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Sketching a Strengthened Approach Sketching a Strengthened Approach to Public Financial Management Workto Public Financial Management Work

Public Expenditure Working GroupPublic Expenditure Working GroupFebruary 2004February 2004

Presented by : Odile Keller PEFA Secretariat

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OutlineOutline

The strengthened approach to PF workThe strengthened approach to PF work

The programmatic approachThe programmatic approach

The Standardized AssessmentThe Standardized Assessment

The performance indicators The performance indicators

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2

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The context of the strengthened approach to PF The context of the strengthened approach to PF workwork

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There is a community of interest to improve the development impact of public expenditure.

There is a community of interest to improve the development impact of public expenditure.

Why?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

• 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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Objectives of the approach 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.

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 systemsImproved impact on the reform of country systems Improved impact on the reform of country systemsImproved impact on the reform of country systems

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Features of the strengthened approach to PFM workFeatures of the strengthened approach to PFM work

Country-led StrategyCountry-led Strategy for reform and institutional development

Coordinated Program of WorkCoordinated Program of Work for donors in supporting country strategy development and implementation

Standardized Assessment (SA)Standardized Assessment (SA) providing information to the donors on the performance of the PFM system

Performance Measurement FrameworkPerformance Measurement Framework fitting within the SA and able to monitor progress over time

Country-led StrategyCountry-led Strategy for reform and institutional development

Coordinated Program of WorkCoordinated Program of Work for donors in supporting country strategy development and implementation

Standardized Assessment (SA)Standardized Assessment (SA) providing information to the donors on the performance of the PFM system

Performance Measurement FrameworkPerformance Measurement Framework fitting within the SA and able to monitor progress over time

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The Strengthened Approach to Public Finance workThe Strengthened Approach to Public Finance work

Government PFM Reform Strategy, Government PFM Reform Strategy, Action Plan and ResultsAction Plan and Results

Coordinated program of

capacity building work

Donor country Assistance

Strategy

Government/Donor

Policy Dialogue

Standardized Assessment

Performance indicators

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OutlineOutline

The strengthened approach to PF workThe strengthened approach to PF work

The programmatic approachThe programmatic approach

The Standardized AssessmentThe Standardized Assessment

The performance indicators The performance indicators

1

2

3

4

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The country-led PF reform strategyThe country-led PF reform strategy 2

Government PE/PFM Reform Strategy and Action Plan

No blue-print, but most countries already have elements of a strategy.

The country-led PE reform strategy would be home-grown 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.

Diagnostic Work

Monitoring of progress by the

government

Implementation of reforms

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The Program of work of the donorsThe Program of work of the donors

Coordinated program of work by the donors to support capacity building

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

Analytic support

Donor analytic support and advice to government for (i)

PFM diagnosis (through modules), and (ii) development and

implementation of country-led reform strategy and action

plan

Technical cooperation support

According to the priorities defined in the PFM reform strategy,

donors provide technical assistance and other

capacity-building assistance.

Financing

Financial support aligned to support the implementation of the PFM reform strategy

(streamlined conditionality).

StandardizedAssessment

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The modules and toolsThe modules and tools

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

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

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.

Modules

Budget formulation

Revenue collection

Debt management

Accounting and reporting

Auditing, etc.

Components of each module

•Assessment•Recommendations for reforms•Recommendations for implementation arrangements•Recommendations for monitoring

Components of each module

•Assessment•Recommendations for reforms•Recommendations for implementation arrangements•Recommendations for monitoring

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Country examples of the programmatic approachCountry examples of the programmatic approach

MexicoMexicoThe 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 real-

time advice and products to support development of a strategy and action plan.

MexicoMexicoThe 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 real-

time advice and products to support development of a strategy and action plan.

Papua New GuineaPapua New GuineaThe 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.

Papua New GuineaPapua New GuineaThe 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.

MadagascarMadagascarThe 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.

MadagascarMadagascarThe 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.

TanzaniaTanzaniaThe 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.

TanzaniaTanzaniaThe 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.

BrazilBrazilDonors has an active dialogue with

Government on its agenda, and is preparing a multi-year program of work to support

advisory needs of Government.

BrazilBrazilDonors has an active dialogue with

Government on its agenda, and is preparing a multi-year program of work to support

advisory needs of Government.

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OutlineOutline

The strengthened approach to PF workThe strengthened approach to PF work

The programmatic approachThe programmatic approach

The Standardized AssessmentThe Standardized Assessment

The performance indicators The performance indicators

1

2

3

4

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The Standardized Assessment (SA-PFM)The Standardized Assessment (SA-PFM)

The SA is intended to replace donors’ The SA is intended to replace donors’ mandatory fiduciary work on PFM.mandatory fiduciary work on PFM.

The SA The SA would notwould not replace the analytical replace the analytical work for advising and capacity-building.work for advising and capacity-building.

