COLLEGE OF LAW, GOVERNMENT AND INTERNATIONAL STUDIES COLLEGE OF LAW, GOVERNMENT AND INTERNATIONAL STUDIES

GMGF5014GMGF5014

PUBLIC FINANCIAL MANAGEMENT PUBLIC FINANCIAL MANAGEMENT

Title Title

GOOD GOVERNANCE IN PUBLIC FINANCIAL MANAGEMENT REFORMGOOD GOVERNANCE IN PUBLIC FINANCIAL MANAGEMENT REFORM

Prepared for Prepared for DR. BADARIAH HAJI DINDR. BADARIAH HAJI DIN

By: Mohamed Dahir HassanBy: Mohamed Dahir Hassan

Good Governance in Public Financial management Good Governance in Public Financial management reformreform

Definition: Good governance is about the processes Definition: Good governance is about the processes for making and implementing decisions. It’s not about for making and implementing decisions. It’s not about making ‘correct’ decisions, but about the best possible making ‘correct’ decisions, but about the best possible process for making those decisionsprocess for making those decisions

Cont..Cont.. Good governance is an essential part of a framework for Good governance is an essential part of a framework for

economic and financial management which also includes: economic and financial management which also includes: macroeconomic stability; commitment to social and macroeconomic stability; commitment to social and economic equity; and the promotion of efficient economic equity; and the promotion of efficient institutions through structural reforms such as trade institutions through structural reforms such as trade liberalization and domestic deregulation.liberalization and domestic deregulation.

Poor governance may result from factors such as Poor governance may result from factors such as incompetence, ignorance, lack of efficient institutions, the incompetence, ignorance, lack of efficient institutions, the pursuit of economically inefficient ideologies, or pursuit of economically inefficient ideologies, or misguided economic models. misguided economic models.

Good Financial Governance: Approaches and Good Financial Governance: Approaches and integration of development policy integration of development policy

Perceptions and definitions of Good Governance differ Perceptions and definitions of Good Governance differ internationally between institutions, although not internationally between institutions, although not significantly. There is a broad consensus concerning the significantly. There is a broad consensus concerning the general principles,general principles,Like Like Legitimacy, accountability, the rule of law, performance and Legitimacy, accountability, the rule of law, performance and development-oriented national government, in particular in development-oriented national government, in particular in terms of social justice. terms of social justice.

Cont..Cont.. Good Financial Governance puts the principles of Good Good Financial Governance puts the principles of Good

Governance indefinite terms for the public finance system Governance indefinite terms for the public finance system and its subsystems. and its subsystems.

Thus, it includes all areas of public financial management Thus, it includes all areas of public financial management policy formulation as well as administration and control of policy formulation as well as administration and control of state revenue and expenditure in accordance with the state revenue and expenditure in accordance with the principles of Good Governance.principles of Good Governance.

Principle of good governance Principle of good governance

ParticipationParticipation - To encourage all citizens to exercise their - To encourage all citizens to exercise their right to express their opinion in the process of making right to express their opinion in the process of making decisions concerning the public interest, both directly and decisions concerning the public interest, both directly and indirectly.indirectly.

Rule of Law Rule of Law -To realize law enforcement which is fair and -To realize law enforcement which is fair and impartial for all, without exception, while honoring basic impartial for all, without exception, while honoring basic human rights and observing the values prevalent in the human rights and observing the values prevalent in the society.society.

Cont…Cont… TransparencyTransparency - To build mutual trust between the - To build mutual trust between the

government and the public through the provision of government and the public through the provision of information with guaranteed easy access to accurate and information with guaranteed easy access to accurate and adequate information.adequate information.

EqualityEquality - To provide equal opportunities for all members of - To provide equal opportunities for all members of the society to improve their welfarethe society to improve their welfare

ResponsivenessResponsiveness - To increase the sensitivity of government - To increase the sensitivity of government administrators to the aspirations of the publicadministrators to the aspirations of the public

Principles of public financial management reformsPrinciples of public financial management reforms

Legitimacy:Legitimacy: refers to the interaction between government refers to the interaction between government and citizens, Citizens should participate directly or and citizens, Citizens should participate directly or indirectly.indirectly.

The principle of legitimacy also involves gender equality The principle of legitimacy also involves gender equality in participation in society’s decision-making processes.in participation in society’s decision-making processes.

In public financial policy and management, the most In public financial policy and management, the most important interfaces between citizens and state are important interfaces between citizens and state are taxation and the allocation of public resources.taxation and the allocation of public resources.

