This paper explores the linkages between PFM systems and effective anti-corruption measures. It asks: Which components of the PFM cycle are effective anti-corruption measures and what types of corruption do they address? Drawing on a variable evidence base, its findings highlight the role of PFM reforms in reducing the opportunities and incentives for corruption, over the impact of these reforms on increasing the effectiveness of sanctions. It emphasises that PFM reforms take time and require political commitment to work.
The framework for analysis brings together definitions of corruption, the process of how reforms address corruption, and the PEFA indicators.
Key findings include:
- Improvements in PFM systems can only take reforms so far. Political support is required if reforms are to have a larger impact on petty corruption, which may not have a large impact on overall corruption levels within a country. Insufficient political support creates a permissive environment in which bureaucrats begin to undermine and bypass established PFM systems.
- Interlinkages between reforms that can be mutually reinforcing require greater consideration. For example, improvements in accounting and reporting and reporting and prosecution.
- Reforms to revenue collection can have a significant impact on petty corruption and a more limited impact on grand corruption (in an environment lacking effective enforcement).
- The relationship between reforms in budget preparation and planning and corruption is focused on reducing grand corruption, but its impact is unlikely to be significant.
- Shifting salary payments towards automated payments directly into bank accounts, while not completely removing the opportunity for corruption, can significantly decrease the opportunity for corruption to take place.
- Changes to procurement processes can, on a small scale, limit petty corruption in procurement, mitigating against issues such as kickbacks and bid rigging. Improving the use of electronic systems and removing ‘humans’ from the decision-making and payment processes aims to reduce opportunities for corruption.
- Audit and reporting on government expenditure can function as an effective check on corruption.Improvements to account and reporting systems can increase the transparency of the PFM system and thus increase the likelihood of detection.
- The willingness and support of the political elite is vital to a strong PFM based anti-corruption push.
- The distinction between petty and grand corruption is important. Addressing only petty corruption is insufficient. PFM reforms are far more likely to reduce the opportunities for petty corruption than to impact on grand corruption.
- Linkages between PFM reforms and other legal reforms greatly impact the ability of a government to limit or reduce corruption.
The paper highlights the importance of taking a conservative approach when assessing the impact of PFM reforms on corruption, and to measuring the impact of these reforms – not just assuming impact. Greater focus is needed on the linkages between PFM reforms and strengthened sanctions, as well as the impact of reforms on corruption in the private sector.
