Why Finance Ministries Should Be Good Story Tellers

If government ministries were characters in a play, the ministry of finance would likely be cast as the villain. Far from being the underdog, the finance ministry is often at the center of modern government, wielding a great deal of (formal and informal) power and influence over a country’s public resources by virtue of its control over the budget. Given this critical role, it is often the finance minister who becomes collateral damage when things go bad. Yet some finance ministers and ministries have managed to escaped vilification and been widely respected for shielding the country against excess and indiscipline of others who would lead it astray. (That is, the common pool resource problem.)

The obvious question, with a not so obvious answer, is why some finance ministries have been able to remain unscathed, even after implementing traditionally unpopular decisions such as spending cuts and/or tax hikes?

A recent conference, “Finance Ministries in the 21st Century,” offered one possible explanation: narratives matter. Jointly hosted by the Overseas Development Institute (ODI), the Collaborative Africa Budget Reform Initiative (CABRI), and the National Treasury of South Africa, the event brought together government officials, academics, and international experts to discuss how finance ministries can be made to work better.

“Reformers are more likely to generate buy-in for reforms both within and outside their organization if they are armed with a strong narrative.”

A key theme that emerged from discussions was that reforms, particularly unpopular ones, are unlikely to be implemented and even less likely to prove resilient unless they are accompanied by compelling narratives. Essentially the story of a policy change, a narrative typically defines a problem, explains how it comes about, and shows what needs to be done to avert disaster or bring about a happy ending. In short, what is wrong and how it can be put right.

The idea that narratives, or public communication campaigns more broadly, are important for selling products, ideas, and even people for political office, is far from novel. Hence the booming multi-billion dollar advertising and public relations industries whose primary purpose is to craft or manipulate narratives to sway public opinion. Moreover, the importance of a compelling narrative is almost always stressed in the literature as a critical factor underpinning successful reforms. Reformers are more likely to generate buy-in for reforms both within and outside their organization if they are armed with a strong narrative. A narrative can give a policy maker “room to maneuver” and enhance their ability to think about new alternatives or different approaches.

A narrative that fosters a sense of a common cause can be an invaluable asset to a finance ministry in particular, because of the nature of its job and the reality of cabinet decision making. If public revenue unexpectedly declines, a finance ministry can spend a lot of time and energy refereeing fighting among spending ministries over who will absorb the cuts, while withstanding great pressure to relax budgetary rules. This is not conducive to good government. It potentially wastes time and energy that could be otherwise spent enacting critical reforms and making tough political decisions.

The recent success of South Africa‘s treasury in implementing an explicit expenditure ceiling is a case in point. Introduced in 2012, the ceiling established a nominal limit on main budget non-interest expenditure – the core spending over which government has direct legislative authority. Not only have spending ministries generally complied with this ceiling, which has substantially reduced expenditure growth, there has also been broad support for the policy across the political spectrum.

The underlying narrative used to support the reform was: because of increasing current account debt, rising inflation, and stagnating economic growth in South Africa, fiscal consolidation could no longer be postponed in light of the principles of counter-cyclicality, debt sustainability, and intergenerational fairness. The ceiling would allow for sustained, but moderate, real growth in spending and a gradually declining deficit. This would enable government to stabilize debt and rebuild the fiscal space needed to fund new priorities. What is noteworthy is that maintaining the main budget expenditure ceiling meant that higher spending in some areas required lower spending in others. So, even though the move potentially threatened the interests of line ministries/departments (since to fund new priorities, government had to divert funds from non-performing or non-essential programs), the treasury has been able to maintain the ceiling. This is partly due to its convincing narrative.

“Narratives that increase the transparency of government’s decision-making processes and the expected results of reforms can help the public hold governments accountable.”

This is not to say that a compelling narrative alone guarantees success. In most cases it is likely to be a necessary but not sufficient condition. Moreover, its legitimacy is likely to vary with time and context. It has been suggested, for instance, that adhering to South Africa’s fiscal consolidation plan has become more challenging over time. Uganda in the early 1990s further demonstrates this point. Technocrats in the Ministry of Planning had long been making the case to the President that a lack of budget discipline was central to high inflation levels in Uganda. It was only after the dramatic surge in inflation in 1992 that they finally convinced the President that the key to inflation control lay in budget control. He subsequently merged the Ministry of Planning and Ministry of Finance, and gave the new Ministry of Finance and Economic Planning a clear mandate to enforce fiscal discipline in budget planning and execution.

A finance ministry is undoubtedly very political. As a result, it cannot rely solely on its spectacular analytical capabilities to be effective. This is perhaps especially true in environments where central finance functions are highly fragmented and allies rather than enemies are necessary to alter the status quo. The added advantage of a properly communicated narrative is that it reduces information asymmetries. Narratives that increase the transparency of government’s decision-making processes and the expected results of reforms can help the public hold governments accountable for sticking to reforms and achieving results.

There are several potential benefits that can arise from a finance ministry having a strong narrative. One important benefit is that it can help ensure that, in the theatre of government, the finance ministry isn’t always cast as the villain.

Photo credit: Flickr/ Philip Schuler

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