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PEFA: Public financial management and good governance

The World Bank Group book PEFA, public financial management, and good governance (Mustapha, S., Long, C., Löffler, G. and Mills, Z. 2019) outlines how to assess the status of a country’s public financial management system. PEFA measures the extent to which PFM systems, processes, and institutions contribute to the achievement of desirable budget outcomes: aggregates fiscal discipline, strategic allocation of resources, and efficient service delivery.

Chapter 4 in this volume explains how budget credibility can be measured; in particular in fragile states. In fragile states, even those conforming to 'best practice,' may experience a crippling combination of factors that leaves them stuck in a 'capability trap.' Low human capacity, lack of physical infrastructure, and persistence of parallel informal systems are some of the factors that can impair the proper functioning of a well-designed PFM system in a fragile state. The chapter then investigates whether PFM reforms can produce the desired outcomes in fragile states, but the results are mixed. Context matters and needs to be understood.