Contents

Public Financial ManagementEdit

Public financial management (PFM) is the framework through which governments mobilize, steward, and account for public money. It encompasses the full cycle from revenue collection and budgeting to debt management, procurement, accounting, reporting, and external scrutiny. A sound PFM system aims to deliver essential services efficiently while preserving fiscal stability, protecting taxpayers’ money from waste, and maintaining the credibility of public institutions. In practice, this means institutions, rules, and processes that align policy priorities with budgetary resources, while providing transparent information to citizens and markets alike. Public financial management Budget Debt management Public procurement Accounting Transparency

The core aims and structure of PFM

  • Value for money and service delivery: PFM is not merely about balancing books; it is about ensuring that resources are directed to programs and projects that generate measurable public value. This requires a clear link between policy objectives, budgets, and performance indicators. See Performance-based budgeting and Results-based financing for related approaches.
  • Fiscal discipline and macro stability: A disciplined budget process and credible debt management help keep inflation and interest rates in check, supporting predictable public finance in good times and bad. Key ideas include multiyear budgeting and credible fiscal rules. See Medium-Term Expenditure Framework and Fiscal rule.
  • Transparency and accountability: Citizens and investors need reliable information about how money is raised, spent, and accounted for. This includes timely financial reporting, external audits, and robust internal controls. See Government accounting and Auditing.
  • Institutional architecture: Core institutions typically include a budget ministry or treasury, a dedicated debt management office, a public procurement system, and an independent audit office. See Treasury and Public procurement.
  • Risk management and sustainability: Managing currency, interest rate, and liquidity risk in the public sector is essential to avoid sudden funding crises and to keep long-run commitments affordable. See Debt management and Risk management.

Budgeting and budget execution

  • The budget cycle: formulation, preparation, approval, execution, and reporting. Sound practice connects policy priorities to resource envelopes and includes a transparent process for amendments and contingency planning. See Budget process.
  • Multi-year and strategic planning: A credible PFM system uses a multi-year framework to forecast revenues and expenditures, aligning long-term needs with current decisions. See Medium-Term Expenditure Framework.
  • Classification and program budgeting: Expenditure is organized by programs or outputs to make it clearer what money buys and how results are achieved. See Program budgeting and Expenditure management.
  • Performance and accountability: Linking funding to performance targets, with regular evaluation, helps prevent “funding for fiction” and supports course corrections. See Performance budgeting and Accountability.

Revenue administration and taxation

  • Revenue mobilization and administration: A stable, broad-based revenue system funds public services while minimizing distortions to markets. Efficient tax administration reduces compliance costs and improves fairness. See Tax administration and Taxation.
  • Policy design and equity: Broad bases, reasonable rates, and straightforward rules minimize loopholes and administrative complexity, while targeted relief should be transparent and time-bound. See Tax reform.
  • Compliance and transparency: Strong taxpayers’ rights, clear rules, and enforceable auditing deter evasion and inform policy trade-offs. See Tax justice and Auditing.

Public procurement and value for money

  • Competitive, transparent procurement is central to getting good value for public money. It reduces corruption, promotes innovation, and fosters market confidence. See Public procurement.
  • Contract design and risk allocation: Well-structured contracts allocate risk to the party best able to manage it, include performance incentives, and provide clear exit options if results fall short. See Public-private partnership (PPP) and Contract management.
  • Transparency and oversight: Publishing procurement plans, bid results, and contract terms helps deter cronyism and waste and supports independent scrutiny. See Freedom of information.

Debt management and financial risk

  • Debt sustainability: Governments borrow to fund the investment and operations needed for growth, but must avoid borrowing levels that compromise future budget space. See Debt management and Sovereign debt.
  • Domestic and international markets: A mix of debt instruments, maturity profiles, and currency composition spreads risk and smooths financing costs. See Currency risk and Interest rate risk.
  • Contingent liabilities: Commitments such as guarantees and certain PFI-like arrangements can create hidden exposure; prudent governance requires explicit accounting and risk signaling. See Contingent liability.
  • Market discipline and creditworthiness: Debt management practices that preserve credibility—along with transparent reporting—help maintain access to affordable borrowing. See Credit rating.

Public sector accounting, reporting, and governance

  • Accounting standards and accrual vs cash accounting: Governments may use cash-based reporting, accrual accounting, or hybrids. Each has trade-offs for decision-making, transparency, and comparability. See Accrual accounting and Government accounting.
  • Financial reporting and audit: Regular, timely, and credible financial statements, accompanied by independent audits, underpin trust and provide a basis for policy corrections. See Financial reporting and Auditing.
  • Internal controls and anti-corruption: Strong internal controls, segregation of duties, and anti-corruption measures reduce waste and safeguard public resources. See Internal control and Corruption.
  • Information systems: Integrated Financial Management Information Systems (IFMIS) and other digital platforms improve data quality, timeliness, and auditability. See IFMIS and E-government.

Reforms, implementation, and reform debates

  • PFM reforms aim to improve predictability, efficiency, and accountability. They are often driven by a mix of macroeconomic pressing needs, donor programs, and domestic political priorities. See Public financial management reforms.
  • Private sector participation: Public-private partnerships (PPPs) can deliver infrastructure and services more efficiently when designed to share risk and enable value-for-money outcomes. Critics warn about long-run liabilities and complex contract oversight; proponents emphasize faster delivery and better utilization of private sector expertise. See Public-private partnership and Value for money.
  • Decentralization and subnational finance: Devolving authority and resources to local governments can improve alignment with local needs, but requires strong local capacity and credible oversight to avoid fragmentation and free-riding. See Fiscal decentralization.
  • Transparency versus complexity: While more transparent reporting is desirable, some reforms increase data complexity and require stronger analytic capacity. The goal is to balance clarity for citizens with meaningful, actionable information for managers. See Transparency (governance).
  • Off-budget and contingent liabilities: Some arrangements fall outside traditional budget accounting, creating blind spots. Reformers push for including these in overall fiscal aggregates and risk management frameworks. See Off-budget and Contingent liability.
  • Controversies around austerity and growth: Critics often argue that fiscal consolidation hurts the vulnerable. Proponents counter that disciplined reforms and targeted investment in growth-generating programs can shield and even improve outcomes over the medium term. The debate centers on sequencing, social protections, and credible plans to restore growth. See Fiscal policy and Austerity.

International influence and policy dialogue

  • Global institutions and standards: Multilateral organizations promote PFM best practices, provide technical assistance, and support reforms through grants and loans. See IMF and World Bank.
  • Standards and frameworks: International reporting and statistical standards, such as the Government Finance Statistics framework, aim to improve comparability across countries. See GFS.
  • Lessons across contexts: While the specifics differ, common elements of successful PFM include credible budgeting, transparent reporting, strong audit capacity, and disciplined debt management. See Public sector reform.

See also