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ICGFM Conference
Miami May 3, 2005
Monitoring Public Financial
Management System Performance:Lessons and Future Directions
Bill Dorotinsky
The World Bank
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Broad LBroad Lessons from PFM assessment work to dateessons from PFM assessment work to date
A large amount of PFM assessment has been undertaken,mostly by development agencies and a good deal of knowledge generated.
Limitations :
• In some cases, the duplication and lack of coordination in thework has led to a heavy burden on partner governments
• More focus on diagnostics, less on supporting implementationof reform of country systems
• With the exception of the HIPC benchmarks, it has been difficultto determine the extent of improvement in a country’s PFMperformance over time.
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Some improvement in HIPC PEM systems performance since 2001,however a majority still require substantial upgrading.
0
0
Little Upgrading RequiredSome Upgrading Required Substantial Upgrading
Required
Relative Need for Upgrading PEM System(Number in Paranthesis indicate total of benchmarks
0000 2222
TZA ( )0
M LI ( )22
BEN ( )0
RWA ( )0
UGA ( )0
BFA ( )0
GUY ( )22
GNB ( )0
GMB ( )0
ZMB ( )0
COD ( )0BOL ( )0
MDG ( )0
MOZ ( )0
STP ( )0
GIN ( )0
MWI ( )0
NER ( )0
NIC ( )0
CM R ( )0
ETH ( )0
GHA ( )0
HND ( )0
SEN ( )0
SLE ( )0
TCD ( )0
BEN ( )0
BFA ( )0
GUY ( )0
HND ( )0
MLI ( )0
RWA ( )0
TZA ( )0
TCD ( )0
UGA ( )0
BOL ( )0
CMR ( )0
ETH ( )0
GMB ( )0
GHA ( )0
GIN ( )0
MDG ( )0
MWI ( )0
MRT ( )0
MOZ ( )0
NIC ( )0
NER ( )0
STP ( )0
SEN ( )0
ZMB ( )0
Source: Fund-Bank AAP database http://www1.worldbank.org/publicsector/pe/hipcpapers.htmhttp://www1.worldbank.org/publicsector/pe/hipcpapers.htm
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Unhelpful donor practices
Inadequate sequencing of reforms, due to donor pressure or
difficulties for government to determine the path of reforms
Fragmented approach to reforms and limited leadership in
government
-- PRSP and PEM reforms separate
Limited monitoring of progress, mainly concentrated on inputs -> did
not allow lessons learning and did not encourage focus on results on
the ground
Capacity constraints
Technical reform versus systemic/institutional change
BUT realism important on achievable pace of change
Why hasn’t there been more progress?
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The Way Forward: A Strengthened Approach
1. A country-led agenda – including a PFM reform strategy
and action plan
2. A donor coordinated program of support – coordinated,coherent, multi-year program of PFM work that supports
and is aligned with the government’s PFM strategy
3. A shared information pool – a common framework and
information set for measuring and monitoring resultsover time
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Planning and
undertaking diagnostic
work over time.
Designing a prioritized
and sequenced reform
program.
Implementing reforms
Monitoring of progress
over time.
1. A country-led PFM reform strategy and action plan
The government-led reformprogram Home-grown, countryspecific agenda.
Good practices suggest (i)
sequence and priorities of
reform activities and
measures, (ii) holistic view
of the PFM system,
institutions and processes.
Informed by policy dialogue
with donors.
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2. Donor coordination around the PFM reform agenda of the
government
Coordinated policy dialogue between government and donors would
facilitate sequencing and prioritization of reforms.
The limited available external resources for analytical support,
technical assistance, capacity-building and financing should be
allocated to the reform priorities of the government.
Multiple requirements of donors and competition between donors
should not burden the limited capacities of government.
Coordination may facilitate in the medium-term the development of
aid modalities that are more supportive of government processes
and institutions, e.g. multi-donor trust funds to support reform
implementation, use of national procedures, SWAPs, etc.
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3. Monitoring progress of PFM reforms
1. Reform measures/activities (training, new law, etc.).
1. Implemented institutional and system changes (IFMS, new budget
calendar, etc.).
2. Changes in the performance of the PFM system over the years.
-> requires a framework that ensures:Consistency over time;
Precise, objective measurement of progress;
Systematic coverage of the budget cycle.
