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Stefan Leiderer et al. PRSP implementation and decentralisation both involve decisions about how public resources are spent. Good management of public finances is thus of cruciaveryl importancet for the successful implementation of PRSPs and effective decentralisation. In this study Public Financial Management (PFM) is understood in its broadest sense, i.e. not as a purely technical process regarding the management of financial flows and public accounts but rather with a more comprehensive governance perspective covering: — the budget cycle, including strategic and budget planning, budget formulation, budget execution and budget control and evaluation; — the legal and institutional framework; — human and technical capacity for the management of public finances. This study examines how the PRSP approach and decentralisation efforts interact with each other by studying constraining factors in Malawi’s Public Financial Management at central and local government level that impede the implementation of the Malawi Poverty Reduction Strategy (MPRS). The main focus is thus on implications of a decentralising PFM-system for PRSP implementation. Common weaknesses of PFM systems in developing countries PFM systems in developing countries face numerous problems. Weak institutions, capacity constraints (financial, technical, human resources) and inadequate budgeting techniques, together with unfavourable external factors such as macroeconomic instability and dependency on donor funding, prevent budgets from working effectively and delivering the desired outcomes. However, the observed poor practices are not necessarily rooted exclusively in poor formal PFM systems. In fact, many developing countries (usually under pressure from international donors, in particular the World Bank and the IMF) have introduced modern PFM legislation and institutional set-ups over the years. As a consequence, the formal framework for PFM in donor dependent developing countries is often relatively well designed. However, in many cases, these formal frameworks for the management of public finances are not adhered to in practice, which is dominated by informal rules and procedures. 2 German Development Institute
Public Financial Management for PRSP Implementation in Malawi Wherever this is the case, the effectiveness of multi-year planning and annual budgeting as instruments to implement national strategic policies, such as poverty reduction strategies, is severely compromised, and so are the prospects for effective policy making for development and poverty reduction. The effective implementation of PRSPs, thus, to a large extent, hinges on a good match between formal PFM rules and procedures and actual PFM practices and is closely linked to at least three key factors: (i) the political will of the stakeholders in the budget process, (ii) an elaborated institutional framework that supplies them with the right incentives and efficient control mechanisms, and (iii) sufficient technical, human and financial capacity that enables them to execute their tasks throughout the budget cycle efficiently and effectively. Most research so far focuses either on PRSP implementation and PFM at the central level or on decentralisation and local planning separately, with very few studies attempting to link the two issues. In contrast, this study covers PFM at local level and specifically examines how it is integrated into the national PFM system with regard to implementing national strategic priorities in a decentralised system. For this purpose the links (both where they exist and where they are missing) and the incompatibilities between PFM at local and central government level are examined. Research approach To study these complex relations, a case study seems the most adequate approach; Malawi was chosen as a typical showcase for a poverty-stricken developing country in Sub-Saharan Africa, pursuing both, the implementation of a national PRSP and an ambitious decentralisation agenda in parallel. In early 2005 Malawi also provided a somewhat special and particularly interesting context for this study, due to its recent history: Gross irregularities and massive overspending had led a number of donors to suspend development assistance in 2001. In 2004, however, when new president was elected, he was initially given considerable credit by the international donor community for appearing to be strongly committed to policies aiming at fiscal stability and austerity. Malawi in 2005, therefore, provides a particularly interesting case for a study on the role of political commitment and other potential factors for the formality and quality of PFM practices in a typical poor sub- Saharan African country. German Development Institute 3
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Publications of the German Developm
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Discussion Paper 16/2007 Schirm, St
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