Public Financial Management

Public financial management (PFM) is a central element of a functioning administration, underlying all government activities. It encompasses the mechanisms through which public resources are collected, allocated, spent and accounted for. As such, PFM processes comprise the whole budget cycle, public procurement, audit practices and revenue collection. Sound, transparent and accountable public financial management is a key pillar of governance reform and of vital importance to provide public services of good quality to citizens, as well as to create and maintain fair and sustainable economic and social conditions in a country.

PFM involves highly complex, technical tasks and processes, including macroeconomic forecasting, budget allocation, accounting and auditing. The complexity of such processes limits public scrutiny and provides many opportunities for corruption. The risk of corruption varies between and within the different stages of the budget process. Although corruption primarily manifests itself in forms that involve illegal money transfers at the budget execution level, other steps of the budget process may create opportunities for corruption at other stages of the PFM process, such as budget formulation, budget approval, accounting and reporting or audit stages.

PFM reforms have typically focused on achieving and securing overall economic and fiscal stability, allocative efficiency and operational efficiency. To this end, PFM reforms mostly prioritise technical approaches to improve the performance of the PFM systems, including through the integration, modernisation and automation of PFM processes, revenue collection, public expenditure management and procurement systems. While these reforms are not primarily aimed at curbing corruption, there is a broad consensus that they can help prevent and detect misuse of public resources through streamlined processes, increased transparency and stronger oversight.

Recent trends in PFM reforms call for moving beyond technical reforms and paying more attention to transparency, accountability and public participation in PFM. Global initiatives, such as the Open Government Partnership, the Global Initiative for Fiscal Transparency (GIFT) and the International Budget Partnership are working for this purpose.

For further information, see our Topic Guide on Public Financial Management.