Reimagining public finance for development outcomes

Why reimagine public finance?

Significant advances have been made over the past 25 years in Public Financial Management (PFM) reform – from investment in local skills and automating systems to establishing global norms and standards. Yet, progress has been incremental and uneven.  Evidence is mixed on the link between PFM quality and outcomes such as budget credibility and efficiency, and there has been limited analysis of its relationship with broader public policy results. 

A debate is underway about how best to address the challenges associated with PFM reform. Some argue that building institutions takes time and that the problem is not the toolbox but how tools are being used. Others argue there is an overemphasis on the technical side of PFM, insufficient attention context, and a focus on fiscal discipline over broader development goals.  All have a point, but the search for alternative approaches has been elusive.

In the past two years, the World Bank has held conversations with more than 700 practitioners and experts across the globe to explore these challenges and possible solutions. While there are differing views on the nature and causes of the problem, there is general agreement on the value of reconsidering current approaches to PFM reform.  Stakeholders agree on the importance of developing approaches that are outcome-led, which recognize the interaction between PFM and fiscal policy, address key bottlenecks, and are more tailored to specific contexts. 

What does reimagining public finance involve?

The "Reimagining Public Finance" initiative takes an outcome-led perspective (See figure 1) that begins with the development results governments want to achieve - such as better health, education, economic stability, and climate adaptation. This approach then examines how public sector performance, policies, delivery capabilities and finally how the management of public finance contribute to achieving these outcomes.

Figure 1: An outcome-led approach to Reimagining Public Finance

Source: Authors

From this, two main questions emerge:

• What roles does public finance play in shaping public sector results and achieving development outcomes?  
• What are the key PFM bottlenecks that need to be addressed to ensure that happens?

Drawing on sectoral outcome research, four roles of public finance and nine bottlenecks emerge (See figure 2).  

Figure 2: Roles of Public Finance and PFM Bottlenecks

Source: Authors

How can outcome-led reform be implemented?

Effective PFM reform needs to focus on identifying, understanding and addressing these bottlenecks and unlocking these roles. This means making sure that reforms are:

• Outcome-Focused: PFM reforms target the role of public finance in improving public sector results and policy outcomes.
• Problem-Driven: Solutions address bottlenecks which matter in the local context.
• Locally-Led: Reformers with authority drive change.
• Team-Based: Cross-organizational, multi-disciplinary teams implement reforms.
• People-Centered: Solutions, analogue or digital, are developed in a collaborative way and tailored to stakeholder needs and capacity.
• Feasible Functionality: Reforms are politically viable, affordable, and consistent with delivery capabilities and focus on what public finance actually does – its function.
• Flexible & Iterative: Reforms and solutions are adapted to the evolving context.

The aim is to provide a practical method for reformers to navigate the complex and unpredictable contexts in which they operate and to focus their attention on addressing the problems in PFM which actually matter for driving development outcomes.

What do you think? We welcome your feedback and contributions as we reimagine public finance and shape the future of PFM practice together globally and, most importantly, locally.  

Please contribute to the conversation via LinkedIn and X @wbg_gov and using the hashtag #ReimaginingPublicFinance; via our website at www.worldbank.org/en/programs/reimagining-public-finance; or by simply leaving a comment below. Also visit the Forum website here.