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

Stefan Leiderer et al.
accounts, but rather with a more comprehensive governance perspective covering
the following three areas:
— 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.
Box 2 presents the second and third components, while the budget cycle is
introduced in more detail below.
Box 2:
Components of PFM systems
The legal PFM framework defines the overall setting for the actual design of the
budget process. It should fix binding rules and regulations for budgetary practices.
The legal PFM framework may incorporate constitutional regulations such as binding
ceilings for the overall budget deficit and concrete budgetary regulations such
as the timeframe for the different steps of the budget cycle or provisions concerning
the management of public expenditures (Leiderer 2004, 8). The institutional PFM
framework defines how the public budget process is organised. It determines the
organisational setup of the governmental and administrative body determines the
fiscal relations between the different levels of government or between the private
and public sector etc. Adequate accountability structures are an important result
of the legal and institutional PFM framework. The degree to which every single
actor of the budget process feels or can be held accountable for budgetary practices
and outcomes is a very important factor to guarantee that public resources are
allocated in line with strategic policy priorities and spent effectively and efficiently.
According to Schiavo-Campo / Tommasi (1999), effective accountability has two
components: answerability (or responsibility) and consequences in the case of noncompliance
with formal rules and regulations.
The quality and appropriateness of human and technical capacity is also a very
important factor for effective and efficient PFM systems. Despite well-developed
legal and institutional frameworks, human and technical capacity constraints can
undermine the budget process at all stages. Many developing countries lack qualified
staff in key positions for PFM such as auditors, accountants, etc. so that rules,
regulations and plans cannot be executed as prescribed or intended because the
responsible personnel does not have enough knowledge to carry them out correctly.
Well functioning information systems are another important factor for efficient
28 German Development Institute