Papua New
Guinea’s public
financial
management: a
woeful tale

We are David Fellows
and John Leonardo
You can contact us at team@pfmconnect.com
Hello!

2015 PEFA
assessment of
Papua New
Guinea’s (PNG’s)
public financial
management (PFM)
This Public Expenditure and Financial Accountability (PEFA)
assessment points to material weaknessses in PNG’s PFM system and
demonstrates that no overall improvement in PNG’s PFM performance
has occurred in recent years
1

“
“Public money is like holy water,
everyone helps himself to it” Chinese
proverb

PNG’s PEFA history
◉PNG’s PEFA assessments:
 2005 (unpublished)
 2009 (unpublished)
 2015 (published only by PEFA Secretariat)

Scope of 2015 PNG PEFA
◉Assessed national government PFM system only
◉Assessments prepared using two PEFA methodologies:
 Test methodology (30 performance indicators (PIs))
 2011 methodology (28 PIs)
◉A range of public sector stakeholders consulted during
preparation of the assessment

Poor PFM
Inhibits service delivery and project
implementation, economic development, anti-
corruption efforts and public accountability

Some PNG indicators
◉Human development index 2014 score: 0.505
◉Gross national income per capita 2014:
US$ 2,463
◉Ranked 145th equal in Transparency
International’s Corruption Perceptions Index 2014
◉PNG was not expected to achieve any
Millennium Development Goals by the end of
2015

PNG government’s 2015 PEFA
expectations versus actual
results
◉An Asian Development Bank 2014 report indicated PNG
government’s objective for 2015 PEFA assessment was for
‘A’ and ‘B’ scores to represent 50% of total scores compared
to 32% in 2009
◉In 2015 PEFA assessment A and B scores represented 17%
of total scores using test methodology and 18% of total
scores using 2011 methodology

2015 PEFA Test methodology
distribution of PI results
*each column includes ‘+’ scores, so ‘D’; includes D and D+
PFM Pillars Performance
Indicator (PIs)
Scores*
B C D
Credibility of Fiscal Strategy (PI:1-3) 2 - 1
Comprehensiveness and
Transparency (PI:4-9)
2 1 3
Asset & Liability Management (PI:10-
13)
- - 4
Policy-based Planning & Budgeting
(PI:14-18)
1 2 2
Predictability and Control in Budget
Execution (PI:19-25)
- 1 6
Accounting, Recording and Reporting
(PI:26-28)
- - 3
External Scrutiny and Audit (PI:29-30) - - 2
Total scores 5 4 21

PNG’s result is poor compared
to most country PEFA
assessments published in
2014-2015
Score as measured by PFMConnect for comparison purposes

PNG’s overall PFM
performance is also weaker
than some other developing
countries with lower GNI per
capita
PEFA scores sorted by Gross National Income (GNI) per capita (US$)
HDI* 2014 GNI per capita 2014 PEFA score
Papua New Guinea 0.505 2,463 21.5
Nepal 0.548 2,311 50.5
Burkina Faso 0.402 1,591 58
Gambia 0.441 1,507 32
Madagascar 0.51 1,328 25.5
Note (*): United Nations’ Human Development Index

PEFA individual PI scores:
Test methodology
Pillar I. PFM-OUT-TURNS: Credibility of fiscal strategy and budget
PI-1 Aggregate expenditure out-turn compared to original approved budget A
PI-2 Composition of expenditure out-turn compared to original approved budget D+
PI-3 Aggregate revenue out-turn compared to original approved budget B
Pillar II-III. KEY CROSS-CUTTING ISSUES:
II. Comprehensiveness and Transparency
PI-4 Classification of the budget C
PI-5 Comprehensiveness of information included in budget documentation B
PI-6 Extent of reporting on extra-budgetary operations D
PI-7 Transparency of inter-governmental fiscal relations B
PI-8 Performance information for achieving efficiency in service delivery D
PI-9 Public access to key fiscal information D
III. Asset and Liability Management
PI-10 Fiscal risk management D
PI-11 Public Investment Management D
PI-12 Public Asset Management D+
PI-13 Management and reporting of debt and expenditure arrears D
Pillars IV-VII. BUDGET CYCLE
IV. Policy-Based Planning and Budgeting
PI-14 Credible Fiscal Strategy B+
PI-15 Revenue Budgeting C+
PI-16 Medium-term perspective in expenditure budgeting D
PI-17 Orderliness and participation in the annual budget process C+
PI-18 Legislative scrutiny of the annual budget law D+
V. Predictability and Control in Budget Execution
PI-19 Revenue administration compliance D+
PI-20 Accounting for revenues D+
PI-21 Predictability in the availability of funds to support service delivery C
PI-22 Effectiveness of payroll controls D+
PI-23 Transparency, competition and complaints mechanisms in procurement D
PI-24 Effectiveness of internal controls for non-salary expenditure D+
PI-25 Effectiveness of internal audit D+
VI. Accounting, Recording and Reporting
PI-26 Accounts reconciliation and financial data integrity D
PI-27 Quality and timeliness of in-year budget reports D
PI-28 Quality and timeliness of annual financial reports D
VII. External Scrutiny and Audit
PI-29
SAI Independence and external audit of the government’s annual financial
reports D+
PI-30 Legislative scrutiny of external audit reports D+

