The Public Sector Reform Program (PRSP) supported by an Asian Development Bank policy-based loan was reforming and reducing the size of the public sector, and shifting the balance of economic activity away from the public to the private sector.
Five outputs were specified:
- reduced size and operating cost of the civil service;
- increased domestic revenue generation;
- restructured government operations and public enterprises, with the divestiture of some of the latter;
- successful mitigation of negative social and economic impacts of the adjustment in public expenditure; and
- improved conditions for private sector development.
Summary of findings
- Performance in meeting the targets for staff and wage bill reduction varied considerably among governments. Two state governments exceeded their targets while two other, plus the national government did not.
- Revenue targets were met or exceeded by the end of the program period.
- The creation of utility corporations (still under public ownership) and the institution of user charges were the main results from restructuring of government component.
- The PSRP also envisaged some moves to foster private sector development to fill the void left by a reduction in public sector expenditure. The main achievement was the passage of new foreign investment legislation. However, due to a range of constraints beyond the scope of the PSRP, there has as yet only been a limited response from the private sector.
- The PSRP is rated as successful. It was judged to be highly relevant, effective, and efficient with likely sustainability and significant other impacts.
Lessons identified
- It is not desirable to design a major public downsizing based on voluntary redundancies. In order to maintain an adequate level of quality in service delivery, managers should ensure that they retain the key staff needed to maintain the core competencies of their organizations.
- The provision of transition services to public servants made redundant cannot be left to existing institutions. This task needs specialized, albeit temporary, agency with qualified staff and adequate resources.
- The chances of out-placed civil servants becoming successful entrepreneurs can be strongly influenced by the nature of the business environment within which they are expected to work.
- The time consuming efforts at consensus building prior to the reforms being implemented provided the essential foundations for the broad adoption of the reforms and contributed to their ultimate success.
- Economic policy analysis and advice that informed the debates at the subsequent national and state summit meetings were also important to success.
- The effort to reform and divest public enterprises has not been as successful as hoped. One reason is that in such a small, low-income country with a weak private sector, there are few people with the capital and/or business experience to bid for or successfully manage such enterprises. Public enterprise reform requires a more creative approach to involving the private sector in the management of public assets.
- The less successful projected outcomes of the PSRP were not predicted because there was insufficient social analysis of historical, structural, socioeconomic, and cultural conditions during preparation. Such analysis would have taken greater account of the 30 years of welfare-driven public policies. A deeper analysis might have suggested less optimistic predictions concerning private sector growth and indicated the more likely outcome of increased emigration. This consideration may have directed attention to the importance of education and human resource development (HRD) as a mitigating strategy.
- There are important lessons regarding the nature of technical assistance for HRD in the Pacific and elsewhere, particularly where skills are initially low or nonexistent. The Economic Management and Policy Advisory Team TA produced concrete results in HRD, but these have taken time. Conversely, other evaluation experience has shown that the more typical "counterpart" approach has failed to establish sustainable local capabilities for economic management" notwithstanding considerable provision of short-term TA.
- A further lesson relates to the political economy of reform programs. Restructuring an economy calls for short-term sacrifice for long-term gain. This is inherently difficult to manage within a 3- or 4-year election cycle. Nonetheless, program design should take more account of the practical consequences of this for politicians (and for their appetite for reform) by endeavoring, wherever possible, to ensure some early positive results, which will both reward the champions of reform and strengthen their ability to pursue further reform.