The Exchange Public


Nov 10, 2013 (4 years and 8 months ago)


Public Financial
Management and its
Emerging Architecture

Teresa Curristine,

Fiscal Affairs Department,

The Exchange Public
Financial Management
Forum, Abu Dhabi

15 May 2013

Overview of Presentation

1) What is Public Financial Management?

2) The purpose of this book

3) Trends in key PFM innovations

4) Conceptual
and levers of reform

5) Individual
innovations: Issues
challenges and lessons

Fiscal Rules, Medium
Fiscal councils, Performance

) Key lessons from the crisis

7) General
conclusions and lessons

1) What is Public Financial Management?

In its traditional sense PFM is concerned with established phases
of budgeting

formulation, approval, and execution.

Broadened its focus to all aspects of managing public resources

It is an “umbrella” definition, covering a set of systems aimed at
producing information, processes, and rules that support fiscal
policymaking and provide instruments for its implementation

Sound PFM is about having information, procedures, and rules in
place which incentivize and regulate the behavior of politicians
and public servants so that they achieve the key PFM objectives.

Key objectives:

maintaining a sustainable fiscal position

effective allocation of resources

efficient delivery of public goods and services

2) Purpose of book

Main motivation: importance of PFM especially now

“many governments are now struggling with restoring sustainable public
finances: the way governments manage their budget today will have
profound economic impact in the years ahead. The crisis highlighted the
importance of sound public financial management for generating well
designed fiscal policies and ensuring they are implemented effectively

Main objectives:

Take stock of innovations developed and adopted in a growing number of
countries over the last two decades.

Look at public financial management as an integrated framework in
which the elements mutually reinforce each other.

Draw some lessons , particularly in light of recent financial crisis to help
reformers has they move ahead .

Key Innovations

Fiscal responsibility legislation and fiscal rules: Countries with
fiscal rules has risen from 5 in 1990 to 76 in 2012.

Medium Term Budget Frameworks (MTBF): the number of
countries with MTBF has increased from fewer than 20 in 1990
to more than 130 in 2008.

Fiscal Councils: from about 6 in 1990 to around
in 2013.

Fiscal Reporting: countries reporting at least a financial
sheet to the IMF has increased from 21 in 2004 to 41 in 2011.

Performance information: since 2007, 80 % percent of OECD
countries produce performance information, and in 2011 about
2/3 have a performance budgeting framework.

Since 1999, 111 countries have undergone a “Fiscal
Transparency ROSC,” and by the end of 2011, 126 countries

4) Comprehensive Conceptual

PFM has three types of instruments

information, processes and

for changing the behavior of politicians and public servants and

The three instruments form a logical sequence

Information is the essential first step. It rests on the expectation that
providing better information to policy makers will produce better

Processes offer inducements for policymakers to make prudent,
effective decisions

Rules prescribe or proscribe certain actions by policymakers or

Each Instrument has its limitations

Information: essential but can be costly,
and become
an end by itself,
and stir conflict

Processes: innovations tend to be dominated by routine and
bureaucratic inertia

Rules: can be procedural and/or restrictive

5) The number of countries with fiscal rules rose from 5 in 1990
to 76 in 2012 most countries have more than one rule

5) Fiscal Rules: Challenges and lessons

Issues and Challenges

Rigidity in adjusting to shock , lack of flexibility

failure of countries to save in good

Incentives to bypass rules and engage in creative accounting

Lack of supporting institutions

During crisis many rules suspended

Lessons Learned

Flexibility to adopt to changing economic circumstances

Importance of design features

escape clauses

Need for integrated framework and supporting budgetary institutions

Adopt to countries capacity and

specific circumstances

Importance of political commitment

New generation of rules post
crisis, explicitly combine sustainability
objectives with more flexibility to accommodate shocks and set
budgetary targets in cyclically adjusted terms. But more complex and
require greater technical capacity

5) MTBF: Issues and Challenges and Lessons learned

Issues and Challenges

Some countries treat MTBF as separate rather than integrated part of budget

Some countries with indicative frameworks treat out
year ceilings as floors and
make overly optimistic projections.

During crisis, difficult to keep to this year’s budget totals let alone future years

Lessons Learned

There is no single MTBF model.

