Safeguarding public resources and strengthening economic and fiscal performance through sound public financial management (Part II)

In last week’s article, we began a discussion of the important topic of public financial management (PFM), drawing in part on the contents of the recently released Inter-American Development Bank (IDB) report entitled “Economic Institutions for a Resilient Caribbean” as well as our own experience of the subject. In this article, we continue from where we left off.

(a) Effective controls of the budget totals and management of fiscal risks thereby contributing to maintaining aggregate fiscal discipline;

(b) Strategic allocation of resources involving planning and executing the budget in line with government priorities aimed at achieving policy objectives; and

(c) The use of budgeted revenues to achieve the best levels of public services within available resources.

The PEFA Performance Measurement Framework referred to last week identifies the following seven broad areas, known as pillars:

(a) Budget reliability: The government budget must be realistic and implemented as intended. This is achieved by comparing actual revenues and expenditures with the original approved budget;

(b) Transparency of public finances: Information on PFM must be comprehensive, consistent, and accessible to users. This is achieved through comprehensive budget classification, transparency of all government revenue and expenditure including intergovernmental transfers, published information on service delivery performance and ready access to fiscal and budget documentation;

(c) Management of assets and liabilities: Effective management of assets and liabilities is necessary to ensure that public investments provide value for money, assets are recorded and managed, fiscal risks are identified, and debts and guarantees are prudently planned, approved, and monitored;

(d) Policy-based fiscal strategy and budgeting: The fiscal strategy and the budget must be prepared with due regard to government fiscal policies, strategic plans, and adequate macroeconomic and fiscal projections;

(e) Predictability and control in budget execution: The budget should be implemented within a system of effective standards, processes, and internal controls, thereby ensuring that resources are obtained and used as intended;

(f) Accounting and reporting: Accurate and reliable records must be maintained, and information produced and disseminated at appropriate times to meet decisionmaking, management, and reporting needs; and

(g) External audit and scrutiny: Public finances should be independently reviewed and there is follow-up on the implementation of recommendations for improvement by the Executive.

Within each pillar, there are 31 performance indicators which are further disaggregated into 94 dimensions. For example, Pillar VII (External Audit and Scrutiny) has two performance indicators, namely external audit; and legislative scrutiny of audit reports. These are further broken down into eight dimensions: audit coverage and standards; submission of audit reports to the Legislature; external audit follow-up; external auditor’s