Public Financial Management Reform:

1
Public Financial Management Reform

• Trends and Lessons

Bill Dorotinsky Fiscal Affairs Department IMF
ICGFM June 18 2008 Washington D.C.
2
Outline

• Orientation
• Objectives of PFM
• PFM Cycle
• Popular Reforms
• Recent Reform Trends
• Observations

3
Objectives of PFM and Budgeting

• Three-level PFM Framework
• Macrofiscal discipline
• Strategic allocation of resources
• Technical efficiency
• Source Public Expenditure Handbook World Bank
  (1998)

• Three functions of Government and budgeting
• Strategic Planning
• Management Control
• Operational Control
• Source Planning and Control Systems A Framework
  for Analysis. Robert Anthony (Boston 1965)

4
Expenditure Management Cycle
Source Adapted from Integrated Financial
Management. Michael Parry International
Management Consultants Limited. Training Workshop
on Government Budgeting in Developing Countries.
THE UNITED NATIONS. December 1997.
5
Popular Reforms
Recommended reforms generally try to change
incentives to better meet objectives by changing
rules roles and information
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And other popular themes.

• Anti-corruption
• Anti-corruption commissions
• Decentralization
• Deconcentration
• Demand-side
• Legislative oversight involvement
• Civil society oversight participation
• Sovereign wealth funds
• Public-Private Partnerships
• Monitoring and Evaluation
• Sectoral measures (e.g. road funds)
• Long-term planning
• Debt sustainability analysis

7
Anglophone OECD Model

• Changing role of MoF
• From control to monitoring/oversight and advisory
  role
• Risk management analysis of emerging issues
  problems and health of decision-making and
  finance system
• From excessive budget detail to policy analysis
  and development
• Shifting authority and accountability towards
  line ministries
• Emphasizing MoF training and guidance
• Performance over compliance
• New Public Management
• Separating policy from implementation
• Contractual relationships agency model
• Empowering line ministries for efficiency
• Caution advanced industrial economies to solve
  efficiency problems not macrofiscal stability or
  sectoral allocation issues good control
  structures high transparency

8
And other practices..

• Fragmenting MoF
• Separate debt agency
• Separate procurement function
• Separate treasury
• Separate budget
• Separate revenue authority
• Separate planning and policy processes
  (persistent state rather than trend)
• All tend to weaken the MoF
• Effect on financial management unclear
• Frequently done to improve pay or improve
  independence

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Budget Formulation
Recent Reform Emphasis
Different drivers of reforms confuse the picture.
Which are donor-driven Which country driven
Which address real need Which are simply
fashionable If higher income enables more
self-direction interesting that performance
budgeting of greater interest in upper-middle
income countries.
2006 gross national income (GNI) per capita.
The groups are low income (LIC) US905 or less
lower middle income (LMIC) US9063595 upper
middle income (UMIC) US359611115.
10
Budget Execution
Recent Reform Emphasis
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Other Reforms
Recent Reform Emphasis
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Observations

• LICs struggle to get basics in place
• Do advanced reforms may detract from this
  objective
• LMICs and UMICs frequently struggle to overcome
  legacy systems
• Recently slight movement away from larger
  reforms towards pragmatic reforms linked to
  country problems
• IFMIS to FMIS
• Unbundling MTEFs better sequencing
• Challenges remain on
• Holistic views of PFM systems focus on weakest
  links
• Sequencing reforms
• Limiting adverse impact of supply-push
  transplanting of advanced reforms to weak
  environments
• Realistic time horizons
• Redefining ownership as helping the country solve
  practical financial management challenges simply
  directly
• Right-sizing reforms measures