Strengthening Public Financial Management Across Asia and the Pacific
Public financial management (PFM) lies at the heart of a government’s capacity to generate funds and channel them effectively into national priorities.
In Asia and the Pacific, however, PFM systems often lag behind global standards, impacting governments’ ability to provide essential services, from education and healthcare to infrastructure and utilities. Despite various frameworks and assessment tools designed to support PFM, many countries in the region struggle to keep up with international best practices.
According to the 2022 Global Report on Public Financial Management by the Public Expenditure and Financial Accountability (PEFA) program, a significant 26% of PFM indicators in East Asia and South Asia scored below the minimum “C” grade. Critical indicators like medium-term expenditure budgeting, internal and external auditing, and management of expenditure arrears reflect the challenges faced. While the process to enhance these systems appears straightforward on paper, implementation often proves complex. Nobel laureates Esther Duflo and Abhijit Banerjee attribute much of the reform roadblock to what they call the “three-I problem”: ideology, ignorance, and inertia.
So, how can governments effectively address these hurdles and strengthen their financial management frameworks? Below is a five-point approach that “reform enthusiasts” can leverage to drive successful, sustainable PFM reforms.
Timing is Everything
Timing is essential for any reform, particularly in public finance, where change impacts every aspect of governance. Political stability and economic growth periods provide a valuable window for introducing reforms, allowing governments to capitalise on momentum and public support. Newly elected administrations often initiate PFM reforms early in their terms to maximise political goodwill and the trust of their citizens. However, it’s not just the high points that create opportunities—crises can also open doors to reform.
Economic, political, or even natural crises often serve as catalysts, pushing governments to find immediate, impactful solutions. During crises, public tolerance for reforms is generally higher, as people see them as necessary to address urgent needs. But once the crisis subsides, so can the motivation to follow through. Leaders must therefore balance acting quickly without sacrificing long-term planning.
Strategic Timing Considerations:
- Implement reforms during periods of political stability or post-crisis recovery.
- Time initiatives early in the government’s term to build on initial political support.
- Sustain momentum by reinforcing public awareness of the ongoing benefits.
No One-Size-Fits-All Approach
Launching PFM reforms requires a well-defined strategy that acknowledges the unique circumstances of each country. While a broad assessment of weaknesses and strengths is essential, reform strategies must tailor solutions that align with specific national contexts. Often, a “basic first” approach works best, focusing initially on foundational elements of PFM before advancing to complex reforms. Alternatively, a “platform approach” enables phased reform, building upon each success to strengthen the next phase.
For countries facing multiple reform needs, prioritising based on urgency and impact can lead to more manageable changes. This gradual implementation model encourages adaptability, allowing policymakers to refine strategies as they encounter real-world challenges. A targeted strategy allows PFM reforms to yield results without overwhelming stakeholders, ultimately setting a sustainable path for long-term improvement.
Two Strategic Approaches:
- Basic First Approach – Focuses on addressing fundamental issues before tackling advanced reforms.
- Platform Approach – Introduces reforms in phases, with each stage reinforcing the previous efforts.
Identify and Empower Champions
In any reform effort, especially in PFM, having champions within the system can be pivotal. Senior officials, particularly within Ministries of Finance, can act as reform ambassadors who push for approval and smooth over operational challenges. These champions don’t just advocate for reform; they help navigate political landscapes and engage with stakeholders, increasing buy-in at all levels.
Complementing these champions, appointing a dedicated reform manager can ensure that initiatives proceed as planned. This manager coordinates between technical staff, economists, IT specialists, and other stakeholders, creating a cohesive approach and minimising communication breakdowns. When everyone from policymakers to implementation teams aligns on the reform’s goals, the likelihood of sustainable success increases significantly.
Key Steps to Foster Champions:
- Identify senior officials within the Ministry of Finance to act as reform champions.
- Appoint a reform manager to oversee implementation and align stakeholder efforts.
- Encourage regular feedback from champions and stakeholders to sustain momentum.
Keeping Reforms Accessible and Understandable
In an environment filled with dense reports and countless meetings, policymakers rarely have the luxury to dissect technical details. To gain their support, reform proposals must be concise, targeted, and supported by clear metrics that illustrate tangible outcomes.
Technical experts, while invaluable in developing reform frameworks, must translate complex concepts into practical, digestible summaries for decision-makers. Simplifying information without sacrificing substance ensures that policymakers can make informed choices quickly, especially when decisions affect a nation’s fiscal future.
Communication Tips for Reform Proposals:
- Focus on key metrics and outcomes rather than technical minutiae.
- Use clear, relatable examples to illustrate the impact of proposed changes.
- Emphasise benefits to citizens, highlighting improvements in public service delivery.
Strengthening Accountability and Building Trust
Transparency serves as both a reform driver and a trust-building tool. By making reform plans public and reporting progress against set targets, governments demonstrate accountability to their citizens. Transparent communication about PFM reforms allows the public to monitor developments and hold their leaders responsible for achieving promised goals. Additionally, an informed citizenry can provide valuable insights that might otherwise go unnoticed by policymakers.
Reform transparency doesn’t just enhance accountability; it fosters trust among stakeholders, encouraging greater citizen engagement. As the government actively includes public input, stakeholders feel empowered, contributing ideas that may refine and enrich the reform process.
Transparency in Action:
- Publish reform goals and provide regular updates on progress.
- Invite public feedback to foster a sense of ownership among citizens.
- Establish open communication channels to clarify misunderstandings and build credibility.
A Path to Lasting Impact
When approached strategically, public financial management reform can deliver lasting benefits to Asia and the Pacific’s citizens, particularly the most vulnerable. By following these five key approaches—seizing the moment, devising a clear strategy, empowering champions, communicating effectively, and leveraging transparency—governments can transform PFM systems from mere functional frameworks into instruments of change that drive sustainable development.
Through these reforms, governments can build resilient, transparent systems that provide a higher quality of service to all. With persistence and clear vision, Asia and the Pacific have the potential to lead the way in innovative public finance, setting a benchmark for other regions to follow.
