The objective of this paper is to measure the capacity and capability of public financial management (PFM) systems and to identify the resulting implications for PFM reform. Data envelopment analysis (DEA) is applied to the Public Expenditure and Financial Accountability (PEFA) framework and database of 69 country PFM systems to obtain estimates of PFM capacity and PFM capability. The results suggest that capacity and capability are negatively correlated. Econometric analyses of the resulting estimates of capacity and capability against PEFA core input dimensions indicate that popular interventions; such as improving budget classification schemes, introducing a multiyear perspective in budgeting, internal auditing, and other PFM reforms promoted by multilateral, bilateral and other agencies; could have differential and conflicting impacts on the capacity and capability of PFM systems. Accordingly, in order to achieve improved PFM performance, agencies may need to take account of the existing PFM capacity/capability configuration of respective PFM systems when designing programs for PFM reform.
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