The Reimagining Public Finance (RPF) team has put forward for discussion a thoughtful set of proposals intended to improve technical work in public financial management (PFM) and public finances more generally. These proposals are designed to address the problem of PFM advice that is dominated by a best practice mentality and that sees PFM reforms as ends in their own right. This problem may not be as pervasive as RPF thinks, but it is undoubtedly a real one.
What is the underlying cause of the “best practices” problem? The prevailing PFM analytic framework is, in RPF’s view, to blame. RPF suggests, in other words, that it is the set of principles and concepts that we habitually use to think about PFM that lead to the best practice approach, with its implicit assumption that “one size fits all.” This is why RPF proposes a new and radically different analytic framework. It is also the motivation for RPF’s new “development outcome” based diagnostic methodology, which I discussed in my last blog piece.
My perspective is different. I think that the mainstream PFM analytic framework is, in fact, completely inconsistent with a best practice approach. The principal drivers of the best practice mentality are not PFM theories. They are more mundane and practical. I am therefore not convinced that radical changes to the PFM framework are necessary or helpful. I explain why in what follows.
This blog piece is the second of two intended to contribute to the debate at the World Bank conference on Reimagining Public Finance (September 29-30, 2025) – at which I will be a panelist. The RPF team is to be congratulated for the effort that they have put into developing the proposals to be discussed at this conference, and for encouraging open debate on the issues.
PFM Reforms as Ends rather than Means?
Multiple ways of thinking about PFM have always coexisted. There is, however, a mainstream PFM analytic framework that has dominated the PFM literature for the last three decades, early formulations of which can be found in the World Bank’s landmark 1998 Public Expenditure Management Handbook and a classic paper by Allen Schick. This mainstream analytic framework explicitly views PFM institutions as instruments to facilitate the achievement of the fundamental objectives of public finance, which in the Handbook version are:
1. Aggregate fiscal discipline
2. Allocation of resources in accordance with strategic priorities
3. Efficient and effective use of resources in the implementation of strategic priorities[1].
In this mainstream approach to PFM, the merits of every potential reform are assessed by reference to its ability to facilitate the achievement of one or more of these public finance objectives. Whether fiscal councils are a good idea in a specific country is, for example, a question that is to be answered by asking whether in that country the establishment of such a council is likely to improve fiscal discipline (objective 1). Whether performance budgeting is an appropriate reform is a question that would be answered by determining whether, in the country concerned, it could reasonably be expected to advance objective 3 and — depending on the model of performance budgeting — perhaps also objective 2. The appropriateness of spending review would be assessed by its potential to contribute to all three objectives.
This is an explicitly instrumental approach to PFM reform that has nothing in common with a view of PFM reforms as ends in their own right. It connects PFM firmly to the government’s broader public finance policies.
The mainstream PFM analytic framework is equally far removed from one-size-fits-all thinking. It has always emphasized the importance of taking into account country circumstances and capacity. This includes guarding against the assumption that what works in an advanced country will necessarily work in a developing country. For mainstream PFM, it is, for example, entirely natural to recognize that, whatever the general merits of fiscal councils may be, the establishment of a fiscal council is not a useful reform in every country in the world.
It would not be difficult to produce dozens of quotations from the core PFM literature to demonstrate that this instrumental/adaptive approach represents mainstream thinking. I will not take up limited space here by doing so.
In my last blog piece, I pointed out that the RPF development outcome-based diagnostic methodology can’t be used when the task is to analyze a component of a country’s PFM system – such as cash management, aggregate fiscal policy formation or the budget classification – and propose reforms to make it more supportive of government as a whole. For this type of work — and most PFM diagnostic work is of this type — the right approach is to apply the principles of the mainstream PFM analytic framework by asking how the relevant PFM institutions can be improved to better support the three objectives of public finance[2].
Over the years, I’ve seen plenty of technical advisory work which has been guided by precisely this mainstream instrumental view of the role of PFM. In such work, analysts anchor their reform proposals on the three objectives of public finance, while giving careful consideration to country institutional and socio-economic characteristics, capacity and resource constraints.
