Reimaging public finance management: From spending control to delivering outcomes

For as long as governments have existed, so has public financial management (PFM). This approach has always been explicitly designed to ensure the efficiency and transparency of public expenditures, while implicitly aiming to meet the needs of both governments and citizens. 

It is the combination of PFM’s systems, guidelines and processes that enable governments to execute their budgets. In practical terms, it is what allows governments to ensure the operation of schools, hospitals, and other essential public services. 

Over the last few decades, PFM has evolved and the balance between explicit and implicit goals adjusted. In the 1980s and 1990s, debt crises led many governments to a greater focus on compliance and control to maintain fiscal sustainability. Servicing debt was prioritized, while investments and social expenditures received less attention. Then, as debt issues were largely addressed by the early 2000s, countries gradually shifted their attention to outcomes, adopting performance-based budgeting and establishing delivery units. 

The COVID-19 pandemic significantly increased the demands on public finance, requiring governments to allocate unprecedented levels of spending toward vaccine deployment, medical equipment, hospitals, and fiscal support programs. At the same time, public finances were strained by rising interest rates, inflation, and commodity prices. Together, these factors put governments in a tough position, as they had to respond to their citizens and maintain quality services at a time when resources were increasingly scarce.  

Nearly six years after the pandemic, it’s clear that business as usual may not be feasible for governments as citizens’ demands for service delivery continue to grow. People’s ability to express their dissatisfaction through the ballot box is putting pressure on governments to allocate resources effectively and to translate them into tangible results.  In the past year, elections in more than 60 countries saw incumbents lose a share of votes, reflecting citizen discontent with their governments. 

With rising public expectations, governments are being called to deliver not just more, but better. Yet, aligning policies and budgets to meet these demands is not always straightforward. Tax and spending measures can sometimes pull in different directions: fuel may be both taxed and subsidized; digital inclusion is promoted, but devices face high taxes; and sugary drinks may be under-taxed while health systems strain to address preventable diseases. 

Responding to these demands and addressing inconsistencies is key to strengthening the effectiveness of public finance. It requires reimagining PFM in the context of service delivery, ensuring that resources support long-term priorities like equity, resilience, and climate action. 

To do this, we must: 

• Recognize PFM as a core element of fiscal coherence. Revenue and expenditure policies gain traction only when embedded in robust systems for planning, budgeting, execution, and oversight, allowing for coherence across ministries, sectors, and all levels of government.
• Focus on outcomes, not inputs. Traditional PFM has focused on compliance and control; reimagining PFM shifts attention toward results, service delivery, and resilience—tracking not only where money is spent, but also what it achieves.
• Use PFM to ensure resilience in practice. Flexible budgets, contingency financing, and transparent procurement allow governments to maintain health, education, and climate priorities in times of crisis, ensuring that immediate shocks do not derail long-term goals.

These issues are top priorities for governments and the international community, including institutions like the United Nations Development Programme (UNDP) and the World Bank Group. As part of these efforts, the UNDP-led Public Finance for SDGs Collaborative—a joint effort by governments and partners to reframe public finance as a driver of sustainable development—was launched this summer at the Fourth International Conference on Financing for Development (FFD4) in Sevilla, Spain. The initiative focuses on development outcomes and promoting fiscal policy coherence across revenue, spending, and debt. The Collaborative will engage ministries of finance, planning authorities, tax administrations, and audit institutions to move beyond fragmented initiatives and design coordinated fiscal policies that maximize impact.  

The World Bank Group is also conducting research to understand the role that bottlenecks in PFM play in service delivery—and potential solutions to address those challenges. Governments, development partners, and technical experts discussed these issues at the recent Reimaging Public Finance Global Conference.  

Turning public resources into effective service delivery requires collaboration among government entities at all levels. As we reimagine how public finances can support development by focusing on coherence, resilience, and outcomes, coordination is ever more important. It helps ensure that we’re aligning resources with long-term priorities, responding to emerging challenges, and maximizing impact on people and the planet.

This blog was originally published on UNDP’s Sustainable Finance Hub.

Source : World Bank