance legitimacy arecrucial to enabling the public sector to perform its functions and contribute to povertyreduction. Thus, measures need to address both the ‘supply’ and the ‘demand’ side of the basicaccountability relationship.Donors’ governanceImproved governance is not only necessary in developing countries, but should also be pursuedby donors in their own development cooperation. The Paris Declaration sets out a range ofprinciples and commitments in this regard. Furthermore, the Danida Action Plan to FightCorruption identifies several actions that have already been taken. Denmark is committed tocreating easy access for the press, civil society and others in each partner country toinformation relating to the disbursement of Danish development assistance to national andother institutions and organisations in partner countries. This will increase the level oftransparency and enable citizens to hold their governments accountable.Guiding principlesThe above gives rise to the following principles that will guide the future Danish support forimproved public sector management.---Denmark will:Promote the goal ofpoverty reduction,i.e. ensure that changes and reforms are as pro-poor,gender sensitive and environmentally sustainable as possible.Support public-sector management in all programme countries.Provide support in the three selected core areas based on an understanding of theirinteraction and interdependence with thegovernance situation as a whole.There must besustained political commitment to implement reforms in the core areas.Make increased use ofanalyses of the political economyin partner countries (and in some cases,e.g. regarding transnational corruption, of the global actors). Where such studies do notalready exist, Denmark will seek collaboration with partners in order to undertake them.Base all support on thorough and preferably jointcapacity assessmentsin order to adapt theprovision of resources for capacity development to each situation. Such support willpreferably be provided jointly with other donors.Facilitate and support theactive inclusion of the ‘demand side’of governance in change andreform initiatives at the country level. This could include a push for greater transparencyand access to information. Support for capacity development in civil society and other non-state actors will also be provided. If more effective and efficient, this could take placethrough other programmes or through Danish and international NGOs.

Promotegender equalityand special interventions aimed at supporting women’s equal accessto resources, influence and rights in all interventions based on thorough analyses ofopportunities and constraints, preferably together with partners.Apply the approaches presented in this document to other Danish support for the partnercountries, not least to thesector programme support.Intensify efforts at theinternational levelto promote the guiding principles listed in this paperin the work of international organisations, e.g. by taking political initiatives, seconding staff,exchanging experiences and drawing lessons, developing new joint tools, and otherwisepromoting improved and harmonised approaches to support for public-sector management.Identify and implement actions that contribute to improving the governance of donors.Existing initiatives will also be enhanced. At the same time, this will be pursued in relevantinternational forums and organisations.Create easy access for the press, civil society and others in each partner country toinformation relating to the disbursement of Danish development assistance to national andother institutions and organisations in partner countries.

4. Core areas of support – the fight against corruption, local service delivery andgovernance, and public financial managementDenmark will focus its support for effective and accountable public-sector management on thefight against corruption, local service delivery and governance, and public financialmanagement. All three areas are at the core of Danish partner countries’ efforts to improvepublic-sector management.In most countries, efforts to improve public-sector management comprise a vast variety ofinitiatives, often termed ‘reforms’ regardless of their depth and scope. Among the mostfrequent are civil-service reforms, including pay reform, tax-administration reform, publicfinancial-management reform, and institutional reforms, such as decentralisation, privatisation,and the creation of executive agencies and other semi-autonomous bodies within the publicsector. The fight against corruption cuts across all of these, and is often pursued by a particularprogramme to that effect as well.Support in the core areas will be provided on the basis of in-depth knowledge andunderstanding of the overall public-sector reform agenda in each country, and of the politicaland technical feasibility of successful reform, in addition to paying attention to the relationshipbetween the overall development agenda and the area in question. Furthermore, the reformagenda, also in the three core areas, is shaped by the general development context of eachcountry, with its domestic as well as international features and background. When designingand managing the actual Danish support in these areas, it is essential to take these contextualfactors into account continuously.The three selected core areas are often closely linked and offer good opportunities forsynergies. The three areas are also highly relevant in most of the sectors and areas supported byDenmark, such as private-sector development, health, education, water and sanitation. It is theambition that the principles expressed in this strategy be applied across the board in Danishdevelopment assistance to ensure consistency between the work carried out at the sector leveland at the overall level of public-sector management.4.1 The fight against corruptionCorruption has been shown to be most detrimental to the poor and vulnerable. It underminesthe public sector and economic growth rates, investment rates, the allocation of publicresources, and other essential elements of national development. Corruption redistributesresources and welfare away from those already deprived. It has the general effect of reducingthe legitimacy of the government and the public sector in the eyes of the rest of society. Thisscourge is a major risk associated with development assistance.Corruption is usually defined as “the misuse of entrusted power for private gain”, the definitionused in the Danida Action Plan to Fight Corruption. Though the definition has been criticisedfor representing a Western tradition of government and administration, it does capture thenotion that corruption is based on informal relationships of accountability, which are at oddswith formal democratic accountability relationships.

