1. Page 1 Budget Execution and Financial Accountability Course January 10-12, 2005 Country PFM Performance Measurement and Monitoring Nicola Smithers PEFA Secretariat

2. Page 2 THE NEED FOR PFM PERFORMANCE MEASUREMENT AND MONITORING Evidence – based PFM performance measurement required by countries and donors to monitor progress Increasing reliance on domestic PFM systems in managing aid flows Increased understanding that PFM important for delivering development goals eg. Millennium Development Goals Increased results focus in development work Major body of knowledge about PFM has been generated. Moving forward, flexible, country-based approach to analysis is being adopted, with an increased focus on monitoring over time. This reflects :

3. Page 3 Comprehensive : Cover all aspects of the PFM cycle Robust, evidence-based: Relevant, observable, verifiable, consistent Capture progress : Capable of calibration to capture progress over time Cost effective : Utilize data that can be collected cost effectively PRINCIPLES FOR PFM PERFORMANCE MEASUREMENT

4. Page 4 A tool has been developed to aid PFM performance measurement Joint working group of World Bank, IMF and PEFA has developed a draft high level PFM performance measurement framework. This is part of a coordinated country-led approach to PFM work that has been developed. Development of tool involves a wide consultation with donors (esp.OECD-Development Assistance Committee), clients and other stakeholders. A TOOL FOR PFM PERFORMANCE MEASUREMENT

5. Page 5 Purpose : To provide a standard set of high level indicators that will enable performance of PFM systems to be regularly monitored, by domestic and international stakeholders, and demonstrate progress over time To provide a common pool of information about PFM performance PURPOSE OF THE STANDARD HIGH-LEVEL PFM PERFORMANCE MEASUREMENT FRAMEWORK Guiding principles for developing indicators :  Build upon the HIPC 16 Benchmarks, but broader  Have wide international acceptability to facilitate harmonization  Focus on overall system performance  Be limited in number

6. Page 6 ELEMENTS OF THE PFM PERFORMANCE MEASUREMENT FRAMEWORK A set of six critical objectives of a PFM system o Measuring intermediate outcomes, necessary to support good budgetary outcomes A standard set of high level PFM indicators to assess performance against the critical objectives In addition, a concise, integrated report – the PFM performance report- has been developed to provide narrative on the indicators and supporting information

7. Page 7 Comprehensive Fiscal oversight: Are the aggregate fiscal position and risks are monitored and managed? Comprehensive Fiscal oversight: Are the aggregate fiscal position and risks 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? 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? 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? Control : Is effective control and stewardship exercised in the use of public funds? Control : Is effective control and stewardship exercised in the use of public funds? The questions the PFM performance indicators seek to answer Accountability and Transparency : Are effective external financial accountability and transparency arrangements in place? Accountability and Transparency : Are effective external financial accountability and transparency arrangements in place? MEASURING WHAT PERFORMANCE ? Six critical objectives of PFM system

8. Page 8 Revenues Expenditures Deficit Structure of the indicators set A. PFM Out-turns Comprehensiveness Transparency B. Key cross-cutting features External Audit and Accountability Accounting and Reporting Budget Execution Planning and Budgeting C. Budget Cycle STRUCTURE AND CONTENT OF THE INDICATORS

9. Page 9 CALIBRATION AND REPORTING  Guidance has been developed to support calibration of the indicators :  Four point ordinal scale (e.g., A-D)  Intermediate scores possible (e.g., C+)  Possible arrow to indicate direction of change  Additional quantified/cardinal data  The indicators can be reported in the PFM performance report which provides narrative and context.  Tool provides comprehensive coverage, and ordinal scoring provides clarity and consistency. Some country teams may chose to add/subtract from list, or report using different scale. But comprehensiveness, clarity and consistency are key.

10. Page 10 A.PFM OUT-TURNS 1.Aggregate fiscal deficit 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 CURRENT STANDARD SET OF HIGH-LEVEL INDICATORS

11. Page 11 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 central 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, procurement information and audit reports. THE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORS

12. Page 12 C. BUDGET CYCLE i. Medium term planning and budget formulation 11.Extent of multi-year perspective in fiscal planning, expenditure policy- making and budgeting, including procurement. 12.Orderliness and participation in the budget formulation process. 13.Coordination of the budgeting of recurrent and investment expenditures. 14.Legislative scrutiny of the annual budget law. THE PROPOSED STANDARD SET OF HIGH-LEVEL INDICATORS

13. Page 13 C. BUDGET CYCLE ii. Budget Execution 15.Effectiveness of cashflow planning, management and monitoring. 16.Procedures in operation for the management and recording of debt and guarantees. 17.Extent to which spending ministries and agencies are able to plan and commit expenditures in accordance with original/revised budgets. 18.Evidence available that budgeted resources reach spending units in a timely and transparent manner. 19.Effectiveness of internal control, including on procurement 20.Effectiveness of internal audit, including on procurement. 21.Effectiveness of payroll controls. 22.The existence of transparent procurement system as an integral part of the overall PFM system which is supported by a clear regulatory framework that provide for competition, value for money and effective controls. THE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORS

14. Page 14 C. BUDGET CYCLE iii. Accounting and Reporting 23 Timeliness and regularity of data reconciliation. 24. Timeliness, quality and dissemination of in-year budget execution reports. 25. Timeliness and quality of the audited financial statements submitted to the legislature THE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORS C. BUDGET CYCLE Iv. External accountability, audit and scrutiny 26 The scope and nature of external audit. 27. Follow up of audit reports by the executive or audited entity. 28. Legislative scrutiny of external audit reports.

15. Page 15 Indicators of donor practices D1. Completeness of donor information provided on aid flows, and comparison of actual donor flows with donor forecasts. D2. Proportion of aid that is managed using national procedures. THE CURRENT STANDARD SET OF HIGH-LEVEL INDICATORS

16. Page 16 TESTING AND APPLICATION SO FAR  Process of testing and application is currently underway to determine technical robustness of indicator set.  This will cover 25+ countries by February 2005 (some by Bank, some by EC delegations and other PEFA partners)  Feedback from this and from consultations will lead to refinement of indicators March/April 2005.

17. Page 17 Have you experience of applying performance indicators in assessing or monitoring PFM? How would PFM performance measurement and monitoring be addressed in programs/projects in which you’re involved? Do you have questions/comments on the tool developed? Discussion