How governments use limited public resources has always been critical but is even more so in the current environment as the world faces dual global crises of immense proportions- the global pandemic alongside the intensifying impact of climate change.
The poor and vulnerable have been hit the hardest by the pandemic and the World Bank’s twin goals of poverty reduction and shared prosperity have suffered their worst setback in decades. Governments are facing unprecedented fiscal pressures, putting huge demands on country public financial management (PFM) systems, and heightening the need for better management of, and accountability for, public funds.
But amidst the crises is an opportunity to set countries on a pathway to recovery, fostering green, resilient, and inclusive development, while also tackling rising poverty and inequality. In this context, PFM reform is fundamental to the achievement of development results, for example because:
- Fiscal discipline and debt sustainability can foster private investment and economic growth
- Effective resource allocation and use can enable equitable and quality services
- Prioritized and managed infrastructure investments and assets can stimulate economies
- Financial controls, accounting, reporting, and transparency can deliver efficiency gains through better fiscal discipline, accountability and decision making.
PFM has come a long way and matured as a discipline as norms and standards have been established. But these alone will not automatically create positive outcomes. Progress takes time and it is important to work more deliberately to ensure that PFM enables better public sector results. This requires three critical areas of focus:
- PFM must enable fiscal sustainability – critical to this is accurate reporting of public sector balance sheets, including complete reporting of debt and contingent liabilities to ensure efficient and predictable in year borrowing and cash management and commitment control to maintain borrowing within agreed limits.
- PFM must enable the efficiency and equity of service delivery – central to this is how resources are allocated and spent by spending agencies at the national and sub national levels, and how resources and the inputs they finance are channeled to the point of delivery and incentives created in the process.
- PFM must enable governments to prepare for and respond to crisis – this involves being able to make trade-offs between short and long-term spending priorities, effective control and accounting for funds during the crisis itself, and mainstreaming climate into PFM systems – e.g., green budgeting and accounting for natural resources.
Achieving these requires reform processes that target change in behaviors, focusing on the ‘how’ of PFM reform, not just the ‘what’. The World Bank is a global leader in supporting PFM initiatives, playing a key role through activities such as:
- Assessment of country PFM systems.
- Assisting countries to design and implement PFM reforms. The World Bank offers financing and technical assistance, and is actively managing PFM projects valued at over 6 billion USD.
- Financial management fiduciary work, ensuring lending uses and strengthens country systems.
The World Bank is increasingly focused on reform results, rather than financing inputs, and also works at the global level, engaging and building partnerships with others to advance PFM, including the accountancy profession and standard setters.
5 key recommendations for the accountancy profession to support better PFM:
- Ensure PAOs maintain a focus on the cadre of public sector accountants, including through certification and continuing professional development.
- Support country authorities to implement accrual accounting, such as the International Public Sector Accounting Standards (IPSAS).
- Advocacy for improved PFM and public accountability
- Enhance capacity of firms to provide and scale up advisory services to the public sector to improve efficiencies, productivity, and service delivery.
- Proactively seek opportunities for dialogue and action to link PFM to agendas such as climate, covid, service delivery and fiscal sustainability.
The Public Expenditure and Financial Accountability (PEFA) framework establishes a set of benchmarks for assessing countries PFM systems. It is hosted by the World Bank and celebrated its 20th anniversary 2021.
The PEFA secretariat published the first ever global PFM performance report, drawing on country PFM assessments, this report shows incremental progress in strengthening PFM systems.