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What are the intended uses of the SA?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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What would be the content of the SA?What would be the content of the SA?

The SA-PFM is a concise, coordinated and standardized document, which includes an assessment on:

The performance of a country PFM system, processes and institutions.

The gaps in analytical work and capacity-building support.

The reforms undertaken to strengthen the PFM system, processes and institutions.

(i)

(ii)

(iii)

The SA-PFM would not include recommendations, but feed in the policy dialogue with the government.

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The structure of the SA-PFMThe structure of the SA-PFM3

1. Introduction

2. Overall performance of the PFM system2.1. Budgetary outcomes2.2. The budget as a predictor

3. Performance of the PFM processes and institutions3.1 Legal and institutional framework3.2 Transparency and comprehensiveness3.3 Budget formulation3.4. Budget execution

3.4.1 Forecasting, collection and accounting of revenues3.4.2 Cash flow management3.4.3 Debt and contingent liabilities3.4.4 The expenditure process3.4.5 Internal control system3.4.6 Procurement

3.5 Accounting and reporting3.6 External accountability, audit and scrutiny3.7 Other country specific issues, e.g. management of revenues from natural resources, donor practices, etc.

4. Government strategy and reform program4.1 Description of the strategy and reform program4.2 Assessment

5. Summary Assessment

Annex 1: Performance Indicators summaryAnnex 2: Sources of information

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Principles guiding the undertaking of the SA-PFMPrinciples 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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The steps for undertaking the SA-PFMThe 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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Coordination should remain manageableCoordination 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.

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OutlineOutline

The strengthened approach to PF workThe strengthened approach to PF work

The programmatic approachThe programmatic approach

The Standardized AssessmentThe Standardized Assessment

The performance indicators The performance indicators

1

2

3

4

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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.

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.

Overview of the PFM Performance Measurement Overview of the PFM Performance Measurement FrameworkFramework

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

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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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 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

The intention is to supplement the high level indicators with “second level” indicators which support diagnosis and detailed analysis of specific areas

The PFM Performance Measurement Framework The PFM Performance Measurement Framework 4

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Accountability and Transparency :

Are arrangements for external transparency

and scrutiny arrangements operating?

Accountability and Transparency :

Are arrangements for external transparency

and scrutiny arrangements operating?

Fiscal Management :Are the aggregate fiscal

position and risk are monitored and managed?

Fiscal Management :Are the aggregate fiscal

position and risk are monitored and managed?

Information:Is adequate fiscal, revenue and

expenditure information produced and disseminated to meet decision-making

and management purposes?

Information:Is adequate fiscal, revenue and

expenditure information produced and disseminated to meet decision-making

and management purposes?

Control :Arrangements are in place for the exercise

of control and stewardship in the use

of public funds?

Control :Arrangements are in place for the exercise

of control and stewardship in the use

of public funds?

The questions the PFM performance indicators seek to answer

0bjectives of the PFM System0bjectives of the PFM System

Six critical objectives

of PFM system

Budget Realism:Is the budget realistic, and implemented as

intended in a predictable manner?

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?

Comprehensive, Policy-based, budget:Does the budget capture

all relevant fiscal transactions, and is the

process, giving regard to government policy?

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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

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

Not Assessed Not Assessed

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

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

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

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

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RevenuesRevenues

ExpendituresExpenditures

DeficitDeficit

Structure of the indicators set

A. PFM Out-turns

B. Key Cross-Cutting FeaturesComprehensiveness

Transparency

External Scrutiny &

Accountability

Accounting & Reporting

Planning and

Budgeting

C. Budget Cycle

Structure and Content of the IndicatorsStructure and Content of the Indicators

Budget Execution

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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.

The proposed standard set of high-level indicatorsThe proposed standard set of high-level indicators

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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 out-turn 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.

The proposed standard set of high level indicatorsThe proposed standard set of high level indicators

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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.

The proposed standard set of high-level indicators (cont.)The proposed standard set of high-level indicators (cont.)

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C. BUDGET CYCLEBudget 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.

The proposed standard set of high-level indicators (cont.)The proposed standard set of high-level indicators (cont.)

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C. BUDGET CYCLEAccounting 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.

The proposed standard set of high-level indicators (cont.)The proposed standard set of high-level indicators (cont.)

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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.

Two indicators of donor practices Two indicators of donor practices

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Reporting should include explanatory information and a justification for the score, and the cardinal data available to

support or supplement the score

Reporting should include explanatory information and a justification for the score, and the cardinal data available to

support or supplement the score

Applying the IndicatorsApplying the Indicators

INDICATOR SCORE GIVEN COMMENTARY EVIDENCE CARDINAL DATA INDICATOR SCORE GIVEN COMMENTARY EVIDENCE CARDINAL DATA

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The transition periodThe 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.

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Testing the programmatic approach in a few selected countries.

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Q&A and

Discussion