Public Financial Management (PFMx)

Module 1

Introduction to Public Financial Management

This training material is the property of the International Monetary Fund (IMF) and is intended for use in IMF Institute for Capacity Development (ICD) courses.
Any reuse requires the permission of the IMF and ICD.

1
PFM in the World

Sustainable Management
Financial
Development Of
Crises
Goals Resources
Required Negative
Space
(Not for instructor
notes.)
Natural
Natural Development Please do not adjust
Resource text field positions.
Disasters Aid
Management
5
Public Financial Management

Public Financial Management

PFM is concerned with the laws, organizations,

systems and procedures available to governments Required Negative
Space
wanting to secure and use resources effectively, (Not for instructor
notes.)
efficiently and transparently.
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Public Financial Management

Public Financial Management

Organizations Required Negative

Space
(Not for instructor
Laws notes.)
Fiscal
Government Please do not adjust
Policy
Systems text field positions.

Procedures
PFM Institutions

Economic policy

Public
Implementation Financial
Management

Political economy
Laws and
regulations
What is Public Financial Management?

Public Financial Management is…

… the management of government finances – both

expenditure and revenue.
Required Negative
Space
(Not for instructor
notes.)
Narrow : budget process and cash management
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Broad : all aspects of generating and spending resources

Political Economy Aspects of PFM

Laws
Political economy
Procedures

Required Negative
Space
(Not for instructor
notes.)

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text field positions.

Change
Cultural norms Citizens
Management
Defining Public Financial Management

Public Financial Effective

Management

Required Negative
Laws Use of Space
resources Efficient (Not for instructor
Organizations notes.)

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Systems and procedures text field positions.

Institutional aspects

Transparent
Public Financial Management in action

OBJECTIVE: Achieve a sustainable fiscal position

Adopt an
What is the expenditure rule
desired level of debt? Required Negative
Space
(Not for instructor
How? notes.)
What?
Development of a medium Please do not adjust
DESIGN term framework text field positions.

Link rule to the budget

process
Reporting or monitoring
requirements

IMPLEMENTATION
PFM makes Fiscal Policy work

Public
Fiscal
Financial
Policy
Management

What to do How to do

How policies How policies

should be should be
designed implemented
Public Financial Management

PFM : Management of Government Finances

Laws Required Negative

Space
(Not for instructor
Organizations notes.)
Fiscal
Government Please do not adjust
Policy
Systems text field positions.

Procedures

How
Coverage of the Public Sector
 0
20
40
60
80
100
Belarus
Spain
Serbia
Slovenia

* 2014, 2015 or 2016

Maldives
Germany
Barbados

Source: IMF WEO database.

(Percent of GDP, latest available*)

Netherlands
Slovak Republic
Solomon Islands
Timor-Leste
General government expenditure

Croatia
Norway
Portugal
Republic of Congo
Sweden
Montenegro
Italy
Lesotho
Public expenditure is a large share of GDP

Greece
Hungary
Oman
Austria
Denmark
Belgium
Kuwait
Marshall Islands
Micronesia
Finland
France
Djibouti
Nauru
Why PFM is important

Fiscal Space

Sustainability Accountability

Public
Financial
Management

Laws and
regulations
Sustainability

Required Negative
Space
(Not for instructor
notes.)

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text field positions.
PFM Promotes Sustainability

Sustainable and inclusive economic growth

Public
Fiscal
Financial
Policy
Management

What? How?

DESIGN IMPLEMENTATION
Defining Fiscal Space

Fiscal space is…

… the capacity to finance additional or new public

spending through increased resources and/or
expenditure rationalization or reallocation. Required Negative
Space
(Not for instructor
notes.)

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text field positions.
Increased Expenditure
resources rationalization
PFM Allocates Resources

Sustainability of
Public Debt

Required Negative
Space
Fiscal Space (Not for instructor
notes.)

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text field positions.

Fiscal Policy Objectives

Accountability

Government Accountability

Stakeholders How

• Citizens • Fiscal reporting

• Transparency
• Companies
standards
• Investors • Information
Oversight Mechanisms and Transparency

Fiscal Responsibility:
• Accountability
Required Negative
Executive Citizens/Voters
Space
(Not for instructor
notes.)

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text field positions.

Legislature
Role of the Budget in PFM

Use of Resources

Effective

Annual Efficient
Budget

Transparent

Institutions
Legal
framework Systems
Processes
The Budget Cycle

Legal
framework
The Budget Cycle

Legal
framework
The Fiscal Framework

Required Negative
Space
(Not for instructor
notes.)

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text field positions.
Budget Preparation

Required Negative
Space
(Not for instructor
notes.)

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text field positions.
Budget Execution

Required Negative
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(Not for instructor
notes.)

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text field positions.
Accounting and Reporting

Required Negative
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(Not for instructor
notes.)

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Control and Audit

Required Negative
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(Not for instructor
notes.)

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Legal Framework

Required Negative
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notes.)

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 #1 #2 #3
Managing
Modern The Budget as
Budgetary
Perspectives a Strategic
Resources
of PFM Policy Tool
Effectively

PFMx:
Introduction #4 #5
to PFM Strengthening
PFM Reform
Fiscal
Challenges
Responsibility
Key Elements of PFM

Fiscal Fiscal Policy

1. Fiscal Framework Policy Implementation
Medium
term
Annual Tax approach
2. Budget Preparation Budget
MTFs
Policy

Cash
3. Budget Execution Controls
Management
PIMA

International
4. Accounting and Reporting Standards

Consolidated
Reporting Supreme Audit Fiscal
5. Control and Audit Institutions Council
The Budget Cycle

Legal
framework
The Legal Basis for PFM

Country context

Laws
Required Negative
Space
(Not for instructor
notes.)
Regulations
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text field positions.

Accounting principles
The Legal Framework

Fiscal Policy

Legal
framework
Areas of PFM

Core Specialized

Other
Specialized Areas of PFM

Fiscal
risks

Fiscal Fiscal
Councils rules

Specialized

Coverage
FMIS of Public
Sector

External Aid
Current issues in PFM

1. ‘Good’ practice

Current
2. Country context
issues

3. Pace and sequencing of reform

40
Public Financial Management

Sustainability

Organizations

Laws Public
Financial Fiscal
Space
Systems Management

Procedures
Accountability
 Legislature

Legal
framework

Citizens/Voters
Ministry of
Finance/
Treasury