Good Financial Governance

Project description

Title: Good financial governance
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Global
Overall term: 2016 to 2019

Context

In the field of public finance, German Development Cooperation pursues a holistic, systemic and value-based approach to promoting good financial governance (GFG). This is based on the conviction that sustainable development is not possible without a functioning public finance system. An efficient and transparent public finance system is instrumental in combating poverty and supporting sustainable development in the partner countries.

Good financial governance means that the actions of the state in the field of public finances – in both revenue and expenditure – are not only efficient, but also transparent, legitimate and focused on development. 

In addition to the technical financial aspects, good financial governance also takes into account the interests of and relationships between relevant stakeholders (political and economic dimension) and the principles of good governance (normative dimension). It is based on international standards regarding human rights, the rule of law and gender neutrality.
 

Objective

An effective contribution is made to the sustainable development of partner countries by strengthening their self-financing capacity and accountability.  

Approach

The project supports the German Federal Ministry for Economic Cooperation and Development in its work to include national and international efforts aimed at good financial governance in political processes. Moreover, GIZ supports its partner countries in their efforts to independently generate additional revenue and draw up fair and transparent budgets. This is done with measures promoting more efficient and fairer revenue and spending policies.

The project focuses on four fields of action:

  • International policy-making,
  • Support for the implementation of international agreements,
  • Good financial governance and innovation,
  • The International Tax Compact (ITC) platform.

The project is co-funded by the European Commission and the Bill & Melinda Gates Foundation.

Results

In the area of government revenue and international tax cooperation, the project has supported partner countries on issues such as:

  • Implementing the Tax Administration Diagnostic Assessment Tool (TADAT). This tool measures the performance of tax administrations and identifies weak spots.
  • Implementing international tax standards to combat aggressive tax avoidance and tax evasion. One example is the implementation of the G20/OECD project to combat base erosion and profit shifting (BEPS).
  • Opening the Africa Academy for Tax and Financial Crime Investigation.

The International Tax Compact (ITC) is part of the project. This initiative promotes the self-financing capacities of partner countries through transparent, fair and efficient tax systems. The ITC offers a platform for exchanges between actors from the partner countries and development cooperation, as well as the academic world, civil society and the private sector.

The ITC acts as the secretariat of the Addis Tax Initiative and the Network of Tax Organisations:

  • Under the Addis Tax Initiative, the current 43 member states have signed commitments, which include strengthening their self-financing capacities.
  • The Network of Tax Organisations fosters interregional cooperation, communication and thus cooperation between currently nine regional organisations of tax administrations. The objective is to strengthen the institutional capacities, efficiency and effectiveness of tax administrations worldwide.
  • The ITC is responsible for implementing the Domestic Revenue Mobilisation (DRM) Innovation Fund. Under this programme, African countries are able to submit suggestions for innovative tax reforms. Approved suggestions are implemented with support from the Innovation Fund. 

In the area of spending policy and resource use, the project supports the following processes in the partner countries:

  • Founding of the Open Contracting Partnership (OCP) and revision of the Methodology for Assessing Procurement Systems (MAPS),
  • Development of a training programme enabling advisors to apply good financial governance principles in their respective sectors, for example health.

Lastly, the project is working on tools for systematic assessment of the link between public finances and the reduction of social inequality, to enable appropriate reform measures to be taken.