Public Financial Management: Concept and Importance

1. Public Financial Management: Concept and Importance

2. Financial Management • Management of resources for achieving optimum outputs • Flow of financial resources – Input, process, output • Internal Control – Regulations, procedures, Approval/Scanctions • External Scrutiny – Audit, Public Hearing • Financial Responsibility and

3. Management of financial resources : Financial Management Result of Resource use Management of public resoruces Fiscal Policy Government/Institutions Public Financial Management Laws Effective Efficient Systems Procedures Transparent Accountable Organizations

4. Public Financial Management Central Government Budgetary Entities Extra Budgetary Entities General Government State Governments Other Social Sectors Local Governments Public Sector Public Non-Financial Corporations Public Corporations Public Financial Corporations

5. PFM Concept • PFM deals with government finance, • Government administers and controls resources of the country on behalf of the citizens through PFM • PFM is concerned with handling of public purse/Money • Management of revenue and expenditure in a broader sense. • Needs to be guided by laws, systems, procedures and organizations. • Should guarantee the effective, efficient, transparent and sustainable use of resources. • Should have mitigate the risk associated with finance. • Should serve the interest of the people at large. • Enables Government to fulfil its fiduciary role on behalf of the owners of the nations resources

6. PFM Objective and Process Objectives • Improve Fiscal transparency • Strengthen political accountability for fiscal and budgetary outcomes • Define a medium term fiscal process • Ensure that fiscal policy guides budgetary policy • Ensure fiscal discipline and sustainability • Preserve macro-fiscal stability • Address inter generational equity concerns PFM Process

7. Scope of PFM PFM deals with the efficient allocation of public resources, distribution of income and macroeconomic stabilization of the country; • Taxation and revenue management, • Borrowing and debt management, • Budgeting and expenditure management, • PMF procedure and organizations, • Responsibility and accountability, • Oversight, scrutiny and Audit

8. Importance of Public Finance Management

9. Borrowing and debt management, Macroeconomic Objectives • Budget & Borrowing influenced by wider Policies and Operations • A country's borrowing policy should be consistent with its macroeconomic objectives Economic Growth targets Contain inflation levels Limit budget deficit to certain level Keep credit & money Supply under control

10. Budgeting • Authorization for use of public fund • Strategic allocation/distribution of resources Macroeconomic Projections Fiscal target (fiscal policy) Revenue Projection • Fiscal and monetary policy • Debt • Fiscal deficit • Aid flows Borrowing and other flows available Expenditure Projection Adjust expenditure as of resources Assess affordable fiscal envelope • Budget Process and Institutions: MOF, NPC, ….

11. Budgeting Process Govt revenue & Grants from donors How govt will spend the funds If Expenditure > Revenue = Budget deficit How to fund the deficit? Always by borrowing

12. Expenditure management 1. 2. 3. 4. 5. 6.

13. PFM Functional Framework of Nepal Legal Framework Institutional Framework PAC Constitution Legislative/Parliament Civil society Organizations OAG Executive/Government Acts /Regulation NVC Ministry of Finance (Budgeting and Financing) External Scrutiny and Audit Macroeconomic policies Taxation Expenditure Reporting IRD FCGO Working policies Accounting Ministries, Agencies field offices DOC RID Execution Process/Directives Financial Institutions/Banks

14. PFM Implementation Structure of Nepal - Central President Executive (OPMCM) PPMO, NVC Consolidated Fund Judiciary NPC Legislative Constitutional Bodies (OAG) MOF Line Ministries Central Bank Parliamentary Committees (PAC) FCGO Departments Commercial Banks Others:Dev. Partners, CAN, ASB, Ind. Acc. Auditors, CSOs DTCOs Paying Offices

15. Taxation and revenue management, • "No taxation without representation." • Tax rate needs to be imposed by Act. Parliament Audit Observations Government Tax Decision OAG Tax Accounting & reporting MoF Reports, Budget allocation, distribution Tax Administration RMIS FCGO Banking Arrangement RAS/ASYCUDA Concerned office Public/Stakeholders/Taxpayer

16. PFMReform • PFM is taken as an essential part of development process. • PFM changes the manner of governance by mobilizing the public resources in the area of strategic importance. • PFM Reform enables desirable fiscal and budgetary outcomes; • Aggregate fiscal discipline : budgetary & fiscal risk control; • Strategic allocation of resources; priority and policy based • Efficient service delivery: using resources for best PSD • PFM reform needs to be implemented as part of an overall strategy - reforms should be part of an overall strategic movement towards change (holistic public sector reform initiative) in order to enhance operations and outcomes in the public sector.

17. PFMReform ….. Principally PFM reform is focused in the following guiding areas; • country leadership - in setting/managing the PFM reform strategy and action plan. • PFM diagnostic - in an integrated and coordinated manner with appropriate tools in regular timing and scope as of country needs. • Capacity building - adding value to government decision-making cycles. • Framed within a multi-year horizon, sequenced around agreed priorities, and built upon a coordinated approach. • Linked to a robust monitoring and evaluation framework.

18. Discussions