Public Financial Management
Reform:
A complete history (abridged)
Reform Lessons, Capacity Building, TA, and WGA
Bill Dorotinsky
Fiscal Affairs Department
IMF
Whole-of-Government Approaches in
Fragile States Conference
Paris
March 17-18, 2008
Distinction

Public finance policy
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Public financial management (PFM)
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
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Treasury system
Budget processes
Relations
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Rice subsidies
Bad system likely to produce bad policy
Bad system cannot implement well good policy
Focus of remainder is on PFM
HIPC Expenditure Tracking
2005 Results
Percentage of Countries Not meeting Benchmarks
(24 Countries)
2001
2004
100
90
80
Percentage
70
60
50
40
30
20
10
0
Indicator
Number
1
2
3
4
5
Formulation
6
7
8
9
10
Execution
11
12
13
14
Reporting
15
16
New
HIPC Expenditure Tracking
Lessons

Realistic expectations of reform progress are
needed.

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The "basics" of PFM systems were still not right.

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Over-all the countries improved 10 percent over three years, or
about 3 percent per year
Basic PFM system operations were very weak, but fads remain
popular
A holistic – systems – approach to PFM system
analysis and reform development is needed.

The connections between various PFM system components are
understood, but infrequently emphasized or included in reform
measure development
Lessons (continued)

Country ownership of reforms is the critical variable for PFM
system improvement.
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How PFM system assessments, reform actions, and
implementation are undertaken is at least as important as
assessment instruments.

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Country action plan implementation best predictor of PFM system improvements.
Efforts to improve PFM systems must begin with country ownership – leadership
– in assessing performance, setting the reform agenda and implementing
reforms.
Joint action planning between authorities and technical assistance providers can
yield better results.
Narrowly focused action plans, reflecting clear reform priority
setting, might improve reform impact and PFM system
performance.
Donor coordination around a more limited set of reforms might
help keep reforms focused and yield better results.
Customized reforms to country needs may yield better results


Rather than donor pre-packaged measures
Country’s pragmatic needs for managing resources, self-defined, may be the best
place to start
Capacity-Building

Build PFM systems that meet country resource
management needs

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Emphasize country staff doing the work, versus doing
work for them
Advisory/TA work is changing

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pragmatic, simple solutions fitting country circumstances
Less on ‘what to do’, more on ‘how to do it’
Needs change; flexible, fast response needed
Long-term

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Critical mass, cohorts, generational
On-going engagement with increasing country assumption of
tasks, task management, analysis, etc.
Country Systems
-- donor financial arrangements reinforce or undermine country PFM system
Function
Parallel System
Budgeting
Banking
“Pure” Country
System
Limited use of
Country System
Substantial Use of
Country System
Parallel project
budgets, in many
cases not
included in the
country’s
budget.
Regular national
budget
procedures,
supplemented by
more detailed or
reclassified
“project budgets”
Where national
procedures allow for
earmarking of multiyear funds and carryforward to future years,
these might be used to
more easily attain
project objectives.
Project expenditures
and financing
included in
national budget
and approved as
part of regular
budget
procedures.
Funds retained in
commercial
bank or outside
country.
Funds retained in
central bank, separate
account
A Treasury Single
account in central
Bank, with
subaccount might
to notionally
prevent comingling of
project funds with
general funds.
Treasury Single
Account
Similar entries for other aspects of country systems: Payment; Program Management;
Internal Controls; Accounting; Financial Reporting; Record-keeping; Audit (internal and
external); Procurement; Oversight
PFM TA modalities
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Different modalities for different needs
Training
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Direct TA
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Generic, general out-of-country
Specific, in-country
On-the-job
Shorter versus long-term
Resident, regional, peripatetic, virtual
Peer-learning
On WGA
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WGA supports capacity-building if it

Prioritizes, focuses donor support

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Brings more practitioner expertise where needed
Supports country needs, priorities
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Simplifies versus complicates
Helps solve practical problems, versus trying to re-create
provider-country PFM system
WGA may work differently for PF Policy and PFM
Supplemental
Resource Mobilization, Budgeting Links
I
II
III
IV
Resource
mobilization
Low economic;
low political;
non-tax
resources
Economic outruns political;
non-tax resources
Economic outruns political;
No non-tax resources
Political outruns
economic;
non-tax resources
Accountability
Low
Low
High
Low
Administrative
Control
Low
Low
High
High
Examples
Suggests this
pattern
recurs in
countries
with large
oil-wealth.
Emerging nations of Europe from
14th century.
Medieval city-states of Italy and
northern Europe; also English
republic of mid-seventeenth
century and French
Revolution.
Mobilizing
aristocracy.
Early examples
in 17th and 18th
century Prussia;
exemplified in
Napoleonic
Empire.
Typical pattern of cash-flow
budgeting. Use of expedients.
Indirect taxation, regressive.
Splintered or fragmented
budgets, earmarks. Lack of
budgetary control. Fictional
budgets. Absence of
information on real financial
position. High borrowing. Low
accountability and low
administrative control;
confusion of public and
private roles and high leakage.
Typified by trouble raising
revenues, for which they rely
on direct taxes, levies in kind,
voluntary contributions.
Accountability imposed
informally either through
legislative commissions or
personal control of
bureaucracies.
Source: “Patterns of Budgeting.” Naomi Caiden in Perspectives on Budgeting,
2nd edition. Allen Schick, Ed. ASPA 1987. Pp. 15-26.