PEFA individual PI scores:
2011 methodology
Performance Indicators Score
PI-1 Aggregate expenditure out-turn compared to original approved budget B
PI-2 Composition of expenditure out-turn compared to original approved budget D+
PI-3 Aggregate revenue out-turn compared to original approved budget B
PI-4 Stock and monitoring of expenditure payment arrears D
PI-5 Classification of the budget C
PI-6 Comprehensiveness of information included in budget documentation B
PI-7 Extent of unreported government operations. Not available
PI-8 Transparency of inter-governmental fiscal relations. B
PI-9 Oversight of aggregate fiscal risk from other public sector entities. D
PI-10 Public access to key fiscal information C
PI-11 Orderliness and participation in the annual budget process B
PI-12 Multi-year perspective in fiscal planning, expenditure policy and budgeting C+
PI-13 Transparency of taxpayer obligations and liabilities C
PI-14 Effectiveness of measures for taxpayer registration and tax assessment C
PI-15 Effectiveness in collection of tax payments D+
PI-16 Predictability in the availability of funds for commitment of expenditures D+
PI-17 Recording and management of cash balances, debt and guarantees D+
PI-18 Effectiveness of payroll controls D+
PI-19 Competition, value for money and controls in procurement D
PI-20 Effectiveness of internal controls for non-salary expenditure D+
PI-21 Effectiveness of internal audit D+
PI-22 Effectiveness of payroll controls D
PI-23 Availability of information on resources received by service delivery units D
PI-24 Quality and timeliness of in-year budget reports D
PI-25 Quality and timeliness of annual financial statements D
PI-26 Scope, nature and follow-up of external audit D+
PI-27 Legislative scrutiny of the annual budget law D+
PI-28 Legislative scrutiny of external audit reports C+

2015 PEFA: Some key results
◉PI scores were poor for four of the seven Pillars assessed
using the Test methodology
◉Numerous basic PFM functions are not undertaken
effectively
◉Poor performance in PFM activities such as expenditure
and payroll controls, preparation of annual financial
statements and external scrutiny and audit has been
tolerated by the government for at least the last seven years
◉Limited accountability and weak capacity inhibits PFM
performance

Root causes of PNG’s poor
PFM
◉The PEFA assessment identifies some
contributing factors but does not address these in
any detail:
 A significant level of non-compliance with
current PFM rules indicating a lack of
government leadership
 Relatively low overall PFM capacity in the
public sector

Impact of PNG’s poor PFM
◉Service delivery at operational and project levels
are impaired by weaknesses in various PFM
activities
◉PNG’s poor overall standard of PFM does not
promote efficiency in service delivery

Government response to 2015
PEFA
◉No apparent public disclosure of the 2015 PEFA results
◉PNG government has subsequently prepared a “road map”
for PFM Reform but this has not yet been published
◉Whilst 2015 Budget identified reforms in state-owned
enterprises, Government Finance Statistics and debt
management, no reference was made to promoting
increased accountability in PFM

Will the government’s PFM
road map make meaningful
progress?
◉The lack of transparency for the PFM road map raises
suspicions that this plan may not be robust, viz.:
 Is the plan fit for purpose and supported by all key
stakeholders, particularly the government?
 Are resources available to ensure the timely completion of
planned activities?
 Are the planned activities’ proposed time scales and
performance standards realistic?
 Can the road map activities be easily monitored?

Development partners’ role in
future PFM reform
◉Development partners’ taxpayers and PNG
citizens would hope that the PNG’s 2015 PFM road
map is published and satisfies the criteria
mentioned previously
◉Additional moral suasion and incentives by
development partners may be necessary if the
road map is to avoid a continuation of PNG’s
recent seven years plus poor overall PFM record

Conclusions
◉PNG’s poor PFM performance is very concerning
◉The Government’s failure to publish PEFA
reports and the new PFM road map indicates a
lack of readiness to address the situation
appropriately
◉International agencies must demand more
engagement by the PNG Government
◉PEFA assessments must do more to identify root
causes of poor PFM performance in fragile states

Postscript
◉ You can download PFMConnect’s blog at
http://blog-pfmconnect.com/papua-new-
guineas-poor-deteriorating-financial-
management-can-turned-around/

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