![Page 1: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/1.jpg)
INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM)
Module 1.1Definitions , objectives of PFM and its context
![Page 2: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/2.jpg)
Module map
![Page 3: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/3.jpg)
Why is PFM important?
New EU Budget Support Guidelines 2012Continued importance of budget support instrumentStronger link with fundamental values of the EUGreater differentiation of budget support operations, Strengthened eligibility criteria More rigorous assessment
![Page 4: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/4.jpg)
• Some definitions
• Implementing public policies
• The specific objectives of PFM
• The limits of technical approaches to PFM
Module outline
4
![Page 5: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/5.jpg)
What is PFM?Public Financial Management deals with
management of public resources: the
allocation and use of resources collected
from the economy
3 basic elements of public finance:•Public expenditure•Revenues•Government debt
![Page 6: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/6.jpg)
OECD DAC 2009 Definition:
“ It includes all components of a country’s budget process… including strategic planning, medium-term expenditure framework, annual budgeting and also revenue management, procurement, control, accounting, reporting, monitoring and evaluation, audit and oversight.“
The scope of this course
6
![Page 7: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/7.jpg)
• General government comprises all government units• Central government• State government, in federal countries• Local government
Social security funds are sometimes combined into a separate subsector
• Public sector also includes,• corporations and quasi-corporations controlled by
the government units
What is the Government?
7
![Page 8: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/8.jpg)
8Source: Government Finance Statistics (GFS). IMF
![Page 9: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/9.jpg)
• Some definitions
• Implementing public policies
• The specific objectives of PFM
• The limits of technical approaches to PFM
Module outline
9
![Page 10: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/10.jpg)
Three objectives of PFM
10
Aggregate fiscal discipline
Operational efficiency
Allocative efficiency
Outcomes/Effectiveness
Outputs/Efficiency
![Page 11: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/11.jpg)
• PFM is only one of the instruments to implement public policies, but it is probably the more important
• As instrument, PFM has specific objectives to implement properly policies, which should not be confused with policy objectives
• “ Good Plans” • “ Good hands”
• “ Money” • “ Good tools”
11
Specific objectives of PFM
![Page 12: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/12.jpg)
Aggregrate fiscal discipline
Fiscal discipline refers to:
• maintaining a sustainable balance between revenues, expenditures and the level of public debts
• respecting the expenditures ceilings at all levels and by all actors of the Government administration
![Page 13: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/13.jpg)
New York times
![Page 14: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/14.jpg)
Allocative Efficiency Definition
Allocate and spend public resources in such a way that that attainment of the government objectives is maximised
Preconditions for optimising allocative efficiency:• Clearly defined national objectives and priorities• Existence of effective sector programmes • Capacity and willingness to re-allocate if needed• Information on programme outcomes
![Page 15: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/15.jpg)
![Page 16: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/16.jpg)
Definition
Ability to make efficient and effective use of resources in the implementation of strategic priorities
Key elements•Use of liquidity (loans, cash management)•Support to service delivery units•Reduce leakage
Key playersTreasury, Line ministries, service delivery units
Operational Efficiency
16
![Page 17: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/17.jpg)
![Page 18: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/18.jpg)
1/Aggregate fiscal discipline
•Ensuring macro-economic stability•Control of totals
2/Allocation of resource in conformity with policy objectives
•Importance of political aspects•Requires appropriate mechanisms for revealing policy choices and for policy dialogue
3/Efficient public service delivery and resource management
•Importance of management systems (e.g. HR management systems)
Health
Education
Agriculture
Defence Justice
18
As defined in the recent budget literature -Cf. for example PEFA
![Page 19: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/19.jpg)
19
![Page 20: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/20.jpg)
A societal dimension of PFM must be taken into account
“Traditional” PFM values: regularity, compliance, etc. remain very important
Role of Parliament in democratic society
Accountability (Be Answerable and held responsible)
Transparency
Completing the 3 PFM objectives
20
![Page 21: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/21.jpg)
Accountability
• The budget as key accountability instrument • Plans expenditures and revenues• Operationalizes the policies • Voted by Parliament• Scrutiny by parliament
![Page 22: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/22.jpg)
The budget cycle
Planning and budget
formulation
Budgetexecution
Monitoring, Accounting, Reporting
External Audit & evaluation
Cross-cutting issues, legal and
technological infrastructure
Parliament scrutinizes and
votes the budget bill
Parliament investigates executive's
audited reports
PFM
obje
ctive
s
22
![Page 23: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/23.jpg)
Accountability ‘versus’ PFM objectives?
• The challenges
• Constraints may be required for fiscal discipline but some degree of flexibility is required for performance
• The role of Parliament is crucial in democratic society.
![Page 24: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/24.jpg)
Assessing the 3 PFM objectives?
PEFA
24
![Page 25: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/25.jpg)
• Some definitions
• The specific objectives of PFM
• Implementing public policies
• The limits of technical approaches to PFM
Module outline
25
![Page 26: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/26.jpg)
• PFM is an instrument to implement public policies;
• Public finance policies • Tax policy• Public expenditure policy• Debt policy
National and sector policies• Poverty Reduction Strategy• Sector plans, etc
Public policies and PFM
26
![Page 27: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/27.jpg)
• Some definitions
• Implementing public policies
• The specific objectives of PFM
• The limits of technical approaches to PFM
Module outline
27
![Page 28: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/28.jpg)
• PFM compliance was high in the 50s/60s. Performance dropped in late 70s/80s, when salaries plummeted.
• Gap between the fiction of formal systems and the reality of informal processes.
The limits of technical approaches
28
![Page 29: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/29.jpg)
Rakner, 2004 29
![Page 30: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/30.jpg)
• Can PFM reform fight Corruption?
• NO • but it helps in identifying where there are
failings
• Strengthening PFM systems in an adequate manner will help in curbing administrative corruption
• However, fighting grand corruption, which involves powerful politicians is largely a political and societal matter
The limits of technical approaches
30
![Page 31: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/31.jpg)
• Lessons learned?• Modest; realistic expectations• PFM in its political context• PFM processes should be aimed at making
informal rules visible• Transparency is crucial• Attention should be paid to external (to the
executive) control
The limits of technical approaches
31
![Page 32: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/32.jpg)
• PFM is an important instrument to implement government policies
• The main tasks of PFM are to ensure aggregate fiscal discipline, resource allocation in conformity with policy objectives and efficient public service delivery
• Budget management is a core component of PFM• Political aspects of PFM must be taken into
account and informalities must be made visible.
Key messages
32
![Page 33: INTRODUCTION TO PUBLIC FINANCE MANAGEMENT (PFM) Module 1.1 Definitions, objectives of PFM and its context](https://reader035.vdocuments.net/reader035/viewer/2022081419/56649f2c5503460f94c46e19/html5/thumbnails/33.jpg)
Completing the figure
PlanningBudget
formulation
Budgetexecution
Monitoring, Accounting, Reporting
External Audit
Cross-cutting features, legal and
technological infrastructure
Parliament scrutinizes and
votes the budget bill
Parliament investigates Executive's
audited reports
PFM
obje
ctive
s Political factors,
informal rules
33