Public Financial Management reforms for Trust, Sustainability and Accountability
Transparent Public Reporting as the Bedrock of Governance
Transparent and high-quality accounting and financial reporting plays a key role in ensuring trust, sustainability, and accountability in the public sector. Today, accounting can be seen in a wider connotation to cover the entire range of services that the accounting profession provides to the public sector. Often, the breadth, depth, and impact of the accounting profession on governments’ financial operations are not well-understood.
This article, on the occasion of the World Congress of Accountants 2022 in Mumbai (WCOA 2022), attempts to unpack global trends in public financial management (PFM) and the impactful role the accounting profession plays in PFM. It makes an urgent call for closer collaboration between accountants, economists, and policymakers to strengthen a whole-of-government approach towards public finances.
1. Public Financial Management & The PEFA Global Diagnostic
Governments’ policies are implemented through public financial management (PFM) institutions, systems, and processes. They cover the entire budget cycle from budget preparation, budget execution, to budget evaluation. Sound PFM systems contribute to three fundamental fiscal and budgetary outcomes:
Effective and robust control over total budget aggregates and institutional management of sovereign fiscal risks.
Planning, budgeting, and deploying public funds strictly in alignment with identified national and developmental priorities.
Delivering high-impact, transparent, and timely public goods and administrative services to all citizens.
The PEFA1 Framework: Gold Standard for Measuring PFM Worldwide
PFM systems are measured by the Public Expenditure and Financial Accountability (PEFA) framework, utilized by sovereign governments across 155 countries. PEFA assesses 31 PFM Performance Indicators structured across 7 core pillars on a calibrated grading scale from ‘A’ to ‘D’ (where ‘A’ reflects highest consistency with international good practices and ‘D’ represents lowest performance):
2. Global Trends in PFM: 7 Empirical Findings from 80 Countries
The 2022 Global Report on Public Financial Management (PEFA Secretariat) synthesized data across national-level assessment reports from 80 countries2, identifying systemic strengths and critical vulnerabilities:
Most governments perform consistently well at accounting for revenue, maintaining basic internal controls, and restricting unauthorized expenditures from contingency reserves.
While aggregate spending variance between budgeted and actual figures is generally low, deviations at individual ministry/department levels are substantial, undermining strategic allocation.
Governments struggle to evaluate public service delivery performance, track holdings in nonfinancial public assets, and maintain budget consistency with forward multi-year estimates.
As many as 80% of nations fail to submit financial reports for external audit within 3 months of fiscal year-end. Only one country achieved the top score for completeness, timeliness, and consistency.
80% of countries omit total life-cycle cost projections or multi-year breakdowns for major capital projects in budget documentation, crippling public investment oversight.
Nearly 63% of countries awarded contracts valued at over 40% of total procurement value via non-competitive single-source methods, severely compromising cost-efficiency and public value.
The COVID-19 shock exposed structural fragility, demonstrating that emergency PFM systems must strike an agile equilibrium between rapid operational flexibility and strict fiduciary accountability.
3. Interdisciplinary PFM & The Three Pillars of Accounting Impact
PFM is an interdisciplinary profession operating at the vibrant intersection of public policy, public administration, economics, and accountancy. There are no cookie-cutter solutions; reforms must reflect specific institutional and legal contexts. To maximize impact, the accounting profession acts as both a core fulcrum and catalyst across three domains:
“The global trends on PFM indicate that there are huge opportunities to enable government policies to yield the intended objectives through an interdisciplinary convergence of ideas of experts.”
1. Migration from Cash to Accrual Basis: A Potential Game Changer
Public sector accounting is often viewed as the most technical and least political dimension of PFM, yet financial data integrity and timely reporting lag across developing nations. The global shift from pure cash accounting to International Public Sector Accounting Standards (IPSAS) Accrual is spearheaded by IFAC, the IPSAS Board, and the World Bank.
30% of global jurisdictions report on an accrual basis today, projected to leap to 50% by 2025.
World Bank-IMF LIC-DSA reveals 44% of Low-Income Debt Countries (LIDCs) face high external debt distress risk; 12% are already in default/distress. Accrual reveals hidden off-balance-sheet debt.
4 World Bank-IMF Low-Income Country Debt Sustainability Assessment (LIC-DSA).
2. Internal Controls & SAIs: Halting the $1 Trillion Annual Procurement Waste
Accountants serve as guardians of integrity across public spending chains. Governments globally deploy an estimated $13 Trillion annually on public contracts for goods, infrastructure, and services. According to World Bank findings5, up to 25% (a quarter) of this expenditure is lost to inefficiencies, corruption, and uncompetitive practices.
Halting public procurement waste through rigorous internal audit systems, independent Supreme Audit Institutions (SAIs), and open competitive bidding would release at least $1 Trillion every year to finance green, resilient, and inclusive global development.
3. Cross-Cutting Catalytic Influence on Economic Development
From budget drafting to parliamentary oversight, the accounting function is all-pervasive. A transparent, credible public financial system directly catalyzes private capital formation, lowering borrowing risk premiums and expanding sovereign creditworthiness.
4. Five-Point Action Agenda & The MOSAIC Global Alliance
To bridge institutional silos between economists, accountants, and policymakers, five strategic priorities must be operationalized:
- Curricular Integration: Substantially expand public financial management and public sector accounting modules within professional accountancy bodies and university degrees.
- Accelerated Accrual Transition: Scale international support for cash-to-accrual migration to create a robust, transparent balance-sheet baseline for national fiscal policymaking.
- Responsive Public Reporting: Modernize government budgets and financial statements to incorporate performance/outcome budgeting, gender-responsive budgeting, climate risk, and ESG sustainability metrics.
- Interdisciplinary Alignment: Deepen accountants’ understanding of economic models and executive administrative realities to ensure financial outputs seamlessly serve a whole-of-government mandate.
- Communicating Public Value: Elevate civic and governmental appreciation of the indispensable value that professional accountants contribute to national anti-corruption, efficiency, and good governance.
International efforts to develop and strengthen professional accountancy organizations (PAOs) and public sector finance through the IFAC/donor collaboration operating under the name MOSAIC (Memorandum of Understanding to Strengthen Accountancy and Improve Collaboration) have become a major global influencer on PFM development.
This surge in demand is reflected in rising accountant recruitment within Ministries of Finance, Supreme Audit Institutions, and sub-national treasuries. The convening of WCOA 2022 in Mumbai presents a historic turning point for accountants, economists, and administrators to forge a unified coalition for global PFM acceleration. ■■■