Improving public financial management. Supporting sustainable development.

PEFA 2016: A better framework for assessing public

financial management performance

ESAAG Annual Conference 7-9 March 2016

Presented by: Lewis Hawke, Head of PEFA Secretariat

INTRODUCTION TO PEFA

What is the PEFA program?

•  PEFA: Public Expenditure and Financial Accountability

•  Founded as a partnership in 2001

•  Mission: –  Improving public financial management –  Supporting sustainable development

•  Main role: development

•  and maintenance of the PEFA Framework

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General features of the PEFA Framework

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•  Assesses performance of the main aspects of public financial management (PFM) •  Fiscal strategy, budget credibility, transparency, financial control, management

information, accountability etc. •  Examines capacity for fiscal discipline, efficient resource allocation, efficient

service delivery. •  Components:

•  Quantitative ratings for 31 indicators and 94 performance dimensions •  A concise, integrated performance report analyzing results and implications for

financial management outcomes It does not: •  Assess causes for good or poor performance. •  Assess government policies.

Benefits of PEFA

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•  Measures progress over time through a set of standardized indicators

•  Builds momentum for PFM reform through diagnostic progress monitoring

•  Facilitates donors’ decisions on priorities and use of country systems

•  Fosters stakeholder coordination around one common assessment

•  Extensive international acceptance

Global adoption

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•  501 assessments prepared in 149 countries (as at Feb. 1, 2016)

Number of assessments 2006-2016

Baseline Assessments

Successive Assessments

Total

National 147 165 312

Sub-National 160 29 189

Total 307 194 501

PEFA assessments by income level

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LIC 20%

LMIC 36%

UMIC 29%

HIC 15%

LIC

LMIC

UMIC

HIC

PEFA assessments by region

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PEFA assessments by region East Asia and

Pacific [PERCENTAG

E] Europe and Central Asia

[PERCENTAGE]

Latin America and

Caribbean [PERCENTAG

E]

Middle East and North

Africa [PERCENTAG

E]

North America

[PERCENTAGE]

South Asia [PERCENTAG

E]

Africa [PERCENTAG

E]

PEFA ASSESSMENT FRAMEWORK

Pillars, indicators and the PEFA report

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Components of the PEFA framework

•  A standard set of 31 high level PFM indicators –  Disaggregated into 94 dimensions –  Grouped into seven pillars of performance that define

the key elements of a PFM system

•  A report that provides a comprehensive and integrated assessment of a country’s PFM performance based on the indicator-led analysis of the key elements of a PFM system

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Performance indicators

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I. Budget reliability: 1. Aggregate expenditure outturn 2. Expenditure composition outturn 3. Revenue outturn

III. Management of assets and liabilities: 10. Fiscal risk reporting 11. Public investment management 12. Public asset management 13. Debt management

II. Transparency of public finances: 4. Budget classification 5. Budget documents 6. Central government operations outside financial reports 7. Transfers to subnational governments 8. Performance information for service delivery 9. Public access to fiscal information

VII. External scrutiny and audit: 30. External audit 31. Legislative scrutiny of audit reports

VI. Accounting and reporting: 27. Financial data integrity 27. In-year budget reports 28. Annual financial reports

V. Predictability and control in budget execution: 19. Revenue administration 20. Accounting for revenue 21. Predictability of in-year resource allocation 22. Expenditure arrears 23. Payroll controls 24. Procurement management 25. Internal control on nonsalary expenditure 26. Internal audit

IV. Policy-based fiscal strategy and budgeting: 14. Macroeconomic and fiscal forecasting 15. Fiscal strategy 16. Medium term perspective in expenditure budgeting 17. Budget preparation process 18. Legislative scrutiny of budgets

HLG-1. Transfers from HLG

PEFA report structure

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REPORT EXECUTIVE SUMMARY 1 INTRODUCTION 2 COUNTRY BACKGROUND INFORMATION 3 ASSESSMENT OF PFM PERFORMANCE 4 CONCLUSIONS ON THE ANALYSIS OF PFM SYSTEMS 5 GOVERNMENT PFM REFORM PROCESS ANNEXES

