Why Is Public Finance Management So Important To Development?

Following the Paris Declaration (2005) and the Accra Agenda (2008) leading to the commitment of donors to direct greater amounts of aid towards developing nations through their country systems There is a steady shifting away from aid for projects and programs which is typically overseen or managed directly by the partner to development – to budget support, where aid is directed directly to the consolidated treasury account of the developing country’s revenue account. Donor Management System

It is not surprising that due to this shift towards budget support, there has been an increasing focus of donors on the effectiveness of Public Finance Management in the countries receiving budget support. This is a good thing due to the increasing risk of fiduciary responsibilities that are associated with the use of national systems to handle the hard-earned taxes of people of developing partner countries.

This is just one aspect of the story. It is unfortunate that there isn’t any interest or interest on the other side that is being told. The other side of the coin are citizens of developing countries who could suffer from the effects of playing in Public Finance Management systems in the in the name of reform. This could only weaken the current system and set them back further. Public Finance Management seems inaccessible for the majority of us. Even when it is accessible to us, we consider it dull irrelevant and something only boring auditors and accountants should worry about. However, think about it this way: Public Finance Management is about our money, it’s about the future of our children’s children as well as our own growth.

The significance to Public Finance Management and its reforms is because of its central function in the implementation of policy whether it’s about improving education, improving healthcare, encouraging tourism or increasing the yields of agricultural crops.

If the system is weak, Public Finance Management systems, even if decision makers develop solid policies, it might not be feasible to effectively implement that policy. Furthermore, it is quite unique that Public Finance Management performance affects the performance of other sectors, including the macroeconomic environment , and consequently opportunities for private sector and provision of services in the fields of health, agriculture education, transport as well as public safety, energy and so on. If it is successful and all other sectors are successful, they have a chance to succeed however, in the event that Public Finance Management fails all other sectors are affected.

As citizens of emerging nations should be more attentive to who is driving an agenda of Public Finance Management reform. Does it belong to the IMF in the sense that it enforces Public Finance Management Reform conditionalities which are not only tied to the strengthening or improvement of financial systems but specifically to the use of specific reform strategies even though these strategies have been unsuccessful within more than one nation. Are they that the World Bank as it makes the use integration of financial information management systems (IFMIS) the base to support the reform of Public Finance Management systems? Is this the outcome of extensive internal discussion and reflection by the people of the country, who influence their elected leaders to tackle the fundamental issues that they are aware of are not working using methods to be within scope of our capability instead of adopting reform approaches that are not suitable for our current conditions?

The interest of donors to improve Public Finance Management performance has resulted in a huge pressure on nations to adopt new approaches to public management. These include (1) medium-term spending frameworks (MTEF) frequently pushed to be adopted prior to the time a country might be able to be able to justify their annual budgets , even when developing partners themselves struggle with their ability to distribute funds in a predictable manner, particularly when viewed from the medium-term perspective and (2) the implementation of budgeting based on policy such as activity and program based budgeting , long before they possess the capacity of their institutions to effectively plan and coordinate their programs, establish the fiscal space needed for decision-making, or have access to the data needed to assess the impact of policies or (3) the introduction system for integrated management of finances (IFMIS) to control expenditure that spans hundreds of spending units that are still struggling with issues related to staff retention as well as electricity supply or integration in a national financial administration network.

The difficulty in controlling at the levels of the spending units in the conditions of an IFMIS implementation has resulted in an implementation strategy that has been restricted to the treasuries (payment centers). The control of payments is usually too late to affect the accrual of arrears in expenditure which could have significant negative macroeconomic stability implications or (4) fully accrual-based accounting is not feasible as financial reports that are based on an accounting standard for cash are not complete, exhibit indications of poor integrity of data and are issued in late. An analysis of the experience of countries across a wide range of countries in the developing world that have adopted new program management practices for the course of their Public Finance management reforms shows that these initiatives have typically not been successful , by any reasonable standard.

The most important reason behind the widely-used Public Finance Management reform failure is often blamed on issues of political economy by the countries that are developing – poor governance and excessive levels of corruption and similar. Naturally, this is a one aspect however it is remarkable that there are instances that have seen a dramatic improvement in certain aspects in Public Finance Management reform in areas like debt management, specific aspects of revenue administration , and public procurement even in the most corrupt countries in the world. Are the economics of politics an additional way of implying that the lack of success for a number of these modern public management methods is solely the responsibility of developing countries and has nothing connection to the enormous power that donor organizations have exercised in establishing agendas for the Public Finance Management reform agenda?

It is clear that it is now time to recognize that there are considerations on the different perspectives of the debate on which reforms to pursue or if Public Finance Management is, or should be, influenced predominantly by the conditions of disbursement established by donors, or formulated through a more extensive debate and careful analysis by the public and the leadership of countries in the developing world could result in different conclusions. The outcome of more discussion between the different actors in developing countries could be an unbiased, realistic and effective method of Public Finance Management reform in developing countries.