USAID Guide to Public Financial Management, Second Edition

The guide is divided into 11 chapters, each addressing a critical aspect of PFM. The objectives of PFM are to ensure transparency, accountability, and efficiency in the use of public resources. A sound PFM system is characterized by clear policies, effective institutions, and robust financial management practices. Democratic development and PFM are closely linked, as a well-functioning PFM system is essential for promoting good governance and economic growth. Budget planning and preparation are critical components of PFM. The budget planning process involves setting policy priorities, establishing budget targets, and developing a budget framework. The budget preparation process involves translating the budget framework into a detailed budget document, which outlines projected revenues and expenditures. Special and cross-cutting issues in budget preparation include addressing fiscal risks, managing public-private partnerships, and ensuring gender equality. Budget execution is the process of implementing the approved budget. This involves budget authorization and apportionment, procurement and verification, commitment of funds, payment procedures, asset management and inventory, payroll, and implementing reform. Common challenges in budget execution include managing cash flows, ensuring transparency and accountability, and addressing fiscal risks. Revenues are a critical component of PFM, as they provide the necessary funding for government programs and services. Revenue policy involves setting tax rates and policies, while revenue administration involves collecting and managing tax revenues. Institutional arrangements for revenue administration include establishing a revenue authority, developing a tax administration system, and ensuring transparency and accountability. Treasury operations and cash management are critical components of PFM, as they involve managing government cash flows and ensuring liquidity. The objectives of cash management include ensuring that government cash flows are managed efficiently, minimizing cash balances, and maximizing returns on investments. Treasury single accounts are used to manage government cash flows, while debt management involves managing government debt and ensuring that debt servicing costs are minimized. Public sector accounting and reporting are critical components of PFM, as they involve ensuring that financial information is accurate, reliable, and transparent. The basis of accounting and accounting standards involve establishing a chart of accounts, developing financial management information systems, and ensuring that financial reporting is transparent and accountable. Audit and evaluation are critical components of PFM, as they involve ensuring that government programs and services are effective, efficient, and accountable. Internal audit involves evaluating the effectiveness of internal controls, while external audit involves evaluating the accuracy and reliability of financial statements. Partner country monitoring and evaluation involves evaluating the effectiveness of development programs and services. Subnational government and PFM involve ensuring that subnational governments have the capacity to manage their own finances effectively. The legal framework for subnational PFM involves establishing a fiscal framework, while intergovernmental fiscal systems involve ensuring that subnational governments have access to sufficient funding. Subnational revenue systems involve establishing a revenue framework, while budget planning and implementation involve ensuring that subnational governments have the capacity to manage their own finances effectively. Stakeholders for effective PFM include the executive branch, legislative branch, public oversight and accountability agencies, and other stakeholders. The executive branch is responsible for implementing PFM reforms, while the legislative branch is responsible for approving PFM reforms. Public oversight and accountability agencies are responsible for ensuring that PFM reforms are implemented effectively, while other stakeholders include civil society organizations, the private sector, and international partners. Designing and sequencing PFM reforms involve identifying the key components of PFM, assessing the capacity of government institutions, and developing a reform strategy. PFM diagnostic and assessment tools involve evaluating the effectiveness of PFM systems, while sequencing approaches involve identifying the most critical components of PFM to reform first. Good practices in implementing PFM reforms include establishing a clear reform strategy, building capacity, and ensuring that reforms are sustainable.