Front Matter

Front Matter

Author(s):
M. Cangiano, Teresa Curristine, and Michel Lazare
Published Date:
April 2013
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“Governments across the world are constantly searching for ways to improve their public financial management systems. This impressive book covers many of the questions that get asked in this search. It 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; author of The Limits of Institutional Reforms in Development: Changing Rules for Realistic Solutions

“Faced with growing debt and an uncertain macroeconomic outlook, many governments are experimenting with institutional innovations such as new budgetary rules and fiscal councils. Yet the naïve import of reforms has uncertain benefits. 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 designers.”

Joachim Wehner, Associate Professor of Public Policy, London School of Economics and Political Science; author of Legislatures and the Budget Process: The Myth of Fiscal Control

“This timely volume helps us all better understand the bow wave of public financial and fiscal policy reforms that have been initiated by thoughtful practitioners in nations around the world. Thanks to the chapters by leading public finance analysts, we now have a comprehensive conceptual framework to assess the practices adopted by individual nations, often in the heat of a financial crisis. This 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 helpful volume analyzes the key public financial management innovations that took place over the past two decades. Grouping these innovations loosely into three categories—information, processes, and rules—the authors argue that public financial management is an integrated framework with its own architecture, logic, and connections. There may not therefore be a direct link between individual innovations and outcomes, and general advice is not likely to fit any specific country. The book also poses some intriguing questions, such as what is the likelihood that innovations developed in more advanced economies will work in developing countries.”

Irene S. Rubin, Professor Emeritus of Public Administration, Northern Illinois University; former editor-in-chief, Public Administration Review; author of The Politics of Public Budgeting and Balancing the Federal Budget: Eating the Seed Corn or Trimming the Herds

“In the wake of the financial crisis public resources are particularly scarce. Thus, effective and efficient use of taxpayers’ money requires sound financial management and full transparency: citizens, parliaments, and financial markets deserve a clear picture of where public finances stand. This book provides an impressive overview of country practices, reforms and innovations in the area of public financial management. This timely publication 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, Austrian Ministry of Finance; Chair, OECD Working Party of Senior Budget Officials

“The most comprehensive and informative guide on public financial management! It is well-timed as well. I certainly believe that it will be well received in the Asian region, including Korea, where the importance of PFM is being recognized more than ever.”

Won-Dong Cho, President, Korean Institute of Public Finance

“In this comprehensive survey of current trends in public financial management, the authors present and analyze PFM instruments and practices from around the world. Their analysis is firmly empirical, based on a broad spectrum of sources, and the presentation is balanced; no reader is left with the impression that sophisticated techniques can replace political commitments and hard work. This anthology will for a long time remain a rich source of information for both practitioners in ministries of finance and academic researchers.”

Per Molander, former Director-General; architect of Swedish budget reform of the 1990s

Public Financial Management and Its Emerging Architecture

EDITORS

Marco Cangiano, Teresa Curristine, and Michel Lazare

© 2013 International Monetary Fund

Cover design: IMF Multimedia Services Division

Cataloging-in-Publication Data

Joint World Bank–International Monetary Fund Library

Public financial management and its emerging architecture / editors, Marco Cangiano, Teresa Curristine, and Michel Lazare – Washington, D.C. : International Monetary Fund, ©2013.

  • p.; cm.

Includes bibliographical references.

1. Finance, Public—Management. I. Cangiano, M. (Marco). II. Curristine, Teresa, 1970– III. Lazare, Michel. IV. International Monetary Fund.

HJ9733.P83 2013

ISBN: 978-1-47553-109-1 (paper)

ISBN: 978-1-47551-219-9 (ePub)

ISBN: 978-1-47551-220-5 (Mobipocket)

ISBN: 978-1-47551-221-2 (PDF)

Disclaimer: The views expressed in this book are those of the authors and should not be reported as or attributed to the International Monetary Fund, its Executive Board, or the governments of any of its members.

Publication orders may be placed online, by fax, or through the mail:

International Monetary Fund, Publication Services

P.O. Box 92780, Washington, DC 20090, U.S.A.

