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Improving public financial management. Supporting sustainable development.
PEFA 2016: A better framework for assessing public
financial management performance
ESAAG Annual Conference 7-9 March 2016
Presented by: Lewis Hawke, Head of PEFA Secretariat
INTRODUCTION TO PEFA
What is the PEFA program?
• PEFA: Public Expenditure and Financial Accountability
• Founded as a partnership in 2001
• Mission: – Improving public financial management – Supporting sustainable development
• Main role: development
• and maintenance of the PEFA Framework
3
General features of the PEFA Framework
4
• Assesses performance of the main aspects of public financial management (PFM) • Fiscal strategy, budget credibility, transparency, financial control, management
information, accountability etc. • Examines capacity for fiscal discipline, efficient resource allocation, efficient
service delivery. • Components:
• Quantitative ratings for 31 indicators and 94 performance dimensions • A concise, integrated performance report analyzing results and implications for
financial management outcomes It does not: • Assess causes for good or poor performance. • Assess government policies.
Benefits of PEFA
5
• Measures progress over time through a set of standardized indicators
• Builds momentum for PFM reform through diagnostic progress monitoring
• Facilitates donors’ decisions on priorities and use of country systems
• Fosters stakeholder coordination around one common assessment
• Extensive international acceptance
Global adoption
6
• 501 assessments prepared in 149 countries (as at Feb. 1, 2016)
Number of assessments 2006-2016
Baseline Assessments
Successive Assessments
Total
National 147 165 312
Sub-National 160 29 189
Total 307 194 501
PEFA assessments by income level
7
LIC 20%
LMIC 36%
UMIC 29%
HIC 15%
LIC
LMIC
UMIC
HIC
PEFA assessments by region
8
PEFA assessments by region East Asia and
Pacific [PERCENTAG
E] Europe and Central Asia
[PERCENTAGE]
Latin America and
Caribbean [PERCENTAG
E]
Middle East and North
Africa [PERCENTAG
E]
North America
[PERCENTAGE]
South Asia [PERCENTAG
E]
Africa [PERCENTAG
E]
PEFA ASSESSMENT FRAMEWORK
Pillars, indicators and the PEFA report
10
Components of the PEFA framework
• A standard set of 31 high level PFM indicators – Disaggregated into 94 dimensions – Grouped into seven pillars of performance that define
the key elements of a PFM system
• A report that provides a comprehensive and integrated assessment of a country’s PFM performance based on the indicator-led analysis of the key elements of a PFM system
11
12
Performance indicators
13
I. Budget reliability: 1. Aggregate expenditure outturn 2. Expenditure composition outturn 3. Revenue outturn
III. Management of assets and liabilities: 10. Fiscal risk reporting 11. Public investment management 12. Public asset management 13. Debt management
II. Transparency of public finances: 4. Budget classification 5. Budget documents 6. Central government operations outside financial reports 7. Transfers to subnational governments 8. Performance information for service delivery 9. Public access to fiscal information
VII. External scrutiny and audit: 30. External audit 31. Legislative scrutiny of audit reports
VI. Accounting and reporting: 27. Financial data integrity 27. In-year budget reports 28. Annual financial reports
V. Predictability and control in budget execution: 19. Revenue administration 20. Accounting for revenue 21. Predictability of in-year resource allocation 22. Expenditure arrears 23. Payroll controls 24. Procurement management 25. Internal control on nonsalary expenditure 26. Internal audit
IV. Policy-based fiscal strategy and budgeting: 14. Macroeconomic and fiscal forecasting 15. Fiscal strategy 16. Medium term perspective in expenditure budgeting 17. Budget preparation process 18. Legislative scrutiny of budgets
HLG-1. Transfers from HLG
PEFA report structure
14
