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The Phases of Public Financial Management Reform

David Nummy, Executive Director, Grant Thornton

FreeBalance International Steering Committee Cascais, Portugal January 30, 2008

Current PFM Reforms Initiation

Started in the early 1990s Collapse of communism Over 20 countries need to transition from command economy to market economy

Current PFM Reforms Influence of IFIs

Coincides with predominant view that macroeconomic stability is paramount IMF need to grasp national accounts to support monetary stability World Bank determines lack of basic governance expertise is more urgent than traditional development focus

Current PFM Reforms

Focus on PFM and resources available to support reform efforts draws expertise Focus on PFM moves outside of eastern Europe and FSU Over 15 Years, a pattern of phases of PFM reform has evolved in numerous countries

A Series of Questions Evolve

Phase 1 -- How much money are we spending? Phase 2 -- What are we spending money on? Phase 3 -- Why are we spending money? Phase 4 -- How are we spending money?

Phase 1 How Much Money Are We Spending?

Single Account Treasury Unified budget Eliminate extra-budgetary accounts Customs and tax Organic budget Law Commitment accounting

Phase 2 What Are We Spending On

Unified accounting classification Unified chart of accounts Accounting standards FMIS

Phase 2 What Are We Spending On

Macro-economic forecasting Multi-year budgeting Cash management Debt management MTEF Auditing

Phase 3 Why Are We Spending This Money

Program definition Further refinement of chart of accounts Development of analytical capacity Greater explanation of spending in public documents Performance budgeting Decentralization

Phase 4 How Are We Spending Money

Procurement Civil Service Reform Human Resource Management Budget Support

Most Difficult Challenges to Overcome

Resistance to closing Ministry bank accounts Donors inability to provide timely and usable information on their activities Getting beyond cash rationing Performance measures

PFM Evolution