Sketching a Strengthened Approach
to Public Financial Management Work
Public Expenditure Working Group
February 2004
Presented by :
Odile Keller
PEFA Secretariat
Page 1
Outline
P
1
The strengthened approach to PF work
2
The programmatic approach
3
The Standardized Assessment
4
The performance indicators
Page 2
1
The context of the strengthened approach to PF work
There is a community of interest to improve the
development impact of public expenditure.
Why?
• Country PFM systems remain weak
• Recognition that past efforts have yielded mixed results on
the ground
• Capacity-building underemphasized and technical assistance
fragmented
• Duplicative diagnostics (CFAA, CPAR, fiscal ROSC, EU
audits, etc.) and numerous donor requirements are
burdensome rather than enabling
• Imperfect fiduciary assessment, no performance framework
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1
Objectives of the approach
 Greater country ownership, by increasing alignment of
donor work around country priorities.
 Reduced country transaction costs both within and
among donor agencies, by streamlining and phasing
diagnostic work.
 The need for a more integrated approach capturing the
whole PFM cycle.
 Emphasize institutional reform, by shifting analytical
work more towards understanding institutional factors,
capacity-building and supporting country institutions.
 Enhanced collaboration between donors, government,
and stakeholders, by coordinating around the country
PFM strategy.
 Increasing the focus on development concerns, while
more explicitly and efficiently addressing the fiduciary
issues.
Improved impact on the reform of country systems
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Features of the strengthened approach to PFM work
1

Country-led Strategy for reform and institutional
development

Coordinated Program of Work for donors in
supporting country strategy development and
implementation

Standardized Assessment (SA) providing
information to the donors on the performance of
the PFM system

Performance Measurement Framework fitting
within the SA and able to monitor progress over
time
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1
The Strengthened Approach to Public Finance work
Government PFM Reform Strategy,
Action Plan and Results
Coordinated
program of
capacity
building work
Standardized
Assessment
Government/Donor
Policy Dialogue
Performance
indicators
Donor country
Assistance
Strategy
Page 6
Outline
1
P
The strengthened approach to PF work
2
The programmatic approach
3
The Standardized Assessment
4
The performance indicators
Page 7
2
The country-led PF reform strategy
Diagnostic Work
Government PE/PFM Reform
Strategy and Action Plan
Implementation
of reforms
Monitoring of
progress by the
government
No blue-print, but most
countries already have
elements of a strategy.
The country-led PE reform
strategy would be homegrown and depend on the
country-specific
circumstances.
Best practices suggest that
the strategy would include a
prioritized plan of the
diagnostic assessments and
reforms to be undertaken,
developed on the basis of
existing diagnostic work, and
a system to monitor
progress.
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2
The Program of work of the donors
A critical condition for the success of the country-led strategy is
that donors align their support.
Policy dialogue between the government and the donors is key in
this respect
Standardized
Assessment
Coordinated program of work by the donors to
support capacity building
Analytic support
Technical cooperation
support
Donor analytic support and
advice to government for (i)
According to the
PFM diagnosis (through
priorities defined in the
modules), and (ii)
PFM reform strategy,
development and
donors provide technical
implementation of country-led
assistance and other
reform strategy and action
capacity-building
plan
assistance.
Financing
Financial support
aligned to support the
implementation of the
PFM reform strategy
(streamlined
conditionality).
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2
The modules and tools
The diagnostic part of the analytical work (by government and supported by
donors) may be divided into modules to make it manageable and to meet the
priorities identified in government strategy and in the Standardized Assessment.
Each module of work will be supported by appropriate guidance and tools.
Components of
each module
•Assessment
•Recommendations
for reforms
•Recommendations
for implementation
arrangements
•Recommendations
for monitoring
Modules
Budget
formulation
Revenue
collection
Debt management
Accounting and
reporting
Auditing, etc.
Guidance Note and
Tool kit
Including :
•Scope of the
module
•Toolkit
(questionnaires,
reference models,
performance
indicators)
•Guidance on issues
of institutional
development,
capacity building
and change
management
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2
Country examples of the programmatic approach
Tanzania
The annual government-led public
expenditure review process is managed by
the joint govt/donor/civil society PER
working group. Each year the PER work
includes a budget review, and in-depth
analysis of selected policy and management
issues.
Brazil
Donors has an active dialogue with
Government on its agenda, and is preparing
a multi-year program of work to support
advisory needs of Government.
Madagascar
Papua New Guinea
The 2003 PNG PER was designed from the
start to support the Government budget and
public finance reform process. Donors share
the government’s view that the PER must be
a process-driven exercise aimed at helping
the government implement the reforms. The
PER directly supports Cabinet and Treasury
decisions and processes with specific
analytic products.