Tel.: (202) 623–7430 Fax: (202) 623–7201

E-mail: publications@imf.org

Internet: www.imfbookstore.org

Contents

  • Foreword

  • Acknowledgments

  • Abbreviations

  • Introduction: The Emerging Architecture of Public Financial Management

  • Marco Cangiano, Teresa Curristine, and Michel Lazare

  • PART I | AN OVERVIEW OF CONTEMPORARY PUBLIC FINANCIAL MANAGEMENT REFORMS

  • 1 | Reflections on Two Decades of Public Financial Management Reforms

    • Allen Schick

  • PART II | DESIGNING AND BUILDING: PFM INNOVATIONS AND REFORMS

  • 2 | Developing Legal Frameworks to Promote Fiscal Responsibility: Design Matters

    • Holger van Eden, Pokar Khemani, and Richard P. Emery Jr.

  • 3 | Numerical Fiscal Rules: International Trends

    • Nina Budina, Tidiane Kinda, Andrea Schaechter, and Anke Weber

  • 4 | Medium-Term Budget Frameworks in Advanced Economies: Objectives, Design, and Performance

    • Jason Harris, Richard Hughes, Gösta Ljungman, and Carla Sateriale

  • 5 | Managing and Controlling Fiscal Risks

    • Nina Budina and Murray Petrie

  • 6 | The Role of Fiscal Councils in Promoting Fiscal Responsibility

    • Richard Hemming and Philip Joyce

  • 7 | In Search of Results: Strengthening Public Sector Performance

    • Teresa Curristine and Suzanne Flynn

  • PART III | STRENGTHENING THE FOUNDATIONS: MODERNIZING THE PFM INFRASTRUCTURE

  • 8 | The Role of Fiscal Reporting in Public Financial Management

    • Guilhem Blondy, Julie Cooper, Timothy Irwin, Kris Kauffmann, and Abdul Khan

  • 9 | Cash Management and Debt Management: Two Sides of the Same Coin?

    • John Gardner and Brian Olden

  • 10 | Managing Public Investment

    • Israel Fainboim, Duncan Last, and Eivind Tandberg

  • 11 | Accrual Budgeting: Opportunities and Challenges

    • Abdul Khan

  • PART IV | ADAPTING TO THE ENVIRONMENT: PFM REFORM IN DEVELOPING COUNTRIES

  • 12 | Bridging Public Financial Management and Fiscal Decentralization Reforms in Developing Countries

    • Annalisa Fedelino and Paul Smoke

  • 13 | Public Financial Management in Natural Resource-Rich Countries

    • Teresa Dabán Sánchez and Jean-Luc Hélis

  • 14 | Challenges of Reforming Budgetary Institutions in Developing Countries

    • Richard Allen

  • Contributors

  • Index

Foreword

Public financial management (PFM)—the fine art of budgeting, spending, and managing public monies—has undergone a “revolution” since the late 1980s. This uniquely interdisciplinary combination of economics, political science, public administration, and accounting has seen an influx of innovative ideas and reforms that have sought to address some of the perennial challenges of managing public finances.

To constrain the likely temptation to increase expenditure and spend, rather than save, in times of plenty, countries have introduced fiscal rules and fiscal responsibility laws. To understand and plan for the impact of today’s policy choices on finances in the years ahead, governments have adopted medium-term budget frameworks. To help guard against over-optimistic economic and budgetary estimates, some countries have established independent fiscal councils. To shift the focus of decision making from how much money programs receive to the results they can achieve, many governments have introduced performance budgeting and management initiatives. To better understand the true state of public finances and underlying risks, some governments have sought to increase the comprehensiveness and coverage of fiscal reporting and accounting and have introduced risk management techniques. This profound wave of change in the ways public spending is managed largely started in Australia, New Zealand, and the United Kingdom and has since then passed through virtually all advanced economies, and to some extent, has also reached emerging market economies and low-income countries.

While the field of PFM has changed dramatically over the last two decades, very little has been written about this revolution, with the exception of a few specialized articles. In filling this gap in the literature, this book takes advantage of the unique perspectives provided by IMF public financial management experts, who, over the last two decades, have gained practical experience with many if not all of these reforms and are well placed to draw lessons, make sense of the PFM revolution, and share their cross-country experiences of what has worked in practice and what has not.