Annex 1: Performance indicator summary Annex 2: Summary of findings on the internal control framework Annex 3: Sources of information

PEFA 2016 indicator set Pillar 1 PI - 1 – PI - 3 Pillar 2 PI - 4 – PI - 9 Pillar 3 PI - 1 0 – PI - 1 3 Pillar 4 PI - 1 4 – PI - 18 Pillar 5 PI - 1 9 – PI - 26 Pillar 6 PI - 27 – PI - 29 Pillar 7 PI - 30 – PI - 3 1

PEFA 2011 or PEFA 2005

PI

.. .. .. .. .. .. PI - 28 D - 1 D - 2

D - 3

Based on PEFA 2016

THE PEFA ASSESSMENT PROCESS Four phases, ten steps

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KEY FEATURES OF PEFA 2016

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Rationale for the upgrade to PEFA 2016

•  Align the Framework with the most up-to-date accepted good practices

•  Fill major subject gaps

•  Improve relevance and clarity

•  Strengthen areas of weakness

•  Incorporate clarifications (200+ issued since 2005)

The upgrade does not:

•  Change the purpose of PEFA

•  Undermine comparison over time

Process of review and refinement

2012 2013 2015 2016 2014

Decide what to change

Develop

draft chang

es

Consultation,

targeted testing

Release test

version and full piloting

Implement final

upgrade

Summary of changes

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  4 indicators added, donor impact is more integrated

  New pillar on asset and liability management

  Performance dimensions increased from 76 to 94

Major changes introduced by PEFA 2016

•  A new pillar: management of assets and liabilities

•  New indicators to address issues not covered under PEFA 2011

•  Performance information incorporated on service delivery

•  Revenue indicators reformulated to broaden coverage beyond taxation

•  Expansion and refinements of other existing indicators

•  Focus strengthened on transparency, liability management and fiscal risks, and internal control

•  Donor indicators discontinued – donor funded revenue and expenditure incorporated into other indicators

31 performance indicators, containing 94 dimensions, across PFM activities

PEFA Public Financial Management Assessment

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PEFA 2016 examines performance against seven pillars of the PFM system

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PEFA Comparability

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123

4

5678910

1112

1314151617

18192021222324

26

25

2728

D1D2D3

123

45678910111213

1415161718

1920

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2726

2829

3031

BUDGETCREDIBILITY

COMPREHENSIVENESS&TRANSPARENCY

POLICYBASEDBUDGETING

PREDICTABILITY&CONTROLINBUDGETEXECUTION

ACCOUNTING,RECORDING&REPORTING

EXTERNALSCRUTINY&AUDIT

MANAGEMENTOFASSETSANDLIABILITIES

BUDGETRELIABILITY

TRANSPARENCYOFPUBLICFINANCES

POLICYBASEDFISCALSTRATEGYANDBUDGETING

PREDICTABILITY&CONTROLINBUDGETEXECUTION

ACCOUNTING&REPORTING

EXTERNALAUDIT&SCRUTINY

DONORPRACTICES

2011 2016 2011 2016

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Partiallyabsorbedinto1,2,3,6,7,8,10,11,13,14,15,16,17,19,20,21,23,26,28,29,30IncludedinOECDEIP

monitoring

Ø  Every 2011 indicator links

to at least one PEFA 2016 indicator (except donor indicators)

Ø  Indicators are re-organized and re-numbered under seven pillars (=six critical dimensions of 2011 plus one new pillar)

Links between PEFA 2011 and PEFA 2016 indicators:

3%

13%

71%

13%

Indicators

Direct

Indirect

Subjectonly

Notcomparable

Comparability with 2011

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87% of indicators have same subject (only the new indicators are different)

15%

25%

27%

33%

Dimensions

Direct

Indirect

Subjectonly

Notcomparable

No comparability issue for 48% of dimensions 67% have the same subject (the others are new)

Let’s look at the details…

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I. Budget reliability

Indicator Main Improvements 1. Aggregate expenditure outturn •  Expands scope to include external project expenditure 2. Expenditure composition outturn •  Expands scope to include external project expenditure

