Public Sector Governance and Accountability Series: Budgeting and ...

What Would an Ideal Public Finance Management System Look Like? 377
The evidence of a linear pathway from one goal to another—and hence
from one level to another—is actually quite ambiguous, however. It is not
apparent, for example, that governments always need to progress through
the steps without leapfrogging. Level 1 may not be required before level 2
can be attained—governments could move directly from level 0 to level 2. 16
Furthermore, attaining level 1 does not mean automatic movement to level 2. 17
Finally, because governments face uncertain environments, goals that were
attained in the past (fiscal discipline, for instance) may pose challenges
in the future—requiring some governments to adjust level 2 systems to
combat level 1 problems in some instances. 18
The central point of figure 11.4 still holds even if one does not buy the
basics first argument of step-by-step progression: different goals are associated
with different kinds of systems. Figure 11.5 shows the variations in different
system dimensions more clearly, detailing how key processes might look at
different levels.
It is important to note that processes at each level in figure 11.5 are
related to different kinds of accountability and control. Obviously level 0 has
no real accountability or control. Level 1 has accountability for compliance
with the rules of budgeting and for the detailed use of inputs in the PFM
system (whether these inputs are financial, personnel oriented, or other).
Level 2 reflects a mixed accountability for compliance and input use and
accountability for results (measured ex post). Level 3 has accountability for
results where there are no ex ante controls (by which managers are held
accountable for their use of inputs), but managers are rather held accountable
for what they do with the money (the results they produce).
Any PFM code needs to recognize that differences between PFM systems
are required in the face of differences in goals being addressed. Thus, there
is not necessarily one right way of structuring a PFM system, and there is not
one right set of technical tools or indicators for effective PFM. If a government
is pursuing level 1 fiscal discipline as its primary objective, it should
have a system that looks quite different from that of a government that has
well-established discipline and is tackling level 2 and level 3 issues of
budgetary efficiency.
This point has multiple implications. One is that the definition of best
practice relevant to a specific government must be seen as contingent on the
kind of goal being addressed in that government. Hence, there is a strong
reason not to derive a PFM code using any best-practice approach. A second
is that any kind of indicator set used to reflect on PFM system quality must
show how the indicator dimensions relate to different levels and thus pertain
to different kinds of goal achievement. This is not done in PEFA, which
presents an indicator set that seemingly holds for all governments and at all