Chapter 16: Subnational Public Financial Management: Institutions and Macroeconomic Considerations
Ehtisham Ahmad, Maria Albino-War and Raju Singh1 Introduction Practical issues relating to effective public financial management ultimately govern whether or not there is good governance at the subnational level – hence the success or failure of different policy options. Although there is a growing literature on ‘fiscal rules’ and subnational debt management,2 less attention has been paid to the critical governance aspects of public financial management. Part of this neglect may be due to the presumption that decentralization, together with community-based decision making, would suffice in generating efficient and equitable spending decisions. Indeed, the emphasis on community participation was a feature of development strategy in the 1950s, largely driven by the Ford Foundation and US foreign assistance programs.3 Despite a lack of significant success at the time, there has been a resurgence of the policy in recent years due to the efforts of non-governmental organizations (NGOs). The emphasis on community-driven development was adopted as one of the cornerstones of the World Bank’s Comprehensive Development Framework (World Bank 2001). However, there is increasing evidence that weak or absent public financial management functions and institutions are likely to negate any advantages that might be inherent in bringing public services ‘closer’ to local communities. The underpinnings of public financial management relate to the basic institutional and procedural elements that might be enshrined in a constitution, or higher-level laws on the budget,4 or laws or agreements governing subnational operations or levels of indebtedness. In some countries, such as South Africa, where the process...
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