Successful development depends in large on the efficiency, integrity, and effectiveness with which the state raises, manages, and expends public resources. Therefore, improving the formal and informal rules and institutions that govern these activities, and strengthening the related human and technological capacities, should be a major component of any development approach. Improved Public Financial Management (PFM) is at the core of good governance and lies at the heart of the Millennium Development Goals. For this reason, in the 2005 Paris Declaration, partner countries committed to strengthen their national PFM systems, and donors committed to use those systems to the maximum extent possible. Both partners and donors agreed to accelerate and deepen these commitments during the Third High Level Forum on Aid Effectiveness held in Accra, Ghana in September 2008.

Improved public financial management (PFM) is at the very core of good governance. Recognising this fact, the Paris Declaration in 2005 and the Accra Agenda for Action in 2008, committed partner countries to strengthen their national PFM systems and donors to use these systems to the maximum extent possible. This chapter introduces the concept of Using Country Systems in PFM as defined in the Paris Declaration (2005) and the Accra Agenda for Action (2008).

Significant benefits arise from the use of country systems. These include: increasing alignment; focussing on common goals; supporting sound budgeting and financial management; enhancing the sustainability of results; reducing costs for partner countries; and facilitating harmonisation between donors. This chapter describes how different aid modalities support or hinder the use of country systems and highlights the evidence so far on the use and strengthening of country PFM systems.

In both the Paris Declaration and the Accra Agenda for Action, partner countries committed to assess and reform their national systems for managing development resources to ensure that these are effective, accountable and transparent. This chapter outlines the PFM reform trends in partner countries before turning to the key drivers of successful PFM reforms. The role of the political economy in PFM reform is crucial: without grounding these reforms in political reality, they are unlikely to be sustainable or achieve the desired results. Finally, a communication strategy for PFM reform is necessary if the reforms and their outcomes are to be communicated both across government and to external stakeholders. The chapter ends by summarising key recommendations for both donors and partner countries for ensuring successful implementation of PFM reforms.

This chapter first examines the factors that influence donors’ decisions about using country PFM systems, focusing in particular on donors’ perceptions of risk and their approaches to managing it. Evidence suggests that the quality of the system is not the only determinant in donors’ decisions about whether or not to use the country’s systems. Other factors include the credibility of the country’s PFM reform programme; the partner country’s and the donors’ own preferences; as well as the perception of corruption. Following a discussion of risks to donors in using country systems; this chapter ends by outlining donors’ guidance on and incentives for the use of country PFM systems.

The Paris Declaration and the Accra Agenda for Action committed partner countries and donors to jointly assess the quality of country systems using mutually agreed diagnostic tools. This chapter describes the Public Expenditure and Financial Accountability programme (PEFA) developed to provide a shared pool of information on PFM that can facilitate dialogue on reform priorities among domestic and external stakeholders. The chapter describes its global adoption and the role of PFM assessments in the use of country PFM systems before outlining the challenges ahead for the enhanced use of the PEFA tool.