Strengthening Procurement Capacities in Developing Countries: PEFA Program

1. Public Expenditure & PEFA Financial Accountability Procurement and the PEFA Program “Strengthening Procurement Capacities in Developing Countries” OECD/DAC – World Bank Roundtable Paris, France January 22-23, 2003 Presented by: Richard Allen, Head PEFA Secretariat

2. Introduction: PEFA in brief What is PEFA? … • A partnership, jointly-financed by the World Bank, European Commission, UK (DFID), and Switzerland (SECO). • The Secretariat, based at the World Bank in Washington, DC, was established in December 2001. • Steering Committee members currently include: World Bank, IMF, EC, DFID, SECO and the Strategic Partnership with Africa (SPA). • Current budget: $5 million over three years. Public Expenditure and Financial Accountability

3. Introduction PEFA partners … Possible Future Partners: The European Commission The World Bank France The International Monetary Fund Norway Public Expenditure & PEFA Financial Accountability Netherlands The Department for International Development (DFID) Canada Switzerland

4. Introduction The scope of PEFA’sinterest … PE Process Expenditure Monitoring, Reporting & Auditing Budget Execution (e.g., cash & debt mgnt., control, internal audit) Budget Formulation Public Procurement Institutions National & Sub-National Levels Executive & Legislative Branches of Government PE in Public Agencies & Enterprises Governance & Institutional Environment PE Policy/ Impact Diagnostic Analysis of PEM Systems Economic Analysis of Public Spending Expenditure Incidence Poverty Impact

5. What are PEFA’s Goals and Activities? PEFA Goals & Activities Goals Activities • Strengthen existing diagnostic instruments and reduce duplication through a fundamental review of their scope and application • Support the development of benchmarks and performance measures • Support activities in countries where integrated approaches are being applied • Disseminate information on good practice and lessons learned • Work with other organizations that are developing international standards and harmonizing approaches • Reduce transaction costs of assessments for countries • Enhance donor cooperation and coordination • Better meet the fiduciary and developmental objectives of client countries and development agencies • Improve impact of reforms

6. PEFA’s Approach Country Focused Strategic Integrated Collaborative • Brings together different instruments and analytical tools • Takes a wider governance and institutional perspective in the analysis and development of reforms • Seeks to fulfill the requirements of the individual countries as well as those of external stakeholders • Is linked to the Country Assistance Strategy (CAS) or equivalent • Leads to a Poverty Reduction Support Credit (PRSC) or other budget support operation • Strengthens coordination at the country level between the development organizations • Encourages country ownership and participation • Involves a program of work over a medium-term time frame (3-5 years) • Includes the whole budget cycle • Takes into account institutional and governmental factors, or is part of a wider public sector reform strategy • Includes both diagnostic work and the development of reform programs Working with partners, the Program will support the delivery of this approach.

7. Public Expenditure Reviews (PER) Fiscal ROSC Public Expenditure Tracking Surveys PETS Country Procurement Assm’t Reviews (CPAR) HIPC Expenditure Tracking Assessments European Commission (EC) Audits Governance Surveys (e.g., IGRs, Anti-Corruption, Public Officials, Household Incidence, Poverty, etc.) Country Financial Accountability Assessments (CFAA) 3. Why is a new approach needed?Public Expenditure instruments Examples of diagnostic tools are widespread … and overlapping Expenditure Analysis Budget Formulation Budget Execution Monitoring & Reporting Illustrative

8. Procurement Aspects of the PEFA Program Institutional Review Mapping Review Public Expenditure & PEFA Financial Accountability Procurement and other public management reforms in Philippines CPAR is one of the key instruments under review Country Activities Benchmarking and Performance Measurement Short-term Measures Support for CPARs and other procurement activities as part of an integrated work program, e.g., Kenya, Madagascar How to build a “platform” for PFM and procurement reform that promotes long-term development objectives E.g., OECD-DAC/WB Roundtable, country activities

9. Why Procurement is an Integral Part of Public Financial Management • The basic objectives are to obtain goods and services needed to deliver government programs at the appropriate quantity, quality and price (value for money) • Procurement expenditures are often a significant component of public expenditure and GDP (10-15%) • Many procurement projects involve multi-year expenditures • Procurement is therefore a financial management issue – not just adhering to legal requirements or obtaining goods and services that meet technical requirements • Inappropriate procurement will reduce both strategicresource allocation and operational efficiency, through inappropriate goods and services and higher than necessary costs. It may also threaten aggregate fiscal control through cost blowouts in major projects. Procurement

10. How Procurement Fits with Key Themes of Budget Design & Reform • 1. Greater Performance Focus in the Budget: • Poor procurement will show higher unit costs • Performance based procurement? • 2. Strengthening Internal Control & Audit: • Procurement is a key element of internal control and internal audit systems • The procurement audit function in Supreme Audit Institutions (SAIs) is important • 3. Accrual Accounting and Budgeting: • Focuses on accountability of total costs, including maintenance and depreciation • Part of the issue of improving the management of public assets • 4. Budget Design: • Integrating capital and recurrent budget preparation and execution involves procurement issues • 5. Medium-Term Approach to Budgeting: • Does not require multi-year appropriations, rather a forward look to provide indicative figures for planning purposes • Planning of capital investment programs and projects an integral part of multi-year budgets • 6. Transparency: • Fiscal transparency, as with transparency of procurement transactions, may improve overall fiscal performance and counter corruption • 7. Other Applications: • eProcurement • Public-private partnerships (PPI)

11. Mainstreaming Procurement as a Financial Management Activity – An Example • In South Africa, procurement as a technical and peripheral function has been put aside and is being integrated into the overall public expenditure management process • The term “procurement” is no longer used. Procurement officers are called “financial management officers” • Under the name of “Supply Chain Management” traditional budget management in line ministries is being restructured from: Budget Planning Reporting & Execution Execution Monitoring To: Demand Planning Budget planning Acquisition management Disposal Management Logistics Management • Even though “Acquisitions Management” deals with most functions of traditional procurement, each stage of the process engages financial officers, including “procurement” experts. • By doing so, officers in charge of demand planning are better able to prepare a more practical and feasible plan for the logistics and procurement stages later on • (N.B. the concept of supply-chain management bas been popular in private companies since the early 1980s)

12. Q&A & Discussion