Public Expenditure And Financial Accountability Research Articles

Ability of States to Implement Planned Budget in India: An Assessment Using PEFA Framework

A credible budget complies with budget contracts voted in Parliament and improves the efficiency of government expenditure. Deviations, as a result of weak capacity to forecast revenue or execute the planned activities, pose risks to both existing and future programme management. This budgetary tenet assumes significance as the states have to respond to disruption in revenues, rising expenditure burdens and changes in priorities in the wake of COVID-19 pandemic and face challenges to restore fiscal consolidation process. The article assesses the budget credibility of states in India from 2012–13 to 2018–19 following the international standard given by the Public Expenditure and Financial Accountability (PEFA) framework. It also focuses on strengthening institutional framework to utilise fiscal instruments optimally for better service delivery and development. JEL Codes: H61, H68, E62

Does Public Financial Management Save Life? Evidence from a Quantitative Review of PFM and Health Outcomes in Sub-Saharan African Countries

ABSTRACT Public financial management (PFM) theory suggests that improvements in the allocation, execution, and monitoring of public funds can result in improved sectoral outcomes, including in health. However, the existing literature on the relationship between PFM quality and health outcomes provides limited empirical documentation and insufficient explanation of the mechanics of that relationship. This paper contributes to the literature by estimating the correlation between PFM quality and health outcomes from a sample of sub-Saharan African countries over the period 2005–2018, using a pooled ordinary least squares (OLS) estimator. The analysis uses Public Expenditure and Financial Accountability (PEFA) scores as proxies for PFM quality. The findings indicate that countries with high-quality PFM tended to have the lowest maternal, under-five and noncommunicable diseases (NCDs) mortality. Among the standard PFM dimensions, the one associated with the higher correlation with maternal and under-five mortality was “predictability and control in budget execution.” Better PFM quality was significantly associated with a drop in maternal and under-five mortality in countries which allocated a higher proportion of their budget to the health sector. In countries allocating a lower proportion of their budget to health, the correlations between PFM quality and the three mortality indicators were not significant. The negative correlations between PFM quality and maternal and under-five mortality were significant only in countries with more effective governance. These findings support an emphasis on strengthening PFM as a means of improving health service provision and health outcomes.

Public finance management architecture in Tajikistan: International reform advice and domestic reform practice

AbstractDebates persist on the effectiveness of externally driven Public Finance Management (PFM) reforms in developing countries, with limited empirical research and field investigations in the Central Asian region. This study collected evidence through Solution and Leader Driven Change (SLDC) and Problem Driven Iterative Adaptation (PDIA) theoretical framework explanations, policy documents review, interview and survey results and Public Expenditure and Financial Accountability (PEFA) framework assessments to find that not all of the World Bank's advice on PFM improvement was adopted in the first phase of reforms in Tajikistan. Blending SLDC and PDIA arguments, the study investigates both positive deviants and reform failures.

Budget systems and post-pandemic economic resilience in developing countries

PurposeOver the years, public sector reforms in emerging economies have focused on improving national budget systems and financial management practices to promote sustainable development. In the context of the COVID-19 crisis, this article examines whether the strength or effectiveness of national budget systems and related financial management practices moderates the impact of fiscal policy measures on economic recovery and resilience.Design/methodology/approachThe article uses bivariate correlations and difference-in-difference analyses to examine the relationship between budget system effectiveness, government stimulus measures and forecasts of economic recovery and resilience. The analysis uses data from the Public Expenditure and Financial Accountability (PEFA) program, International Monetary Fund (IMF) and World Bank.FindingsThe article finds that estimates of economic recovery and resilience are higher in countries with more reliable budget processes and more transparent public finances. Also, the strength or effectiveness of the budget system before the pandemic appears to moderate the impact of government stimulus measures on economic recovery and resilience over a medium-term forecast horizon.Research limitations/implicationsThis is a prospective analysis based on economic forecasts from the IMF, which are subject to change in the coming years. In addition, the analysis uses subjective budget system indicators, which present measurement challenges that often influence this area of research. Better comparative data in the future, for example, large administrative datasets, will enable researchers to explore these issues with less estimation bias.Practical implicationsThe findings are relevant for policymakers and budget officials in developing countries in Africa who are engaged in plans to improve national budget systems and enhance resilience to crises, such as the COVID-19-induced economic crisis. The findings also have implications for developing countries beyond Africa with similar economic and fiscal conditions.Social implicationsThe findings have implications for economic and budgetary planning for the social sector as well as the efficient delivery of public services in developing countries. Public managers have a critical role to play in adapting national budget systems and financial management reforms within complex and evolving economic circumstances even after the coronavirus pandemic.Originality/valueThe authors use novel and latest data on country responses to the COVID-19 pandemic as well as medium-term economic forecasts to examine the relationship between national budget systems and post-pandemic economic recovery and resilience in the African context. Previous research has only addressed these issues in the context of industrialized countries, and a limited number of empirical studies examine these relationships. The findings also have significant value for policymakers outside Africa who are facing similar challenges related to the coronavirus pandemic.

