Managing Public Finances Is Vital to Economic Prosperity

IMF book offers guide for policy makers to better public financial management

New approaches to fiscal responsibility gain greater acceptance

Sound public financial management can help address fiscal risks

A new book by the IMF looks at reforms introduced by governments over the past two decades to improve management of public finances. These innovative ideas and reforms are changing the landscape of public finances and eventually aim to fundamentally change the way governments manage the public’s money.

The global financial and economic crisis highlighted the importance of sound public financial management in ensuring that well-designed fiscal policies are implemented effectively. Sound management of public finances means maintaining a sustainable fiscal position, allocating resources efficiently, and delivering public goods and services effectively.

The book looks at how reforms to public financial management make use of new information, processes, and rules to change the behavior of politicians and public servants to counter the ongoing challenges of managing government’s money. As identified in the book, too often the tendency for policy makers is to spend rather than save in good times; to focus on the short term; and to ignore the future costs of new policies, underlying fiscal risk, and the true state of public finances.

“The global crisis has highlighted that reforming governments’ management of public finances is no longer an option but a necessity. There is no ‘one-size-fits-all’ solution—reforms need to be tailored to countries’ individual circumstances,” said IMF Deputy Managing Director, Min Zhu, who addressed officials, journalists, and academics gathered at a special seminar to discuss the findings in the book.

Managing the money

Public financial management—the fine art of budgeting, spending, and managing public monies—has undergone something of a “revolution” since the late 1980s. The book poses critical questions about the key innovations which are part of this revolution including among others, new legal frameworks to promote fiscal responsibility, fiscal rules, medium-term budget frameworks, accrual reporting and accounting, performance budgeting, fiscal councils, and new fiscal risk management techniques.

Many governments have set up legal frameworks to promote fiscal responsibility. This means they’ve passed laws intended to improve discipline, transparency, and accountability by committing themselves to clear...