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Case Study: ‘Right-financing’ in Security Sector Reform

This month’s case study looks at the SSR topic of ‘right-financing’ in Security Sector Reform. Right-financing is concerned with determining an acceptable balance between “right-sizing” security forces and ensuring service quality and fiscal sustainability over time. The right-financing approach to SSR is intended to improve security services’ quality and sustainability, benefiting the international community and recipient governments and their citizens. Issues of scale, prioritisation, effectiveness and efficiency are fundamental to the delivery of security services in post-conflict situations. Right-financing aims to establish responsive security capacities without imposing on governments a fiscal burden that can undermine the statebuilding process.

Articles written by external parties for ssrbulletin do not necessarily represent the views of GFN-SSR

Right-financing Security Sector Reform

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With international peace-support operations placing a progressively heavier burden on the purse strings of tax payers, and with the failure to consolidate peace in Afghanistan and Iraq high on the political agenda, the need to a adopt a ‘right financing’ approach has never been more pressing. Moreover, given the paucity of resources available for peace-support and SSR operations, it is imperative that viable and efficient financing models are urgently developed so that finance fosters rationale, well sequenced and high priority actions that are peace enabling, not investments that create inflated security structures that undermine security provision itself. Importantly, the ‘right-financing’ framework is not fundamentally about money per se; it is about the need for a thorough assessment of security related needs, determining appropriate and affordable public security policies, developing sustainable security governance, oversight, accountability, and prioritisation mechanisms and processes to deliver increasingly higher quality services over time. In essence, right-financing is about using resources to shape an appropriate policy and institutional environment within which security, law and order and justice system services are delivered.

Current Financing Constraints: The current financing approach for peacekeeping and post-conflict reconstruction remains surprisingly ill-conceived and underdeveloped, with short-term decisions leading to large public sector liabilities that can further undermine the emergence of peace, stability and economic regeneration over the longer term. Based on the recent experiences of post-conflict reconstruction in Europe and Asia, the main financing constraints relate to: (i) poor initial needs assessment; (ii) weak policy and institutional environment; (iii) heavily projectised off-budget financing; (iv) parallel delivery mechanism outside of formal state functions; (v) weak fiscal and economic growth policies; (vi) poorly sequenced assistance often focused too heavily on defence to the detriment of law and order and justice reforms; (vii) weak cross-sectoral and sector prioritisation; and (viii) poorly developed outcome and impact monitoring capabilities.

Towards a Right-Financing Implementation Framework: In order to move the ‘right-financing’ agenda forward, an enabling environment must be created at the international level, overcoming the first significant post-conflict hurdle; a lack of collaboration between the various peacekeeping, development and security communities around how to support the state rebuilding and economic process. The overarching ‘right-financing’ framework would span the entire peacebuilding reconstruction process through the phases of stabilisation and peace-support operations, priority transitional reforms and throughout the normalisation phases, and is fully in line with the OECD DAC Security System Reform Implementation Framework (SSR-IF). It would also be reflective of the specific needs of the post-conflict context, taking into account cultural, religious and gender balances, as well as the causes of the conflict, the economic situation, trade and international relations. ‘Right-financing’ priorities for SSR are outlined below, and covered in more detail at Middlebrook & Miller LLC.

  • Take the long-term fiscal impact of security provision into consideration within peace agreements;
  • Adopt prudent expenditure policies to minimise growth of inflated and unsustainable SSR entities;
  • Work through the national budget as the primary tool of government policy for SSR;
  • Adopt international norms in public finance management for all security entities;
  • Minimise proliferation of parallel security service delivery mechanisms through the UN/NGOs;
  • Establish sustainable security, law and order and justice institutions through functional reviews;
  • Prioritise civil service reforms within civilian security entities alongside anti-corruption measures;
  • Prioritise and sequence investments that foster national, human and asset security;
  • Establish budgeted service delivery targets at both national and sub-national levels;
  • Establish expenditure-tracking systems increasingly focused on monitoring security outcomes;
  • Develop sustainable SSR service delivery models to guarantee basic and essential services.

