The central feature from the Paris Declaration is the Paris Declaration monitoring survey which has tracked progress against the agreed targets in 2005, 2008 and now 2011. Monitoring took place in 2006 with 34 countries, in 2008 with 56 countries, and currently 90 countries have voluntarily taken part in the monitoring survey (representing about ¾ of total ODA)So what do the results of the 2011 Survey tell us? Progress has been mixed. This slide shows the progress made towards the 2010 targets for those indicators for which data are available, and for that baseline group of 32 countries that have both baseline and 2010 data.Note: to assess whether targets have been met, we have considered the full 78 countries participating in the countries when targets were not dependent on 2005 data or when 2005 data where available).[mouse click]At the global level, two of the targets set for 2010 were met.A slight increase in the proportion of technical cooperation that was coordinated pushed indicator four over its 2010 target. It is worth stressing here that the bars show progress from the baseline towards the target over the period 2005 to 2010, so in this case you can see that the proportion of technical co-operation that was considered co-ordinated increased slightly from 49% in 2005 to 51% in 2010, against a target of 50%.Second, you can see a slight increase in the proportion of aid that was untied – when donors do not impose restrictions on the countries from which recipients can aid-funded procure goods and services. The baseline here was 87%, and the target was to continue progress over time, so the 2010 score of 89% suggests that some progress has been made. I should add that we are only looking at the proportion of aid that is untied to LDCs and HIPCs, as these are the countries that donors have committed to untie aid to.[mouse click]As you can see from the orange bars, significant progress was made against four indicators, even though targets weren’t met. These are the indicators for which progress towards targets was at least half way from the baseline. For example, the proportion of developing countries with operational development strategies has increased significantly (indicator 1); 38% of developing countries improved the quality of their public financial management by at least one measure on the World Bank’s CPIA scale, which is used to measure indicator 2a.47% of aid to partner countries used their own PFM systems (indicator 5a). I should add here that the target of 54% has been calculated on the basis of the improvement in the quality of country systems shown by indicator 2a, as the agreed formula sees the target for donors’ use of country systems increasing in tandem with the quality of partner countries’ systems.The proportion of partner countries deemed to have high quality results-oriented frameworks has also increased since 2005.[mouse click]The seven indicators shown in red are those where progress has gone less than half way to the targets, and as you can see, very slight setbacks were observed on two of them.These tend to suggest that harmonisation in particular has been challenging, and also that implementing mechanisms to support mutual accountability at the country level has also been a challenge. On this point, you should be aware that because of the way the indicator is defined, the headline figure hides the fact that many countries have made some efforts to promote mutual accountability.
Development policy and change: Public Financial Management Tamara Levine November 8, 2012
Seminar objectives• Gain a basic understanding of public financial management in developing countries• Understand the challenges and opportunities presented by PFM reform Today’s program:• Part I: Overview of national public financial management practices in developing countries• Part II: Specific country cases of PFM reform particularly in East Africa
Structure1. Key definitions2. What is PFM reform?3. Why is PFM important?4. Case studies5. Lessons learned6. Key questions
1.1. Key definitions – PFM (I)• Until recently, there was no universally agreed definition of PFM, and the narrowest definition confined PFM to ”the downstream activities of budget execution, control, accounting, reporting, monitoring and evaluation” (Allen et al, 2004)• PFM is now broadly considered as “the system by which financial resources are planned, directed and controlled to enable and influence the efficient and effective delivery of public service goals” (CIPFA 2010:5)• PFM moves away from the concept that ‘managing the money’ rests solely with the Ministry of Finance: Every public service manager is equally responsible for ensuring that public money is managed well (CIPFA 2010)
1.2. Key definitions - PEFA• The Public Expenditure and Financial Accountability (PEFA) Performance Measurement Framework was developed in 2003 by a group of donors prominent in this field.• It lists 73 key PFM dimensions (organized into 31 indicator areas) described as “critical” to the “performance of an open and orderly PFM system” and “the key PFM elements … recognized as being critical for all countries to achieve sound public financial management” (PEFA 2006, 2).• The PEFA framework standardizes an approach that focuses on “the immediate objectives of reform” (Wescott, 2008)based on OECD best practice and international accounting norms
1.3. Key definitions – Others• Fiscal strategy• Budget• Medium-Term Expenditure Framework (MTEF)• Line Item Budgeting• Budget Support
2.1. What is PFM reform?• Reform is ”the action or process of changing an institution or practice”• Change is a central theme of development, and the change agenda in developing countries increasingly focuses on public organizations; a study of 31 African countries (Andrews 2008a) found that: – All 31 adopting Government Financial Statistics (GFS) or Classifications of the Functions of Government (COFOG); – All were adopting International Public Sector Accounting Standards (IPSAS) or some other version – 28 were pursuing Medium Term Expenditure Frameworks (MTEF); – 26 were using ceilings to prepare budgets; all were creating Treasury Single Accounts (TSAs) or some consolidated public accounts structure; – 25 were introducing program, performance or activity-based budgeting; – 20 were tackling a systems project (like FMIS)
2.2. When do PFM reforms work?• PFM reforms deliver results when three conditions coincide: – When there is a strong political commitment to their implementation, – When reform designs and implementation models are well tailored to the institutional and capacity context; and – When strong coordination arrangements – led by government officials – are in place to monitor and guide reforms.
