Presentation on theme: "Sketching a Strengthened Approach to Public Financial Management Work"— Presentation transcript:
1 Sketching a Strengthened Approach to Public Financial Management Work Public Expenditure Working GroupFebruary 2004Presented by :Odile KellerPEFA Secretariat
2 P Outline 1 2 3 4 The strengthened approach to PF work The programmatic approach2The Standardized Assessment3The performance indicators4
3 Why? 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 weakRecognition that past efforts have yielded mixed results on the groundCapacity-building underemphasized and technical assistance fragmentedDuplicative diagnostics (CFAA, CPAR, fiscal ROSC, EU audits, etc.) and numerous donor requirements are burdensome rather than enablingImperfect fiduciary assessment, no performance framework
4 Improved impact on the reform of country systems 1Objectives of the approachGreater 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
5 Features of the strengthened approach to PFM work 1Features of the strengthened approach to PFM workCountry-led Strategy for reform and institutional developmentCoordinated Program of Work for donors in supporting country strategy development and implementationStandardized Assessment (SA) providing information to the donors on the performance of the PFM systemPerformance Measurement Framework fitting within the SA and able to monitor progress over time
6 The Strengthened Approach to Public Finance work 1Government PFM Reform Strategy, Action Plan and ResultsStandardized AssessmentPerformance indicatorsGovernment/DonorPolicy DialogueCoordinated program of capacity building workDonor country Assistance Strategy
7 P Outline 1 2 3 4 The strengthened approach to PF work The programmatic approach2The Standardized Assessment3The performance indicators4
8 2 Government PE/PFM Reform Strategy and Action Plan The country-led PF reform strategyNo 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 WorkGovernment PE/PFM Reform Strategy and Action PlanMonitoring of progress by the governmentImplementation of reforms
9 The Program of work of the donors 2The Program of work of the donorsA 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 respectStandardizedAssessmentCoordinated program of work by the donors to support capacity buildingAnalytic supportDonor analytic support and advice to government for (i) PFM diagnosis (through modules), and (ii) development and implementation of country-led reform strategy and action planTechnical cooperation supportAccording to the priorities defined in the PFM reform strategy, donors provide technical assistance and other capacity-building assistance.FinancingFinancial support aligned to support the implementation of the PFM reform strategy (streamlined conditionality).
10 The modules and tools 2 Modules 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.Guidance Note and Tool kitIncluding :Scope of the moduleToolkit (questionnaires, reference models, performance indicators)Guidance on issues of institutional development, capacity building and change managementModulesBudget formulationRevenue collectionDebt managementAccounting and reportingAuditing, etc.Components of each moduleAssessmentRecommendations for reformsRecommendations for implementation arrangementsRecommendations for monitoring
11 Country examples of the programmatic approach 2Country examples of the programmatic approachTanzaniaThe 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.BrazilDonors has an active dialogue with Government on its agenda, and is preparing a multi-year program of work to support advisory needs of Government.MadagascarThe 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.Papua 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.MexicoThe 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.
12 P Outline 1 2 3 4 The strengthened approach to PF work The programmatic approach2PThe Standardized Assessment3The performance indicators4
13 The Standardized Assessment (SA-PFM) 3The SA is intended to replace donors’ mandatory fiduciary work on PFM.The SA would not replace the analytical work for advising and capacity-building.
14 What are the intended uses of the SA? 3What are the intended uses of the SA?To provide information in a way that enables each donor agency:To make judgments on the performance of the PFM system and the impact of related reforms in a country; and,To feed in key decisions on aid modalities, aid programs and support of PFM reforms in a specific countries.
15 What would be the content of the SA? 3What 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 capacity-building support.The SA-PFM would not include recommendations, but feed in the policy dialogue with the government.
16 The structure of the SA-PFM 3The structure of the SA-PFMIntroductionOverall performance of the PFM system2.1. Budgetary outcomes2.2. The budget as a predictorPerformance of the PFM processes and institutions3.1 Legal and institutional framework3.2 Transparency and comprehensiveness3.3 Budget formulation3.4. Budget execution3.4.1 Forecasting, collection and accounting of revenues3.4.2 Cash flow management3.4.3 Debt and contingent liabilitiesThe expenditure process3.4.5 Internal control system3.4.6 Procurement3.5 Accounting and reporting3.6 External accountability, audit and scrutiny3.7 Other country specific issues, e.g. managementof revenues from natural resources, donor practices, etc.Government strategy and reform program4.1 Description of the strategy and reform program4.2 Assessment5. Summary AssessmentAnnex 1: Performance Indicators summaryAnnex 2: Sources of informationReform ProgressPerformance indicatorsGaps in diagnostic work and capacity-building support
