PFM Architecture: Concept and Processes

Babu Ram Subedi

Handling of Public Purse for Better Results

Essence of PFM

.

What is Public Financial Management ?

The Concept:• Financial management is all about money• PFM is concerned with handling of public

purse• It should serve the interest of the people at

large• It consist of public accountability• Process is crucial in PFM

PFM in Definition

" Public management is a process relating to handling of the public money for better results".• Achieving results• Managing risks• Prudence behavior

The PFM Cycle

Optimum utilization

Planning /Policy

Budgeting

Accounting, recording and

reporting

Scrutiny and Audit

Characteristics of PFM

• Handling of public purse• Public Expenditure is the key• Public interest maximization• Due Process of law :creature of law• Public control and Scrutiny: parliamentary

control• Public accountability: answer to the people• A quest for fiscal sustainability• Fiduciary risk management

Objectives

• Aggregate fiscal discipline• Efficiency in resource allocation• Operational efficiency : Economy Efficiency Effectiveness Due process of law

Principles

• Public value maximization• Parliamentary approval• Due process of law• Public accountability• Prudence• Due care: public trustee• Principle of fiscal sustainability• Independent audit

Nepalese PFM System

• Constitutional back up• Objective of value for money• Results orientation• Strong parliamentary control provisions• Personal responsibility• constitutional audit provisions• Due process of law

Challenges

• Political encroachment• A culture of sharing public money for

personal use• Strong legal provisions vs weak

implementation• Large amount of money outside the budget• A compromise over results• weak humanbase

PFM Reforms Initiatives

• Budgetary reforms: MTEF and MTBF• Planning reforms :MfDR• Treasury Reforms: TSA• Accounting System reform :NPSAS• Tax reforms: VAT and use of IT in tax administration• Donor harmonization practices• IT dominance : FMIS/IFMIS• PEFA framework• Audit reforms

Gaps• Gap between institutions and practices• Discontinuity of parliament• High focus on hardware• Growing practice of financial responsibility for

dishonests: Distortion of ethical values• Severe human resource capacity gap• Cosmetic touch of foreign aid ; inefficiency and out

drain• Results neglected • Severe revenue leakage • Results and process also overruled in local the

bodies/GOEs

Way Forward

• Simultaneous intervention both in hardware and software

• Invest on human resources• Adherence to the institutions and results• Promotion of the ethical standards• Scrutiny based on the results• C/B analysis of foreign aid• Internal capacity enhancement( revenue gen.)• Construtive role of parliament

THANK YOU

by Babu Ram Subedi Member Secretary PEFA Secretariat, Nepal