The Changing Face of PE Work – Financial Management Perspectives

1. The Changing Face of PE Work – Financial Management Perspectives PREM Learning Week 17 June 2002 David Shand Financial Management Advisor OPCFM

2. Fiduciary Assessment • Ex ante “Integrated Fiduciary Assessment” covering public expenditure, financial management, and procurement • Becoming a de facto requirement for adjustment lending • Is a formal requirement for PRSCs • Need to consider the PFM system as an integrated whole • Upstream budget construction processes and downstream budget implementation, monitoring, and ex post review • Where do CFAAs and PERs (PFM component) meet?

3. Bank PFM Diagnostic Tools • CFAAs – relatively new fiduciary ESW diagnostic • HIPC expenditure tracking studies – carried out in 24 HIPC countries using 15 PFM performance benchmarks • PERs – variable and potentially very broad in scope. PFM diagnostics one component • CPARs – the other fiduciary diagnostic. Has tended to operate rather separately from other diagnostics

4. Relevant Developments in Financial Management • General movement of Bank fiduciary work to a country, rather than a project focus • Moves to develop a performance focus in PFM, improve PFM criteria and harmonize/collaborate internally and externally • (See Financial Management website on Bank Intranet)

5. Meaning of “Fiduciary” • An accountability rather than a legal concept • “Risk to Bank funds” – in adjustment lending = risk to country and other donor funds • Risk of what? • Funds disappearing • Funds not spent according to budget • Funds not well spent • Not knowing how the funds were spent (poor fiscal transparency)

6. Using CFAA Diagnostics • So what? Just another piece of ESW? • Not a pass/fail situation • No minimum PFM standards established for adjustment lending • Rather CFAA is a knowledge tool about the environment into which we are putting Bank funds • Adequate PFM may be an outcome of lending, or a precondition • Need for focused, results-based conditionalities

7. Fiduciary and Developmental (Capacity Building) Issues • Seen as complementary, not mutually exclusive • Standard practice in all sectors – FSAPs, poverty assessments, normal project appraisals • A fiduciary assessment requires government cooperation and participation • A government committed to reform reduces risk to Bank (and country) funds

8. Key future issues • Improving the performance focus of PFM diagnostics (HIPC, IDA 13, CPIA) • Not just technical fixes – institutional issues, signals, and incentives • Better integration with CASs and lending programs • Coordinating and harmonizing PFM diagnostic work, within the Bank (PREM, FM, and Procurement)

9. Internal Integration of Diagnostics • PER more upstream, CFAA more downstream. At what point do they intersect? • Integration of what – processes, reports, or both? • A fully integrated approach may not be possible, differences in timing and time scale • PERs too large to integrate; integrate only the PEM component ?

10. External Collaboration/Harmonization • Other donor involvement in CFAAs (IADB, ADB, UNDP, DFID, SPA) • Harmonization of approach on PFM performance measurement, risk assessment, and fiduciary safeguards • PEFA program to assist in this

11. Other Key Issues • Future emphasis on capacity development • PFM a focus area under new IDF guidelines • Extending PFM diagnostics to sub-national governments • Bank skills gap • Of PFM generally in PREM • Of Public Sector issues generally in FM

12. CFAA Coverage • CFAA formal ESW since July 2000 • Formal Guidelines issued September 2000. New draft guidelines June 2002 • Through FY01 28 CFAAs done, of which 23 less than five years old • 20 CFAAs likely to be delivered in FY02 • Steady state of 20-25 per year • Coverage of all active borrowers by FY 04