The government is in the process of developing an
action plan aiming at consolidating the
recommendations of different diagnosis (own
government’s assessment, CFAA, CPAR, IMF
technical assistance reports, etc). The government
is expecting the donors to align their program of
work against this action plan.
Mexico
The government, under a fee-for-service
arrangement, is purchasing World Bank
advisory services on PFM for the Ministry of
Finance. The task is characterized by realtime advice and products to support
development of a strategy and action plan.
Page 11
Outline
1
The strengthened approach to PF work
2
The programmatic approach
P
3
The Standardized Assessment
4
The performance indicators
Page 12
3
The Standardized Assessment (SA-PFM)
The SA is intended to replace donors’
mandatory fiduciary work on PFM.
The SA would not replace the analytical
work for advising and capacity-building.
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3
What are the intended uses of the SA?
To provide information in a way that
enables each donor agency:
i. To make judgments on the performance
of the PFM system and the impact of
related reforms in a country; and,
ii. To feed in key decisions on aid
modalities, aid programs and support of
PFM reforms in a specific countries.
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3
What would be the content of the SA?
The SA-PFM is a concise, coordinated and
standardized document, which includes an
assessment on:
(i) The performance of a country PFM system,
processes and institutions.
(ii) The reforms undertaken to strengthen the PFM
system, processes and institutions.
(iii) The gaps in analytical work and capacitybuilding support.
The SA-PFM would not include recommendations,
but feed in the policy dialogue with the government.
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3
1.
2.
3.
4.
5.
The structure of the SA-PFM
Introduction
Overall performance of the PFM system
2.1. Budgetary outcomes
2.2. The budget as a predictor
Performance of the PFM processes and institutions
3.1 Legal and institutional framework
3.2 Transparency and comprehensiveness
3.3 Budget formulation
3.4. Budget execution
3.4.1 Forecasting, collection and accounting of revenues
3.4.2 Cash flow management
3.4.3 Debt and contingent liabilities
3.4.4 The expenditure process
3.4.5 Internal control system
3.4.6 Procurement
3.5 Accounting and reporting
3.6 External accountability, audit and scrutiny
3.7 Other country specific issues, e.g. management
of revenues from natural resources, donor practices, etc.
Government strategy and reform program
4.1 Description of the strategy and reform program
4.2 Assessment
Summary Assessment
Annex 1: Performance Indicators summary
Annex 2: Sources of information
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3
Principles guiding the undertaking of the SA-PFM
A joint Donor process aiming at developing a
comprehensive SA-PFM.
Prepared for active borrowers of the Bank and the
IMF, or any other country benefiting from donor
assistance.
Frequency will vary, from 2-5 years, based on the
level of the performance of the PFM system, the
quality of the work of the external oversight
institutions and the importance of aid flows, and
should be agreed among donors. An annual update
on the basis of the performance indicators would be
possible.
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3
The steps for undertaking the SA-PFM
A donor would lead the process.
Preparation and agreement on the terms of references
among donors.
Selection of the team undertaking the analyze.
The analysis would be based on available analytical
information and a mission, if necessary.
Circulation of the draft report and comments by donors.
Government is associated at a minimal to check the factual
information.
 In some middle-income countries or countries with higher
capacity, it is conceivable the country’s own Supreme Audit
Institution might prepare an SA.
A light quality assurance mechanism to ensure quality and
consistency over time and across countries.
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3
Coordination should remain manageable
The lead donor should have the necessary skills
to conduct the SA-PFM.
Other donors must agree to rely on the analysis
of the lead donor.
Other donors may support the process by
providing financial or technical resources, if
necessary.
The team in charge of conducting the SA-PFM
should remain manageable  it would not
include a representative of all donors interested,
but be a technical team.
Page 19
Outline
1
The strengthened approach to PF work
2
The programmatic approach
3
The Standardized Assessment
P
4
The performance indicators
Page 20
4
Overview of the PFM Performance Measurement
Framework
The Purpose – To provide a standard set of high level indicators
that enables:
• PFM performance to be regularly monitored.
• Demonstration of progress over time.
• Consistent and objective application across different
countries.
• Focus on capacity building in core PFM areas.
PFM Performance Measurement Framework contains:
• A set of six critical objectives of a PFM system
• A standard set of high level PFM indicators to assess
performance against the critical objectives
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4
The PFM Performance Measurement Framework
The Set should :
 Draw on the HIPC 16 benchmarks, but wider
 Have wide international acceptability to facilitate harmonization
 Provide a broad measure of performance
 Be limited in number, so cannot measure
 operation of all individual parts of the system
 factors necessary for PFM system to operate well
 causes of problems identified
The intention is to supplement the high
level indicators with “second level”
indicators which support diagnosis and
detailed analysis of specific areas
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4
0bjectives of the PFM System
The questions the PFM performance indicators seek to answer
Budget Realism:
Is the budget realistic,
and implemented as
intended in a predictable
manner?