Monitoring progress enables decision-makers in government
and donor agencies to assess the success and difficulties of thereform process and make decisions accordingly.
Depending of the purpose and interest, different levels for monitoring
progress:
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A standard set of highlevel indicators
• Widely accepted butlimited in number
• Broad measures of
performance relative tothe key PFM systemcharacteristics
• Enabling crediblemonitoring of performance and
progress over time.
A PFM Performance Report
• Integrative, narrative report
based on the indicators and
assessing performance; based
on observable, empirical
evidence.
• Updated periodically, dependingon country circumstances and
operational needs
• Contributing to coordinated
assessment
• Feeds into government-donor policy dialogue
The Performance Measurement Framework
An explicit performance measurement framework focuses on capacity-
building and results on the ground.
Current indicator set available at WWW.PEFA.ORG
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Comprehensive fiscal riskoversight :
Is oversight of fiscal riskarising from public enterprisesand sub-national governments
adequate?
Comprehensive fiscal riskoversight :
Is oversight of fiscal riskarising from public enterprisesand sub-national governments
adequate?
Information:
Is adequate fiscal, revenue and expenditureinformation produced and disseminated to meetdecision-making and management purposes?
Information:
Is adequate fiscal, revenue and expenditureinformation produced and disseminated to meetdecision-making and management purposes?
Comprehensive,Policy-based, budget:
Does the budget captureall relevant fiscal
transactions, and is theprocess, giving regard to
government policy?
Comprehensive,Policy-based, budget:
Does the budget captureall relevant fiscal
transactions, and is theprocess, giving regard to
government policy?
Budget Realism:
Is the budgetrealistic, and
implemented asintended in a
predictable manner?
Budget Realism:Is the budgetrealistic, and
implemented asintended in a
predictable manner?
Control :
Is effective control andstewardship exercised inthe use of public funds?
Control :
Is effective control andstewardship exercised inthe use of public funds?
The questions the PFM performance indicators seek to answer
Accountability andTransparency :
Are effective externalfinancial accountability
and transparencyarrangements in place?
Accountability andTransparency :
Are effective externalfinancial accountability
and transparencyarrangements in place?
MEASURING WHAT PERFORMANCE?MEASURING WHAT PERFORMANCE?
Six core
objectivesof PFMsystem
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CredibilityCredibility
Structure of the indicator set
A. PFM Out-turns
Comprehensiveness
Transparency
B. Key cross-cutting features
ExternalScrutiny and
Audit
Accountingand Reporting
BudgetExecution
Policy-based
budgeting
C. Budget Cycle
STRUCTURE AND CONTENT OF THE INDICATORSSTRUCTURE AND CONTENT OF THE INDICATORS
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Performance indicatorsPerformance indicators
A. PFM -OUT -TURNS: Credibility of thebudget
PI-0 Aggregate expenditure out -turn compared tooriginal approved budget
PI-0 Composition of expenditure out -turn compared tooriginal approved budget
PI-0 Aggregate revenue out -turn compared to original
approved budget
PI-0 Stock and monitoring of expenditure paymentarrears
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B. KEY CROSS-CUTTING ISSUES:Comprehensiveness and Transparency
PI-0 Classification of the budgetPI-0 Comprehensiveness of information included in budget
documentationPI-0 Extent of unreported government operations
PI-0 Transparency of inter-governmental fiscal relations
PI-0 Oversight of aggregate fiscal risk from other public sector
entities.PI-00 Public access to key fiscal information
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C. BUDGET CYCLE
C(i) Policy-Based Budgeting
PI-00 Orderliness and participation in the annual budget process
PI-22
Multi-year perspective in fiscal planning, expenditure policy and budgeting
C(ii) Predictability and Control in Budget Execution
PI-22 Transparency of taxpayer obligations and liabilitiesPI-22 Effectiveness of measures for taxpayer registration and tax
assessmentPI-22 Effectiveness in collection of tax paymentsPI-22 Predictability in the availability of funds for commitment of
expenditures
PI-22 Recording and management of cash balances, debt and guarantees
PI-22 Effectiveness of payroll controlsPI-22 Competition, value for money and controls in procurement
PI-22 Effectiveness of internal controls for non-salary expenditure andassets management
PI-00 Effectiveness of internal audit
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C(iii) Accounting, Recording and Reporting
PI-00 Timeliness and regularity of accounts reconciliation
PI-22 Availability of information on resources received by service
delivery units
PI-22 Quality and timeliness of in-year budget reportsPI-22 Quality and timeliness of annual financial statements
C(iv) External Scrutiny and Audit
PI-22 Scope, nature and follow-up of external audit
PI-22 Legislative scrutiny of the annual budget lawPI-22 Legislative scrutiny of external audit reports
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And three donor practice indicatorsAnd three donor practice indicators
D. DONOR PRACTICES
D-0 Predictability of Direct Budget Support
D-0 Financial information provided by donors for
budgeting and reporting on projec t and program aid
D-0 Proportion of aid that is managed by use of national
procedures
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PI-1PI-1 Aggregate expenditure out-turnAggregate expenditure out-turn
compared to original approved budgetcompared to original approved budget
Score Minimum Requirements (Scoring Method M )0
A
(i) In no more than one out of the last three years has the actual expendituredeviated
from budgeted expenditure by an amount equivalent to more than0% of budgeted
expenditure.
