Public Financial Management for PRSP - Deutsches Institut für ...

Stefan Leiderer et al.
Those arguing for decentralisation pursue various objectives. Generally, decentralisation
is thought to positively impact in five areas. More specifically,
decentralisation expects to
— Increase administrative efficiency and improve local service provision;
— Improve equity between as well as within local entities;
— Increase political participation and strengthen democratisation;
— Enhance the responsiveness and legitimacy of the state;
— Support local poverty reduction.
However, experience shows worldwide that these expectations have been
rather optimistic. In most cases, the improvements listed above did not materialise.
Among the reasons are the following: capture of decentralised government
and administration bodies by local elites, limited commitment to
decentralisation at the central level, as a consequence, insufficient transfer of
power and finances, limited capacity at the local level and weak civil society
structures at the grassroots (OECD 2004; SLSA Team 2003; Ribot 2002;
Manor 1999; Crook and Manor 1998). It is argued that these restricting conditions
are particularly often found in African countries.
Although fiscal decentralisation is of particular importance to this study’s
focus on Public Financial Management, analysis of decentralisation as a reform
requires a much broader approach. In accordance with a broad definition
of PFM that includes the design of the legal and institutional framework,
various aspects of decentralisation are taken into account in this study.
2.2 The relevance of public fnancial management in
developing countries
The public budget determines the origin and use of public financial resources.
Therefore, it plays a crucial role in the process of governance. Once passed
by Parliament, the budget authorises the government to raise revenues, incur
debts and effect expenditures to achieve defined policy objectives. The
budget should discipline policy-making and ensure that the objectives of
public agencies, institutions and individuals are in line with those agreed on
in the Poverty Reduction Strategy (Foster / Fozzard 2000, 8).
26 German Development Institute