REPORT EXECUTIVE SUMMARY 1 INTRODUCTION 2 COUNTRY BACKGROUND INFORMATION 3 ASSESSMENT OF PFM PERFORMANCE 4 CONCLUSIONS ON THE ANALYSIS OF PFM SYSTEMS 5 GOVERNMENT PFM REFORM PROCESS ANNEXES
Annex 1: Performance indicator summary Annex 2: Summary of findings on the internal control framework Annex 3: Sources of information
PEFA 2016 indicator set Pillar 1 PI - 1 – PI - 3 Pillar 2 PI - 4 – PI - 9 Pillar 3 PI - 1 0 – PI - 1 3 Pillar 4 PI - 1 4 – PI - 18 Pillar 5 PI - 1 9 – PI - 26 Pillar 6 PI - 27 – PI - 29 Pillar 7 PI - 30 – PI - 3 1
PEFA 2011 or PEFA 2005
PI
.. .. .. .. .. .. PI - 28 D - 1 D - 2
D - 3
Based on PEFA 2016
THE PEFA ASSESSMENT PROCESS Four phases, ten steps
15
16
KEY FEATURES OF PEFA 2016
17
Rationale for the upgrade to PEFA 2016
• Align the Framework with the most up-to-date accepted good practices
• Fill major subject gaps
• Improve relevance and clarity
• Strengthen areas of weakness
• Incorporate clarifications (200+ issued since 2005)
The upgrade does not:
• Change the purpose of PEFA
• Undermine comparison over time
Process of review and refinement
2012 2013 2015 2016 2014
Decide what to change
Develop
draft chang
es
Consultation,
targeted testing
Release test
version and full piloting
Implement final
upgrade
Summary of changes
20
4 indicators added, donor impact is more integrated
New pillar on asset and liability management
Performance dimensions increased from 76 to 94
Major changes introduced by PEFA 2016
• A new pillar: management of assets and liabilities
• New indicators to address issues not covered under PEFA 2011
• Performance information incorporated on service delivery
• Revenue indicators reformulated to broaden coverage beyond taxation
• Expansion and refinements of other existing indicators
• Focus strengthened on transparency, liability management and fiscal risks, and internal control
• Donor indicators discontinued – donor funded revenue and expenditure incorporated into other indicators
31 performance indicators, containing 94 dimensions, across PFM activities
PEFA Public Financial Management Assessment
I. B
udge
t rel
iabi
lity
II. T
rans
pare
ncy
of
publ
ic fi
nanc
es
III. M
anag
emen
t of
asse
ts a
nd
liabi
litie
s
IV. P
olic
y-ba
sed
fisca
l st
rate
gy a
nd
budg
etin
g
V. P
redi
ctab
ility
and
con
trol
in b
udge
t exe
cutio
n
VI.
Acc
ount
ing
and
repo
rting
VII.
Ext
erna
l sc
rutin
y an
d au
dit
PEFA 2016 examines performance against seven pillars of the PFM system
22
PEFA Comparability
23
123
4
5678910
1112
1314151617
18192021222324
26
25
2728
D1D2D3
123
45678910111213
1415161718
1920
21
232425
2726
2829
3031
BUDGETCREDIBILITY
COMPREHENSIVENESS&TRANSPARENCY
POLICYBASEDBUDGETING
PREDICTABILITY&CONTROLINBUDGETEXECUTION
ACCOUNTING,RECORDING&REPORTING
EXTERNALSCRUTINY&AUDIT
MANAGEMENTOFASSETSANDLIABILITIES
BUDGETRELIABILITY
TRANSPARENCYOFPUBLICFINANCES
POLICYBASEDFISCALSTRATEGYANDBUDGETING
PREDICTABILITY&CONTROLINBUDGETEXECUTION
ACCOUNTING&REPORTING
EXTERNALAUDIT&SCRUTINY
DONORPRACTICES
2011 2016 2011 2016
22
Partiallyabsorbedinto1,2,3,6,7,8,10,11,13,14,15,16,17,19,20,21,23,26,28,29,30IncludedinOECDEIP
monitoring
Ø Every 2011 indicator links
to at least one PEFA 2016 indicator (except donor indicators)
Ø Indicators are re-organized and re-numbered under seven pillars (=six critical dimensions of 2011 plus one new pillar)
Links between PEFA 2011 and PEFA 2016 indicators:
3%
13%
71%
13%
Indicators
Direct
Indirect
Subjectonly
Notcomparable
Comparability with 2011
25
87% of indicators have same subject (only the new indicators are different)
15%
25%
27%
33%
Dimensions
Direct
Indirect
Subjectonly
Notcomparable
No comparability issue for 48% of dimensions 67% have the same subject (the others are new)
Let’s look at the details…
26
I. Budget reliability
Indicator Main Improvements 1. Aggregate expenditure outturn • Expands scope to include external project expenditure 2. Expenditure composition outturn • Expands scope to include external project expenditure
• New: budget deviations by economic classification 3. Revenue outturn • Expands scope to include revenue from external
sources • New: composition of revenue outturn
