Low-Income Countries' Public Financial Management Systems Need Upgrading to Enhance the Benefits of Scaled-Up Aid

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October 3, 2007

A September 2007, IMF Survey article, and associated staff working paper, examines the challenges facing low-income countries in upgrading their public financial management (PFM) systems, and their implications for international development assistance. The article notes that PFM systems in most low-income countries (LICs) need strengthening if these countries are to fully benefit from scaled-up aid. Weaknesses in PFM can undermine budgetary planning, execution and reporting, reduce fiscal transparency, and result in leakage of scarce resources.

it is a mistake to believe that merely changing the budget classification and developing performance indicators will in itself improve the allocation of resources in the budget-----

The article identifies essential steps LICs should take to improve PFM systems and the impact of expenditures. Theses include:

The article recommends that LICs prepare an action plan for strengthening their PFM systems. To deal with initial capacity constraints, system reforms need to be planned and implemented in a series of sequenced steps. The article recommends that the initial reform focus should be on critical areas such as budget classification and accounting, but plans may also deal with subnational PFM and service delivery, linkages to other public sector reforms (e.g. civil service), and strengthening national audit offices.

Not least, the article notes that international technical assistance providers, including the IMF and World Bank, need to coordinate assistance for maximum impact.

Posted by Richard Allen

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