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November 06, 2013

Book Review: The International Handbook of Public Financial Management[1]

Posted by Philip Joyce and Juan Pablo Martinez Guzman[2]

PFM handbook
Over the last two decades, public financial management (PFM) has been at the core of many government reforms around the world.  As a subject with many moving parts, the field has become distinctively broad and diverse, with a great array of topics that are strongly linked with each other. For that reason, creating a comprehensive book that covers most, if not all, of the PFM related topics, is a daunting (some might say impossible) task. Richard Allen, Richard Hemming and Barry Potter, three former staff members of the Fiscal Affairs Department of the IMF, however, have managed to accomplish such an objective with the publication of the new International Handbook of Public Financial Management.  The book’s length (more than 900 pages) is itself a testament to the breadth of the field.

In addition to the broad range of topics that make this book almost inarguably the most comprehensive PFM publication to date, it is important to describe two overarching characteristics that make it unique. First, it provides an extraordinary combination of academic knowledge and empirical evidence. Thus, every topic covered is analyzed both through the lens of how ideal PFM systems should be designed and how they are to be implemented given specific country scenarios. Each chapter of the book combines evidence from developed and developing countries; emphasizing institutional arrangements, political economy constraints, and the interrelations between systems. This makes this book an excellent guide for policymakers, practitioners, and academics. Second, this book benefits from the views of the different authors, many of whom are the leading experts on the topics covered by the many chapters. Readers will benefit greatly not just from learning about the topics, but by learning about them from these world-reckoned experts.

The 38 chapters in the book are grouped into six parts that provide the readers with a logical understanding of the interrelations between PFM topics. This structure provides a comprehensive, accurate, and logically ordered description of PFM.

As strong institutions are the cornerstone for any PFM reform, the book starts by analyzing the different conceptual, institutional, and legal frameworks that characterize PFM. The analysis not only includes formal and informal rules (such as debt and deficit limitations), and  relations between different actors (such as executive and legislative bodies).  The section also treads onto less traveled ground by describing how micro and macroeconomic decisions affect each other.  For example, strong central finance agencies, solid legal budget frameworks, and consensus fiscal rules are important not only because they assist with the smooth operation of budget allocation processes, but because they contribute to macro-level fiscal sustainability.  The book also analyzes these fiscal institutions from the vastly different environments of developed and developing countries.

The second part of the book focuses on resource allocation regimes.  Although Performance Budgeting and Medium Term Expenditure Frameworks (MTEF) have now been widely perceived as strong tools to improve the effectiveness of resource allocation, those topics are not usually considered as the core of PFM, and are often mistakenly treated as isolated reforms. The book takes a definite stand in this regard, providing empirical analysis of the relationship between the implementation of these tools and effective resource allocation. The book also provides additional value by providing specific recommendations on the implementation of some of the most basic technical tools (such as budget classification) that promote more efficient resource allocation.

The third part moves logically from resource allocation to the important but often overlooked topic of budget execution. The book points towards three main areas crucial to proper execution of the budget: cash management, procurement, and payroll systems. As with other topics covered in the book, this section reviews its subjects from a political economy perspective, and differentiates reforms between those that are likely to be successful in some countries but may not work in others.  This section closes with a discussion of the management of extrabudgetary funds and the maintenance of internal control mechanisms; the failure to adequately address each of these can result in a lack of transparency, promote corruption in budget execution and hamper the achievement of planned objectives.

The book is notable for its attention to both the expenditure and revenue sides of PFM.  While much of the literature focuses much of its attention on spending, no comprehensive review should leave aside the analysis of how to gather those resources in the first place. Thus, the fourth part of the book covers issues as broad as the normative and technical conditions for the design and the implementation of specific tax systems; and  as specific as how to handle revenues from natural resources, customs offices, and foreign aid.

The fifth part of the book describes, at some length, the management by governments of assets and liabilities. This section includes varied topics such as: how to mitigate the financial effects of natural disasters, how to manage public pension financing, how to correctly account and plan for investment projects, how to administer sovereign wealth funds properly, and how to strengthen and manage non-financial State-owned Enterprises.

The last section of the book closes the PFM cycle with a discussion of audit and control mechanisms, not only as means to ensure legal and moral accountability, but as a feedback mechanism to inform future allocation of resources. For these mechanisms, the authors draw on specific characteristics needed for them to be successful in different types of countries. Also and closely linked to control mechanisms, the book correctly identifies accounting and reporting systems as key elements to promote transparency and accountability.

If the book has a weakness, it is that its sheer length may prove daunting to some who may desire a more streamlined introduction, and that it does not focus explicitly on more innovative reform ideas.  Those interested in a shorter treatment focused specifically on the cutting edge reforms in PFM could look to the recent book published by the IMF Fiscal Affairs Department.[3]  At a minimum, the two books could serve as companion volumes for those interested in the current state of fiscal institutions around the world.

In sum, we believe that The International Handbook of Public Financial Management is a must-have resource for many varied audiences. From a practitioner perspective, both development professionals and government officials (particularly, but not limited to, in the Ministry of Finance) will find a wealth of ideas and good practices described in the pages of this volume.  Moreover, faculty teaching courses in financial management, who wish to look at traditional PFM issues from an international perspective, will find no better resource than this book.  Given that pace of PFM reform is notoriously slow, this book should serve as a useful resource for years, or perhaps decades, to come.  The editors and authors have thus done a great service to the field.



[1] Allen, R., R. Hemming and B. H. Potter (eds), 2013, The International Handbook of Public Financial Management. London: Palgrave Macmillan.

[2] University of Maryland, School of Public Policy.

[3] M. Cangiano, T. Curristine, and M. Lazare, eds., Public Financial Management and its Emerging Architecture (International Monetary Fund, 2013).

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy. 

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Comments

Very Interesting post! Thank you for such interesting resource!PS: Sorry for my bad english

http://huddersfieldandhalifax.tfmcentre.co.uk/

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