Do Financial Markets Value Quality of Fiscal Governance?

We examine the link between the quality of fiscal governance and access to market-based external finance. Stronger fiscal governance is associated with improvements in several indicators of market access, including a higher likelihood of issuing sovereign bonds and having a sovereign credit rating, receiving stronger ratings, and obtaining lower spreads. Using the more granular information on quality of fiscal governance from Public Expenditure and Financial Accountability (PEFA) assessments for 89 emerging and developing economies, we find that similar indicators of market access are correlated with sound public financial management practices, especially those that improve budget transparency and reporting, debt management, and fiscal strategy.

Economic Diversification in Africa: How and Why It Matters

For decades, economic diversification has been a policy priority for low- and middle-income economies. In the words of former managing director of the International Monetary Fund (IMF), Christine Lagarde, “We know that economic diversification is good for growth. Diversification is also tremendously important for resilience.” Unfortunately, this goal continues to elude many African countries. In fact, the continent is home to eight of the world’s fifteen least economically diversified countries. This reality weakens the foundation of their economic transfomation and slows their pace of progress. It also makes these countries particularly vulnerable to sudden external shocks, as the pandemic-induced disruption of tourism and oil-dependent economies has illustrated. Given the importance of diversifying African economies, it is critical to recognize how various dimensions of diversification can have different implications for the menu of policy options. Closely associated with the process of structural transformation from lower to higher productivity sectors, economic diversification has three evident dimensions. The first relates to the expansion of economic sectors that contribute to employment and production or gross domestic product (GDP) diversification, and the second is associated with international trade or exports diversification. This paper, however, focuses on a third dimension that the economics literature pays scant attention to: fiscal diversification. This fiscal element involves expanding government revenue sources and public expenditure targets and can therefore play a central role in helping to catalyze broader economic transformation through the expansion of activity in specific industries and sectors. It is also critical that policymakers effectively measure the extent to which this objective is being achieved. Both the expansion of existing economic sectors and the creation of new ones may diversify an economy. But these processes are vastly different in practice and will garner distinct outcomes. Of the main tools used by economists to measure diversification, the Theil Index differentiates between the respective contributions of new economic sectors and existing ones to overall diversification. Another tool widely used by development practitioners—the Public Expenditure and Financial Accountability (PEFA) framework—has significant potential for evaluating fiscal diversification but would need to capture more information on government revenue collection and spending and link them to policy objectives. Yet not all dimensions and measurements of economic diversification are equally applicable for all African countries. Important structural differences—many of which are on full display in Africa—have implications for how these countries pursue the policy objective of economic diversification. In the economics literature, national income correlates closely with economic diversification: low-income countries are generally undiversified but diversify as they transition to middle income. Another central factor is natural resource dependence: resource-rich countries tend to be less diversified than their counterparts. The quality of governance is also a factor but unlike its link with economic growth, its exact link with economic diversification remains underexplored and inconclusive in the literature. Beyond the relationship between national-level structural characteristics and economic diversification, it is important to account for subnational differences within countries, which can sometimes be stark. Interregional inequality is especially pronounced among Africa’s eastern and western coastal countries, where more diversified islands and productive coastal areas contrast with huge swaths of inland areas used mainly for subsistence farming. Within other African countries, economically diverse and productive areas, or growth poles, are clustered around the national capital, while the hinterlands predominantly engage in subsistence agriculture. Therefore, African countries’ challenges of economic diversification may be more acute at the subnational level and necessitate different policy responses. This spatial and subnational dimension of economic diversification merits further research. Overall, the policy strategies for diversifying any economy depend on identifying—with the country’s structural characteristics in mind—the specific dimension of economic diversification desired.

