International Journal of Governmental Financial Management100
These are not just PFM problems, but accounting provides the only comprehensive model of the relationship between entity revenue and expenditure flows and balances. Traditionallyaggregate fiscal management has focussed on the budget and levels of borrowings. But in thefuture governments require more sophisticated tools taking better account in addition of fiscalrisk, equity between social groups, inter generational transfers, and the closer monitoring of fiscal outturns. This must require increasing and more sophisticated use of PFM tools at thesovereign government level.
2. Maximising resource mobilisation
Almost all entities are constrained by limited financial resources. PFM has an objective inmanaging resource mobilisation within policy fiscal goals. This can operate at several levels:
Credible financial statements can impact on perceived sovereign debt risk and hencethe capacity for and cost of borrowing. It is likely that in the future auditedgovernment financial statements will play an increasingly important role in assessingsovereign debt risk and hence in mobilising resources.
Perceived strong public financial management will be a factor in encouraging bothpublic and private inward investment. For poor countries this will includeencouraging support from development partners.
Also for poor countries, enhanced public financial management can be one element inimproving the ability to absorb and utilise external aid, effectively increasing resourceavailability.
3. Resource allocation in accordance with policy priorities
As noted above, most governments are constrained by financial resources and need toallocate limited resources to optimally achieve policy objectives. Resource allocation is atthe heart of the budget planning process, and developments such as medium term budgets areattempts to more effectively link budgets to policy objectives over a time frame longer thanthe traditional annual budget.It is tempting to see public financial management as “policy neutral”, i.e. providing themechanism for implementing whatever policies a government adopts with no responsibilityfor the policies. But such a view is naive. By deciding what to measure and how to presentinformation, the accountant influences policy decisions. For example, a budget that identifiesthe poverty or gender impact of expenditure will influence the allocation of resources toaddress such issues. On the other hand a budget can hide a particular category of expenditure, e.g. military spending, by spreading such expenditure over a number of budgetitems without specific identification.Hence decisions about budget allocations and the key policy focus are intertwined withdecisions about budget and financial statement classification, identification and presentation.Furthermore the effectiveness of civil society participation, in Dimension 4 below, isdependent on the transparency with which information is presented and resource allocationdecisions identified.PFM through the budget process should provide a mechanism for linking policy objectiveswith the constraint of financial resources. However, whilst the objective of resourceallocation in accordance with policy priorities seems simple, it is in fact difficult to achievebecause of the problem of articulating policy priorities, the interdependence between the