It is useful to distinguish between certain forms of corruption. A fundamental difference isbetween systemic and non-systemic corruption. Systemic corruption has become such anintegral part of the workings of a system (e.g. a country’s public sector) and society that it canonly be tackled as part of a comprehensive reform of the system and society. This undoubtedlyposes a challenge in many of the partner countries, and fundamentally informs the way inwhich corruption and anti-corruption needs to be understood and approached in thesecountries.Another important distinction is between administrative and political corruption, depending onwhether those benefiting from it are either politicians or civil servants and other governmentofficials. Administrative corruption causes direct damage to the effectiveness and efficiency ofpublic organisations, while political corruption has particularly severe consequences for theformal and democratically based relationship of accountability between government andcitizens. So-called ‘state capture’ is an extreme and very harmful form of political corruption, inwhich the regulatory and legislative environment is skewed in favour of the corruptor, whothus obtains a more permanent privilege or preferential position, in principle with legal backing.The Danida Action Plan to Fight Corruption5, from 2003, defines actions and outputs at threelevels: 1) prevention, which relates to improving rules and procedures, 2) capacity development,and 3) enforcement, which concerns better measures to uphold rules against corruption at thecountry level and to prevent misuse of Danish development assistance. The actions taken sofar, both internally in the Danish aid delivery system and with regard to the recipients ofDanish development assistance, have given, and continue to give, Denmark a strong platformfor further support for partner countries’ fight against corruption.Experiences and challengesAnti-corruption efforts have traditionally focused on internal mechanisms in the government orthe public sector, targeting corruption as a phenomenon that may be addressed more or lessseparately from other aspects of governance. It is now widely acknowledged that corruption is,to a large extent, a symptom of generally malfunctioning governance. Consequently, corruptionmust be addressed in a more comprehensive and long-term manner than has traditionally beenthe case, a change already reflected in the Danida Action Plan.Important aspects of this evolving approach include the increasing focus on the roles ofparliament, civil society, and other non-state actors, such as the private sector and the media.These are increasingly being involved in anti-corruption efforts as watchdogs andwhistleblowers, as well as promoters of transparency and accountability more generally. Theprivate sector is also increasingly sought after as a partner in promoting responsible behaviourby the business community and in demanding effectiveness, integrity and accountability fromthe public sector. In addition to targeting the public sector itself, the fight against corruptionthus involves all actors on the demand side of good governance. However, the weakness of

