PEFA Assessments - Analytics to Action

1. PEFA Assessments - Analytics to Action Parminder Brar Lead Financial Management Specialist Africa Region, World Bank pbrar@worldbank.org World Bank Fiduciary Forum Washington D.C. March 28, 2008

2. Overview • Results of PEFA Assessments • Overall results • By Region • By Income level • Case Study on Tanzania • Results of three annual PEFA assessments • Diagnostics to Implementation • Key Messages

3. PEFA Assessments • Draft assessments are now available for 65 countries. The worst ratings are for the indicators related to donor behavior.

4. PEFA Assessments • The areas needing greatest strengthening are: • PI-28: Legislative scrutiny of external audit reports • PI-15: Effectiveness in collection of tax payments • PI-23: Availability of information on resources received by service delivery units • PI-21: Effectiveness of internal audit • PI-26: Scope, nature and follow-up of external audit • The areas rated the best are: • PI-3: Aggregate revenue out-turn compared to original approved budget • PI-11: Orderliness and participation in the annual budget process • PI-1: Aggregate expenditure out-turn compared to original approved budget • PI-6: Comprehensiveness of information included in budget documentation • PI-5: Classification of the budget

5. PEFA Assessments • Ratings are also available as per regions.

6. PEFA Assessments • Not surprisingly, there is a strong co-relation between per capita income and PFM performance.

7. Case Study: Tanzania • There are several reasons why Tanzania is an interesting case study: • It has had PEFA assessments in 2004, 2005, 2006 and 2007. • Budget support has increased from $277 m. in 02/03 to around $700 m. in 06/07. It now accounts for 40% of the overall budget and 80% of the development budget. • 14 donors provide budget support and need agreed diagnostics. • There is a single Partnership Framework Memorandum that is used for monitoring performance. The PFM specifies that the underlying principles for budget support are sound budgeting and public financial management systems. There is a short list of agreed indicators that are assessed annually in October / November. • There is a strong commitment from the side of the government to improve PFM performance.

8. Case Study: Tanzania : Diagnostics 2001 CFAA rated Tanzania a high fiduciary risk environment. It contained 104 recommendations. 2001 HIPC assessment rated Tanzania as one of the highest amongst HIPC countries, meeting 8 of 15 benchmarks. 2004 HIPC assessment ranked Tanzania as a global top performer amongst the HIPC countries requiring “little” upgrading of its PFM system and meeting 11 of 16 HIPC benchmarks. DFID Assessment in May 2004 concluded that: • The overall problems remain of a weak fiduciary contract between citizens and the state, inadequate revenue collection, limited delivery of public goods, inadequate monitoring, inefficient capacity, non-compliance, and inadequate oversight. The PEFA framework with a standardized methodology is therefore very welcome.

9. Case Study: Tanzania : Diagnostics Diagnostics are led by the Bank with resources being contributed by all the DP’s. Government co-chairs the group and participates in diagnostic missions. A fungible pool of funds supports implementation of recommendations on a timely basis.

10. Case Study: Tanzania : Diagnostics The workload is shared between members of the PFM Donor Group.

11. Case Study: Tanzania : Diagnostics Diagnostics are used for both fiduciary and capacity building purposes. The PFM Reform Program - a basket fund of around $60 m. is available for supporting PFM reforms.

12. Case Study: Tanzania : LG Diagnostics • Budget Formulation: Teams struggled to find the “right” budget figures amongst competing statements in various reports. Source: LGRP

13. Budget Execution: Procedures for release of funds are overly complex. Case Study: Tanzania : LG Diagnostics

14. Budget Execution: Funds are released in a highly erratic manner. Case Study: Tanzania : LG Diagnostics

15. Case Study: Tanzania : LG Diagnostics • Budget Execution Carry forward of unspent balances impacts the credibility of the budget. Source: Arumeru Local Council, Tanzania

16. Budget Execution Each LG Treasury is required to operate 25-40 bank accounts. Case Study: Tanzania : LG Diagnostics

17. Accountability Each LG is subject to around 10 audits. Case Study: Tanzania : LG Diagnostics

18. Case Study: Tanzania : Implementation • Implementation PFMRP lacked ownership and was used primarily for meeting operating costs and low impact training.

19. Case Study: Tanzania : Implementation • Implementation It has taken two years to finalize PFMRP Strategic Plan.

20. Key Messages: • Phase I of the PEFA experience has largely been focused on the technical side of the assessments. Around 80 countries have been covered and this is an excellent achievement. • Phase II will focus more on the implementation successes of the diagnostics. A somewhat different skill base will be needed to think strategically, build relationships and identify effective entry points. Some key questions that will need to be addressed are: • Do we know enough of the environment we are operating in? • Do we have the relationships? • Are we clear about what the priorities of Government are? • Can we provide leadership to the donor group in country? • Are we in a position to deliver? • Have we identified the right entry points? • Can we move from being part of the problem to being a larger part of the solution?

21. Thank You