B
(i) In no more than one out of the last three years has the actual expendituredeviated
from budgeted expenditure by an amount equivalent to more than00% of budgeted
expenditure.
C
(i) In no more thanone of the last three years has the actual expendituredeviated from
budgeted expenditure by more than an amount equivalent to00
% of budgetedexpenditure.
D
(i) In two or all of the last three years did the actual expendituredeviate from
budgeted expenditure by an amount equivalent tomore than 0 0% of budgeted
expenditure.
Dimensions to be assessed: The difference between actual primary expenditure and primary budgeted expenditure (i.e. excluding debt service charges, but also excluding
externally financed project expenditure).
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PI-22. Timeliness and regularity of PI-22. Timeliness and regularity of
accounts reconciliationaccounts reconciliation
Score Requirements: Scoring Methodology M0
A The averageof the numerical scores of the dimensions is00-000
B The average score of the dimensions is00- (ass00 ign B+ if the average is above )00
C The average score of the dimensions is00- (assign C+ if the average is above )22 22
D The average score of the dimensions is00- (assign D+ if the average is above )00 00
Dimensions to be assessed:
• Regularity of bank reconciliations• Regularity of reconciliation and clearance of suspense accounts
and advances.
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Dimension Minimum requirements for dimension score
(i) Regularityof bank reconciliations
Score = : Bank reconciliation for all central government bank accounts take000
place at least monthly at aggregate and detailed levels, usually within weeks o0
end of period.Score = : Bank reconcilia00 tion for all Treasury managed bank accounts take
place at least monthly, usually within weeks from end of month.0 Score = : Bank reconciliation for all Treasury managed bank accounts take00
place quarterly, usually within weeks of end of quarter.0 Score = : Bank reconciliation for all Treasury managed bank accounts take0
place less frequently than quarterly OR with backlogs of several months.
(ii) Regularityof reconciliationand clearanceof suspenseaccounts and
advances
Score = : Reconciliation an000 d clearance of suspense accounts and advancestake place at least quarterly, within a month from end of period and with few balances brought forward.Score = : Reconciliation and clearance of suspense accounts and advances take00
place at least annually within two months of end of period. Some accounts haveuncleared balances brought forward.
Score = : Reconciliation and clearance of suspense accounts and advances take00 place annually in general, within two months of end of year, but a significantnumber of accounts have uncleared balances brought forward.Score = : Reconciliation and clearance of suspense accounts and advances take0
place either annually with more than two months’ delay, OR less frequently.
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Future DirectionsFuture Directions
Indicators developed by Bank inIndicators developed by Bank incollaboration with IMF, EC, DFID, France,collaboration with IMF, EC, DFID, France,Switzerland, NorwaySwitzerland, Norway
Consultations were held in OECD DAC JVConsultations were held in OECD DAC JVon PFM, and with countrieson PFM, and with countries
Under final review, with expected formalUnder final review, with expected formal
issuance in mid-Mayissuance in mid-May Within Bank, expected to be recommendedWithin Bank, expected to be recommended
as good practice in working with clientsas good practice in working with clients