In deciding on model countries face trade offs
between objectives, coverage , specify and certainty

Design features are key for success and need to be adjusted to country

Binding Frameworks more effective in promoting fiscal discipline but require higher

Preconditions: need creditable annual budget process, based on prudent
macroeconomic assumptions, guided by transparent fiscal objectives, and top down

Enforcing credibility of MTBF requires regular updates of medium term projections,
adequate safety margins, and firm control over multi
year commitments .

During crisis countries with advanced MTBF used it to show markets how it will
implement plans to achieve sustainable fiscal targets in medium term.

5) The
number of countries with fiscal councils grew from
6 in 1990 to 28 in 2013







5) Fiscal Councils: Challenges and Lessons Learned

Issues and Challenges

Obtaining and maintaining Independence

walking the independence

Influencing fiscal policy
and promoting fiscal discipline

s information

imited resources

Lessons Learned

Wide diversity among councils, adopted to country circumstances

Importance of not just legal but also operational independence

Works better with fiscal rules, helps monitor rules.

Councils need an active media strategy and time to build up their
credibility and reputation.

Political support is important as is political and public support for sound
public finances

Well defined mandate and technically qualified staff.

Councils seen as a solution but important not to oversell them still too
early to disentangle impact on fiscal outcomes

5) Trends
in Performance
Budgeting and Management

Percentage of spending ministries that use performance information in budget negotiations

How spending ministries and ministries of finance use performance information

5) Performance Budgeting: Challenges and Lessons Learned


Improving quality of Performance Information(PI) and receiving relevant
information in timely manner.

Aligning incentives to promote performance improvements.

Engaging Politicians to use PI in decision making.

Changing culture and behavior of key actors to focus on results.

Mixed use of PI during the crisis depends on individual countries circumstances
move towards spending reviews.

Lessons Learned

Importance of leadership at a political and institutional level

Importance of ownership and engaging those in the front line delivering

Evolving and adopting performance systems as political and economic
circumstances change.

Changing and evolving incentive structures to avoid gaming and performance
reforms becoming about compliance.

6) Key Lessons from the Recent Crisis


crisis innovations not yield excepted results

did not save in good times.

Many innovations not well entrenched or fully implemented

Innovations introduced in a piecemeal fashion without
understanding links between different reform initiatives and
need for supporting reforms.

Rigid systems and rules broke down

Controls insufficiently tight

basics not in place

Information insufficient

Quality, Coverage, Timeliness

government unaware of the true state of public finances

Transparency and Accountability at Risk

governments poor
understanding of fiscal risks

7) General Conclusions and Lessons

Modern PFM is a set of increasingly complex processes, rules, and
systems, intrinsically linked to one another.

Importance of viewing PFM as an integrated framework .

Context matters and adjusting reforms to individual country

Reform prospects influenced by: sequencing of reforms; the
impact of context and differing institutional and technical
capacities and political economy factors

especially in developing
countries where reform architecture is critical.

Reliable, timely, comprehensive information is essential but it
may lead to information overload and in some cases not sufficient
to change behavior

7) General Conclusions and Lessons

The relative emphasis of PFM has shifted
toward fiscal sustainability vis
vis efficiency
and effectiveness.

Thus, the focus on medium/long term and fiscal

The architectural design identifies constituent
elements and provide general considerations.
Going beyond that would be pretending to have
discovered a magic formula that does not and
cannot exist.

Thank you

This impressive book offers insightful perspectives on the challenges of managing public money
and will inspire and inform reform ideas across the globe for years to come. Academics and
practitioners alike should keep a copy close at hand. I certainly will.

Matt Andrews

Associate Professor of Public Policy,

Kennedy School of Government, Harvard University

...This [book] couldn

t come at a better time, as leaders and analysts alike will need better
guideposts to help nations achieve more sustainable and rationalized public finances in the
tumultuous years to come.

Paul L. Posner

Director, Public Administration Program, George Mason University

...This timely publication provides an impressive overview of country practices, reforms, and
innovations in the area of public financial management and is a rich source for practitioners in
public administrations as well as for the academic community and the interested public.

Gerhard Steger

Director General of the Budget, Ministry of Finance, and Chair, OECD

Working Party of Senior Budget Officials

This much
needed book seeks to avoid simplistic prescription and fosters awareness of the
coherence and context of budget institutions. It is an indispensable guide for postcrisis fiscal

Joachim Wehner

Associate Professor of Public Policy,

London School of Economics and Political Science

Reviews for

Public Financial Management and Its Emerging