parliaments, civil society, the media, the private sector, and other non-state actors in manycountries significantly constrains the scope for such initiatives.On the international scene, the global and regional regulatory framework, such as the UnitedNations Convention against Corruption, the OECD Convention on Combating Bribery andseveral regional initiatives, has created new opportunities for advancing the fight againstcorruption both nationally and internationally.Several assessments and indexes describe various aspects of corruption, but there is no jointand internationally agreed format that captures the complex nature of corruption and itsconnection with the overall governance situation.Danish efforts in the field of anti-corruption have intensified since the launch of the ActionPlan. A considerable number of initiatives have been taken in all partner countries, addressingthe public sector as well as parliaments, political parties, civil-society organisations and themedia. The endeavour has also promoted the adoption of international and regional anti-corruption conventions and other initiatives. As much of the work as possible is carried out incoordination with other donors.Political corruption is also being increasingly addressed, based on growing recognition thatcorruption, and in particular political corruption, threatens popular support for developmentassistance in the donor countries. This should partly be seen in the context of increasingconcerns about development effectiveness. Efforts to align development assistance withnational procedures and systems in partner countries are being hampered by corruption.However, at the same time, alignment has led to a new and franker dialogue in matters ofgovernance, including corruption. Nevertheless, corruption remains a particularly toughobstacle to joint efforts to implement the alignment commitment of the Paris Declaration.Guiding principlesDenmark will:--Address the challenges of corruption in its broader governance and accountability context,and as an integral part of improving governance in general.Work to promote common approaches and tools for corruption assessments and systems tobenchmark progress in anti-corruption, approaches to supporting the fight againstcorruption in partner countries, and response and coordination mechanisms for cases ofdeteriorating and/or unacceptable situations of corruption.Support the fight against corruption through measures directed at the supply as well asdemand side.Promote accountability mechanisms generally, including the roles of parliaments, civil-society groups and other non-state actors, such as the private sector and the media, with aview to fighting corruption. Denmark will promote the involvement of the citizenry at largeas active participants in national efforts towards improved governance and in the fightagainst corruption, taking into account the different needs and challenges faced by women.

Continue to address the fight against corruption as an area of intervention in itself, and as across-cutting element in other development assistance.Continue to implement the Danida Action Plan to Fight Corruption. The principle of ‘zerotolerance’ will continue to apply, and cases of corruption involving Danish developmentassistance will continue to have consequences. Denmark will maintain high standards ofintegrity in its development assistance system. This is a natural implication of a partnershipbased on mutual accountability.Exploit synergies between anti-corruption and the other two core areas of support.Participate and uphold the aforementioned priorities and principles in relevant internationalforums, such as the European Union, the UN, OECD/DAC, the World Bank, and entitiesrelated to implementation of the United Nations Convention Against Corruption.

4.2 Local service delivery and governanceThe division of labour between the central and local levels is essential with regard to fosteringpoverty reduction most effectively. While the transfer of authority and responsibility for publicfunctions from the central government to local governments is not a panacea for the challengesof development – nor is it an end in itself – it may contribute to effective and accountabledelivery of services and to local democratisation.At present, reforms aimed at improving local service delivery and governance, includingdecentralisation, are being pursued in the majority of the Danish partner countries. The natureof reforms varies greatly, ranging from mere technical adjustments of the public administration,mainly in the form of deconcentration, to radical devolution of political power to relativelyautonomous local governments. In most countries, local service delivery is carried out by amultiplicity of entities, including autonomous and private organisations.Denmark has a long history of transferring substantial public functions and authority to locallyelected governments, while striking a balance in the vertical division of labour with regard toresponsibilities and decision-making. Combined with Denmark’s long-standing engagement indecentralisation programmes in development cooperation, this domestic experience provides avantage point for Danish involvement.According to Danish as well as international experience, five basic elements are present ineffective implementation of reforms aimed at improving local service delivery and governance:1) A legal framework, 2) financial and 3) human resources adequate to undertake the functionsassigned to each level, 4) effective mechanisms for local-level accountability, and 5) centralinstitutional arrangements. These five elements must be analysed prior to any support, andtaken into account when designing the programmes.Experiences and challengesImprovement of local service delivery and governance has often been looked at from a narrowtechnical perspective. However, it is also about changes in decision-making processes, andmore generally about change in the control over resources. There are ‘winners and losers’ of

