PEFA FRAMEWORK FOR ASSESSING PUBLIC FINANCIAL MANAGEMENT Module 8: Use of PEFA Assessments for Reform formulation & monitoring 1

Content Context Reform Sequencing Monitoring 2

Content Context Reform Sequencing Monitoring 3

PFM Links to Development Goals PFM system performance Budgetary Outcomes Fiscal / Exp Policy Goal s Dev Goals Strategic DGs, Political Manifesto Budget deficit, Sector allocations, Investment, Debt ratio, Tax burden etc Fiscal discipline, Strategic allocation, Operational efficiency PEFA Framework 4

Coverage of PEFA in reform cycle Implement PFM reforms Recommend PFM reform measures Identify main PFM weaknesses High level performance overview Investigate underlying causes Formulate PFM action plan Identify main PFM weaknesses Recommend PFM reform measures PEFA 5

Using PEFA Assessment for reform Limited value as PFM development tool, without in-depth work Ratings provide basis for discussing PFM strengths & weaknesses to build consensus on reforms to be undertaken Guide for Reform strategy - Input to assess context for reform; specification of outputs; & determining reform sequence Input to donor dialogue: Improved coordination of technical & financial support to reform programs – should lead to reduction in number of assessments & lower transaction costs M&E tool for reforms – improvements in high level indicators over medium-term 6

Once Assessment is complete Allow Govt time to circulate report & build consensus in both MOF & line ministries (but agree schedule!) Use strengths & weaknesses to identify further in-depth work needed on underlying reasons for poor performance Do not use PI ratings simplistically: low score is not sufficient justification for reform Ownership means government decision on priorities – range of factors: political economy, culture, constitution/legal, resources, capacity at entry Develop ‘Action Plan’ (with focus on causes of weaknesses) but additional output – separate product (although sometimes included in ToR!) ‘7

Country case - Norway Findings of Norad-managed self-assessment: low scores in 7 areas. MoF reaction: 3 areas of low scoring not considered priority at present (Multi-year program/sector budgeting, limited extent of internal audit, no consolidated overview of risks from AGAs & public corporations) 2 indicators scored low but municipal responsibilities; CG will not get involved Weaknesses in procurement practices & follow-up to external audit findings need to be addressed 8

Content Context Reform Sequencing Monitoring 9

The PFM Reform Strategy Reform Strategy will emerge from policy dialogue & once agreed, should be formalized & authorised at highest level (e.g. Cabinet) Requirement for carefully managed sequencing implies that PFM reform is best served by a programmatic approach – supported by harmonised development partners; single, coordinated funding vehicle; common M&E framework PFM Reform is not served by a fragmented, individual project approach Requires realism: reforms take time! 10

Where to start? Sequencing Reforms First priority is to achieve minimum operational level for core functions: many LICs fail to do this on a wide range of PEFA indicators Before advancing to reforms aimed beyond core functions, important to establish an adequate basis on which to anchor subsequent reforms Further reforms should be sequenced along three tracks: improving compliance; move from annual to medium-term budget planning; and a staged move from line-item budgeting to program, and eventually performance budgeting 11

Sequencing – guided by PFM priorities Sequencing decisions should focus on principal deliverables of any PFM system: same for all countries Hierarchy in prioritization should be recognized – e.g. core level of compliance with budgetary legislation, financial regulations & procedures is required to attain planned fiscal deficit (important for macroeconomic stability) – in turn supports efficient & effective service delivery Attempting to leapfrog unlikely to be successful! Focusing reforms on one top level PFM objective does not exclude significantly contributing to the others 12

Country-Specific Sequencing Decisions Sequencing not simply a technical issue Viability of any reform program should be determined by a systematic analysis of risk & opportunities External non-technical factors should be recognized as critical, & hence accommodated in any viable reform program Choice of type of reform action has important impact on likelihood of success Reform program should be designed to ensure that level of risk implied by planned actions is compatible with level of environmental risk posed by external non-technical factors Reform managers should make efforts to enhance opportunities for reform & mitigate risks faced 13

SN Assessments & reform discussions Some indicators may score low, but SN government has no powers to change systems -Typically legislative/regulatory issues e.g. classification systems & accounting standards determined centrally for all of general government Important to discuss with national authorities, but not part of reform action plan at local level 14

Use of PFM-PR for reform planning – Pakistan Provinces Separate assessment reports prepared for each province Reports identified main weaknesses in terms of ‘C’ & ‘D’ indicator scores Subsequent report established causes for poor performance in weak areas only - in-depth analysis in these areas Used for formulation or revision of reform action plan 15

Content Context Reform Sequencing Monitoring 16

Use of results: Performance Monitoring Discuss with government units the potential of incorporating PEFA indicators into own M&E system: Will make much of data collection a routine exercise, implemented by government Will enhance government ownership 17

Monitoring Progress Over Time High-level indicators only likely to show significant movement over medium term Note that once Reform Strategy has been agreed & authorised, repeat Assessments may be used solely to monitor progress in PFM systems & practice 18

Relevance of PEFA in BS assessment BS Eligibility criteriaPEFA relevance Stable macro-economic framework Description & aggregate statistics on macroeconomic & fiscal circumstances & results, debt sustainability Sound public financial management Overall assessment of strengths & weaknesses, quantified ratings across all major aspects of PFM performance, analysis of reform progress, successive assessments for monitoring. ‘Preferred tool to assess quality of PFM’ (BS Guidelines, p.37) – but not only consideration. Useful platform for dialogue & monitoring. Transparency and oversight of the budget Quantified ratings on public access to budget documents & budget information, financial reporting & audit National/sector policies and reforms Performance information for service delivery, national & sector strategies linked to budget Risk managementIdentify high-level risks in gov’nce & perfor’nce

Relevance of PEFA in BS assessment BS Eligibility criteriaPEFA 2011PEFA 2016 Stable macro-economic framework PI-17PI:13, 14 Sound public financial management 28 indicators, 76 dimensions 31 indicators, 94 dimensions Transparency & oversight of budget PI-6, 10, 24, 25, 26, 27 PI:5, 8, 9, 10, 11, 12, 13, 14, 15, 16, 18, 28, 29, 30, 31 National/sector policies & reforms PI-12PI:8, 16 Risk managementPI-9, 21, 26PI:10, 14, 15, 19, 26, 30

In Summary…. PEFA valuable to begin reform dialogue, but other considerations beyond PEFA findings are important to develop reform agenda Attempts have been made to map PFM functions against PEFA scores (although not all functions covered), then set ‘minimum level’ at which each contributes to achieving PFM objectives, but country context crucial: e.g. infrastructure; intergovernmental fiscal relationships; & above all, political will! PEFA useful to monitor PFM progress over medium term 21

Thank you for your attention: Questions? 22