PFM Global Landscape

1. PFMGlobal Landscape What can we cay about PFM systems and trends around the world? Sanjay Vani, World Bank Bill Dorotinsky, IMF March 21, 2008 Sequencing Seminar

2. Outline • Overview of Significant Developments in PFM area in the last few years • Trends and Status of PFM systems – HIPC data • 2000-2004 • 2005-6 update • Cross-country status • Developments in ECA region • PEFA Stock Take results • PEFA Impact Study • PFM Reform • What Triggers PFM Reforms • Initiatives and trends

3. Significant Developments in PFM in the last few years • Articulation of the Strengthened Approach • Tool for PFM performance measurement – PEFA • Paris Declaration (March 2005) – commitment by countries to strengthen country systems (indicator 2a) and commitment by donors to use country systems (indicator 5b) • GAC Strategy – importance of country systems and emphasis on use of country systems

4. Comparison of Outcomes of Assessment in 2001 & 2004 Budget execution and reporting relatively weaker than formulation in 2001, and showed most progress to 2004.Comprehensiveness, medium-term perspective, internal audit, timely in-year reporting, and ex poste audit, remain weakest areas.

5. Performance across the major PEM categories was uneven. Countries improved in some categories, only to fall back in others. 2004 Update: Findings • In terms of benchmarks met, • Largest improvements were seen in budget reporting • Budget formulation improved in nine countries and deteriorated in eight • Budget execution improved in six countries and deteriorated in eight • Overall, five countries (Cameroon, Ghana, Mali, Tanzania, Senegal) showed improvements in the PFM systems by meeting an additional three or more benchmarks than in 2001

6. HIPC-PEFA Update % of Benchmarks met by indicator (2001-2006) Budget comprehensiveness, donor funds on-budget, medium-term perspective, internal audit, relatively weaker areas.

7. Other Trends • Significant PFM reforms in the recent past in countries joining the European Union to meet the requirements of EU acquis communautaire • Regional initiatives in • WAEMU • Central America tax and customs • ECA PEM-PAL

8. Cross-country Look • Recent draft stock-take, examining PEFA scores across all countries in sample (57 countries) • Broad results • Better PFM systems (as measured by PEFA) correlate with • Higher income • Higher population size • Higher aid dependency

9. Regional Comparison Average PEFA scores, by region and dimension

10. Recent PEFA Impact Study • Alignment of PFM programme – 6 countries out of 12 • Govt/Donor understanding of PFM strengths/ weaknesses – 9/12 • Reduced transaction costs – 7/12 • Donor coordination – 8/12 • Govt – Donor coordination – 8/12

11. What triggers major PFM Reforms? • Internal crisis – e.g. the 1998 financial crisis • Outside pulls – the EU accession requirements for the Central and Eastern European countries • Donor Driven - the HIPC initiative or donor requirements • Forward looking new government, country demands for improvement

12. Reform Trends • Donors • Accrual accounting, MTEF, performance and program budgeting, PRSP and budgeting, gender budgeting, fiscal rules, decentralization, IFMIS • Sectoral reforms. Earmarked revenues, separate funds, parallel systems (Chad oil revenue). • OECD • Long-term forecasts/planning • Fewer big-bang, more refinements (accounting, performance information)

13. Conclusions • Scope for improvement in all regions across all areas of PFM • Challenge is to support countries in better managing all resources • Challenge of sequencing, goals • From HIPC, we see there is some improvement, though slow • Expectations need to be realistic • Reform efforts and instruments need to be geared towards longer term, on-going engagement

14. Issues to Ponder • Have certain donor-led PFM initiatives complicated the PFM reform landscape in countries? (e.g. MTEF or Accrual Accounting or Performance Budgeting) • How do you explain better PFM scores in countries with high aid dependency?