Public financial management and accountability

Approaches to public financial management

This page looks at two major approaches to Public Financial Management: the Public Expenditure Management Framework (PEM) and at those analyses which take the social and political contexts of the budget process as their starting point.

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Where is a good place to start?

Department for International Development, 2001, Understanding and Reforming Public Expenditure Management: Guidelines for DFID, version 1, London.
These guidelines written by Oxford Policy Management seek to support DFID advisers in engaging with partner governments about PEM. They are intended to give the reader a sense of the implications ofdifferent aspects of the system on the pacing and sequencing of reforms. 
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Public Expenditure Management (PEM) framework

PEM is an integrated approach to public financial management originating within the World Bank.  It stresses above all the need for aggregate fiscal discipline (i.e. balancing the budget), as many developing countries have had difficulties in budgeting and spending within their resource constraints.  The approach also emphasizes allocating public resources in accordance with strategic priorities and promoting the efficient provision of services.  Criticisms of PEM point out that although these priorities should be mutually reinforcing, they can come into conflict, for example where maintaining fiscal discipline clashes with costly but important strategic objectives.

Schick, A. 1998, A Contemporary Approach to Public Expenditure Management, World Bank, Washington D.C.
This paper produced for the World Bank Institute outlines the concepts of public expenditure management (PEM), explaining how PEM supplements formal budgeting process rules with behavioural norms for allocating and controlling public expenditure. PEM seeks procedures that increase the probability of achieving preferred outcomes, and its three basic themes are aggregate fiscal discipline, the allocation of public resources in accord with strategic priorities and the promotion of efficient provision of services.
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World Bank 1998, Public Expenditure Management Handbook, World Bank, Washington D.C.
This handbook provides a framework for thinking about how governments can attain sound budget performance and gives guidance on the key elements of a well- performing public expenditure management (PEM) system. The handbook is divided into two parts, concerned with budgetary and financial management in the public sector. Part 1 offers guidelines for improvement and Part 2 diagnoses weaknesses.
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Overseas Development Institute, 2004, ‘Why Budgets Matter: the New Agenda for Public Expenditure Management’, ODI, London
What is the new thinking on budgets and development aid? Why do beneficiary country budgeting processes matter to aid interventions? This briefing paper by the Overseas Development Institute (ODI), UK, gives an overview of reforms to public sector budgeting and current major shifts in approaches to providing aid. The relationship between beneficiary government budgeting and aid is explored. The paper covers the meaning and importance of budgets, policy formulation, execution, accountability, and important areas for future policy-oriented research.
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The social and political contexts of PFM

PFM has traditionally focused on the technical aspects of financial management, including the budget process, accounting and auditing.  Recent work on PFM has questioned this technocratic understanding and has started to examine the social and political contexts in which budgets operate – including how power, gender and political will may affect budget allocations, actual expenditure and mid-budget cutbacks.  Any socio-political analysis of the budget process and a country’s PFM system must include an appreciation of: the power of various actors within the process (including politicians, bureaucrats, external donors, corporations and civil society); the incentives for proper execution of the budget (and disincentives for corruption); knowledge of actual expenditure; and the monitoring systems in place to oversee this.

Norton, A. and Elson, D. , 2002, 'What's Behind the Budget? Politics, Rights and Accountability in the Budget Process', Overseas Development Institute, London.
This paper contributes to evolving a wider understanding of PEM and is part of a programme of work to progress DFID's human rights strategy. It looks at the ways in which a rights-based approach can advance pro-poor and gender-equitable outcomes in the budget process and support citizen accountability. It identifies partners, tools and methods that may help achieve these goals.
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Rakner, L., Mukubvu, L. Ngwira, N. & Smiddy, K.,2004, ‘The Budget as Theatre- the Formal and Informal Institutional Makings of the Budget Process in Malawi’, Draft final report, Paper presented to Centre for Aid and Public Expenditure Seminar, ODI May O4.
What can explain the apparent lack of political will to formulate, implement and monitor the budget process and public financial management in accordance with the overall goals of the Malawi Poverty Reduction Strategy (MPRS)? This paper by the Overseas Development Institute seeks to unpack the concept of political will through an examination of the budget process and an analysis of the formal and informal institutions involved. It finds that the budget process provides no realistic estimate of revenue or spending, and that all the actors have little bearing on the actual distribution of resources. In this sense, the budget is theatre.
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Hodges, T. and Tibana, R., 2004, ‘The Political Economy of Budget Processes in Mozambique’, Oxford Policy Management, Oxford
After a devastating civil war, high levels of external aid have helped to rebuild Mozambique, financing a large expansion of public infrastructure and services. But has this aid also weakened the government’s policy-making and budgeting, and reduced the incentive to steward resources efficiently? This paper examines the nature of the budget process in a highly aid-dependent developing country with weak institutions. Is the executive more accountable to foreign donors than to the Mozambican society?
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Rajkumar, A. S. and Swaroop, V. 2002, 'Public Spending and Outcomes: Does Governance Matter?', Policy research working papers, 2840, World Bank, Washington, D.C.
What is the link between public spending, governance, and outcomes? Can differences in efficacy of public spending be explained by quality of governance? This World Bank policy paper examines the role of governance—measured by level of corruption and quality of bureaucracy—and asks how it affects the relationship between public spending and outcomes. 
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