INTRODUCTION TO

PUBLIC FINANCE MANAGEMENT

Module 1.1. : Introduction & key

concepts
 What is PFM?
Public Financial Management deals with
management of public resources: the
allocation and use of resources collected
from the economy
3 basic elements of public finance:
• Public expenditure
• Revenues
• Government debt
 What is the Government?
• General government comprises all government
units

• Central government

• State government, in federal countries

• Local government
Social security funds are sometimes combined into a separate subsector
Source: Government Finance Statistics (GFS). IMF
 Outputs/
Efficiency
Aggregate fiscal
Three objectives
discipline
of PFM

Allocative Operational
efficiency efficiency

Outcomes/
Effectiveness
5
 Specific objectives of PFM
• PFM is only one of the instruments to implement
public policies, but it is probably the more important
• As instrument, PFM has specific objectives to
implement properly policies, which should not be
confused with policy objectives

• “ Good Plans”
• “ Good hands”
• “ Money”
• “ Good tools”
 Aggregate fiscal discipline

Fiscal discipline refers to:

• maintaining a sustainable balance between
revenues, expenditures and the level of public
debts
• by respecting the expenditures ceilings at all
levels and by all actors of the Government
administration
 Allocative Efficiency
Definition
Allocate and spend public resources in such a way
that that attainment of the government objectives
is maximised
Optimising allocative efficiency:
• Clearly defined national objectives and priorities
• Existence of effective sector programmes
• Capacity and willingness to re-allocate if needed
• Information on programme outcomes
 Operational Efficiency
Definition
Ability to make efficient and effective use of
resources in the implementation of strategic
priorities
Key elements :
• Use of liquidity (loans, cash management)
• Reduce leakage

Key players
Treasury, Line ministries
1/Aggregate 2/Allocation of 3/Efficient
fiscal resource in public service
discipline appropriate delivery and
policy resource
objectives management
• Importance of • Importance of
• Ensuring
political aspects management
macro- • Requires systems (e.g.
economic appropriate HR
stability mechanisms for management
• Control of
revealing policy systems)
totals choices and for
policy dialogue
Defence Justice
Health
Agriculture

Education

As defined in the recent budget literature -Cf. for example PEFA

 Completing the 3 PFM objectives

• A societal dimension of PFM must be taken into

account
• “Traditional” PFM values: regularity, compliance,
etc. remain very important
• Role of Parliament in democratic society
• Accountability (Be Answerable and held responsible)
• Transparency
 Accountability

The budget as key accountability instrument

• Plans expenditures and revenues

• Operationalizes the policies
• Voted by Parliament
•  Examination by parliament
 Planning and
Parliament Parliament
budget
investigates scrutinizes and
executive's formulation votes the
audited reports budget bill
PFM objectives

External Audit Budget

& evaluation execution

Cross-cutting
issues, legal and
technological
Monitoring, infrastructure
Accounting,
Reporting
Accountability ‘versus’ PFM objectives?

• The challenges

• Constraints may be required for fiscal discipline

but some degree of flexibility is required for
performance
• The role of Parliament is crucial in democratic
society.
 Public policies and PFM
• PFM is an instrument to implement public
policies;

• Public finance policies

• Tax policy
• Public expenditure policy
• Debt policy

National and sector policies

• Poverty Reduction Strategy
• Sector plans, etc
Completing the figure

Planning
Parliament Budget Parliament
investigates formulation scrutinizes and
Executive's votes the
audited reports budget bill
PFM objectives

Political factors,
informal rules
External Audit Budget
execution

Cross-cutting
features, legal and
technological
Monitoring, infrastructure
Accounting,
Reporting
 The limits of technical approaches
• Can PFM reform STOP Corruption?

• NO
• but it helps in identifying where there are
failings

• Strengthening PFM systems will help in checking

administrative corruption
• However, fighting grand corruption, which involves
powerful politicians is largely a political and societal
matter
 Key messages
• PFM is an important instrument to
implement government policies

• The main tasks of PFM are to ensure aggregate

fiscal discipline, resource allocation in
compliance with standards with policy objectives
and efficient public service delivery

• Budget management is a core component of

PFM