Comprehensive,
Policy-based, budget:
Does the budget capture
all relevant fiscal
transactions, and is the
process, giving regard to
government policy?
Fiscal Management :
Are the aggregate fiscal
position and risk are
monitored and managed?
Accountability and
Transparency :
Are arrangements for
external transparency
and scrutiny
arrangements operating?
Six critical
objectives
of PFM
system
Control :
Arrangements are in
place for the exercise
of control and
stewardship in the use
of public funds?
Information:
Is adequate fiscal, revenue and
expenditure information produced and
disseminated to meet decision-making
and management purposes?
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Not Assessed
What is NOT assessed directly
• Impact of expenditures on development objectives
• Achievement of budgetary outcomes (fiscal discipline,
strategic prioritization, value-for-money)
• Performance orientation of the PFM system
Why?
• Too difficult to use standard indicators to measure outcomes
• Aim is to measure how well the PFM system is working to
support the achievement of good budgetary outcomes
• Focus is on orderly and predictable operation; performance
orientation difficult to pin down
Also covered only to very limited degree
• Revenue administration – Revenue forecasting and cash flow
management only
• Sub-national government – Aggregate fiscal management and
reporting only
Page 24
Structure and Content of the Indicators
Structure of the indicators set
C. Budget Cycle
A. PFM Out-turns
Planning
and
Budgeting
Revenues
B. Key Cross-
External
Cutting Features
Scrutiny &
Comprehensiveness
Accountability
Budget
Execution
Expenditures
Transparency
Deficit
Accounting
& Reporting
Page 25
The proposed standard set of high-level indicators
A. PFM OUT-TURNS
1. Primary fiscal balance compared to the original approved budget.
2. Composition of budget expenditure out-turn compared to the
original approved budget.
3. Aggregate revenue out-turn compared to the original approved
budget.
4. Stock of expenditure arrears; accumulation of new arrears over
past year.
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The proposed standard set of high level indicators
B. KEY CROSS-CUTTING FEATURES
COMPREHENSIVENESS AND TRANSPARENCY
5.
Comprehensiveness of aggregate fiscal risk oversight.
6.
Extent to which budget reports include all significant
expenditures on government activities, including those funded by
donors.
7.
Adequacy of information on fiscal projections,budget and outturn provided in budget documentation.
8.
Administrative, economic, functional and programmatic
classification of the budget.
9.
Identification of poverty-related expenditure in the budget.
10. Publication and public accessibility of key fiscal information and
audit reports.
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The proposed standard set of high-level indicators (cont.)
C. BUDGET CYCLE
Medium term planning and budget formulation
11. Extent of multi-year perspective in fiscal planning, expenditure
policy-making and budgeting.
12. Orderliness and participation in the budget formulation process.
13. Coordination the budgeting of recurrent and investment
expenditures.
14. Legislative scrutiny of the annual budget law.
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The proposed standard set of high-level indicators (cont.)
C. BUDGET CYCLE
Budget Execution
15. Effectiveness of cash flow planning, management and monitoring.
16. Procedures in operation for the management and recording of debt
and guarantees.
17. Extent to which spending ministries are able to plan and commit
expenditure in accordance with original/revised budgets.
18. Evidence available that budgeted resources reach spending units in a
timely manner.
19. Effectiveness of internal control.
20. Effectiveness of internal audit.
21. Effectiveness of payroll controls.
22.
Clarity and enforceability of procurement rules, and the extent to
which they promote competition, transparency and value-for-money.
Page 29
The proposed standard set of high-level indicators (cont.)
C. BUDGET CYCLE
Accounting and Reporting
23. Timeliness and regularity of data reconciliation.
24. Timeliness, quality and dissemination of in-year budget
execution reports.
25. Timeliness of the presentation of audited financial statements to
the legislature.
Audit and External Scrutiny
26. The scope and nature of external audit reports.
27. Follow up of audit reports by the executive or audited entity.
27. Legislative scrutiny of external audit reports.
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Two indicators of donor practices
DONOR PRACTICES
Donor 1. Completeness of donor information provided in
aid flows, and comparison of actual donor flows with
donor forecasts.
Donor 2. Proportion of aid that is managed using
national procedures.
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Applying the Indicators
Reporting should include
explanatory information and a
justification for the score, and
the cardinal data available to
support or supplement the score
INDICATOR SCORE GIVEN COMMENTARY EVIDENCE
CARDINAL DATA
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4
The transition period
Consultation within the World Bank, with PEFA and
OECD/DAC partners.
Consultation of the Executive Board on the
principles of the new approach and receiving
green light for testing.
Large testing of the SA and the performance
indicators
 To stabilize the technical content and the
process of undertaking.
Testing the programmatic approach in a few
selected countries.
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Q&A
and
Discussion
Page 34