2.3. PFM process StrategicPolicy processes budgeting External audit Levels: Budget and -National PFM system preparaTion accountability -Sub-national PFM system Stakeholders: -Core entities: MoF, Treasury, SAIs, Parliament, etc. -Spending entities: Line ministries, Agencies, etc. -Civil society, donors, Accounting and academia, media, private Ressource reporting sector management Internal controls, audit and monitoring
2.4. Capacity development process Step 1: Step 5: Engage Evaluate stakeholders capacity on capacity development development Step 4: Step 2: Implement a Assess capacity capacity development assets and response needs Step 3: Formulate a capacity development response
3.1. Why is it important?• Strong PFM institutions build institutional and country capacity to – underpin fiscal and macro stability – guide the allocation of public resources to national priorities – support the efficient delivery of services for poverty reduction and economic development – make possible the transparency and scrutiny of public funds• PFM contributes to achieving strategic and operational goals as a key aspect of good governance• To make aid more efficient• To deliver tangible results
3.2. Why is it important?• PFM dominates the World Bank reform agenda with PFM being “a major component of 81 percent” of projects: – Projects containing PFM components number over 30 a year since 2000, valued at $912 million per year (World Bank 2008, 28) – PFM also routinely provides conditions for other loans (World Bank 2006)
4.1. Case characteristics1. Burkina Faso: donor support appeared to be positively correlated with PFM improvements;2. Malawi: donor support appeared to be negatively correlated with PFM improvement;3. Ghana: significant PFM improvements appear to have occurred despite relatively low levels of donor support Countries where budget Countries where budget institutions institutions improved did not improveHigh donor effort Burkina Faso, Tanzania, Zambia Benin, Malawi, Uganda, Mozambique, Rwanda, São Tomé and PrincipeLow donor effort Ethiopia, Ghana, Mali Guinea, Madagascar
4.2. Political indicators• The political environment is more competitive in Malawi and Ghana where political leaders have to resort to more extensive use of patronage to succeed• This has made a major difference to the ability of each of these countries to provide leadership to PFM reforms and a consistent commitment to their implementation• The importance of patronage in Malawi and Ghana, relative to Burkina Faso is illustrated by the discrepancy in the numbers of Ministers, Deputy Ministers and Members of Parliament per head of population (2009) Burkina Faso Ghana MalawiTotal number of ministers and deputy ministers 30 75 45- Ministers 25 37 22- Deputy ministers 5 38 21Total number of MPs 111 230 194Number of citizens per minister 526,667 317,333 355,814Number of citizens per MP 142,342 103,478 78,866
4.3. Reform inputs, 2001-2010(Million USD) Burkina Faso Ghana MalawiExternal Funding of 30-35 39 38-45PFM Reform InputsDomestic Funding of 30-35 20 30PFM Reform InputsApproximate Total 60-70 60 68-75Main Areas of All clusters, but All clusters, but All clusters, butConcentration especially Financial especially Financial especially Financial Mgt & reporting, Mgt & reporting, Mgt & reporting, Budget preparation, Budget preparation, Budget preparation, Revenue Revenue Procurement, Internal Administration, and Administration, Audit, and External Procurement Procurement and Audit. Internal & External AuditTiming of Spending Broadly consistent Some spend Some spend throughout period throughout but focus throughout but focus on 2001–2007 and on 2005–2009 2010
4.3. Reform inputs (cont.)• All of the case study countries have overseen major programs of PFM reforms over the past ten years, with total spending amounting to some US $ 60 –70 million.• Domestic allocations to PFM reform have also been high, both for recurrent funding and for funding of specific projects. This is especially true in Burkina Faso and Malawi.• The significant inflows of General Budget Support in each country, (see table), would have facilitated increased domestic budget allocations but their use to support PFM reform was in each case an exclusively internal decision, unrelated to any conditionality.• Both Ghana and Malawi experienced fluctuations in the total level of annual spending on PFM reforms, whereas Burkina Faso saw a more steady, continuous pattern of spending.
4.5.1. Burkina Faso: Context• EQ8: Political commitment has been consistent and long- standing, deep, and technically informed. Financing has been sufficient. Some limitations on policy space, especially regarding program Budgets.• EQ 3: Limited & inconsistent use of country Systems. Budget Support 31 % of ODA, 12 % of public spending, but unpredictable within-year disbursements. BS dialogue helped to institutionalize reform monitoring process but conditionality not influential.• EQ 4: Civil Society & Legislature uninfluential but WAEMU Commission a significant influence through peer pressure and directives on PFM.
