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Public Financial Management Reform in the Middle East and North Africa

June 30, 2010

June 2010 – A new report "Public Financial Management Reform in the Middle East and North Africa: An Overview of Regional Experience" surveys the experience of the region on the topic of public financial management reform.

According to the most recent World Bank data, governments throughout the MENA region spent approximately $407 billion dollars in 2007 in delivering their policy, regulatory and service functions.

One of the most important functions governments perform is that of mobilizing and deploying financial resources to achieve their objectives. The way in which this money is spent has huge implications for their broader development trajectory.

For example, a one percent efficiency gain in Egypt’s budget for 2009 would yield $637 million dollars, enough resources to build 40,000 schools, pave 4,500 kilometers of highway, or recruit an additional 600,000 doctors. It is therefore not surprising that issues of public financial management, or PFM, have been at the heart of governance reform programs in virtually all of the countries in the region.

For governments to perform their spending function well, their public financial management (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.

While such objectives are relatively straightforward, their realization can be challenging 

In many countries in the Middle East and North Africa, PFM reforms have been on the agenda for a decade or more. This report seeks to reflect upon this experience to date and better understand the nature of the PFM challenges confronting these countries.

This study surveys these reforms across ten Arab countries: Algeria, Egypt, Iraq, Jordan, Lebanon, Morocco, Syria, Tunisia, the West Bank and Gaza and Yemen. They were selected partly because they are places where the Bank has been heavily engaged on PFM issues and been able to gather a wealth of comparative information.

They also represent an interesting cross-section of administrative traditions and different levels of development. Taken together, these countries are home to over two thirds of MENA’s population and nearly one third of its GDP. Many of the findings from this analysis will be of relevance to other MENA countries as well.