reform. Resistance from various groups of society to the transfer of authority to local levels isthus the rule rather than the exception. This underscores a key lesson, namely the importanceof fully comprehending the political and political-economy dimension of these reformprocesses. Local government associations can play an important role in advocatingdecentralisation.Experience shows that measures to improve local service delivery seem to make the mostheadway when forming part of comprehensive public-sector reforms backed by governmentcommitment at the cabinet level, rather than being led by a single line ministry, including aconsistent and clear legal framework for the allocation of assignments and their required fiscaland human resources, mechanisms for local accountability, and central standards andsupervision. Too many decentralisation reforms and programmes have collided with a lack ofcommitment at the government level and insufficient coherence with broader-based reforms,including civil-service reform.In some countries, legislation concerning the division of labour between organisations andlevels in the public sector is inconsistent and even contradictory. This gives rise to friction andmakes public-sector management inefficient and ineffective. It also makes it difficult for donorsto align their support to developing countries’ policies and procedures. This is one of thereasons (in some cases even a pretext) for many donors to hold on to traditional aid modalitieswith parallel structures and specific units of project implementation.The capacity of local governments and other agencies at the local level is often very weak. Thismay serve as a pretext to defer reforms. At the same time, the central level is frequentlyunfamiliar with, or unprepared for, a changed role in a decentralised public sector. Capacitydevelopment – at the local, intermediate and central levels – must therefore go hand in handwith a clearer division of labour between central and local levels.There is no universal consensus as to what functions can most advantageously be devolved tolocal governments. One starting point for analysis is the principle of subsidiarity, i.e. that afunction should be assigned to the lowest level suitable and capable of undertaking it. However,this principle must always be balanced against an assessment of how the functions can beperformed most effectively.With regard to local democratisation, the transfer of authority and responsibility to the locallevel brings government closer to the people. However, if carried out uncritically, there is also arisk that this will reinforce social and cultural inequalities, including gender inequality, whichmay prevail at the local level. Indigenous groups might also differ in their perception of theframework for local-level management and administration. The transfer of authority andresponsibility to local levels is more successful when accompanied by efforts to involve thecitizens and respond directly to their various needs.When implemented successfully, decentralisation can be an effective tool against corruption.Experience shows that countries with a high degree of fiscal decentralisation are likely to have

less corruption. Citizens’ control and accountability mechanisms are generally stronger whenthe distance between citizens and administration is shorter.Experience also confirms that a more decentralised set-up for the public sector, based onpopular participation and accountability, can give more voice to women at the local level, thusbecoming a vehicle for political change.Successful decentralisation has often led to improved local taxation, as people become morewilling to pay taxes, if they receive services. Moreover, increasing local revenue strengthens theindependence of local governments, thus helping to create a virtuous cycle.Support for reforms aimed at improving service delivery and governance at the local level willcontinue to feature prominently in Danish development assistance, either in the context ofcomprehensive institutional reforms or as part of sector programmes.Guiding principlesDenmark will:-Address the overriding objective of poverty reduction in the support to promote localservice delivery and governance. Consequently, Danish support for the local level may havea significant element of investment projects in pursuit of poverty reduction, support tocover recurrent costs and capacity development, as well as elements to improve localtaxation.Support the development of effective accountability mechanisms. Cooperation will betailored to match the needs of government organisations (supply side), associations of localgovernments, civil-society organisations and other non-state actors, including customaryauthorities (demand side).Push for increased donor coordination and harmonisation at the partner-country level toachieve joint policy dialogue, programming and funding arrangements.Pursue alignment of support for local service delivery and governance, and, as far aspossible, support the level of local government through existing systems.Push for and support activities that promote gender equality at the strategic as well as at theprogramme and project level.Ensure that all Danish sector programme support (education, health, environment, etc.) isin line with the overall Danish approach to local service delivery and governance in eachpartner country, and that potential synergies are exploited.Take account of the two other core areas – public financial management and anti-corruption – in Danish support for local service delivery and governance, wheneverrelevant, seeking to maximise the synergy between efforts in the three areas.Actively promote the development of, and agreement on, common guidelines and goodpractices for support in this area, and generally promote the aforementioned principles inrelevant international and regional organisations, such as the EU, OECD-DAC, theinternational financial institutions and the UN.18

