Overview
Public Financial Management Faculty Chair Steve Peterson was recently interviewed by Harvard Kennedy School concerning lessons learned from his experiences advising the Ministry of Finance in Ethiopia and how these lessons might be applied to changes in other countries. Click here to read the text of the interview or see a short segment of the video: http://www.hks.harvard.edu/news-events/publications/insight/markets/stephen-peterson
Most countries in the world are engaged in reviewing, strengthening or reforming the way their public finances are planned and managed. These processes involve the evaluation of reform programs in other countries. Such an evaluation is often expressed in terms of seeking ‘best practice’, which can be problematic, particularly for countries that are dependent on foreign aid, because what may appear to work in one country may not be relevant to another country.
This is the twentieth year Harvard has presented this Program which has evolved based on the field experience of its resource persons and the academic literature. The resource persons bring a practical and experienced approach to public finance and are currently involved in several financial reforms.
The objective of this Program is to strengthen the knowledge and skills of senior officials, members of legislatures concerned with budget oversight, and others concerned with public finance management, so that they are better able to analyze how their budgetary systems perform and to assess the options available to improve them. Through intensive team discussions and class exercises, supported by a structured reading program, participants will have the opportunity to discuss key PFM questions, including:
- What should the size of a government budget be? How much revenue should a government try to raise and spend, and how should expenditures be distributed? These questions require understanding of the frameworks of fiscal architecture and the determinants of revenue and expenditure; theories of government; analysis of how to manage fiscal deficits; how budgets affect growth and social progress; and other macroeconomic, macro-fiscal and social questions.
- How should elected representatives exercise legislative oversight over budget decisions? What should the roles of finance committees in the legislatures be and how should they be carried out? What is the appropriate relation between the legislature and the executive? What kind of legal instruments are required (Organic Budget Laws, Fiscal Responsibility Acts, Audit Acts, financial legislation)? These questions require examination of the legal frameworks within which financial management must operate; how budgets are appropriated and evaluated; and how political priorities are translated into implementation through the public finance mechanisms.
- What are the institutional choices that promote good public financial management, and how can those choices be made? The PFM program explores these questions and covers the options for decentralization, the required functions and organization of Ministries and Departments of Finance, and the crucial role of Supreme Audit Institutions.
- What are the technical choices available? How can budget managers manage the problem of fixed costs in the budget; give more discretion to managers; and relate financial inputs to what the finance achieves? The PFM program reviews and critically evaluates options for budget formats, structures and classification; financial calendars; short and long term fiscal planning; moving to block grant, formula driven aggregate allocations; performance and output budgeting; and current approaches to accounting system reform, and explores issues related to strengthening budget execution, cash management and financial reporting. Information Technology is intensively covered with particular reference to the design and use of Integrated Financial Management Information Systems.
- Examples of public financial management will be illustrated with examples from key sectors, such as education, according to interest expressed by participants, and participants are introduced to different types of budget system (eg. ‘anglophone’, Napoleonic, OECD systems, transitional country and Former Soviet Union systems).
The questions that are addressed in the PFM program are located within a number of frameworks which provide valuable tools with which to analyze PFM systems and the scope, pacing and sequencing of PFM reforms. The IMF Code of Fiscal Transparency sets out the basics of budget systems, and those basics are reflected in the structure of the program centered on three ‘platforms’ that group together sets of basic functions:
- The ‘transaction platform’: PFM systems must be able to perform the basic operations to account for and record transactions, and require good revenue administration, good budgeting, accounts, reporting, cash management and basic information technology. Without these ‘basics’ it is hard to build more sophisticated systems. In addition to these ‘basics’ changes in PFM ‘culture’ are often necessary.
- The ‘policy and planning platform’: good PFM requires planning over the short, medium and longer terms, requiring the capability to prepare fiscal frameworks, fiscal architecture analysis and expenditure plans.
- The ‘legislative oversight and accountability platform’: elected representatives (in most countries) hold final accountability for public finances, and should be capable of undertaking policy and financial oversight.
Good public finance systems perform all functions well. The most basic task is to get the transaction platform functioning efficiently as this provides effective control as well as information for management, planning and oversight. Budgets should be driven by a policy framework and not by ad hoc incrementalism. Accountability and contestability of budgets is provided by legislative oversight.
