This document discusses trends in public financial management reforms. It outlines three main objectives of public expenditure systems: macrofiscal discipline and stability, strategic allocation of resources, and technical efficiency. Popular reforms that aim to meet these objectives are then described, such as medium-term expenditure frameworks and performance budgeting. Recent trends include fragmenting ministries of finance and shifting authority to line ministries. Longer-term trends involve changing the role of ministries of finance to focus more on monitoring, policy development, and emerging issues. A benchmarking study found that successful countries have empowered line ministries, strengthened audits, and moved to performance-based budgets. Broad lessons are that reforms must be well-organized, involve stakeholders, have clear

1. Public Financial Management
Reforms
Trends and lessons
Istanbul Bill Dorotinsky
June 6, 2005 The World Bank

2. Three Objectives of Public Expenditure
Management Systems
 Macrofiscal discipline and stability
– Avoid public finance crises
– Support economic growth and stability
 Strategic allocation of resources
– Match government policy with programs,
objectives
 Technical efficiency
– Getting the most from each lira spent
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3. Popular Reforms
Reforms generally try to change incentives to better meet objectives
by changing rules, roles and information
Macrofiscal Strategic Operational
Discipline Allocation Efficiency
MTEF √ √ √
Performance, Program budgeting √ √
IFMIS, automation √ √
Fiscal Responsibility Laws √
Treasury Single Account √ √
Budget classification, chart of account √ √
Reporting/ Transparency √ √ √
Procurement √
Internal control/audit √
External audit √ √
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4. Recent trends
 Fragmenting MoF
– Separate debt agency
– Separate procurement function
– Separate treasury
– Separate budget
– Separate revenue authority
– Separate planning and policy processes
(persistent state rather than trend)
 All tend to weaken the MoF
– Effect on financial management unclear
– Frequently done to improve pay or improve
independence
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5. Longer-term Trends
 Changing role of MoF, central budget office
– Control to monitoring/oversight
– Policy analysis and development over excessive
budget detail
– Shifting authority towards line ministries
 Emphasizing training and guidance
 Performance over compliance
– Analysis of emerging issues, problems, and health
of decision-making and finance system
 Integration of planning into budget process
– Integration of capital and recurrent budgets
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6. “Benchmarking”
Recent McKinsey Study looked at 7 dimensions
of 7 country Finance Ministries
 Australia, Brazil, Malaysia, Singapore, Thailand, UK, US
 All had taken steps to ‘empower’ line
ministries and professional managers
 All had made substantial efforts to strengthen
external audit
 All had taken measures to move away from
input budgeting towards performance or
output budgets
 Most had taken measures to improve
transparency of processes and information
Source: Transforming MOF: Organizational Recommendations and Implementation.
The World Bank Confidential report to Indonesian Ministry of Finance. June 18, 2003.
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7. “Benchmarking” (continued)
 Six had made substantial effort to separate
policy development and oversight from
implementation
 All had taken strong measures to consolidate
similar functions, especially cash and debt
management
 Most had taken some measures towards
greater checks and balances to MoF
functions
Source: Transforming MOF: Organizational Recommendations and Implementation.
The World Bank Confidential report to Indonesian Ministry of Finance. June 18, 2003.
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8. Broad Lessons
 How reform undertaken, organized matters
– Stakeholder, user involvement
– Clear change sought, clear problem to fix
 Measureable results
 Focused objectives
 Proper sequencing
– MTEFs fail if accounting, execution weak
– Too many reforms at one time tend to fail
– Narrow reforms, well sequenced, may have more
impact than comprehensive, government-wide reforms
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