The PEFA Program – and the PFM Performance Measurement Framework

1. The PEFA Program – and the PFM Performance Measurement Framework Public Financial Analysis and Management (PFAM) Course World Bank Washington DC, April 24, 2007 Frans Ronsholt PEFA Secretariat

2. Content • What is PEFA ? • The Strengthened Approach to Supporting PFM Reform • The PFM Performance Measurement Framework • Roll-out of the Framework • Assessment Process Issues • The Role of the PEFA Secretariat

3. What is PEFA ? • Public Expenditure and Financial Accountability Program • aimed at harmonization and alignment • supporting the Monterrey, Rome and Paris Declarations • Established by a core group of international financial institutions and donor agencies • World Bank, IMF, European Commission, UK, France, Norway, Switzerland • Guides and finances the Program • Working closely with other donor agencies • through the OECD-DAC Joint Venture on PFM • PEFA Secretariat located within World Bank

4. PFM Diagnostics in the 1990s • Large amount of PFM work undertaken, • mostly by development agencies • a good deal of knowledge generated. LIMITATIONS • Duplication and lack of coordination led to heavy burden on partner governments. • Not possible to demonstrate improvements in PFM performance over time in a country • Monitoring of PFM reforms focused on inputs and activities, rather than performance

5. The Strengthened Approach to Supporting PFM Reform • A country-led PFM reform program • including a strategy and action plan reflecting country priorities; implemented through government structures • A donor coordinated program of support • covering analytical, technical and financial support • A common information pool • based on a framework for measuring and monitoring results over time • i.e. the PEFA PFM Performance Measurement Framework

6. The PFM Performance Measurement Framework

7. Components of the Framework • A standard set of high level PFM indicators to assess performance • 28 government performance indicators • 3 donor indicators, reflecting donor practices influencing the government’s PFM • A concise, integrated report –the PFM Performance Report • Standard content and format • provides the narrative to support the indicator assessments (the evidence) • draws a summary from the analysis

8. Coverage of the Public Sector • Focused oncentral government operations • Links toother parts of the public sector • Sub-National Governments • Public Business Enterprises to the extent these have implications for Central Government • May be applied to sub-national government - Requires minor modifications

9. Principles of Indicator Design • High levelsystem performance is measured • Assesses performance, but not underlying capacity factors • Full overviewof the PFM system • revenue, expenditure, procurement, financial assets/ liabilities • Basis for design: • The 16HIPC Expenditure Tracking Indicators, but broader • draws onIMF’s Fiscal Standards and Codes(ROSC) • internationally acceptedstandardse.g. GFS, IPSAS, INTOSAI • Widely applicableto countries at all levels of development,but not intended for cross-country comparison

10. Structure of the Indicator Set C. Budget Cycle Policy Based budgeting D. Donor Practices A. PFM Out-turns B. Cross-cutting features External scrutiny and audit Predictability and control in BudgetExecution Budget credibility Comprehensiveness and Transparency Accounting, Recording, Reporting

11. Content of Indicator Set A. PFM Out-turns Credibility of the budgetIndicators 1- 4 Deviations from aggregate budgeted expenditure and revenue as well as expenditure composition. Level of expenditure arrears. B. Key Cross-cutting issues Comprehensiveness and transparency Indicators 5-10 Coverage of budget classification, budget documentation, reporting on extra-budgetary operations, inter-governmental fiscal relations, fiscal risk oversight and public access to information. C. Budget Cycle i.Policy-based budgeting Indicators 11-12 Annual budget preparation process, multi-year perspective in fiscal planning, expenditure policy and budgeting

12. Content of Indicator Set (cont’d) C. Budget Cycle ii. Predictability & control in budget executionIndicators 13-21 Revenue administration, predictability in availability of funds, cash balances, debt & guarantee management, payroll controls, procurement, internal controls and internal audit iii.Accounting, recording and reporting Indicators 22-25 Accounts reconciliation, reporting on resources at service outlet level, in-year budget execution reports, financial statements iv. External scrutiny and auditIndicators 26-28 Scope, nature and follow-up on external audit; legislative scrutiny of annual budget law and external audit reports D. Donor Practices Indicators D1- D3 Predictability of direct budget support; donor information for budgeting and reporting; use of national procedures