The Best Practice Approach
There is, however, no denying that some PFM work is just as the critics describe. Cookie-cutter reforms are recommended and implemented with little consideration of their relevance to country needs or circumstances. Sometimes the application of the best practices approach has been absurdly inappropriate[3].
But if we want to tackle this problem, we need to properly understand its origins. If it isn’t due to the mainstream PFM analytic framework, where does it come from?
In my view, the problem is mainly practical rather than theoretical. Its causes include the following:
- Work to fully understand national circumstances and the country-specific causes of public finance problems is very demanding and time-consuming. PFM technical advisory work is often not resourced sufficiently to undertake the magnitude of work that would be required. It is much easier to put together a PFM reform program using pre-fabricated components.
- Some PFM consultants do not have the experience or skills required to undertake this type of analytic work.
- Clients themselves are sometimes keen to be advised on what they understand to be cutting-edge reforms – and are therefore themselves sources of demand for “best practice” type advice. Sometimes this is appropriate, sometimes not.
These sorts of practical problems will not be resolved by changes in the PFM analytic framework. They require other solutions, but are not easy to solve.
PEFA and Best Practices
What about PEFA – the Public Expenditure and Financial Accountability diagnostic framework? Doesn’t PEFA promote a best practice mentality?
It’s not entirely clear where RPF stands on PEFA. Other critics of the best practice approach have, however, not been shy in blaming PEFA. This is, in my view, unfair. PEFA was never conceived as an instrument for promoting a best practices approach to PFM reform. It was based instead on the proposition that — even if what works best in many areas of PFM varies considerably from country to country — there is a small set of universal good practices in the PFM domain which all, or almost all, countries should follow. The great majority of the PEFA diagnostic criteria concern this limited group of universal good practices, and are therefore relevant to everybody. It is, for example, objectively better for all countries to have greater budget reliability (PEFA indicators 1, 2 and 3), informative budget documentation (indicator 5), proper debt management (indicator 13), and a clear aggregate fiscal strategy (indicator 15). Viewed in this way, PEFA is entirely consistent with the instrumental view of PFM reforms embodied in the mainstream analytic framework described above.
This doesn’t mean that PEFA is perfect. The scope of PEFA has expanded over the years and there are now certain PEFA indicators that inappropriately go beyond the core of universal good practices[4]. More serious is the misuse of PEFA in PFM reform programs the objective of which is to raise PEFA scores. A reexamination of PEFA and its uses to address these issues would be useful.
There is more to RPF than I have been able to cover in these two blog pieces, which have focused only on the implications of RPF for PFM[5]. I admire the ambition of the RPF agenda. However, I am not persuaded that radically modifying the PFM analytic framework is the right direction to be moving. The mainstream PFM framework is both intellectually sound and widely understood. It also has the advantage that it is less complex than the new framework which RPF is now proposing.
But whatever position one takes on these issues, one thing is certain: the debate which we are now having is valuable, and will help to further improve the way we think about, and practice, public financial management.
[1] These three objectives have been formulated in slightly different ways over the years, but arguably the Handbook version is the best. The three objectives correspond to the economic concepts of (2) fiscal sustainability, (2) allocative efficiency and (3) effectiveness and operational efficiency.
[2] The RPF framework includes four “roles” of public finance thatare essentially a modified version of the three mainstream objectives of public finance. I suspect that, in practice, most applications of RPF would use these “roles” as the diagnostic criteria, skipping the “development outcomes” step. This would make RPF analysis very similar to analysis using the mainstream framework. There are, however, a number of questions that can be raised about the way in which the four “roles” are formulated.
[3] I recall, for example, an EU project on medium-term budgeting initiated in the Democratic Republic of the Congo during its civil war or the massive USAID effort to develop performance budgeting in Afghanistan after the overthrow of the Taliban.
[4] Although the extent of this problem has often been exaggerated. The 2020 paper Advice, Money, Results, for example, criticized PEFA for setting standards for performance budgeting, when in fact it does nothing of the sort. See my critique of that paper.
[5] RPF also suggests that we should abandon analysis narrowly focused on PFM systems in favor of analysis of public finances as a whole. My view is that there is a place for both, but that to require that analysts always cover the totality of public finance issues would be extremely demanding and not always the most useful approach.