Public Financial Management Reform in the Middle East and North Africa

One of the most important functions governments perform is that of mobilizing and deploying financial resources to achieve their objectives. According to the most recent World Bank data, governments throughout the Middle East and North Africa (MENA) region spent approximately $407 billion dollars in 2007 in delivering their policy, regulatory and service functions. The way in which this money is spent has huge implications for their broader development trajectory. For governments to perform their spending function well, their PFM practices should meet certain well-established criteria. Government spending should be affordable, in that it takes place within a framework that ensures expenditure is consistent with monetary and fiscal policy objectives and sustainable in the long term. Governments should optimize the allocation of public resources between different sectors and expenditure categories in a way that reflects their policy priorities, including sustainable growth as well as human and social development. Such expenditure should be efficient, in that it maximizes output for a given set of inputs, and effective, in that it supports the successful realization of the government’s goals. It should also be transparent; conducted in accordance with the relevant laws and regulations; and undertaken with appropriate checks and balances to ensure financial probity. In many MENA countries, PFM reforms have been on the agenda for a decade or more. This study surveys these reforms across ten Arab countries―Algeria, Egypt, Iraq, Jordan, Lebanon, Morocco, Syria, Tunisia, the West Bank and Gaza and Yemen―using a combination of case studies and the Public Expenditure and Financial Accountability (PEFA) framework. PEFA is a set of twenty eight (28) high level indicators measures performance against best practice in developed and developing countries. The indicators analyze performance in the six core areas of public financial management: (1) credibility of the budget; (2) comprehensiveness and transparency; (3) policy-based budgeting; (4) predictability and control in budget execution; (5) accounting, recording, and reporting; and (6) external audit. At an aggregate level, MENA’s PFM systems are roughly comparable to those of other countries at similar income levels. As a whole, the region tends to fare a bit better on accounting, recording and reporting and a bit worse on credibility of the budget. In terms of average scores for the six main categories, the tightest scores (i.e. the lowest standard deviation) were around credibility of the budget, indicating commonality among MENA countries on this dimension, whereas the largest discrepancies were found in the area of budget comprehensiveness and transparency. The PFM reforms that have been particularly successful in MENA fall into two types: efforts to improve budget transparency and classification, and the reform of revenues, particularly tax and customs. Ironically, these represent two very different reforms. The first are relatively straightforward and technocratic in nature.