The Changing Face of PE Work – Financial Management Perspectives PREM Learning Week 17 June 2002 David Shand Financial Management Advisor OPCFM

Fiduciary Assessment Ex ante “Integrated Fiduciary Assessment” covering public expenditure, financial management, and procurement Becoming a de facto requirement for adjustment lending Is a formal requirement for PRSCs Need to consider the PFM system as an integrated whole Upstream budget construction processes and downstream budget implementation, monitoring, and ex post review Where do CFAAs and PERs (PFM component) meet?

Bank PFM Diagnostic Tools CFAAs – relatively new fiduciary ESW diagnostic HIPC expenditure tracking studies – carried out in 24 HIPC countries using 15 PFM performance benchmarks PERs – variable and potentially very broad in scope. PFM diagnostics one component CPARs – the other fiduciary diagnostic. Has tended to operate rather separately from other diagnostics

Relevant Developments in Financial Management General movement of Bank fiduciary work to a country, rather than a project focus Moves to develop a performance focus in PFM, improve PFM criteria and harmonize/collaborate internally and externally (See Financial Management website on Bank Intranet)

Meaning of “Fiduciary” An accountability rather than a legal concept “Risk to Bank funds” – in adjustment lending = risk to country and other donor funds Risk of what? Funds disappearing Funds not spent according to budget Funds not well spent Not knowing how the funds were spent (poor fiscal transparency)

Using CFAA Diagnostics So what? Just another piece of ESW? Not a pass/fail situation No minimum PFM standards established for adjustment lending Rather CFAA is a knowledge tool about the environment into which we are putting Bank funds Adequate PFM may be an outcome of lending, or a precondition Need for focused, results-based conditionalities

Fiduciary and Developmental (Capacity Building) Issues Seen as complementary, not mutually exclusive Standard practice in all sectors – FSAPs, poverty assessments, normal project appraisals A fiduciary assessment requires government cooperation and participation A government committed to reform reduces risk to Bank (and country) funds

Key future issues Improving the performance focus of PFM diagnostics (HIPC, IDA 13, CPIA) Not just technical fixes – institutional issues, signals, and incentives Better integration with CASs and lending programs Coordinating and harmonizing PFM diagnostic work, within the Bank (PREM, FM, and Procurement)

Internal Integration of Diagnostics PER more upstream, CFAA more downstream. At what point do they intersect? Integration of what – processes, reports, or both? A fully integrated approach may not be possible, differences in timing and time scale PERs too large to integrate; integrate only the PEM component ?

External Collaboration/Harmonization Other donor involvement in CFAAs (IADB, ADB, UNDP, DFID, SPA) Harmonization of approach on PFM performance measurement, risk assessment, and fiduciary safeguards PEFA program to assist in this

Other Key Issues Future emphasis on capacity development PFM a focus area under new IDF guidelines Extending PFM diagnostics to sub-national governments Bank skills gap Of PFM generally in PREM Of Public Sector issues generally in FM

CFAA Coverage CFAA formal ESW since July 2000 Formal Guidelines issued September 2000. New draft guidelines June 2002 Through FY01 28 CFAAs done, of which 23 less than five years old 20 CFAAs likely to be delivered in FY02 Steady state of 20-25 per year Coverage of all active borrowers by FY 04