Alongside an effective and capable civil service, the other principal aspect of public sector reform is public financial management. Public Financial Management (PFM) is the system for raising and for controlling the use of public financial resources. It includes planning and budgeting, accounting and reporting, internal controls, audit and external oversight. PFM has three main objectives:
- maintaining aggregate fiscal discipline (preventing over-spending or over-borrowing)
- allocating resources in line with strategic priorities
- economy, efficiency and effectiveness in the use of resources (getting good value for what is spent).
Activities in Ghana and Sierra Leone
We help countries to improve their PFM systems. In Ghana, from 2007 to 2010, DFID helped the Public Accounts Committee with accommodation, research, access to information, training for the media and finance for public sittings. Radio and TV broadcasts of the hearings got the nation talking about corruption and, under the media spotlight, the standard of the hearings improved. In Sierra Leone, DFID support to the Audit Service from 2005 has helped in clearing a backlog of audit reports, with the annual audit report being published on time since 2008.
The importance of taxation
Our support includes help in improving tax systems. DFID support to the Rwanda Revenue Authority helped to provide the laws and regulations under which the authority was established, the office building and the management systems. The 10 year period of support saw a six-fold increase in the taxes collected. In 2010, the management procedures of the authority were awarded ISO 9001 2008 accreditation – the first Rwandan institution to attain this standard. The authority’s effectiveness has been a major factor in Rwanda’s impressive development performance in recent years.
The importance of tax systems extends beyond simply raising revenue. Well designed, fair and transparent tax systems can promote economic growth. They can also help build the state; strengthening its legitimacy by promoting accountability of governments to tax paying citizens. The new International Centre for Tax and Development, which we are funding, should help to increase the contribution which work on taxation can make to state-building and growth.