13. Calibration and Scoring • Calibrated onfour point ordinal scale (A, B, C, D) • Requirements for each score explicitly specified • Scoring based on extent of internationally recognized ‘Good Practice’ • Indicators have 1, 2, 3 or 4 dimensions • in total 74 dimensions • to provide detailed information & transparency of score • each dimension must be rated separately • Aggregation only from dimensions to indicator

14. Roll-out of PEFA based Assessments

15. Roll-out of PFM Assessments • PFM Performance Measurement Framework launched June 2005 • Assessment Status as at March 2007 • 45 substantially completed i.e. draft/final report • 24 on-going but report not yet issued • 27 agreed with government but not started • Roll-out rate: a steady 2-3 new assessments per month • Outlook for mid 2008 • 75-80 countries covered • 8-10 repeat assessments

16. Geographical distribution

17. Assessment Process Issues

18. Decentralized Process • Application of the PEFA Framework to be decided at country level. Decisions to be made: • If and Why ? • When ? • How ? • Recommended by international organizations as good practice (e.g. OECD-DAC, ComSec) • No supra-agency mandates or responsibilities. Each country and organization decides its interest in a PEFA assessment and ability to contribute.

19. Government Involvement • Government’s role • Self-assessment (with external validation) • Joint assessment (joint team) • Collaboration with donor-led assessment • Determined by interest and capacity • What are the benefits to government? • Government staff may need training

20. Donor Collaboration • A donor reference group is essential • to ensure that needs of all parties are addressed • to ensure common acceptance of findings • The reference group to agree internally and with the government on: • Diagnostic packaging • Resources for assessment work • Stages and timing of the assessment work • Quality assurance arrangements

21. Diagnostic Packaging - Purposes of Standard Diagnostic Tools

22. Diagnostic Packaging – Coverage of PFM Performance Report Implement PFM reforms High level performance overview Formulate PFM reform program PFM-PR Identify main PFM weaknesses Recommend PFM reform measures Identify main PFM weaknesses Recommend PFM reform measures Investigate underlying causes

23. Diagnostic Packages • Stand-alone PFM-PR - Recommended -e.g. input to decision on focus of subsequent in-depth analysis • PFM Performance indicators integrated into other product - in combination with PER, CFAA or PEMFAR/CIFA - a problematic concept; rarely working well • PFM-PR as a separate/early module of a broader analytical product - often works well (e.g. Afghanistan PER, Ghana ERPFM)

24. Quality Assurance • Terms of Reference & Draft Report to be Q.A.’d • Government and donor reference group • Should ensure that information is used correctly and reflects the situation in the country • Donor specific arrangements to be respected e.g. World Bank peer review mechanism • The PEFA Secretariat can contribute as peer reviewer, if requested • Will consider if the product respects the Framework’s standards and methodology

25. The PEFA Secretariat

26. Mission of the PEFA Secretariat • To disseminate information on the Strengthened Approach to Supporting PFM Reform and the PEFA Performance Measurement Framework. • To support applications of the PEFA Framework at country level for quality and usefulness of the assessments. • Reports to the seven-agency PEFA Steering Committee

27. Activities of the PEFA Secretariat • Development of the Framework; interpretation and clarification of the indicators • Provision of support and guidance for quality in implementing the assessment in each country • Development of training programs and materials • Monitoring roll-out of the strengthened approach for lesson learning and input into training and guidance

28. Support Services and Tools Support tools for assessment managers on the website (www.pefa.org): • List of completed, ongoing and planned assessments – updated 3-4 times annually • Links to completed reports, if they are made public Support to assessment managers on request: • Advice / Video-conference briefings to country teams on assessment planning • List of consultants with PEFA assessment experience • Review of terms of reference • Quality reviews of draft assessment reports

29. Support Services and Tools Support tools for assessors & trainers on the website: • Translations of the Framework (English, French, Spanish, Portuguese, Russian, Arabic) • Calculation spreadsheets for some indicators • Guidance on information / evidence for assessment • Clarifications and additional guidance on indicators • Training materials Support to assessors on request: • Indicator interpretation and other advice to assessors during implementation

30. Thank You for Your Attention