4.3 Public financial managementA well-functioning public financial-management system is critical to efficient and effectiveservice delivery. It provides relevant and reliable financial information in a timely and consistentmanner for control and accountability at all levels. It supports and reinforces otheraccountability systems regarding budget execution, and thus has a central place in the fightagainst corruption.The role of the public financial-management system is to facilitate the planning and budgetingprocess of the public sector, the recording of financial information, and the controlling ofbudget execution. It concerns both the revenue and the expenditure side of the budget. Thebroad objective of a public financial-management system is to achieve overall financialdiscipline, allocation of resources to priority areas, and efficient and effective use of publicresources for the achievement of results.Financial management is the active use of financial and other information to plan activities andtransform inputs and resources into outputs. This is guided by the relevant legislation, theorganisation of work, the procedures and systems, the administrative and accounting tools(including IT systems), and the control systems. Procurement of goods, works and services isan important element of a public financial-management system.There has been a shift in the approach to public-sector management from rule-basedadministration to focusing more on results and value for money in Danish partner countries aswell as in many other places. This has strengthened awareness of the need to enhance publicfinancial-management systems. Furthermore, the donors’ commitment to increasing the use oftheir partners’ national procedures and systems for channelling financial assistance hashighlighted the need for sound public financial management. This, in turn, has drawn thedonors’ attention to support for public financial-management reforms in partner countries.Experiences and challengesThere is increasing public pressure on managers in the public sector to deliver results and valuefor money. Poverty and scarcity of resources in developing countries make this pressure evenmore acute. Furthermore, requirements for management information have increased with thegreater focus on results and outputs in many developing countries. Public financial-management systems in partner countries are often ill-prepared to support results-basedmanagement, and are generally encumbered by weak capacity.Reforms of public financial management are ongoing in most Danish partner countries. Thefirst round of reform initiatives focused mainly on planning and budgeting. Since the mid-1990s, they have increasingly focussed on budget execution, paying particular attention tointroducing integrated financial-management systems and improvements in publicprocurement.

Public financial-management reforms are politically sensitive. Implementation has often beensignificantly delayed due to overly ambitious and complicated designs, with too manycomponents and inadequate capacity development, poor links between key reforms at centraland lower levels, general failure to consider prevailing incentive structures and interests, andtoo little attention to the need to secure political commitment before embarking on more far-reaching reforms.Denmark has supported public financial management in most partner countries together withother donors, both as earmarked support through sector programmes and as general supportthrough joint funding arrangements with other donors. The efficiency of donor assistance hasbeen weighed down by the abovementioned delays in implementation, as well as by the absenceor shortcomings of the sequencing of the reform package, fragmented financial assistance, andlack of effective donor harmonisation.Although financial support for public financial management is generally provided in connectionwith comprehensive reform packages, it appears that donors tend to focus their interest on thebeginning of the budget cycle, i.e. the budget preparation and the introduction of multi-yearbudgets, as well as on the end of the budget cycle, i.e. external audits and – increasingly – therole of parliamentary oversight. However, the equally important intermediate stage of thebudget cycle, namely activities related to the execution of the budget, continue to merit strongerattention. Denmark will focus its involvement in the area of public financial management onthree sub-areas belonging to this stage: 1) accounting and financial reporting, 2) procurement,and 3) management control and internal auditing. Denmark may consider support for therevenue side of public financial management, e.g. taxation, if there is a need for this, and ifother donors are not providing the necessary assistance.Guiding principlesDenmark will:-Emphasise the need for a country-led, comprehensive, multi-year approach to improvingpublic financial management, as well as the need for appropriate sequencing of reforms,providing support for joint financing arrangements.Emphasise the importance of improved accountability, by focusing on strengthening thebudget-execution phase of the budget process, working to promote enhanced managementcontrol by focusing on timely, consistent, relevant and reliable financial reporting.Support the development of capacity in internal audit units at all relevant levels ofgovernment with a view to enhancing the effectiveness of management controls.Work to promote awareness of the strategic importance of transparent and accountableprocurement based on the development of strong national procurement systems andcapacity, relying increasingly on these for procurement, also in all Danish-supportedactivities.

