PEFA Assessments - Analytics to Action Parminder Brar Lead Financial Management Specialist Africa Region, World Bank pbrar@worldbank.org World Bank Fiduciary Forum Washington D.C. March 28, 2008

Overview Results of PEFA Assessments Case Study on Tanzania Overall results By Region By Income level Case Study on Tanzania Results of three annual PEFA assessments Diagnostics to Implementation Key Messages

PEFA Assessments Draft assessments are now available for 65 countries. The worst ratings are for the indicators related to donor behavior.

PEFA Assessments The areas needing greatest strengthening are: PI-28: Legislative scrutiny of external audit reports PI-15: Effectiveness in collection of tax payments PI-23: Availability of information on resources received by service delivery units PI-21: Effectiveness of internal audit PI-26: Scope, nature and follow-up of external audit The areas rated the best are: PI-3: Aggregate revenue out-turn compared to original approved budget PI-11: Orderliness and participation in the annual budget process PI-1: Aggregate expenditure out-turn compared to original approved budget PI-6: Comprehensiveness of information included in budget documentation PI-5: Classification of the budget

PEFA Assessments Ratings are also available as per regions.   Countries Assessed ECA 9 LAC 15 MENA 4 AFR 25 EAP 10 SAR 2

PEFA Assessments Not surprisingly, there is a strong co-relation between per capita income and PFM performance.

Case Study: Tanzania There are several reasons why Tanzania is an interesting case study: It has had PEFA assessments in 2004, 2005, 2006 and 2007. Budget support has increased from $277 m. in 02/03 to around $700 m. in 06/07. It now accounts for 40% of the overall budget and 80% of the development budget. 14 donors provide budget support and need agreed diagnostics. There is a single Partnership Framework Memorandum that is used for monitoring performance. The PFM specifies that the underlying principles for budget support are sound budgeting and public financial management systems. There is a short list of agreed indicators that are assessed annually in October / November. There is a strong commitment from the side of the government to improve PFM performance.

Case Study: Tanzania : Diagnostics 2001 CFAA rated Tanzania a high fiduciary risk environment. It contained 104 recommendations. 2001 HIPC assessment rated Tanzania as one of the highest amongst HIPC countries, meeting 8 of 15 benchmarks. 2004 HIPC assessment ranked Tanzania as a global top performer amongst the HIPC countries requiring “little” upgrading of its PFM system and meeting 11 of 16 HIPC benchmarks. DFID Assessment in May 2004 concluded that: The overall problems remain of a weak fiduciary contract between citizens and the state, inadequate revenue collection, limited delivery of public goods, inadequate monitoring, inefficient capacity, non-compliance, and inadequate oversight. The PEFA framework with a standardized methodology is therefore very welcome. 8

Case Study: Tanzania : Diagnostics Diagnostics are led by the Bank with resources being contributed by all the DP’s. Government co-chairs the group and participates in diagnostic missions. A fungible pool of funds supports implementation of recommendations on a timely basis. 9

Case Study: Tanzania : Diagnostics The workload is shared between members of the PFM Donor Group.

Case Study: Tanzania : Diagnostics Diagnostics are used for both fiduciary and capacity building purposes. The PFM Reform Program - a basket fund of around $60 m. is available for supporting PFM reforms. 11

Case Study: Tanzania : LG Diagnostics Budget Formulation: Teams struggled to find the “right” budget figures amongst competing statements in various reports. Source: LGRP

Case Study: Tanzania : LG Diagnostics Budget Execution: Procedures for release of funds are overly complex.

Case Study: Tanzania : LG Diagnostics Budget Execution: Funds are released in a highly erratic manner.

Case Study: Tanzania : LG Diagnostics Budget Execution Carry forward of unspent balances impacts the credibility of the budget. Source: Arumeru Local Council, Tanzania

Case Study: Tanzania : LG Diagnostics Budget Execution Each LG Treasury is required to operate 25-40 bank accounts.

Case Study: Tanzania : LG Diagnostics Accountability Each LG is subject to around 10 audits.

Case Study: Tanzania : Implementation PFMRP lacked ownership and was used primarily for meeting operating costs and low impact training.

Case Study: Tanzania : Implementation It has taken two years to finalize PFMRP Strategic Plan. 19

Key Messages: Phase I of the PEFA experience has largely been focused on the technical side of the assessments. Around 80 countries have been covered and this is an excellent achievement. Phase II will focus more on the implementation successes of the diagnostics. A somewhat different skill base will be needed to think strategically, build relationships and identify effective entry points. Some key questions that will need to be addressed are: Do we know enough of the environment we are operating in? Do we have the relationships? Are we clear about what the priorities of Government are? Can we provide leadership to the donor group in country? Are we in a position to deliver? Have we identified the right entry points? Can we move from being part of the problem to being a larger part of the solution?

Thank You 21