Peacebuilding, at its core, is therefore largely about re-establishing stable, accountable and growth-oriented states while employing ‘right-financing’ policies as a necessary pre-condition for success. Key to moving the SSR agenda forward is the adoption of standard state restructuring, public administration and civil service reforms, along side public finance management capabilities for security system institutions too – no exception. The creation of modern, effective and publicly accountable security entities will not be possible in the absence of the above right-financing measures.

This is a short summary of a Asia Europe Foundation (ASEF) Briefing Paper drawn from a paper presented at the 5th Asia-Europe Roundtable, “Sustaining the Peace through Post-Conflict Reconstruction”, May 2007, in Singapore.

Written by Dr. Peter Middlebrook. Formally a World Bank economist, he coordinated the US$27 billion Securing Afghanistan’s Future exercise, was the lead writer on the Afghan National Development Strategy (ANDS), and is the joint managing director of Middlebrook & Miller LLC.

 

From ‘Right-Sizing’ to ‘Right-Financing’ SSR

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More often than not high ranking military personnel involved in peace support operations, from the ranks of the UN and NATO, are highly skilled in discharging the functions of conventional security forces, outside of government, and in highly fragile and weak state environments. However, with the evolution of civil and military operations, international security forces are increasingly playing a role not only in the provision of security and peace support operations, but also in advising on the restructuring of national army and police forces. Yet, without the requisite public administration and civil service reform skill set, and in the absence of fiscal and expenditure affairs expertise, decisions are taken solely on the perception of needs. As a result, in countries as diverse as Afghanistan, Iraq, Kosovo and Sierra Leone, inflationary security force sizes and pay and structures deliver states that are fiscally unsustainable from the moment of their establishment. In many cases, as evidenced by Afghanistan, Sierra Leone and Kosovo in particular, the long terms costs of short term decisions effectively mortgage the future for newly incumbent governments, tying up resources that post conflict could have been better utilised on justice reforms, education, health and growth and employment producing infrastructures.

The problem is that the concept of right-sizing simply does not go far enough in rationalising the size, structure, grading and pay of security entities, particularly if the threat assessment is poorly conducted, and where national revenues remain insufficient to allow the emergence of a fully sovereign state. In Afghanistan, the costs of security provision following restructuring of the ANA and ANP based on security need was 600 percent higher than national revenue in 2006, excluding costs such as force maintenance. As a result, external assistance becomes critical to the sustainment of national security itself, with the contingent risk that a reduction in external assistance or possible withdrawal would trigger the collapse of security institutions themselves. Under such a situation, security forces can become a force of insecurity in their own right.

At the centre of the financial management framework for the OECD-DAC Implementation Framework for Security System Reform (IF-SSR) lies the concept of ‘Right-financing’, that seeks to address the fundamental shortfall in the application of the right-sizing agenda. This involves the determination of right-financing decisions, based on a normative framework, to allow force size, development and capability to reflect the long term fiscal capacities of state, and in doing so, to foster long term security through enhanced service delivery. Conducting fiscal envelope and expenditure ceiling reviews to inform the size and structure of the Afghan National Army, would have made clear to Government and the international community of the long term implications of such decisions. Furthermore, the application of the right financing framework and, in particular, its inclusive common needs assessment and prioritisation principle (i) contributes to better targeting and coordination of external financial assistance and (ii) ensures that donor funds are consolidated within the national budget both key to implementing Security System Reform and sustainable state building.

As the international community embarks on the defence transformation of the SPLA in Southern Sudan, there is a risk once more that right-sizing policies will remain blind to financing realities, and the early application of the right-financing framework would thereby minimise the maximum risks associated with such decisions. With the costs of security provision going through the roof, drives in efficiency that foster effectiveness are particularly vital in a world where tax payers in aid providing countries now face recession themselves.

