The World Bank Page 1 Sanjay Pradhan PREM Public Sector Governance Presented to: Fiduciary Forum The World Bank March 24, 2008 Presented by: Sanjay Pradhan Director, PREM Public Sector Governance The World Bank Implications for PFM & Fiduciary Work

The World Bank Page 2 Sanjay Pradhan PREM Public Sector Governance Governance is Core to Everything We Do  It is about health services being delivered properly  It is about teachers showing up to school  It is about the investment climate being predictable  It is about less corruption in procurement  It is about accountability in the use of public resources Governance is Everybody’s Business – But It is the Main Business of PFM Staff

The World Bank Page 3 Sanjay Pradhan PREM Public Sector Governance GAC: 5 Key Messages for Fiduciary Forum  GAC aims to help countries build more capable and accountable states – it is about strengthening country systems  “Strengthen, rather than bypass, country systems”: GAC is not about ring-fencing, in light of DIR findings – it is about strengthening domestic capacity and accountability  Stay engaged even in most poorly governed settings – identify, mitigate and monitor risk, not avoid risk  Better national institutions are the most effective and long-term solution to mitigating fiduciary risk for all public money, including from the Bank  Helping countries improve PFM is at the core of GAC

The World Bank Page 4 Sanjay Pradhan PREM Public Sector Governance Project Level Combat corruption in operations – assess & mitigate risk, use project interventions to strengthen country systems Country Level Help improve PFM systems in countries Global Level Collaborate with development partners, and address transnational issues – e.g., PEFA, OECD-DAC Procurement, StAR GAC: Implications for PFM & Fiduciary Work

The World Bank Page 5 Sanjay Pradhan PREM Public Sector Governance Public Management Public financial management & procurement Administrative & Civil Service Reform Governance in Sectors Transparency & participation Competition in service provision Sector-level corruption issues (EITI, forestry) Civil Society, Media & Oversight Institutions State oversight institutions (parliament, judiciary, SAI) Transparency & participation (right to information, user participation) Civil society & media Local Governance Community-driven development Local government transparency Downward accountability Private Sector Competitive investment climate Responsible private sector PFM is at the Core of GAC

The World Bank Page 6 Sanjay Pradhan PREM Public Sector Governance Improving PFM Systems: Successes & Challenges  Bank lending for PFM (project lending + DPLs) rose from $127 m per year during FY90-99 to $912 m per year during FY00-06, now 81% of lending for public sector reform  Two-thirds of all countries that borrowed for PFM show improvement in this area – IEG project ratings show a success rate of 85 percent  Some indicators of success:  Development & use of PEFA indicators in 70 countries  Better budget preparation (Mali), treasury & cash management (Guatemala)  Automated systems for financial accounting (Burkina Faso)  More effective internal audit (Kenya), SAI (Senegal)  But in most countries, PFM systems are still quite weak -- less than 50 percent of PEFA benchmarks met  Need to move from diagnosis to action & results on the ground

The World Bank Page 7 Sanjay Pradhan PREM Public Sector Governance Frontier Areas for PFM & Fiduciary Work  Targeting Key Gaps in PFM Performance (PEFA)  Mapping Corruption Vulnerabilities (Value-Chain & Process Flow Analysis)  Improving PFM Systems & Mitigating Risk:  Sequencing – A Platform Approach  Strengthening Transparency & Oversight  Managing Political Economy of Reforms

The World Bank Page 8 Sanjay Pradhan PREM Public Sector Governance Monitoring PFM Performance: HIPC-PEFA Percent of Benchmarks Met by Indicator ( ) Budget comprehensiveness, donor funds on-budget, medium-term perspective, internal audit, relatively weaker areas.

The World Bank Page 9 Sanjay Pradhan PREM Public Sector Governance Sequencing – A Platform Approach Platform 1 A credible budget delivering a reliable and predictable resource to budget managers Platform 2 Improved internal control and public access to key fiscal information to hold managers accountable Platform 3 Improved linkage of priorities and service targets to budget planning and implementation Platform 4 Integration of accountability and review processes for both finance and performance management Integration of budget (recurrent & capital budgets)  Strengthen macro and revenue  Forecasting  Streamline spending processes Broad Activities  Re-design  Budgeting  Classification system  Initial design of FMIS for core business processes  Strengthen external audit and define internal audit function  Re-design budget cycle (e.g. MTEF)  Pilot program based budgeting & budget analysis  Further fiscal  Decentralization  Full design of FMIS  Develop IT  Management  Strategy  Initial design of asset register Enables a basis for accountability Enables focus on what is done with money Enables more accountability for performance management Cambodia – Sequence of Platforms Broad Activities Broad Activities Broad Activities Source: See “Study of measures used to address weaknesses in Public Financial Management systems in the context of policy-based support,” by Peter Brooke, at

