Drafting and Implementing PFM Laws
Why countries rewrite their public-finance laws
Two main reasons:
- To strengthen fiscal discipline.
- To lock in a broader overhaul of the financial-management system in legal form — so that if future stakeholders want to reverse reforms, the law itself becomes a barrier to doing so.
What the law should cover
If a law’s purpose is to set the reform agenda, it must be comprehensive. Leaving out particular institutions or areas creates a loophole that can undermine both the reforms and fiscal discipline. It should cover the entire public-finance system — macro-fiscal policy, budget preparation, execution, accounting, and fiscal risk — and reach the entire public sector, since the whole public sector eventually affects overall fiscal outcomes.
Key design choices and common pitfalls
- Coverage — must be comprehensive (as above).
- Length — heavily influenced by legal tradition. An overly detailed law is generally not good practice, because most people who actually use the law day to day are not lawyers, and a very long, technical document is hard for them to work with.
- Outdated provisions — drafters are often tempted to carry over old provisions purely out of caution, even when they no longer make sense.
The gap between law and practice
It’s good for a public-finance law to be ambitious, setting out medium- to long-term reform goals. But to avoid a persistent gap between the law and actual practice, the law should specify not just the end goals but also a realistic timeframe for reaching them, and any transitional arrangements to follow until the reform is fully in place.
Remaining challenges
- Bringing together all the necessary expertise to produce a comprehensive law — not just accountants and budget officials, but macro-fiscal specialists, state-enterprise experts, and others.
- The recurring question of who should hold the pen when drafting — lawyers or PFM practitioners — and whether outside experience should be brought in.
- A practical solution: an interdisciplinary working group where all relevant experts work on the same document together. This tends to improve both quality and speed, even though assembling such a group is often difficult in practice.
A new public-finance law sets an ambitious goal — full accrual accounting within one year — but gives no transitional timeline or interim rules. What is the most likely outcome, based on this lesson?
Without a realistic timeframe and transitional arrangements, a law's ambitious goals tend to be treated as symbolic rather than binding — and compliance gradually slips.
Key takeaways
- Countries rewrite PFM laws mainly to strengthen fiscal discipline and lock in reform.
- A good PFM law must be comprehensive — covering the whole public-finance system and the entire public sector.
- Avoid excessive length and outdated provisions that no longer make sense.
- Ambitious goals need a realistic timeframe and transitional arrangements, or the law becomes an ignored slogan.
- An interdisciplinary working group — not just lawyers or just accountants — tends to produce better, faster legislation.
Frequently asked questions
Why shouldn't a public-finance law be extremely long and detailed?
Because most people who use the law daily aren't lawyers. An overly long, technical document is hard to work with in practice, even if it feels thorough on paper.
What's the risk of copying old legal provisions forward into a new law?
They can be outdated or irrelevant — like specifying ink colour for a signature in a fully digital system — and cluttering the law with such detail undermines its clarity and credibility.
Who should draft a PFM law — lawyers or PFM practitioners?
Good practice favours an interdisciplinary working group combining both, plus macro-fiscal and state-enterprise specialists, rather than leaving it to just one profession.
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