Do Financial Markets Value Quality of Fiscal Governance?

We examine the link between the quality of fiscal governance and access to market-based external finance. Stronger fiscal governance is associated with improvements in several indicators of market access, including a higher likelihood of issuing sovereign bonds and having a sovereign credit rating, receiving stronger ratings, and obtaining lower spreads. Using the more granular information on quality of fiscal governance from Public Expenditure and Financial Accountability (PEFA) assessments for 89 emerging and developing economies, we find that similar indicators of market access are correlated with sound public financial management practices, especially those that improve budget transparency and reporting, debt management, and fiscal strategy.

Deterring Kickbacks and Encouraging Entry in Public Procurement Markets: Evidence from Firm Surveys in 90 Developing Countries

AbstractThere is little systematic evidence on the links between procurement systems and outcomes such as competition and corruption levels. This paper adds to the evidence, using data on 34,000 firms from the World Bank's Enterprise Surveys, in 90 countries with procurement systems data from Public Expenditure and Financial Accountability (PEFA) assessments. We find that in countries with better public access to complete, reliable, and timely procurement information, firms are more likely to participate in public procurement markets. Firms report paying less in kickbacks to officials in countries where exceptions to open competition in tendering must be explicitly justified, and where there are effective and independent complaints mechanisms. These findings—particularly on kickbacks—are robust to the inclusion of numerous controls and to a range of sensitivity tests. However, due to data limitations we are unable to rule out the possibility that these estimates may reflect in part endogeneity bias.

Do Financial Markets Value Quality of Fiscal Governance?

We examine the link between the quality of fiscal governance and access to market-based external finance. Stronger fiscal governance is associated with improvements in several indicators of market access, including a higher likelihood of issuing sovereign bonds and having a sovereign credit rating, receiving stronger ratings, and obtaining lower spreads. Using the more granular information on quality of fiscal governance from Public Expenditure and Financial Accountability (PEFA) assessments for 89 emerging and developing economies, we find that similar indicators of market access are correlated with sound public financial management practices, especially those that improve budget transparency and reporting, debt management, and fiscal strategy.

Expenditure Control: Key Features, Stages, and Actors

This paper defines and explains key stages of the government expenditure chain and describes the controls applied at each stage, including their objectives and key features as well as centralized vs. decentralized approaches in application of those controls. The paper also examines the influence of different administrative traditions on types of expenditure controls, including the authority and responsibility of various institutional actors. Finally, it discusses typical weaknesses/problems associated with different traditions of expenditure control and suggests specific measures for strengthening the control framework. While providing examples of expenditure control practices from more than 32 countries, the paper points out that more than two-thirds of the 85 low and middle income countries covered by the publicly available Public Expenditure and Financial Accountability (PEFA) assessments have weak systems of expenditure control that are also associated with higher levels of expenditure arrears and a lack of budget credibility. This paper will help public financial management practitioners to evaluate budget execution systems and identify priorities for strengthening expenditure controls. It will also usefully guide technical assistance work related to modernization of government budget execution and expenditure control systems, including the design and implementation of IT-based financial management information systems.

Expenditure Control

This paper defines and explains key stages of the government expenditure chain and describes the controls applied at each stage, including their objectives and key features as well as centralized vs. decentralized approaches in application of those controls. The paper also examines the influence of different administrative traditions on types of expenditure controls, including the authority and responsibility of various institutional actors. Finally, it discusses typical weaknesses/problems associated with different traditions of expenditure control and suggests specific measures for strengthening the control framework. While providing examples of expenditure control practices from more than 32 countries, the paper points out that more than two-thirds of the 85 low and middle income countries covered by the publicly available Public Expenditure and Financial Accountability (PEFA) assessments have weak systems of expenditure control that are also associated with higher levels of expenditure arrears and a lack of budget credibility. This paper will help public financial management practitioners to evaluate budget execution systems and identify priorities for strengthening expenditure controls. It will also usefully guide technical assistance work related to modernization of government budget execution and expenditure control systems, including the design and implementation of IT-based financial management information systems.

