Capacity Constraints and Public Financial Management in Small Pacific Island Countries

36 Pages Posted: 20 Apr 2016

See all articles by Tobias Haque

Tobias Haque

affiliation not provided to SSRN

David Knight

World Bank

David Knight

affiliation not provided to SSRN

Dinuk Jayasuriya

Australian National University (ANU) - Development Policy Centre

Date Written: December 1, 2012

Abstract

Drawing on Public Expenditure and Financial Accountability assessment scores from 118 countries, this paper provides the first comparative analysis of public financial management performance in small Pacific Island Countries (PICs). It applies a Tobit regression model across the full cross-country sample of Public Expenditure and Financial Accountability scores and country variables to identify potential causes for the observed underperformance of Pacific Island countries relative to other countries of similar income. First, the analysis finds small population size to be negatively correlated with Public Expenditure and Financial Accountability scores, with the "population penalty" faced by small Pacific Island countries sufficient to explain observed underperformance. Second, through application of a new capacity index of Public Expenditure and Financial Accountability dimensions, it finds strong evidence in support of the hypothesis that small population size impacts scores through the imposition of capacity constraints: with a limited pool of human capital, small countries face severe and permanent challenges in accessing an adequate range and depth of technical skills to fulfill all functions assessed through the Public Expenditure and Financial Accountability framework. These findings suggest that approaches to strengthening public financial management in small Pacific Island countries should involve: i) careful prioritization of public financial management capacity toward areas that represent binding constraints to development; ii) adoption of public financial management systems that can function within inherent and binding capacity constraints, rather than wholesale adoption of "best practice" imported systems; and iii) consideration of options for accessing external capacity to support public financial management systems on a long-term basis, from regional agencies, the private sector, or donors.

Keywords: Population Policies, Public Sector Expenditure Policy, E-Business, Public Sector Economics, Debt Markets

Suggested Citation

Haque, Tobias and Knight, David and Knight, David and Jayasuriya, Dinuk, Capacity Constraints and Public Financial Management in Small Pacific Island Countries (December 1, 2012). World Bank Policy Research Working Paper No. 6297, Available at SSRN: https://ssrn.com/abstract=2192835

Tobias Haque (Contact Author)

affiliation not provided to SSRN

David Knight

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

David Knight

affiliation not provided to SSRN

Dinuk Jayasuriya

Australian National University (ANU) - Development Policy Centre ( email )

7 Liversidge Street (Bld 70)
Lennox Crossing
Canberra, 0200
Australia

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