Public Expenditure and Financial Accountability Introduction to the framework and lessons learned from its use in Mozambique Health Sector Tanzania, February 2015

Contents ① General Introduction ② About the Mechanics ③ The Indicator Set ④ Performance Reporting (PFM-PR) ⑤ Assessment Process ⑥ Sector Application ⑦ Lessons Learned from Mozambique Health Sector

① General Introduction

PFM Links to Development Goals PFM system performance Budgetary Outcomes Fiscal / Exp Policy Goals Dev Goals MDGs, PRSP, Political Manifesto Budget deficit, Sector allocations, Investment, Debt ratio, Tax burden, etc Fiscal discipline, Strategic allocation, Operational efficiency PEFA Framework Other influencing factors

Range of PFM Diagnostic Tools Traditional products – CFAA (WB) – CPAR (WB) – FRA (DFID) – Fiscal ROSC (IMF) – TA reports (IMF) Stand alone PFM-PR Integrated products – CIFA, IPFMA, PEMFAR – PEFAR, ERPFM – IFA Some combined products are modular (annually sequenced modules); others are discrete (full package every 3-5 years)

PEF A PEFA = Public Expenditure & Financial Accountability Objective:  Results orientation in development of PFM systems  Harmonization of PFM analytical work Establishment:  Established in 2001 by seven agencies  Works in tandem with OECD-DAC Task Force on PFM  Contributing to development effectiveness through: ‘Strengthened Approach’ to Supporting PFM Reform What is the PEFA program?

The PEFA stakeholders

Very good progress – globally  220+ assessments, covering 120+ countries.  Since 2010, mostly Repeat & Sub-National assessments High country coverage in many regions  Africa and Caribbean: 90% of countries  Latin America, Eastern Europe, Asia, Pacific: 50-80% Used in many Middle Income Countries  Upper MICs: Brazil, Turkey, Belarus, South Africa  Lower MICs: India, Kazakhstan, Ukraine, Morocco, Peru, Egypt, Thailand, Philippines, Indonesia, Colombia PEFA Framework Adoption

PEFA Assessments Map

Coverage of PFM-PR in Reform Cycle Implement PFM reforms Recommend PFM reform measures Identify main PFM weaknesses High level performance overview Investigate underlying causes Formulate PFM reform program Identify main PFM weaknesses Recommend PFM reform measures PFM-PR

② About the Mechanics

The PEFA Framework PFM Performance Measurement Framework  Better known as ‘the PEFA Framework’ [Blue book]  The ‘flagship’ product of the PEFA Program  Launched in June 2005 Designed to measure performance of national PFM systems  Applicable to countries at different stages of development  Also applicable to Sub-National government systems  Sectoral application and institutional application …

Purpose of the PEFA Framework Objective  To determine if a country has the tools to deliver three main budgetary outcomes (aggregate fiscal discipline; strategic resource allocation; efficient service delivery) It provides:  High level overview of all aspects of a country’s PFM systems performance, including revenue, expenditure, procurement, financial assets/liabilities It does not provide assessment of:  Underlying causes for good / poor performance  Government fiscal / expenditure policies.

Components of the framework A standard set of high level PFM indicators to assess performance against 6 critical dimensions of a PFM system – 28 government indicators, covering all aspects of PFM – 3 donor indicators, reflecting donor practices influencing the government’s PFM systems – (Now: Test version of 30 Government indicators) A concise, integrated performance report – the PFM-PR – developed to provide narrative on the indicators & draw a summary from the analysis

Comprehensiveness and transparency : Are the budget & fiscal risk oversight comprehensive, & is fiscal & budget information accessible to the public? Dimensions of PFM system performance Policy-based budgeting: Is the budget prepared with due regard to government policy? Accounting, recording & reporting: Are adequate records & information produced, maintained & disseminated to meet decision-making, control, management & reporting purposes? Budget credibility: Is the budget realistic, & implemented as intended? Predictability & control in budget execution: Is the budget implemented in a predictable manner & is control & stewardship exercised in the collection & use of public funds? External scrutiny & audit: Are there effective arrangements for scrutiny of public finances & follow up by the executive? 6 critical dimensions of PFM system performanc e

③ The Indicator Set

Structure of the indicator set

The standard set of high-level indicators A.CREDIBILITY OF THE BUDGET: PFM OUT-TURNS (1- 4) A.COMPREHENSIVENESS & TRANSPARENCY (5 - 10) A. BUDGET CYCLE –POLICY-BASED BUDGETING (11 – 12) –PREDICTABILITY & CONTROL IN BUDGET EXECUTION (13 – 21) –ACCOUNTING, RECORDING & REPORTING (22 – 25) –EXTERNAL SCRUTINY & AUDIT (26 – 28) B.INDICATORS OF DONOR PRACTICES (D1 – D3)

Calibration & Scoring Calibrated on 4 Point Cardinal Scale (A, B, C, D) Reflecting internationally accepted ‘good practice’ Determine score by starting from ‘D’, go upwards Do not score if evidence is insufficient Arrow ▲ Can indicate an improvement not reflected in a change of the indicator score

