Transforming Central Finance Agencies in Poor Countries: a Political Economy Approach (World Bank Studies)

Transforming Central Finance Agencies in Poor Countries: A Political Economy Approach presents the findings of a study on government organizations that carry out financial management functions for the whole of government, known as central finance agencies (CFAs). Using a political economy approach to the analysis of CFAs in 10 case studies of low-income countries, the study identifies the principal constraints on the capability of CFAs as

interventions by the head of the state, sometimes outside the provisions of the constitution and budget law, regarding institutional arrangements and fiscal policy; deficiencies in management, ranging from excessively centralized and hierarchical decisionmaking processes to poor staff management and record keeping; and inadequate coordination among donors-and between donors and their clients in finance and planning ministries-in designing and implementing strategies for reforming CFAs and public financial management systems.

Drawing on the results of a cross-country survey of CFAs-the first of its kind-the study presents evidence and offers explanations for an 'inverted U-curve' for the concentration of central finance functions across country income groups. In low-income countries, CFA functions are often poorly defined and may be performed by agencies other than the finance ministry, leading to fragmented and inconsistent policy implementation. Middle-income countries tend to concentrate central finance functions in the finance ministry to strengthen their control. In high-income countries, finance ministries tend to retain control of policy but delegate operational functions to specialized agencies.

This study will be of interest to country authorities seeking to improve coordination across central finance functions and other stakeholders in the reform process.