Public financial management and governance in developing countries: The control-audit chain in PEFA assessments

IMPACTThis article contributes to both institutional economics and public financial management (PFM) reform by identifying the institutional mechanisms through which PFM improves governance. Rather than treating governance as a uniform country characteristic, it shows that governance gains are driven by the control-audit chain, linking internal expenditure controls, internal audit, external audit, and legislative oversight. This provides a theoretically grounded explanation for why some PFM reforms generate stronger governance outcomes than others. The findings also challenge conventional reform sequencing by demonstrating that strengthening budget execution controls yields greater governance improvements than prioritizing upstream transparency and budgeting reforms. Regional evidence shows that governance returns are particularly strong in Sub-Saharan Africa (SSA) and Latin America and the Caribbean (LAC), offering guidance for targeting reform investments. The proposed control-audit chain framework provides finance ministries, supreme audit institutions, and development partners with a practical tool to diagnose accountability weaknesses and prioritize reforms with the greatest governance impact.