4.5.2. Burkina Faso: Mechanisms• EQ 2: strong coordination arrangements, based upon an integrated reform programme (PRGB/ SRFP), endorsed at Cabinet level, led by Secretariat (SP-PPF) of high calibre staff, reporting to Minister of Finance, with harmonised framework for support to reforms.• EQ 5: Reform inputs relevant in targeting identified areas of weakness, addressing reform issues of interest to the political leadership, and in adapting to institutional constraints. Active learning and adaptation process.• EQ 7: Most outputs in GoBF’s PFM reform programme (PRGB/ SRFP) delivered, without excessive delays. TA not linked to outputs in PRGB/ SRFP considerably less efficient. Reform sequencing generally good, with gradual development of integrated FM system exemplary. Sequencing of program budgets/ MTEF reforms was wrong but corrected late in period (2008–2011).
4.5.3. Burkina Faso: Outcomes• Burkina Faso’s PFM reform program has been successful in generating improvements in every key aspect of public finance management.• By 2010, PFM systems in 5 out of 6 clusters were scored at levels on or above the third quartile of the sample of 100 countries, and the remaining one, External accountability, was at the median level.
4.6.1. Ghana: Context• EQ 8: Despite initial enthusiasm for PUFMARP, political commitment to PFM reform was never deep (PFM reforms seen as “technical”) and fluctuated over the electoral cycle. As a pioneer of MTEF & IFMS, Ghana suffered from limited policy ideas, which underestimated reform complexity/ change management implications. Financing sufficient.• EQ 3: Limited & inconsistent use of country Systems. Budget Support 29% of ODA, 9% of public spending, with improving predictability of disbursements 2004–2009. BS dialogue helped to improve reform monitoring and level of debate but failed to solve big problems with BPEMS & MTEF. PFM “trigger” conditions not influential.• EQ 4: Limited domestic pressure for PFM reform but opening to public of PAC hearings has led to pressure on PAC to increase its technical capacities. Regional peer-to-peer experience-sharing cited as important in enabling GoG officials to access Int. experience, e.g. CABRI.
4.6.2. Ghana: Mechanisms• EQ 2: Two reform programmes: PUFMARP 1997–2003 and ST/MTAP 2006–2009 with a 3 year gap. Neither plan was systematically updated on an annual basis. Revenue and Audit reforms managed outside of these frameworks. PUFMARP reported to Deputy Minister of Finance and had a project implementation team, later converted into Budget Development Unit within Budget Division.• EQ 5: Reform inputs were relevant in targeting identified areas of weakness but BPEMS and MTEF were not well adapted to technical and system constraints and did not address change management. Overall, learning and adaptation very slow.• EQ 7: Outputs on BPEMS never delivered in functional form, and IPPD2 delivered with 4-year delay, with incomplete coverage. Procurement reforms never completed. MTEF outputs delivered but inappropriate to end objective. Internal and External Audit reform outputs delivered but improvement in functionality still modest. Revenue reforms successfully and efficiently delivered.
4.6.3. Ghana: Outcomes• Ghana showed only limited improvements in PFM intermediate outcomes over the period.• Even though PFM reform spending was concentrated in 2000 –2006, in 5 out of 6 clusters, PEFA scores in 2006 were worse than the median of 100 countries.• Over 2006 to 2010, improvements in strategic budgeting also brought it above the median but scores in 2 other clusters deteriorated, and there was no improvement in the poor quality of accounting and reporting.• Relative to the significant funds expended on PFM reform over the period, progress has been poor. Most substantial success has been in strengthening the legislative base but the Government has experienced significant challenges in implementing the new laws.• Otherwise, most effective reforms have been in revenue management, which have led to the successful introduction of VAT, and the introduction of the TIN, and a significant increase in revenues as a share of GDP.
4.7.1. Malawi: Context• EQ 8: Extent and nature of political constraints has varied by reform area and by reform period In some PFM functions (e.g. Internal Audit), lack of political support has resulted in an under- supply of necessary outputs. In others such as IFMIS, political support has ensured the minimum level of outputs necessary for PFM functionality.• There has been a high focus on putting in place laws, rules, systems and procedures that follow international best practice, and a lack of consideration for the skill and the organizational change requirements for their implementation. This over-emphasis on international best practice is interpreted as a policy space constraint. Over 2004–2007, production of reform outputs was slowed down by financial constraints. Arguably, donors did not step up their support sufficiently in the 2004 to 2009 reform window.• EQ 3: Limited and inconsistent use of country systems. Increasing use of SWAp arrangements. Budget Support increasingly important over period reaching 40 % of ODA in 2008, before being suspended by DFID and other agencies over 2010 –2011. BS dialogue helped to formalize the PFM reform action plan and had a heavy influence on its content, but PFM “trigger” conditions not influential.• EQ 4: Domestic pressure for reform played a role in putting procurement reform and effective external audit on the reform agenda. Pressure of the Legislature also considered important in President Mutharika’s first term in sustaining pressure for reform. Political impetus for PFM reforms is said to have weakened in 2nd term with a majority in Parliament and no third term to contest. Learning from regional experiences and international standards has broadened the policy space for reforms.
