subsequent reform results. The variable included here that comes closest to capturing one aspect of these issues is the presence of programmatic parties, and our findings suggest that countries which combine political stability and structured parties tend to achieve better PFM performance.

Furthermore, the first-difference analysis suggests that countries with initially lower PFM quality show a higher rate of improvements over time, and this results holds when using PEFA as well as CPIA data. Being a small island developing state shows a small negative association, also being a resource rich country, albeit only when using CPIA data (with more observations). Faster GDP growth may have a positive, and faster population growth appears to have a negative association with improvements in PFM quality.

As better and more data become available, these findings would need to be revisited and validated. Overall, the results, if validated, are encouraging from a PFM reform perspective: reform prospects of relatively poor performers appear to be relatively promising, and the constraints from country characteristics are limited. Thus, the findings imply that an inquiry into specific reform dynamics is worthwhile, and that identifying strategically smart reform approaches may make a difference in the timing and the extent of PFM reforms achievable.

With regards to the effects of PFM performance, we find evidence that stronger performance results in better budget credibility in terms of overall budget execution rates as well as allocations across main functions/sectors, albeit not in lower deficits. This suggests a positive effect on allocative efficiency (assuming that budget plans reliably reflect policy priorities), and at least a partial effect on aggregate discipline, in the sense that governments are able to keep deficits within planned amounts. There is no clear evidence with regards to effects on operational efficiency (while noting that this is also the most challenging effect to measure). Government leaders mandating and pursuing PFM reforms are likely to do so with a view to achieving certain outcomes.<sup>52</sup> Hence, the observation of effects implies that leaders may feel that there is some return to the investments made in PFM improvements. However, at the same time, the absence of clearer effects on service delivery results poses a challenge. The observed ‘disconnect’ could be due to a variety of reasons – such as potential missing complementary state capacities, or measuring problems, or others – which need to be explored further.

In a second step of the wider effort, we intend to explore actual processes and prospects of PFM reforms for selected individual countries. These case examples will be informed by the assumptions resulting from this cross-sectional work, and will explore further how presumed drivers for PFM reforms matter within specific situations. Given the findings, we presume that a number of more case-specific factors and constellations may play an important role – i.e. even countries with some similar characteristics may diverge substantially in terms of PFM reform results achieved due to these more specific factors. As part of further efforts under this workstream, case studies will explore the specific motivations of pursuing PFM reforms in the countries concerned, as well as how stakeholders in those cases view the results and impacts achieved to date; and how this influences the prospects and motivation for further efforts.

> 52 Broadly, we assume that political leaders ‘mandate’ or endorse PFM reforms and the intended outcomes, while leaders within the executive would actually pursue the implementation of reforms/PFM strengthening.

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