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The role, responsibilities, structure and evolution of central finance agencies

Book/book chapter

Written by Richard Allen, Philipp Krause

Book/book chapter

This is a book chapter in the International Handbook of Public Financial Management (pp. 98-115).

In this chapter we review the role, responsibilities and organizational structure of the central finance agency (CFA), which may be defined as the group of government ministries and agencies – notably the ministry of finance – that is responsible for developing policy on and implementing the core finance functions of the state.

The discussion is based on the proposition that public finance is at the heart of government and affects all decisions on the allocation and use of public resources, however small. Decisions related to public finance determine the shape and course of economic development and the viability and performance of all institutions, whether in the private sector or the public sector. Financial crises occur frequently, some with extreme severity, and it is no coincidence that on such occasions the CFA is at the centre of the political debate. Following from this proposition, the chapter argues that the organization of a country’s CFA is of crucial importance because it determines how effective a government will be both in taking decisions on the budget and other financial issues and in executing financial policies.

The chapter defines the concept of a CFA and the breakdown of core finance functions into various categories. We then discuss how CFAs have evolved over time from royal purse holders in pre-modern times to the complex, multidimensional organizations that are familiar today. The chapter reviews the lessons that can be drawn from the organization of CFAs in different countries and the fiscal impact of different CFA structures. Finally, it draws some conclusions on how CFAs can be strengthened both in advanced countries and in emerging markets and low-income countries.

Richard Allen and Philipp Krause