PFM Reform

PFM Reform Strategy

In effort to improve public financial management (PFM) the government of Somaliland (GoSOL) With getting financial support from the world back and the UK’s Department for international development (DFID)  launched an initiative for the development of a coordinating strategy that will guide reforms of the country’s PFM, the GoSL has concluded that there has been insufficient improvement in PFM throughout the government at both the national and sub-national level.

The objectives of PFM

The objectives of a PFM system are defined in terms of attaining:

  • Aggregate fiscal discipline- the overarching objective is to ensure that the public spending is in line with available resources. Failure to achieve this objective will jeopardize macroeconomic stability.
  • Allocative efficiency – allocating resources effectively between different expenditure areas/items in pursuit of the desired development objective. Allocative efficiency entails the strategic shifting of resources from less effective to more effective uses.
  • Operational efficiently- this is about making sure that resources are used in such a way that they provide maximum value for money.

The broad objectives of public financial management are to achieve overall fiscal discipline allocation of resources to priority needs and efficient and effective delivery of public services. A solid and strong PFM system is a tool to minimize fiscal waste and support the effective and efficient use of taxpayers’ money. Without proper management of public funds, the macro economy will be negatively affected. Weak PFM means that scarce resources are wasted through poor allocations and inefficient management. Corruption also thrives where PFM is weak and limits possibilities for growth.

Good governance is reached by improved transparency, accountability and efficient controls in PFM systems. PFM reform is instrumental in the fight against wasteful spending and corruption as it improves  access to financial data, audit procedures in relation to risks, results and it also encourages open and competitive procurement processes.

PFM reform is strategy refers to the legal and institutional framework for supervising all phases of the budget cycle including formulation and preparation of the budget, budget execution and expenditure management, internal controls and audits, procurement and reporting arrangements and external audit.

NEED TO IMPROVE PUBLIC FINANCE MANAGEMENT

In 2012, Somaliland tabled its National Development Plan (NDP) and its vision 2030 to address and overcome structural and institutional development constraints, which Somaliland faces, and achieve social and economic transformation to attain national prosperity.

The Governance Pillar of the Somaliland Vision 2030 and NDP 2016 requires the government of Somaliland to democratic, transparent, accountable and efficient. It also recognizes the need to build the capacity of its public service to better serve Somaliland and promote the success of the NDP and vision 2030.

In this plan, the Public Financial Management (PFM) reforms are based on a number of principles that include the strengthening the ministry of finance’s (MoF) PFM leadership whilst ensuring that line ministries can assume a greater role in PFM and contribute to the overall strategic objectives underpinning the NDP.

PFM strategy aims to ensure that Somaliland has the tools and capabilities to plan and direct the use of financial resources in a manner that is effective and benefits the people through improving the predictability of the budget, unifying reform activities under a common and clear objective, adapting to Somaliland’s circumstances, capabilities and needs, and positioning the Somaliland government to assume a greater control of management and utilization of financial resources for the economic growth of the country.

This strategy describes the background and rationale for the reform, its main objectives and measurable deliverables. Strategic elements such as comprehensiveness and sequencing approach, responsibilities and co-ordination mechanisms as well as the overall resource requirements and funding arrangements.

The public financial management system aims to facilitate the provision of public services to the people of Somaliland.

Effective public financial management is important for two reasons:

  1. To ensure that resources approved in the budget are allocated to implementing agencies in time to execute their programs ; and
  2.  To provide a framework for ex-post financial accountability that allows officials and elected politicians to establish where and how public funds were spent.

 

The key PFM institutions in Somaliland are (i) Ministry of Finance ; (ii) Ministry of planning (iii) Line Ministries and Public agencies; (iv) Local Governments; (v) Parliament; and (vi) the office of the Auditor General and internal audit.

Government departments and ministries with key PFM tasks include account General’s Offices, Budget Department, National tender board, Revenue department and Office of the Auditor general. The central bank of Somaliland is responsible for processing of payments and is also responsible for monetary policy.