•  New: budget deviations by economic classification 3. Revenue outturn •  Expands scope to include revenue from external

sources •  New: composition of revenue outturn

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Cross-cutting issues: II. Transparency of public finances

Indicator Main Improvements 4. Classification of the budget •  Specifies GFS details 5. Budget documentation •  Expands list of documents

•  Separates ‘basic’ and ‘additional’ requirements 6. Central government operations outside financial reports

•  New: revenue outside financial reports •  New: Table on expenditure and financing details

7. Transfers to subnational governments •  Removed SNG financial reports (covered in 10.2) 8. Performance information for service delivery •  3 New: performance and evaluation dimensions

8.1. Performance plans for service delivery 8.2. Performance achieved by services 8.4. Performance evaluations

9. Public access to fiscal information •  Expands list of documents •  Separates ‘basic’ and ‘additional’ requirements

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Cross-cutting issues: III. NEW: Management of assets and liabilities

Indicator Main Improvements 10. Fiscal risk reporting •  Emphasis on monitoring of public corporations

•  New: monitoring of contingent liabilities 11. Public investment management •  4 New dimensions

11.1. Economic analysis of investment proposals 11.2. Investment project selection 11.3. Investment project costing 11.4. Investment project monitoring

12. Public asset management •  3 New dimensions 12.1. Financial asset monitoring 12.2. Non-financial asset monitoring 12.3. Transparency of asset disposal

13. Debt management •  New: debt management strategy

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IV. Policy-based fiscal strategy and budgeting

Indicator Main Improvements 14. Macroeconomic and fiscal forecasting •  3 New dimensions

14.1. Macroeconomic forecasts 14.2. Fiscal forecasts 14.3. Macrofiscal sensitivity analysis

15. Fiscal strategy •  3 New dimensions 15.1. Fiscal impact of policy proposals 15.2. Fiscal strategy adoption 15.3. Reporting on fiscal outcomes

16. Medium term perspective in expenditure budgeting •  Completely reformulated and clarified 17. Budget preparation process •  Timing of submission to legislature – moved

here 18. Legislative scrutiny of budgets •  Public consultation – added for ‘A’ score

•  Timely approval of annual budget – moved here

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V. Predictability and control in budget execution

Indicator Main Improvements 19. Revenue administration •  Scope expanded to cover non-tax revenue

•  Reformulated/merged tax administration dimensions •  New: management of risks to revenue

20. Accounting for revenue •  Scope expanded to cover non-tax revenue •  New: coverage and timeliness of revenue information collection

21. Predictability of in-year resource allocation

•  Consolidation of cash balances – shifted here •  Scoring method – changed to M2

22. Expenditure arrears •  Moved from PI-4 and simplified 23. Payroll controls •  Budget controls - added 24. Procurement management •  New: procurement monitoring - replaces legal and regulatory

framework •  Expanded list of documents for public access •  Requirement for independent complaints body removed

25. Internal controls on nonsalary expenditure

•  New: segregation of duties •  Compliance with control systems - reformulated

26. Internal audit •  New: nature of audit performed and adherence to professional standards

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VI. Accounting and reporting

Indicator Main Improvements 27. Financial data integrity •  Reconciliation of advances and suspense

accounts – separated •  New: processes supporting data integrity

28. In-year budget reports •  Budget analysis - added 29. Annual financial reports •  Content of financial reports - strengthened

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VII. External scrutiny and audit

Indicator Main Improvements 30. SAI independence and external audit •  Period covered – expanded to 3 years

•  New: independence of SAI 31. Legislative scrutiny of external audit reports •  Focus on legislature’s follow up actions

•  New: transparency of legislative scrutiny

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GUIDANCE AND FURTHER INFORMATION

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The PEFA Secretariat can help •  Visit the PEFA website: www.pefa.org •  Send an email: services@pefa.org •  Get on PEFA’s news distribution list:

Ø  Send your name and email address to the Secretariat

Guidance available at the PEFA website

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www.pefa.org

And many more…

Join us on social media

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https://www.facebook.com/PEFA-Secretariat

https://twitter.com/PEFASecretariat

https://www.linkedin.com/company/pefa-secretariat

https://www.youtube.com/