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Page 1 Sketching a Strengthened Approach to Public Financial Management Work Public Expenditure Working Group February 2004 Presented by : Odile Keller.

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Presentation on theme: "Page 1 Sketching a Strengthened Approach to Public Financial Management Work Public Expenditure Working Group February 2004 Presented by : Odile Keller."— Presentation transcript:

1 Page 1 Sketching a Strengthened Approach to Public Financial Management Work Public Expenditure Working Group February 2004 Presented by : Odile Keller PEFA Secretariat

2 Page 2 Outline The strengthened approach to PF work The programmatic approach The Standardized Assessment The performance indicators 

3 Page 3 The context of the strengthened approach to PF work 1 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 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

4 Page 4 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 systems 1

5 Page 5 Features of the strengthened approach to PFM work Country-led Strategy Country-led Strategy for reform and institutional development Coordinated Program of Work Coordinated 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 Framework Performance Measurement Framework fitting within the SA and able to monitor progress over time Country-led Strategy Country-led Strategy for reform and institutional development Coordinated Program of Work Coordinated 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 Framework Performance Measurement Framework fitting within the SA and able to monitor progress over time 1

6 Page 6 The Strengthened Approach to Public Finance work Government PFM Reform Strategy, Action Plan and Results Coordinated program of capacity building work Donor country Assistance Strategy Government/Donor Policy Dialogue Standardized Assessment Performance indicators 1

7 Page 7 Outline The strengthened approach to PF work The programmatic approach The Standardized Assessment The performance indicators 

8 Page 8 The 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

9 Page 9 The 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). Standardized Assessment 2

10 Page 10 The 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 2

11 Page 11 Country examples of the programmatic approach 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 real- time advice and products to support development of a strategy and action plan.Mexico 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. 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. Madagascar 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.Madagascar 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.Tanzania 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.Brazil 2

12 Page 12 Outline The strengthened approach to PF work The programmatic approach The Standardized Assessment The performance indicators 

13 Page 13 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. 3

14 Page 14 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. 3

15 Page 15 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. 3

16 Page 16 The structure of the SA-PFM 3 1.Introduction 2.Overall performance of the PFM system 2.1. Budgetary outcomes 2.2. The budget as a predictor 3.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 Forecasting, collection and accounting of revenues Cash flow management Debt and contingent liabilities The expenditure process Internal control system 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. 4.Government strategy and reform program 4.1 Description of the strategy and reform program 4.2 Assessment 5. Summary Assessment Annex 1: Performance Indicators summary Annex 2: Sources of information Performance indicators Reform Progress Gaps in diagnostic work and capacity-building support

17 Page 17 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. 3

18 Page 18 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. 3

19 Page 19 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. 3

20 Page 20 Outline The strengthened approach to PF work The programmatic approach The Standardized Assessment The performance indicators 

21 Page 21 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 Framework 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 4

22 Page 22 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 PFM Performance Measurement Framework 4

23 Page 23 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 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? 4

24 Page 24 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 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

25 Page 25 Revenues Expenditures Deficit Structure of the indicators set A. PFM Out-turns B. Key Cross- Cutting Features Comprehensiveness Transparency External Scrutiny & Accountability Accounting & Reporting Planning and Budgeting C. Budget Cycle Structure and Content of the Indicators Budget Execution

26 Page 26 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 indicators

27 Page 27 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 indicators The proposed standard set of high level indicators

28 Page 28 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.)

29 Page 29 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. The proposed standard set of high-level indicators (cont.)

30 Page 30 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. The proposed standard set of high-level indicators (cont.)

31 Page 31 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

32 Page 32 Reporting should include explanatory information and a justification for the score, and the cardinal data available to support or supplement the score Applying the Indicators INDICATOR SCORE GIVEN COMMENTARY EVIDENCECARDINAL DATA

33 Page 33 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. 4 Testing the programmatic approach in a few selected countries.

34 Page 34 Q&A and Discussion


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