Finding A Common Scale: An Overview of PFM Performance Indicators November 3, 2003 Budget Execution course Nicola Smithers, PEFA

Nature of the PFM Performance Measurement Framework PFM Performance Measurement Framework contains : A set of six critical objectives of a PFM system A standard set of high level PFM indicators to assess performance against the critical objectives The Framework is : Designed to measure PFM performance of countries at all levels of PFM development Draws on the HIPC 15 benchmarks But takes a broader perspective (e.g., aggregate fiscal management, predictability of funds flow)

Mainly unable to address ‘deeper’ underlying causes 2. PURPOSE OF THE PFM PERFORMANCE MEASUREMENT FRAMEWORK 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 Set should : have wide international acceptability to facilitate harmonization, provide a broad measure of performance be limited in number So cannot measure operation of all individual parts of the system factors necessary for PFM system to operate well causes of problems identified Excelled at diagnosis Good 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 technical But these only work when the underlying/ supporting environment is conducive Mainly unable to address ‘deeper’ underlying causes The intention is to supplement the high level indicators with “second level” indicators which support diagnosis and detailed analysis of specific areas

Accountability and Transparency : Comprehensive, Policy-based, budget: 0bjectives of the PFM system The questions the PFM performance indicators seek to answer Budget Realism: Is the budget realistic, and implemented as intended in a predictable manner? Accountability and Transparency : Are effective external financial accountability and transparency arrangements in place? Six critical objectives of PFM system Comprehensive, Policy-based, budget: Does the budget capture all relevant fiscal transactions, and is the process, giving regard to government policy? Control : Is effective control and stewardship exercised in the use of public funds? Fiscal Management : Are the aggregate fiscal position and risk are monitored and managed? Information: Is adequate fiscal, revenue and expenditure information produced and disseminated to meet decision-making and management purposes?

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

4. THE PROPOSED STANDARD SET OF HIGH-LEVEL INDICATORS A. PFM OUT-TURNS 1a. Primary fiscal balance compared to the original budget. 1b. Actual financing requirement compared to the original budget. 1c. Aggregate budget expenditure out-turn compared to the original budget. 1d. Composition of budget expenditure out-turn compared to the original budget. 1e. Aggregate revenue out-turn compared to the original budget.

The proposed standard set of high level indicators B. KEY CROSS-CUTTING FEATURES COMPREHENSIVENESS AND TRANSPARENCY 2a. Adequate procedures exist for the monitoring and management of aggregate fiscal position. 3a. Fiscal reports include all significant expenditures on government activities, including those funded by donors. 3b. Budget documentation provides complete information on fiscal projections, budget and performance (including revenues, expenditures, debt, contingent liabilities, tax expenditures, financial assets, comparative prior year data, etc.). 3c. Aggregate fiscal performance and position of the parastatal and sub-national government sectors are included in consolidated government reporting. 4a. Budget classified on an administrative, economic, and functional or programmatic basis. 4b. Poverty-related expenditure can be identified in the budget. 5a. Key fiscal information is published, is accessible and user-friendly. 5b. External audit reports are disclosed and impact public debate

The proposed standard set of high-level indicators (cont.) C. BUDGET CYCLE Medium term planning and budget formulation 6a. Multi-year perspective in fiscal planning, expenditure policy-making and budgeting. 7a. New policy initiatives are fully costed before adoption. 8a. Spending ministries are effectively engaged in the budget process. 9a. Recurrent and investment expenditures are subject to a coordinated budget process. 10a. The legislature scrutinizes and debates annual budget law. (continued next page)

The proposed standard set of high-level indicators (cont.) C. BUDGET CYCLE Budget Execution 11a. Revenues are adequately forecast and monitored. 12a. Well established procedures for the management and recording of debt and guarantees are in operation. 13a. Spending ministries are able to incur expenditure commitments in accordance with budget and cashflow projections. 13b. Evidence is available that resources reach spending units in a timely manner, in accordance with budget. 14a. Small stock of expenditure arrears; little accumulation of new arrears over past year. 14b. Internal control and internal audit are effective. 14c. Payroll controls are effective. 15a. There are clear and enforceable procurement rules that promote competition, transparency and value-for-money.

The proposed standard set of high-level indicators (cont.) C. BUDGET CYCLE Accounting and Reporting 16a. Prompt capture and processing of transactions, allowing timely aggregation at ministry and MOF levels. 16b. Prompt and regular data reconciliation. 17a. In-year budget execution reports, reflecting the budget classification are disseminated within government in a timely manner. 18a. Timely presentation of audited financial statements to the legislature. Audit and External Scrutiny 19a. External audit provides authoritative and relevant reports. 19b. Audit reports are acted on by the executive. 20a. The legislature scrutinizes external audit reports.

Applying the indicators Reporting should include explanatory information and a justification for the score, and the cardinal data available to support or supplement the score INDICATOR SCORE GIVEN JUSTIFICATION EVIDENCE CARDINAL DATA