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Work in Progress

What is PFM?

Public Finance Management Cycle

Pivotal Problems

1. Budget Preparation

   1. Incorrect /inaccurate fiscal projections obscure estimation of the total resource envelope

      1. Receipts - estimation of receipts from different sources (own, grants, transfers)

      2. Expenditure - estimation of expenditure dependent on other budgetary units of which there might not be real-time information

      3. Borrowings - estimation of borrowing requirements which is mostly for sustaining cash flow rather than for capital investment

   2. Estimates prepared by budgetary units without adequate information about the total resource envelope reduces the credibility of budget estimates

   3. Estimates prepared without duly assessing the fiscal impact of revenue and expenditure reduces the credibility of budget estimates

   4. Estimates often prepared based on estimates of previous years rather than actuals (incremental budget) reduces the credibility of budget estimates

   5. Ceilings impose rigidity/inflexibility in the financial planning of budgetary units which compromises financial planning for strategic/priority areas and reduces the autonomy of budgetary units

2. Budget Allocation

   1. The budget allocated according to past spending patterns need not be uniformly distributed across the fiscal year. It might not have been actually spent and instead parked in PD accounts that leads to inefficient allocation.

   2. No visibility/information about the allocation of funds, and/or the mechanism of such allocation, beyond a point in the hierarchical fund flow cycle that reduces the transparency in fund flow.

   3. Allocations not made after due assessment of needs, the capability of spending, etc.

3. Budget Execution

   1. Mismatch in cash commitment forecasts and cash requirements; inability to provide reliable information on the availability of funds to budgetary units for service delivery

   2. Lack of cash availability places constraints on spending and/or disbursal of funds to other budgetary units

   3. Lack of transparency and timeliness in fund flow from one level to the other

   4. Uncertainty/time lag issues in disbursal/flow of funds to implementing agencies

   5. Inefficient process because of ‘push and wait’ or supply-driven mechanism of fund flow

   6. Inefficient allocation of funds to budgetary units due to utilization certificates

   7. Spending pattern not uniformly distributed across the fiscal year

   8. Float or the accrual of unutilized funds co-existing with the scarcity of funds in the system

   9. Building up of arrears due to delayed payments and collections that impacts cash management, fiscal discipline

   10. Overspending and/or under-spending; insufficient/inadequate collections that impacts cash management, fiscal discipline

4. Budget Accounting/Reporting

   1. Budget data on Actuals on the expenditure side convey disbursements not actual spending

   2. Budget data on Actuals on the receipt side convey collections, including arrears, while the arrears may not always translate into actual collections

   3. Cash-based accounting offers scope for artificial or ad hoc postponement of expenditures or advanced collection of taxes which reduces the reliability of fiscal data

   4. Reporting is not always in real-time which makes it difficult to timely track inconsistencies, especially when the information comes from various sources/systems, and delays timely corrective action

   5. Reporting is not consistent, comprehensive, and timely across all levels of government, especially as one goes down in the governance structure

   6. Reporting formats vary across and within levels of governments making it difficult to do meaningful comparative analysis - systems not interacting with each other

   7. Reporting on financial performance is often disjointed from reporting on physical performance/outcomes

5. Auditing

   1. Timely audits do not happen, and if they do, not necessarily across all levels of government

   2. The time lag between the occurrence of a financial event and its audit - delays timely identification of problem/area of concern hence constraints timely actionability

   3. Delay in the issuance of recommended actions in audit reports by the legislature and implementation by the executive

   4. Inability to comprehensively track whether funds get transferred to end beneficiaries

Inability to reconcile fiscal plans, fiscal rules, fiscal resources, fiscal discipline

Platform Based Approach