Indicator dimensions Most indicators have 2, 3 or 4 dimensions Each dimension must be rated separately Aggregate dimension scores for indicator; two methods M1 or M2, specified for each indicator Intermediate scores (B+, C+, D+) for multi- dimensional indicators, where dimensions score differently

④ Performance Reporting

Content of the PFM Performance Report An integrated narrative report including: Introduction with the context for the assessment Country background information Evidence & justification for scoring the indicators Country specific issues Description of reform progress & factors influencing it Summary assessment of PFM system impact

⑤ Assessment Process

Stages in a typical process 0. Agree the intention to undertake a PEFA based assessment 1. Agree purpose, scope and stakeholder roles 2. Prepare TOR 3. Mobilize assessment team 4. Introduction workshop for stakeholders 5. Review of existing information 6. Inception Report 7. Main field work 8. 1 st Draft Report 9. Quality Review 10. Supplementary field work 11. Draft Final Report 12. Presentation seminar 13. Final report 14. Use of the report for reform dialogue

⑥ Sector Application

A sector suggestion PEFASector-specific indicator PI-1 & 2 SI-1. Sector exp out-turn: SI-2 Composition of sector exp vs. original approved budget PI-4SI-3. Stock & monitoring of expenditure payment arrears payment arrears in sector PI-7SI-4. Extent of unreported government operations in sector PI-8SI-5. Transparency of inter-governmental fiscal relations within sector PI-11SI-6. Orderliness & participation in annual budget process within sector PI-12SI-7. Multi-year perspective in sector expenditure policy & budgeting NEWSI-8. Sector-specific revenue from service fees PI-16SI-9. Predictability in availability of funds for commitment of expenditures PI-18SI-10. Effectiveness of sector payroll controls PI-19 Split SI-11. Competition & value for money in procurement; SI-12. Controls in procurement SI-13. Controls of procured goods PI-20SI-14. Effectiveness of internal controls for non- salary expenditure PI-21SI-15. Effectiveness of internal audit within sector PI-23SI-16. Availability of information on resources received by service delivery units PI-24SI-17. Quality & timeliness of in-year sector budget reports PI-26SI-18. Scope, nature & follow-up of external audit PI-27SI-19. Legislative scrutiny of annual budget law by sector committees (where applicable) PI-28SI-20. Legislative scrutiny of external audit reports relating to sector D-1SD-1. Predictability of sector budget support HLG-1CG-1. Predictability of transfers from central government

A sector application Sector I SI – 1 & 2Sector exp out-turn & Composition of sector exp vs original approved budget SI – 3Aggregate sector user fee collections compared to original approved budget SI – 5Classification of the Sector budget SI – 7Extent of unreported government operations in the Sector SI – 8Transparency of rules & procedures for Provincial & District budgeting SI – 10Public access to key fiscal information on the sector SI – 12Multi-year perspective in planning & budgeting for the sector SI – 13Transparency of obligations and liabilities for care user charges SI – 16Predictability in availability of funds for commitment of expenditures SI – 18Effectiveness of payroll controls in the sector SI – 19 a) Quality assurance processes in Procurement; b) Price competitiveness in Procurement of supplies; c) Timeliness of sector Procurement processes; d) Competitiveness & Transparency in sector Procurement; e) Inventory management in sector SI – 20Effectiveness of internal controls for non-salary expenditure in the sector SI – 21Effectiveness of Internal Audit in the sector SI – 22Timeliness and regularity of accounts reconciliation in the sector SI – 23Availability of information on resources received by district facilities SI – 24Quality and timeliness of in- year budget report s for the sector SI – 25Quality and timeliness of annual financial statements for the sector SI – 26Scope, nature and follow-up of External Audit in the sector

⑦ Lessons Learned from Mozambique Health Sector

Experience in the Health Sector in Mozambique (using PEFA)  2008 / 2009: 1st National Health Sector Assessment (PEFA + OCDE DAC Procurement)  2010 / 2011: Zambezia Province  2012: SETSAN Central  2012/13: 8 Sectors in Tete Province  2013/14: 6 Sectors in Gaza Province  2014: 6 Sectors in Maputo Province  2014: 4 Districts in Tete Province Assessments by other DPs using similar methodologies: FRA (DFID) Stage 2 Risk Assessment (USAID / USG) EU PFM Monitoring and Evaluation (…)

Some of the lessons learned… PFM is not just accounting or just auditing Planning Vs Budgeting Vs Accounting Vs Reporting It is important to know which are the risks and how vulnerable the sector is (heat map) Risk is not just at programme conception, it is trough out implementation and needs to be part of dialogue Where and how to provide meaningful TA Documenting the assessment and doing it with partner institution increases level of acceptance of risk

Some of the lessons learned… Solutions / Recommendations are not technically challenging and are identified by institutions PFM is not just the Finance Department or just the Audit Report – needs a holistic approach within MoH and also the structure of government There are interventions needed above sector and institutional level (….)

Some of the lessons learned…

Questions? Comments?