Public expenditure management (PEM) framework

This page provides an introduction to the topic of Public Expenditure Management (PEM), and is part of the GRC Exchange topic guide on Public Financial Management and Accountability.

Page contents

Definition of topic and content

Useful handbooks

PEM and poverty reduction

Definition of topic and content

PEM refers to an integrated approach to Public Financial Management which encompasses policy making, planning and budgeting. Its three basic elements are: maintaining aggregate fiscal discipline; allocating public resources in accord with strategic priorities; and promoting the efficient provision of services. Aggregate fiscal discipline is considered to be the most important of these, and is a prerequisite for achieving sustainable allocative and operational efficiency. The PEM approach focuses on achieving these desired outcomes, rather than dictating fixed procedures.

As well as the documents highlighted on this page, the GRC Exchange holds a wider selection of PEM documents on the Information Database. Click here to access these.

The following are handbooks on PEM by the World Bank and the IMF. The work by Schick for the World Bank has largely defined the subject area, and most authors follow him broadly, with some variations in the emphasis and names given to certain elements of the approach.

Schick, A. 1998, A Contemporary Approach to Public Expenditure Management, World Bank, Washington D.C.
This paper produced for the World Bank Institute outlines the concepts of public expenditure management (PEM), explaining how PEM supplements formal budgeting process rules with behavioural norms for allocating and controlling public expenditure. PEM seeks procedures that increase the probability of achieving preferred outcomes, and its three basic themes are aggregate fiscal discipline, the allocation of public resources in accord with strategic priorities and the promotion of efficient provision of services.
Comment: The best single introduction to this subject but contains technical terms. This is best read after the DFID guidelines.
Full document available online

World Bank 1998, Public Expenditure Management Handbook, World Bank, Washington D.C.
This handbook provides a framework for thinking about how governments can attain sound budget performance and gives guidance on the key elements of a well- performing public expenditure management (PEM) system. The handbook is divided into two parts, concerned with budgetary and financial management in the public sector. Part 1 offers guidelines for improvement and Part 2 diagnoses weaknesses.
Comment: The conventional wisdom on how to do PEM.
Full document available online

Potter, B. H. and Diamond, J., 'Guidelines for public expenditure management', Legal Institutions Thematic Reform Group, International Monetary Fund, Washington DC, 1999.
The aim of this paper is to provide information for economists lacking experience in the practical issues of public expenditure management. These guidelines aim to provide a general overview of the principles and practices observed in three key aspects of public expenditure management: budget preparation; budget execution; and cash planning.
Comment: Outlines the IMF approach to Public Expenditure Management, although it is arguably not very different from that of the World Bank.
Full document available online

PEM and poverty reduction

PEM systems are 'poverty-neutral': in themselves, they do not deliver poverty reduction outcomes. However, good PEM systems are a vital tool for effectively implementing government spending priorities. In the context of government policies and plans which emphasise poverty reduction, they can be an essential precondition for effective poverty reduction programs.

Fozzard, F., Holmes, M., Klugman, J. and Withers, K., 2000, 'Public Spending for Poverty Reduction,' Chapter 1.6 in PRSP Sourcebook Volume 1, World Bank, Washington D.C.
This document begins with an overview of the budget system, considering the influence of institutional arrangements on public spending outcomes at the national, sector and local levels. It sets out a framework for assessing spending options and presents a guide on how to get started on this process.
Comment: Well-presented chapter from World Bank's Poverty Reduction Strategy Sourcebook, focusing attention on poverty.
Full document available online

Brobäck, U. and Sjölander, S., 2001, Programme Support and Public Finance Management. A New Role for Bilateral Donors in Poverty Strategy Work, SIDA, Stockholm.
This paper examines what bilateral donors in developing countries should be doing in the areas of programme support and public finance management. It has been undertaken for the Swedish International Development Cooperation Agency (Sida) and analyses the key issues at the centre of programme support and public finance management.
Comment: Broad review by SIDA placing Financial Management in a poverty reduction context and discussing how donors should approach it.
Full document available online

This resource does not attempt to provide an exhaustive list of documents relevant to PEM. For a thorough search of the whole GRC Exchange site please refer to the Information Database.

Use the site search at the top of this page, or within the left navigation if you wish to look for wider resources on PEM.

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