17 Principles guiding the undertaking of the SA-PFM 3A 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.
18 The steps for undertaking the SA-PFM 3A 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.
19 Coordination should remain manageable 3The 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.
20 P Outline 1 2 3 4 The strengthened approach to PF work The programmatic approach2The Standardized Assessment3PThe performance indicators4
21 Overview of the PFM Performance Measurement Framework 4Overview of the PFM Performance Measurement FrameworkThe 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 systemA standard set of high level PFM indicators to assess performance against the critical objectives
22 The PFM Performance Measurement Framework 4The PFM Performance Measurement FrameworkThe Set should :Draw on the HIPC 16 benchmarks, but widerHave wide international acceptability to facilitate harmonizationProvide a broad measure of performanceBe limited in number, so cannot measureoperation of all individual parts of the systemfactors necessary for PFM system to operate wellcauses of problems identifiedExcelled at diagnosisGood at addressing the ‘surface’ manifestations (e.g., testing of judges & training of officials)Good at technical solutions and design, but the problem is not always technicalBut these only work when the underlying/ supporting environment is conduciveMainly unable to address ‘deeper’ underlying causesThe intention is to supplement the high level indicators with “second level” indicators which support diagnosis and detailed analysis of specific areas
23 Accountability and Transparency : Comprehensive, Policy-based, budget: 0bjectives of the PFM System4The questions the PFM performance indicators seek to answerBudget Realism:Is the budget realistic, and implemented as intended in a predictable manner?Accountability and Transparency :Are arrangements for external transparency and scrutiny arrangements operating?Six critical objectives of PFM systemComprehensive, Policy-based, budget:Does the budget capture all relevant fiscal transactions, and is the process, giving regard to government policy?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?Fiscal Management :Are the aggregate fiscal position and risk are monitored and managed?
24 What is NOT assessed directly Impact of expenditures on development objectivesAchievement of budgetary outcomes (fiscal discipline, strategic prioritization, value-for-money)Performance orientation of the PFM systemWhy?Too difficult to use standard indicators to measure outcomesAim is to measure how well the PFM system is working to support the achievement of good budgetary outcomesFocus is on orderly and predictable operation; performance orientation difficult to pin downAlso covered only to very limited degreeRevenue administration – Revenue forecasting and cash flow management onlySub-national government – Aggregate fiscal management and reporting only
25 Structure and Content of the Indicators Structure of the indicators setC. Budget CycleA. PFM Out-turnsPlanning andBudgetingRevenuesB. Key Cross-Cutting FeaturesComprehensivenessTransparencyExternal Scrutiny & AccountabilityBudget ExecutionExpendituresDeficitAccounting & Reporting
26 The proposed standard set of high-level indicators A. PFM OUT-TURNS1. 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.
27 The proposed standard set of high level indicators B. KEY CROSS-CUTTING FEATURES COMPREHENSIVENESS AND TRANSPARENCY5. 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.
28 The proposed standard set of high-level indicators (cont.) C. BUDGET CYCLEMedium term planning and budget formulation11. 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.
29 The proposed standard set of high-level indicators (cont.) C. BUDGET CYCLEBudget ExecutionEffectiveness of cash flow planning, management and monitoring.Procedures in operation for the management and recording of debt and guarantees.Extent to which spending ministries are able to plan and commit expenditure in accordance with original/revised budgets.Evidence available that budgeted resources reach spending units in a timely manner.Effectiveness of internal control.Effectiveness of internal audit.Effectiveness of payroll controls.Clarity and enforceability of procurement rules, and the extent to which they promote competition, transparency and value-for-money.
30 The proposed standard set of high-level indicators (cont.) C. BUDGET CYCLEAccounting and Reporting23. 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 ScrutinyThe scope and nature of external audit reports.Follow up of audit reports by the executive or audited entity.Legislative scrutiny of external audit reports.
31 Two indicators of 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.
32 Applying the Indicators Reporting should include explanatory information and a justification for the score, and the cardinal data available to support or supplement the scoreINDICATOR SCORE GIVEN COMMENTARY EVIDENCE CARDINAL DATA
33 Consultation within the World Bank, with PEFA and OECD/DAC partners. The transition period4Consultation 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 indicatorsTo stabilize the technical content and the process of undertaking.Testing the programmatic approach in a few selected countries.