The Efficiency of Developing Country Public Financial Management Systems

Abstract

The objective of this paper is to demonstrate a procedure for measuring the technical efficiency of developing country public financial management (PFM) systems using available public expenditure and financial accountability (PEFA) assessments. Data envelopment analysis (DEA) is used to measure the relative technical efficiency of sixtynine country based PFM systems. Technical efficiency is measured as the ratio of a PFM’s PEFA score on budget credibility to it’s maximum possible score on budget credibility derived using DEA and the existing PEFA database.

This measure of technical efficiency involves applying DEA to the available database of PEFA assessments to construct a hypothetical PFM system that has a higher score on budget credibility and at least identical or lower scores on the other core dimensions of PFM performance. Accordingly, the relative technical efficiency of PFM systems investigated in this article is based on the achievement of budget credibility as defined by the PEFA framework. This notion of technical efficiency is therefore quite unrrelated and distinct from the achievement of international good practice in PFM that underly the PEFA assessments. Indeed it is possible that PFM systems operating well below what public finance experts would regard as good or best international practice may achieve relatively high technical efficiency scores while others operating close to what is perceived as good or best international practice may be found to be less technically efficient.

In the present database of sixty-nine PFM systems, thirteen are identified as operating at 100% technical efficiency. The DEA identifies efficiency benchmarks for the remaining less technically efficient PFM systems.