Catherine Vignon
Consultant
Maxwell Stamp

 

Right-Financing Defence Transformation in Southern Sudan

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As the Government of Southern Sudan looks to implement the Comprehensive Peace Agreement (CPA), it should consider ‘right-financing principles’ before locking into an unsustainable security sector reform (SSR) agenda. One aspect of the CPA requires the Government of Southern Sudan (GOSS) to transition the Sudan People’s Liberation Army (SPLA) from a guerilla militia into a professional army capable of delivering appropriate, accountable and affordable security both for a fledgling state and for its people. In order to do this, and given the likely revenue crunch that any incumbent administration will surely face, the GOSS must downsize the bloated SPLA whilst maintaining national, human and asset security. The ‘Right-financing’ framework provides both policy makers and national budget and expenditure experts with a practical framework for balancing fiscal constraints against existing security needs. There are four key policy areas in relation to right-financing, as follows:

  • building fiscal dimensions to post conflict peace agreements, needs assessments, strategies and expenditure planning;
  • Align short-run security policy priorities and spending decisions with long term national budgetary and political realities;
  • Move to a service delivery model for the security sector; and
  • Strengthen international capacities to support right-financing.

The first policy proposal for right-financing the security sector is to consider fiscal aspects of institutions during the early phase of establishing effective governance structures. While it would be ideal to consider troop levels as early as the peace agreement itself, unfortunately, newly established governments are often former combatants who are reluctant to reduce military spending as they perceive, correctly or incorrectly, that the security threat has yet to fully dissipate. However, if the parties negotiating the peace agreement have the foresight to predict future threat levels and estimate the acceptable level of troops required to combat specific threats, the newly installed government can perhaps create an affordable military whilst avoiding the fall-out from the hard political decision of reducing troop levels.

Secondly, the GOSS must look to balance short, medium and long-term security and development needs against budget constraints in order to ensure that higher level priorities are funded first. Immediately following cessation of conflict, international donors often fund substantial portions of the recurrent wage bill of the military and police in order to ensure that the provision of internal and external security are met, however they rarely consider an exit strategy for bringing these expenditures on-budget. As the budget acts as the core instrument of Government policy, the GOSS will need to fully cost, prioritize and sequence its security ‘system’, including structures funded via external partners and parallel, as part of the proportional right-financing process.

A third policy consideration would be to move towards a service delivery model which provides service delivery benchmarks to assist the government evaluate progress towards security reform program outcomes. These would be set against a provisional medium term fiscal framework and would reflect the security priorities of post conflict Southern Sudan (i.e. national defence white paper process, proportional right-sizing, demobilization, perhaps even revenue generation). In collaboration with key stakeholders, GOSS would need to establish performance based indicators measuring outcomes, to underpin any security sector reform programme. These benchmarks of success must also be fully costed and finances, inline with the provisional macro-fiscal framework.. Given the structure of the economy, oil revenues are likely to be a major driver of fiscal sustainability and service delivery in the long term.

Finally, in order for GOSS to effectively implement SSR using a right-financing approach, international community support for the SSR process must be cohesive and the provision of technical assistance must remain a high priority to allow the (re)structuring of army and police forces based on solid principles of public administration reform and public finance management. Government and international cooperation partners need to act in a coordinated and coherent manner to avoid mal-aligned SSR strategies that come with a massive price tag due to unnecessarily burdensome structures. Coordination around a single costed security sector strategy is key in this regard. Moreover, any technical assistance to be provided in developing and SSR – Implementation Framework must not only have direct experience with security strategy development and force restructuring, but also public administration and civil service reform capacities to support both military and civilian structures, public finance management expertise, SSR coordination and process management capacities and training and institutional development skills.

In summary, adopting a right-financing approach to security sector reform will put the government of Southern Sudan on a path of fiscal sustainability whilst creating a professional army under civil control capable of providing national, human and asset security. The risks of not establishing any SSR framework upon such a solid foundation will only mortgage the future for any emergent state and its impoverished citizens.

Sharon M. Miller
Joint Managing Director
Middlebrook & Miller LLC.

 

‘Right-Financing’ Policies for Weak and Fragile States

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In the absence of state revenues, aid dependency is a major curse for countries such as Afghanistan as it essentially prevents them from attaining full sovereignty. While political structures are easily re-established and service delivery frameworks radically overhauled, many weak and fragile states would simply collapse without major external financial assistance. However, poorly financed external assistance often creates overly inflated structures, particularly in the security sector that undermine the ability of an incumbent government to set itself on a stable fiscal footing. Adoption of a ‘right-financing’ framework allows strategic decisions to take into consideration the impact of external spending on the functioning and affordability of future Governments.