Study of public financial management systems for two Asian regional groups

This paper presents assessments of Public Financial Management (PFM) Systems for two regional Asian groups – the South Asian Association for Regional Cooperation (SAARC) and the Association for South East Asian Nations (ASEAN). The study undertaken uses the Public Expenditure and Financial Accountability (PEFA) results for assessment of the performance of PFM systems of countries both within and across the two regions for the six PEFA framework dimensions. This paper also presents results of the study for comparing regional performance with global averages for various PEFA indicators to identify strengths and weaknesses. An in-depth analysis of the PEFA assessments was also done to identify key features and initiatives undertaken by the countries where strengths in PFM system indicators was identified, and recommendations made, for countries moving on the path of PFM reforms for performance improvement.

The Risks of Chinese Subnational Debt for Public Financial Management

SummaryThis paper examines the important challenge to effective public financial management (PFM) of fiscal risk. In the case of China, a middle‐income country with space to borrow, a major source of risk to the central government is exposure from subnational government debts. In order to control this exposure and manage it properly, it is important that the level of debt be included in consolidated balance sheets and that liabilities be recognized. This is important not only for narrow maintenance of financial position (or PFM discipline) purposes but also to increase national welfare. Managing fiscal risks from this broader perspective suggests that governments may want to absorb particular risks for purposes such as: unemployment, old age, and poverty spending. Governments often need to cost‐effectively bear some of these risks in order lower social costs and maximize national well‐being. But to do this properly, the government must know first the stock and flow of its total debt. To date, subnational debts in China have not been properly quantified, and available donor tools such as the Public Expenditure and Financial Accountability (PEFA) framework are weak. Copyright © 2015 John Wiley & Sons, Ltd.

Antigua and Barbuda: Public Expenditure and Financial Accountability (PEFA) Performance Assessment

Antigua and Barbuda: Public Expenditure and Financial Accountability (PEFA) Performance Assessment

Niger: Public Expenditure and Financial Accountability (PEFA) Assessment

Niger: Public Expenditure and Financial Accountability (PEFA) Assessment

New development: PEFA—what difference has it made?

The PEFA (public expenditure and financial accountability) framework is an instrument that enables broad assessments of a country's public expenditure, procurement and financial accountability systems. This article provides three views of the framework: from the PEFA secretariat, a practitioner and a donor.

Liberia: Public Expenditure and Financial Accountability (PEFA) Assessment

Liberia: Public Expenditure and Financial Accountability (PEFA) Assessment

A Quest to Run the Government by Black Ink in Botswana in 2012 and Beyond

Botswana, like the rest of primary product-dependent economies, saw her revenues declining in mid 2008 due to the onset of the global financial and economic crises. Due to reduced revenues, the economy has posted budget deficits since the 2008/09 financial year. The fiscal challenges forced the government to undertake a Public Expenditure and Financial Accountability (PEFA) Performance assessment in 2009 to ensure fiscal prudence. After the assessment, the government introduced a Public Finance Management Reform programme that begot a Budget Strategy Paper that advised the preparation of the 2011/12 Budget Speech and budget. In addition, when the Finance Minister read the 2011/12 Budget Speech, he announced that the government intended to adopt a black ink in 2012 and beyond, that is, balance the budget in 2012 and post surpluses afterward. Is this objective deliverable? Yes, however, running the government by black ink will largely demand political leadership, a sturdy resolve to resist populist spending and speeding up of expenditure reforms.

Stocktaking the Reforms in Public Financial Management

The paper documents how Nigeria’s public financial system stacks up against international standards, the better to see current institutions and their capacities in a wider perspective. It uses Public Expenditure and Financial Accountability (PEFA) framework for analysing the Nigeria's systems and processes. The purpose is not to demonstrate that Nigeria falls short of international best practice, but rather to show where progress has been made and where much still remains to be done, both in the improvement of formal rules and processes, but also in the capacity to follow them. The latter is at the heart of the challenge. For, while the design of Nigeria’s PFM system clearly needs modernizing, even to operate it as once intended would be an immediate improvement.