How Can a Strong PFM System Help to Deliver the SDGs?

Public Financial Management (PFM) is a core function of any government. A well-run PFM system empowers a government to allocate its limited resources on key priorities and to effectively and efficiently spend with maximum impact. With 2030 fast approaching, there is no greater priority for the public sector than the achievement of the Sustainable Development Goals (SDGs).

Raising the Funds

According to the International Monetary Fund, every country needs to substantially increase their budgets in order to achieve the Sustainable Development Goal commitments. The main finding of the paper is that delivering on the SDG agenda will require additional spending in 2030 of US$0.5 trillion for low-income developing countries and US$2.1 trillion for emerging market economies.

With the increased amount of spending needed, the first part of the equation is to increase domestic revenues. Governments should implement administrative reforms to improve its tax base (the total number of taxpayers) and its tax-to-GDP ratio. Increasing revenue collection efficiency reduces the reliance on borrowings and ensures that efforts to pursue the attainment of the SDGs remains sustainable.

Strengthening Public Expenditures

Increasing revenue collection is only half of the equation. More importantly, governments should improve the quality of spending.  Because of the high cost of delivering on the Sustainable Development Goals, governments should reorient their PFM systems to integrate the SDGs in every phase of the budget process – from planning, to formulation, to implementation, and finally, to reporting and accounting.

Governments can incorporate the SDGs in their planning and prioritization process by ensuring that development plans, medium-term plans, and sectoral plans align with each other and revolve around the attainment of the goals. Achieving the Sustainable Development Goals is a multi-year effort. Through a medium-term expenditure framework (MTEF), governments can prioritize, plan, and sequence budget allocations over a rolling period of three to five years. The SDGs should be incorporated in these MTEFs and further detailed into sectoral and ministry budgets.

Critical in budgeting for the SDGs is to adopt a system that identifies spending items that relate to the SDGs and collates performance information for each goal. Governments can improve their PFM systems by adopting a performance-based budget where each ministry commits to performance targets related to the SDGs. 

Improved Project Management

Increased implementation capacity is a hallmark of a strong public financial management system. In order to implement massive investments related to the SDGs, governments should have a robust project management system. Contract management and project oversight are indispensable in ensuring that funds are properly spent.

Finally, reporting and auditing systems should be reoriented towards sustainable development goals. Spending reports should be linked to the delivery of outputs and outcomes related to SDGs. State auditors should likewise incorporate the goals in their value-for-money audits.

Opportunity for Transformation in Government

With so many needed reforms, incorporating the SDGs into a government’s PFM system may seem too daunting. But reorienting the budgeting system is an opportunity to push for much-needed reforms that not only improves public finance but also transform government as a whole.

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