Cont..Cont..AccountabilityAccountability means, broadly defined, that individuals and means, broadly defined, that individuals and organisations can be held responsible for performance. organisations can be held responsible for performance. Transparency is only possible if information is available and Transparency is only possible if information is available and used in public. used in public. Good Financial Governance, therefore, requires the Good Financial Governance, therefore, requires the cooperation of various players and control bodies, including cooperation of various players and control bodies, including Parliament, civil society and the media, using the available Parliament, civil society and the media, using the available information to control public financial conduct.information to control public financial conduct.

Cont…Cont… Rule of lawRule of law requires that all state actions are carried out requires that all state actions are carried out

within a fair and impartial legal framework. within a fair and impartial legal framework.

Rule of law in terms of Good Financial Governance Rule of law in terms of Good Financial Governance creates predictability and trust in public finance. All creates predictability and trust in public finance. All public financial management activities must be based on public financial management activities must be based on laws that have been passed through democratic processes laws that have been passed through democratic processes

Cont…Cont… The performance principleThe performance principle means that the state is means that the state is

willing and able to provide public goods and services willing and able to provide public goods and services that meet citizen’s needs, making the best possible use that meet citizen’s needs, making the best possible use of resources, they should be provided effectively and of resources, they should be provided effectively and efficiently applying the principles of Good Governance.efficiently applying the principles of Good Governance.

Cont…Cont… According to (Guthrie, 2005). Good Financial According to (Guthrie, 2005). Good Financial

Governance development orientation of the government Governance development orientation of the government focuses on the mechanisms that are most relevant for focuses on the mechanisms that are most relevant for transforming sound public finance into benefits for the transforming sound public finance into benefits for the population, in particular, the poor.population, in particular, the poor.

Stakeholders in Good Public Financial GovernanceStakeholders in Good Public Financial Governance

All individuals and government units that All individuals and government units that have the function of regulating, organising have the function of regulating, organising and controlling the use of public resources and controlling the use of public resources are involved in the implementation of good are involved in the implementation of good financial governance reformsfinancial governance reforms

The main parties involved in this process The main parties involved in this process are government institutions, which are are government institutions, which are responsible for the administration and responsible for the administration and control of public revenue and expenditure, control of public revenue and expenditure, the Ministry of Finance being assigned the the Ministry of Finance being assigned the main role as the leading administrator of this main role as the leading administrator of this procedure. procedure.

Cont…Cont… Parliament Parliament is responsible for the decision on the legal is responsible for the decision on the legal

framework, and for political decision making and framework, and for political decision making and control in the budget process. control in the budget process.

Civil societyCivil society is a central player in the quest to achieve is a central player in the quest to achieve good financial governance. Direct participation of civil good financial governance. Direct participation of civil society in the budget formulation has increased in many society in the budget formulation has increased in many developing countries in recent years. developing countries in recent years.

Cont…Cont… Reforms must be organised in sequenceReforms must be organised in sequence recognising the recognising the

limited capacity for the implementation of reforms, not limited capacity for the implementation of reforms, not everything can be done at once.everything can be done at once.

Planned reform processes are frequently too ambitious for Planned reform processes are frequently too ambitious for the country’s existing capacities. In countries with the country’s existing capacities. In countries with sufficient capacities, several reforms can be organised in sufficient capacities, several reforms can be organised in parallel. Reforms should be adopted in sequence when parallel. Reforms should be adopted in sequence when countries do not have sufficiently robust capacities countries do not have sufficiently robust capacities

ConclusionConclusion To strengthen public financial management as a tool To strengthen public financial management as a tool

for good financial governance is the responsive, for good financial governance is the responsive, prudent, effective, transparent and accountable prudent, effective, transparent and accountable management of public financial resources and management of public financial resources and requires robust budget and financial management, requires robust budget and financial management, audit and oversight institutions that operate within the audit and oversight institutions that operate within the rule of law. rule of law.

Cont..Cont.. There is a need to link more closely public expenditure with There is a need to link more closely public expenditure with

the revenue side of the budget especially taxation. Better the revenue side of the budget especially taxation. Better resource mobilisation can create a culture of government resource mobilisation can create a culture of government accountability to the citizen-taxpayer, diversify and make accountability to the citizen-taxpayer, diversify and make more effective public finance, enable long-term financial more effective public finance, enable long-term financial commitments to citizens, and reduce dependence on aid flows. commitments to citizens, and reduce dependence on aid flows.