ICGFM Promotes Knowledge Transfer Among Public Financial Management Experts

Working globally with governments, organizations, and individuals, the International Consortium on Governmental Financial Management is dedicated to improving financial management by providing opportunities for professional development and information exchange.

Monday, December 1, 2008

Public Financial Management Reform: Trends and Lessons

Bill Dorotinsky of the World Bank described Public Financial Management Reform trends and lessons learned at the Winter ICGFM Conference.

Mr. Bill Dorotinsky described how there has been a tradition of describing a standard series of elements that are essential to public financial management reform. These elements include medium term expenditure frameworks, financial management system implementation, program and performance budgeting.

Not enough has been done to determine if these are the right reforms for addressing the problems that a country faces. It is vital that the country is prepared and understands the problems it is trying to solve and the results it is seeking through PFM reform. Equally important, is understanding the capacity of the country to embark upon and then sustain the change. For example, if the country is struggling with implementing a single treasury account, it is probably not ready to embrace program budgeting. What is apparent is that it is critical to get the basics in place first, to not embark on too much reform at the same time and to set a realistic timeframe for introducing change.

Mr. Dorotinsky provided a survey of the most popular reforms in public financial management. He reflected on a recent case where the budget and controls are not automatically linked to the government objectives and the laws passed by the legislature.

Mr. Dorotinsky delved into numerous reforms that are attempted around the world. Medium
Term Expenditure Frameworks (MTEF) is complex to implement but has significant benefits. He suggested that the move towards full accrual accounting in government needs to be sequenced and can be very difficult to implement.

Decentralization is also a major trend. Mr. Dorotinsky warned that decentralization is often undertaken for reasons other than decentralization. It is often difficult to determine the results of reform.

Public Private Partnerships (PPP) has gained a lot of interest perhaps because of the current financial crisis. Mr. Dorotinsky suggested that PPP can be fraught with risk because PPPs can have loose controls, high risk, and are often not transparent.

Mr. Dorotinksy recommended the use of the Public Expenditure Framework Assessment (PEFA) to identify weaknesses in the current PFM system and help set priorities.

embark on too much reform at the same time and to set a realistic timeframe for introducing change. There is an increasing trend for changing the role of the Ministry of Finance from one of control to one of oversight and also for separating policy from implementation. However, in many countries the line ministries are not ready for the increased accountability and the country does not have enough qualified and experienced resources to support the separation of functions. Also, countries should not be driven by the “latest trends”. In this regard, the development partners should play a greater role in facilitating dialogue with the country, rather than promoting standard recommendations, to better understand the problems it faces and the reforms that will best address those problems. A key role for these donors is to make sure that the country really understands the requirements and results expected from a specific reform and to help socialize the impacts. The requirements of a country of 400,000 people in terms of what it provides for public financial management are common to a country of 80 million however there may be great differences in how it is organized to provide PFM.

Mr. Dorotinsky has seen some recent changes in PFM reform. He has seen more requests for capital investment reform in the past three months perhaps because of the financial crisis. He has also seen a transition from “big bang” to more customized reforms.

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