What is PFM?
PFM stands for Public Financial Management and relates to how a country raises, spends and accounts for public funds. PFM seeks to ensure that state spending translates to effective and efficient provision of services to the society and the economy. As such, PFM has to do with the process (how governments manage) and results (short, medium and long-term impacts) of government financial flows.
The PFM system comprises several interrelated processes and systems across various government institutions. At a simplified level, these processes include four main stages:
- Budget formulation (strategic budgeting and strategic preparation)
- Budget approval (Legislative Debate and Enactment)
- Budget execution (Accounting and Reporting, Internal Control / Audit, Resource Management
- Budget evaluation (External audit and Accountability).
The Government of Somaliland (GoSL) approved the Ministry of Finance (MoF’s) Somaliland Public Financial Management (PFM) Reform Strategy (2013-2017), which was designed to improve government’s capacity and systems to utilize public funds, towards meeting the National Development Plan goals and those of Vision 2030. The aim is to ensure that the Somalilnd Government spends with the highest possible efficiency, transparency and accountability in the allocation, management and use of public finances. The strategy also adopts a “comprehensive approach” to enable different PFM sub-systems to support each other rather than operate in isolation.
Reform Strategy Approach
- A PFM Reform Strategy is needed to improve government’s capacity and systems to utilize public funds towards meeting the NDP goals, and ultimately those of Vision 2030. It will require building human resource capacity; putting in place modern and effective systems and procedures for effective financial management and reporting; strengthening institutional frameworks for PFM in accordance with international best practices for a more efficient and transparent PFM System. This too will require mobilization of all areas of PFM in a holistic manner to become efficient, responsive and transparent.
- A “Whole Government Approach” or a “Comprehensive Approach” has been adopted by the Government rather than relying heavily on annual action plans in isolation of the strategic issues. The different PFM sub-systems need to support each other, rather than to operate in isolation.
The government is determined to focus and step-up PFM Reform efforts, which have been ongoing since 2006. The strategy is sequenced over a four-year period and is comprised of five Pillars comprising a total of 13 components. These are intended to work in parallel to strengthen the foundation of PFM, enhance PFM skills and competencies of MoF and Line Ministry staff, and ensure the availability and reliability of financial data.
The analysis of the current needs and lessons learned has led to the conclusion that PFM reform shall be:
- Comprehensive, including all the various reforms in PFM system as well as the cross-cutting issues to capacity building, service conditions and the legal framework.
- Sequenced to secure progress and manageable workload.
- Well managed with a management structure that involves the main stakeholders and enables consolidated efforts across government both horizontally and vertically, go-ordination and harmonization with and between donors, and
- Coordinated both logistically and conceptually, but with design and implementation of changes resting with the component leaders / institutions who are vested with the corresponding operational responsibility.
The strategy is sequenced over a four-year period and is comprised of 5 pillars and components which are intended to work in parallel to strengthen the foundations of PFM, enhance PFM skills and competencies of the MoF and Line Ministries staff, and ensure the availability and reliability of core financial data.
Through the development of PFM skills and capabilities, the goal is to establish MoF as the central coordinator and lead on PFM and equip Line Ministries to fully assume their PFM responsibilities while ensuring that they adhere to the laws and regulations of the GoSL.
Finally, proper PFM requires competent and empowered oversight. The strategy will address deficiencies in internal and external audit, and ensure parliament have the skills and support to strategically contribute to PFM.