The World Bank Page 10 Sanjay Pradhan PREM Public Sector Governance Civil Society & Media Oversight Philippines, Slovakia Strengthening Supreme Audit Institutions Hungary Strengthening Public Accounts Committees Kenya, Ghana, India Participative Budgeting Puerto Alegra, Brazil Public Expenditure Tracking & Information Campaigns Madagascar, Peru Strengthening Demand for Public Financial Accountability

The World Bank Page 11 Sanjay Pradhan PREM Public Sector Governance Mapping Corruption Vulnerabilities Addressing Corruption in the Delivery of Essential Drugs Manufacturing Registration Selection Procurement Distribution Prescription & Disbursement Production of sub- standard drugs Lengthy procedures with weak legal framework Warehouse theft Biased prescriptions (info asymmetry between doctor/ pharmacist & patient) Under-inclusion or over-inclusion “Tailor fit” drug specifications Vulnerabilities in … … some ways to combat these vulnerable points … Random inspections Monitoring based on transparent & uniform standards (WHO prequal list) Media coverage of drug selection committee meetings Competition & Transparency Tracking systems/third party monitoring User surveys Source: J. Edgardo Campos and Sanjay Pradhan, The Many Faces of Corruption: Tracking Vulnerabilities at the Sector Level, The World Bank, 2007

The World Bank Page 12 Sanjay Pradhan PREM Public Sector Governance Stages of the Procurement Process & Flags Contract Implementation Procurement Planning Preparation Pre-qualification Bid Evaluation Award of Contract Advertisement Specifications & scope of work altered No clear criteria for project selection Estimates inconsistent w/ market prices Requirements vague, unrelated Subjective notional point systemArbitrary post-qualification Restricted advertisement

The World Bank Page 13 Sanjay Pradhan PREM Public Sector Governance Bid Rigging Schemes & Red Flags  “Complementary” bidding  Round robin  Divide the pie  Coercion  Low balling/ “Change orders”  Bidders have same address or bid price  Wide gap between winner & all others  Winning bidder subcontracts to losers  Qualified bidders do not bid  Lowest bidder later submits substantial change orders

The World Bank Page 14 Sanjay Pradhan PREM Public Sector Governance Procurement Reforms: Increasing Competition & Transparency E-Procurement: Chile  All supplier companies register, indicating areas of business (e.g., IT, construction, furniture)  Public agencies submit tenders through internet  Automatic to all companies in selected area  Online information on name, position of official in-charge  Online information on results: who participated, proposals made, scores received, who won bid, historical record of agency’s purchases & contracts Engaging CSOs: Philippines  Legal foundation a mess with over 100 laws and regulations  New omnibus law needed for clarity and predictability in the process  New law in 2003 with determined efforts of reform minded public officials allied with strong and unified advocacy efforts of CSOs to offset entrenched vested interests  For credible enforcement: requirement that all bids and awards committees must have at least one observer from a certified CSO  Extensive training of CSOs now under way  Legal foundation a mess with over 100 laws and regulations  New omnibus law needed for clarity and predictability in the process  New law in 2003 with determined efforts of reform minded public officials allied with strong and unified advocacy efforts of CSOs to offset entrenched vested interests  For credible enforcement: requirement that all bids and awards committees must have at least one observer from a certified CSO  Extensive training of CSOs now under way

The World Bank Page 15 Sanjay Pradhan PREM Public Sector Governance Media Private Sector Municipal Government Military State (Bureaucracy) Political Parties Civil Society International Legislative Branch Judiciary 1 Entrenched Corruption Networks The Case of Montesinos in Peru Source: “Robust Web of Corruption: Peru’s Intelligence Chief Vladimiro Montesinos,” Kennedy School of Government Case Program, Case C , based on research by Professor Luis Moreno Ocampo; Peru: Resource Dependency Network, 2000 Vladimiro Montesinos Alberto Fujimori

The World Bank Page 16 Sanjay Pradhan PREM Public Sector Governance Philippines: Procurement Reform Transparency and Accountability Network (20+ member groups) Walang Ku-Corrupt Movement (Youth) (Youth) PAGBA & AGAP (w/in Gov’t) CBCP (Church) Philippine Contractors Association (private sector – main stakeholder) Local chambers of Commerce (Private sector) Procurement Watch: Drew other civil society groups into the advocacy efforts and coordinated the activities Political Economy: Forging Coalitions for Reform

The World Bank Page 17 Sanjay Pradhan PREM Public Sector Governance Conclusion  GAC aims to strengthen country systems  Addresses fiduciary risk to all public money  PFM is at the core of GAC  Frontier Challenges:  Assessing PFM Performance & Corruption Risk  Mitigating Risk: Transparency, Oversight, Coalitions  Bank Staffing & Teams:  Big Push Required on Procurement Systems Reform  Integrated Teams: FM, Procurement, PREM

The World Bank Page 18 Sanjay Pradhan PREM Public Sector Governance Q&A