PB3 Enhancing the capabilities of central finance agencies: a political economy perspective

Central Finance Agencies (CFAs) are uniquely positioned, strategically and operationally, to influence economic outcomes (see Commission on Growth and Development 2008). As the agency in control of public resources, a CFA marshals and deploys resources to achieve desired objectives and outcomes while at the same time also exercising guardianship over the public purse through its institutional roles, provision of incentives, and administrative culture (Wanna et al 2003). Combined with numerous other functions (core and noncore), CFAs are thus assigned predominant responsibility for the shaping of resource decisions and supervision of public finances. Moreover, as the the “nerve centre” of government, CFAs are central to reform itself; often their power and leadership critically determines the scope and content of the reform process (Scott 2008). However, efforts to enhance the role and functioning of CFA’s in many low and middle income countries have been mixed (IEG Report 2008).

In some cases, CFAs have become truly transformative agents of change, providing critical leadership for a wide array of Public Financial Management (PFM) reforms that have had far-reaching effects on macroeconomic stability and the efficiency of resource allocation, and thus on growth and poverty reduction. In other cases, they have either failed to assume a transformative role or failed to sustain it. Instead, to the detriment of economic outcomes, CFAs have often been ill-configured and have had unclear and conflicting mandates and lines of accountability. Their effectiveness has also been hampered by capacity problems in areas such as human resources, accounting and budgeting, and information technology. What explains these very different outcomes? And how do we go about strengthening CFAs?