Work for better access to information for citizens, civil society and other non-state actors,such as the private sector and the media, about public finance, based on improved reportingand transparency.Work to safeguard the independence of supreme audit institutions, considering this aspectalso in relation to financial-support arrangements in the context of broader financial-management reform.Promote the abovementioned principles in relevant international and regional organisations,such as the EU, international financial institutions and the UN. Denmark will continue itsparticipation in relevant forums, such as OECD-DAC, pursuing the development of, andagreement on, good practices for supporting capacity development in public financialmanagement and procurement, and seeking to introduce joint assessment methodologies,such as the concept of Public Expenditure and Financial Accountability Review and theCommon Benchmarking and Assessment Methodology for Public Procurement Systems.

5. Danish capacity for governance supportA competent, relevant and respected partner in public-sector managementEffective partnership requires a donor who is capable of engaging competently in technicalissues and who has country-specific knowledge of the sectors and areas in which support isprovided. It also calls for knowledge of the political economy and of relevant cultural factors inindividual partner countries.Denmark will strive to live up to its responsibility as a competent and relevant donor in variousways. To this effect, Denmark will, for instance, continue the decentralised management ofdevelopment co-operation with partner countries, assigning the responsibility for planning andimplementing the assistance to resident Danish representations and to the targeted partnerorganisations. Denmark will also promote harmonised and, whenever possible, joint supportfor capacity development based on country-led capacity development strategies. As part of itscommitment to increasing development effectiveness, and based on a rational division oflabour with other donors, Denmark will also reduce the number of sectors and areas supportedin each partner country. This will take place in close collaboration with partners. It will releasecapacity to be deployed in those sectors and areas that continue to be supported, enablingDenmark to take on a more active role as lead donor.By giving priority to three areas of public-sector management, Denmark will strengthen itstechnical and professional knowledge and competences in particularly relevant areas, such as:- Political economy and governance analysis- Anti-corruption- Local service delivery and governance- Financial management, including procurement- Capacity developmentThis will take place through:- Recruitment of specialists in the field of public-sector management.------Strengthening of competence development for staff at Embassies and Headquarters, whenpossible through joint training with other donors.Participation in relevant international and regional forums, such as OECD-DAC and theStrategic Partnership with Africa, for the sharing of experiences.Thematic reviews on good practices – preferably carried out with others – regardingsupport for local services and governance, public financial management and anti-corruption.Country-specific courses on the political and administrative systems of partner countries,where possible through joint training with other donors.Workshops and seminars in Denmark on key issues of public-sector management forconsultants, NGOs, researchers and Ministry of Foreign Affairs staff.Active networking and communication within the abovementioned forums and throughwww.danidadevforum.dk,seminars and conferences.

6. MonitoringThe implementation of the present strategy will be monitored as an integral part of the existingmonitoring performed by the Ministry of Foreign Affairs and of those monitoring systems thatmay exist in individual partner countries.This endeavour encompasses two overall strands:1) Assessment of the implementation of the main elements of the strategy, i.e.:Assessments made by the Embassies and Headquarters according to their performancecontracts. This includes the Country and Programme Assessment Reports submitted on anannual basis.Case-based qualitative reporting regarding human rights, democracy and good governanceundertaken every second year.Thematic reviews and/or evaluations to be undertaken at least every five years.Information from the aforementioned reports will be included in the various annual reportsof the Ministry of Foreign Affairs regarding Denmark’s development assistance.2) Benchmarking and monitoring of governance performance in partner countries through a setof country- and context-specific indicators, preferably conducted jointly with otherdevelopment partners, including partner countries. This includes, among other sources:Governance assessmentsCorruption diagnostic surveys and studiesPEFA indicators“Doing Business” indicators and Investment Climate SurveysPublic Expenditure ReviewsCountry Procurement Reports (using the OECD/DAC Baseline Indicator System)Country Financial Accountability Assessments