Foreign assistance remains both uncoordinated and ad-hoc. Poorly targeted financial assistance can easily undermine the overall reconstruction effort, particularly when it pushes the costs of Government business beyond its actual fiscal capacity, regardless of how much money or resources is being pumped into the country. Vast foreign security assistance in countries such as Afghanistan has resulted in the creation of parallel structures, many of which are entirely outside the sphere of the Afghan State. Moreover, total military spending, to support the emerging Afghan National Army and National Police force, now remains far beyond the financial capabilities of the State and the security sector cannot be incorporated into the core budget perhaps for a further 5-10 years. While foreign assistance provides a degree of security and stability over the short term, providing breathing space for state-(re)building and development, it is simply un-sustainable in the long run.

In Afghanistan, the absence of ‘Right-financing’ policies to guide investment decisions has led to some resounding failures. Of note include the failure to scale down the Law and Order Trust Fund (LOTFA) which pays police salaries, lack of funding of for justice system reforms, increases in number of Afghan National Army beyond that agreed by the Afghanistan Compact, no formal adoption of a Security Sector Reform (SSR) programme, a five pillar approach to security that lacked coordination, Provincial Reconstruction Teams fielded prior to a sub-national reform programme being put in place. Moreover, there appears to be no direct correlation between stability, economic growth or poverty success and the volume of finance being committed to particular provinces. Helmand, for example, is one of the largest recipients of external aid and yet also one of the most insecure. Clearly, the reasons for failure need to feed back into the planning cycle to avoid mistakes that either lead to misspent public funds, unsustainable interventions or finance that creates undue inflationary pressure on the national budget.

Lack of Government fiscal resources results in continued reliance of the Afghan State on the international community for many years to come. High troop numbers and poorly balanced pay and grading structures means that, in spite of security gains, the costs of security to the national budget are way above the Government’s capacity to spend. There is an urgent need to strike a balance between security provision on one side and fiscal sustainability on the other by expanding delivery capability based on actual resource availability.

Adopting “Right-Financing” policies for the security sector is key to sustainable state-building. From the period of the peace agreement, through peace support operations where a semblance of national security and law and order are restored, poor decisions taken by the UN, NATO and international security advisory services can force the government into mortgaging the future. Right-financing calls for (i) external assistance to be coordinated and consolidated within the national budget (ii) a formal security sector reform programme to be adopted (iii) a common needs assessment and prioritisation involving both the incumbent state and external actors to be pursued (iv) clear decisions of force sizes and pay and grading structures within the fiscal envelope of government (v) the financing of security policies should be aligned with long-term budget realities (vi) security forces should support revenue generation (vii) clear security benchmarks and targets should be incorporated into the annual budget process (vii) the fundamental principles of public financial management are equally applicable to the private sector.

The right-financing approach also calls for sound public administration reforms to be adopted alongside enhancement of civilian structures of the defence sector, to improve transparency and accountability. Right Financing calls for responsible financing decisions to be taken, in terms of fiscal sustainability, but also in terms of the prioritisation and sequencing of external support. The aim is to strengthen the state building process to improve security service and to enhance private sector growth.

Helen Ólafsdóttir
Conflict Prevention and Management Adviser
Afghan National Development Strategy

Articles written by external parties for ssrbulletin do not necessarily represent the views of GFN-SSR

GFN-SSR Document Library

The Document Library contains links to and summaries of articles related to SSR. A number of these focus on financing in SSR. These can be accessed by visiting the Document Library and selecting ‘financing’ in the Keyword field. A selection of the financing-specific articles are listed below:

  • Right-financing Security Sector Reform
  • Improving Public Financial Management in the Afghan Security Sector
  • Managing the Defense Budgeting Process
  • Off-Budget Military Expenditure and Revenue: Issues and Policy Perspectives for Donors
  • Post Conflict Security Sector & Public Finance Management
  • Security-Sector Reform and the Management of Defence Expenditure: a Conceptual Framework
  • Sierra Leone Security Sector Expenditure Review

Category: Monthly Case Studies