4.7.2. Malawi: Mechanisms• EQ 2: Establishment of formal structures to coordinate PFM reforms (PFEM steering committee, technical committee and unit, and various working groups) was important in creating capacity to support ownership and leadership of reform plans. The GFEM group – and CABS – provided a structure to harmonize donor PFM inputs. However, until 2010, the PFEM Action Plan was an amalgam of individual reform interests, not a coordinated and sequenced response to PFM weaknesses.• EQ 5: Reform inputs were directed at PFM weaknesses, but PFM reform models not sufficiently adapted to the institutional context. Reforms in procurement, internal audit and budgeting followed international best practice, but were not suited to a context in which technical and managerial skills were scarce, and difficult to recruit or to retain when trained. Less sophisticated reforms might have generated greater improvements in functionality.• EQ 7: Up to 2004, reforms were inefficient on account of low reform output compared to targets and inputs. Over 2004–2009, consistent progress was made against targets but reform resources and capacity were thinly spread and there were regular gaps between actual and planned processes, due to lack of realism in reform planning. Typically outputs of people, skills and organizational change were not produced or not produced in sufficient quantities. The quality of coordination of reforms was poor for almost the full period, even if it improved after the creation and capacitation of coordination structures.
4.7.3. Malawi: Outcomes• During a concentrated period from 2005 to 2008, malawi achieved significant improvements in PFm outcomes, but was not able to achieve consistent progress over the decade.• By 2011, the quality of Malawi’s PFM functions in 4 out of 6 clusters was above the median of 100 countries, and average scores within each of the 6 clusters improved from 2006 to 2011. However, apart from legislative changes, 2001 to 2004 saw a decline in PFM systems. Over 2009–2011, signs of deterioration have again emerged.• Nevertheless, major reform outputs were delivered over the period, signalling significant change in the capacity for budget preparation, budget execution and audit. Most outputs put in place had external support but the effect of the political change in 2004 and the degree to which it drove reforms from within is significant. In retrospect, among the reform achievements of the GoM, the procurement and roll-out of an IFMIS that functions stands out as perhaps the most significant change, supporting a series of further secondary reforms. Yet, this functionality was achieved with relatively little direct external support.
5.1. Lessons for governments• Ensure clear and coherent support for PFM reform within the Executive and, over time to broaden support across the political spectrum• Pay attention to the design and staffing of the structures coordinate an manage PFM reforms• Those responsible for coordinating PFM reforms should control external support to PFM and over dialogue with Budget Support donors• The monitoring structures should also evaluate performance to promote learning from experience and the corresponding adaption of implementation plans• The regular training of PFM staff needs to be a consistent priority
5.2. Lessons for donors• Be more discriminating in the provision of financial support to PFM reforms• Align support closely to the Government program and avoid pursuing independent technical assistance initiatives• Ensure that aid policy and practice works in favor of the PFM system and not against it• Ensure that advice is up to date and informed by the experience within country, within the region and by wider international experience• Ensure that internal procedures for the supervision and peer review of initiatives to support PFM reform are effective in providing a continuous check on progress• Provide support, where necessary, to regional institutions and professional associations working on PFM reform issues• Continue to provide support to CSOs and Legislative bodies on PFM reform issues but accept that their influence may only be effective in the longer term
6. Key questions• What tools and techniques do donors use to promote public financial management reform?• What are the key challenges with PFM reform?
Paris Declaration Survey: What progress has been made in 2010? (32 baseline countries) 2005 Baseline 2010 Target 1. Operational Development Strategies 19% 52% 75%2a. Reliable Public Financial Management (PFM) 38% 50% systems 3. Aid flows are aligned on national priorities 44% 46% 85%4. Strengthen capacity by co-ordinated support 49% 50% 51% 5a. Use of country PFM systems 40% 48% 54%6. Strengthen capacity by avoiding Parallel PIUs 1 696 1158 565 7. Aid is more predictable 42% 43% 71% 8. Aid is untied 87% >87% 89%9. Use of common arrangements or procedures 43% 48% 66% 10a. Joint missions 20% 22% 40% 10b. Joint country analytic work 41% 44% 66% 11. Results-oriented frameworks 7% 22% 38% 12. Mutual accountability 44% 50% 100%