Adapting to New Demands on PER Work Integrating PER, CFAA and CPAR perspectives Anand Rajaram, PRMPS Public Expenditure Analysis and Management May 22-24, 2001

Growing Expectations of PERs Continue to provide analysis of equity and efficiency of budget allocations Provide analysis of institutional aspects of expenditure management Now, also provide an assessment of institutions of accountability for resource management

The Conceptual Toolkit has to expand as well Public expenditure analysis macro - sustainability Sectoral analysis Three level analysis of PEM systems Macro-framework and fiscal discipline policy and budget formulation budget implementation & op.efficiency Accounting, procurement and audit systems chart of accounts, UNCITRAL, Supreme Audit Institutions

PERs also expected to be Participatory Collaborative approach to analysis Govt. to lead with WB support Other donors to participate Objective: Better impact Insiders insight improves analysis Ownership of recommendations

Pragmatically, approach has to be tailored to circumstances Participation: Depends on receptivity of country counterparts Coverage of issues: Depends on counterpart views donor consensus skills available ESW budget

Turkey: Public Exp.and “Institutional” Review What do we mean by “institutional”? Budgetary institutions? Political institutions? “Rules of the game”? Something elastic to cover relevant aspects of governance?

Turkey PEIR Government: Bank Requested “process oriented” PEIR Requested Bank to undertake PEIR and CFAA jointly Requested Fiscal Transparency report Asked Bank and IMF to co-ordinate PEIR and FT work Bank Worked with counterpart team in seminar/workshop format over 1 year Coordinated PEIR and CFAA missions Consulted with subsequent CPAR mission Collaborated with IMF on FT and PEIR perspectives

Turkey PEIR Joint PEIR and CFAA missions Peter Dean as “swing man” to integrate PEIR and CFAA perspectives Overlap with CPAR mission and informal discussions Focus in PEIR on impact of procurement on investment efficiency - link to CPAR Substantive collaboration with IMF on FT and FAD technical assistance on GFS budget classification

Turkey PEIR: Format Overview Analysis of Government Expenditure Public Investment Management Health expenditure Education expenditure Institutional Basis for Policies, Plans & Budgets Systems of Financial Accountability Toward More Effective and Accountable Government

Turkey PEIR: Main Insights Absence of disciplined policy formulation - govt. turnover Very limited coverage in fiscal reporting - much of central government spending outside Parliamentary purview Accumulation of fiscal deficits due to off-budget and quasi-fiscal programs Growth of contingent liabilities poses fiscal risks Lack of functional classification a handicap to sector policy Audit fragmented and narrowly focused on compliance Procurement problematic and source of investment inefficiency and corruption

Procurement and Public Investment Large number of projects, low completion rates What are incentives for such outcomes? Procurement based on discounts to estimated price. Open ended aspects which allow ex post adjustment of contract cost Project costs almost doubled in real terms

Procurement case study State Hydraulic Works agency 1980-2000, 55 projects completed 36 of 55 contracts bid discounts of 11-50% Contract variations resulted in total project costs being 90 percent more than initial estimate (and about 4 times the bid price) in real terms. Decisions to undertake a project were based on inadequate information on real cost commitment. Such cost escalation would significantly reduce project completion rates.

Next generation: Bosnia PEIR Joint PEIR, CFAA and CPAR mission Integrated assessment of budget, financial management, audit and procurement system Work in progress

Joint PER-CFAA-CPAR work enhances both development impact and fiduciary perspective PER provides the material to motivate real policy dialogue on systemic issues CFAA provides an understanding of financial management and accountability system CPAR is essential to improving operational efficiency and value for money More comprehensive, integrated understanding Better quality, internally consistent advice

Joint ESW? The whole is greater than the sum of the parts The necessary skills to do enhanced PERs are currently distributed across PREM, FM and Procurement parts of the Bank Good collaboration within the Bank is critical to getting an integrated perspective on public expenditure management and the correct problem definition Even more critical is good collaboration with our counterparts who ultimately have the best insights into the weaknesses in their systems