The book poses critical questions about these reforms and evaluates what they have accomplished and the issues and challenges they have encountered, including with the global financial and economic crisis. The crisis highlighted the critical importance of a sound public financial management framework in ensuring that well-designed fiscal policies are effectively implemented. But it also demonstrated the underlying limitations of some countries’ PFM frameworks and the flawed design and weak implementation of some PFM innovations, as well as their failure to entrench themselves. Based on these experiences, this book draws general lessons to help guide reformers in their pursuit of the next generation of PFM reforms.

The IMF remains committed to working with all its member countries to provide advice and assistance on public financial management, drawing on its deep experience of working on these issues all over the world. I hope that this publication will help countries meet the challenges of managing public finances in an increasingly complex and uncertain global environment.

Christine Lagarde

Managing Director

Acknowledgments

The idea for this book came from a conversation with Professor Allen Schick in which we discussed how public financial management has developed over the past two decades. Subsequent conversations led to the conclusion that Professor Schick and the staff of the IMF’s Fiscal Affairs Department had rich and unique academic and practical experiences to share on how public financial management reforms have evolved and the emerging state of the discipline at the beginning of the twenty-first century. Special recognition goes to Professor Schick for his role in propelling the project and acting as a sounding board for all of us.

This book was a joint effort involving the staff of the two Public Financial Management Divisions of the Fiscal Affairs Department. A large number of friends and former colleagues contributed by reviewing and commenting on various versions of the chapters as well as by participating in a number of lively internal seminars. The work of the entire Fiscal Affairs Department, under the leadership of its Director, Carlo Cottarelli, has provided a stimulating environment in which parallel projects have kept our eyes open, particularly to the views of the nonspecialists. There was, however, no substitute for the many interactions with member countries and colleagues from sister institutions. These interactions provided a much-needed reality check as the elements of the public financial management architecture started to emerge. Participating compatriots included past and present generations of public financial management specialists of the Fiscal Affairs Department, who have generously given us their time, wisdom, and experience, in an attempt to make this book accessible to the uninitiated. In addition to the chapter authors and the staff of the two Public Financial Management divisions, we wish to thank the reviewers, Xavier Debrun, Manal Fouad, Greg Horman, Bacari Kone, Florence Kuteesa, Lewis Murara, Peter Murphy, Sailendra Pattanayak, Mario Pessoa, Dimitar Radev, and Xavier Rame, for their insightful comments and suggestions. We also wish to express our gratitude to our administrative assistants Molly Abraham, Tracy Bowe, Veronique Catany, and Sasha Pitrof for their support, and especially Melinda Weir, who was instrumental in bringing the project to completion. We are very grateful to Michael Harrup of the IMF’s External Relations Department for coordinating the production of the book. We thank all of you and especially our families and friends for their patience and support throughout this project.

Marco Cangiano, Teresa Curristine, and Michel Lazare

Abbreviations

CBA

central budget authority

CBO

Congressional Budget Office (United States)

CEMAC

Central African Economic and Monetary Community

CFI

central fiscal institution

CMU

cash management unit

CPIA

Country Policy and Institutional Assessment

DMO

debt management office

ECCU

Eastern Caribbean Currency Union

EITI

Extractive Industries Transparency Initiative

EU

European Union

FMIS

financial management information system

FRL

fiscal responsibility law

G-8

Group of Eight advanced economies

G-20

Group of Twenty advanced economies

GAAP

generally accepted accounting principles

GDP

gross domestic product

GFSM

Government Finance Statistics Manual

HIPC

Heavily Indebted Poor Countries

IFI

international financial institution

IPSAS

International Public Sector Accounting Standards

IT

information technology

MTBF

medium-term budget framework

MTDS

medium-term debt management strategy

MTFF

medium-term fiscal framework

NCoA

National Commission of Audit (Australia)

NDP

national development plan

NPM

new public management

OECD

Organisation for Economic Co-operation and Development

PB

performance budgeting

PEFA

Public Expenditure and Financial Accountability

PFM

public financial management

PI

performance information

PIP

public investment program

PPP

public-private partnership

ROSC

Report on the Observance of Standards and Codes

RRA

resource revenue account

SGP

Stability and Growth Pact

SOE

state-owned enterprise

T-bill

treasury bill

TSA

treasury single account

UN

United Nations

VAR

value at risk

WAEMU

West African Economic and Monetary Union

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