27
Cross-cutting issues: II. Transparency of public finances
Indicator Main Improvements 4. Classification of the budget • Specifies GFS details 5. Budget documentation • Expands list of documents
• Separates ‘basic’ and ‘additional’ requirements 6. Central government operations outside financial reports
• New: revenue outside financial reports • New: Table on expenditure and financing details
7. Transfers to subnational governments • Removed SNG financial reports (covered in 10.2) 8. Performance information for service delivery • 3 New: performance and evaluation dimensions
8.1. Performance plans for service delivery 8.2. Performance achieved by services 8.4. Performance evaluations
9. Public access to fiscal information • Expands list of documents • Separates ‘basic’ and ‘additional’ requirements
28
Cross-cutting issues: III. NEW: Management of assets and liabilities
Indicator Main Improvements 10. Fiscal risk reporting • Emphasis on monitoring of public corporations
• New: monitoring of contingent liabilities 11. Public investment management • 4 New dimensions
11.1. Economic analysis of investment proposals 11.2. Investment project selection 11.3. Investment project costing 11.4. Investment project monitoring
12. Public asset management • 3 New dimensions 12.1. Financial asset monitoring 12.2. Non-financial asset monitoring 12.3. Transparency of asset disposal
13. Debt management • New: debt management strategy
29
IV. Policy-based fiscal strategy and budgeting
Indicator Main Improvements 14. Macroeconomic and fiscal forecasting • 3 New dimensions
14.1. Macroeconomic forecasts 14.2. Fiscal forecasts 14.3. Macrofiscal sensitivity analysis
15. Fiscal strategy • 3 New dimensions 15.1. Fiscal impact of policy proposals 15.2. Fiscal strategy adoption 15.3. Reporting on fiscal outcomes
16. Medium term perspective in expenditure budgeting • Completely reformulated and clarified 17. Budget preparation process • Timing of submission to legislature – moved
here 18. Legislative scrutiny of budgets • Public consultation – added for ‘A’ score
• Timely approval of annual budget – moved here
30
V. Predictability and control in budget execution
Indicator Main Improvements 19. Revenue administration • Scope expanded to cover non-tax revenue
• Reformulated/merged tax administration dimensions • New: management of risks to revenue
20. Accounting for revenue • Scope expanded to cover non-tax revenue • New: coverage and timeliness of revenue information collection
21. Predictability of in-year resource allocation
• Consolidation of cash balances – shifted here • Scoring method – changed to M2
22. Expenditure arrears • Moved from PI-4 and simplified 23. Payroll controls • Budget controls - added 24. Procurement management • New: procurement monitoring - replaces legal and regulatory
framework • Expanded list of documents for public access • Requirement for independent complaints body removed
25. Internal controls on nonsalary expenditure
• New: segregation of duties • Compliance with control systems - reformulated
26. Internal audit • New: nature of audit performed and adherence to professional standards
31
VI. Accounting and reporting
Indicator Main Improvements 27. Financial data integrity • Reconciliation of advances and suspense
accounts – separated • New: processes supporting data integrity
28. In-year budget reports • Budget analysis - added 29. Annual financial reports • Content of financial reports - strengthened
32
VII. External scrutiny and audit
Indicator Main Improvements 30. SAI independence and external audit • Period covered – expanded to 3 years
• New: independence of SAI 31. Legislative scrutiny of external audit reports • Focus on legislature’s follow up actions
• New: transparency of legislative scrutiny
33
GUIDANCE AND FURTHER INFORMATION
34
The PEFA Secretariat can help • Visit the PEFA website: www.pefa.org • Send an email: services@pefa.org • Get on PEFA’s news distribution list:
Ø Send your name and email address to the Secretariat
Guidance available at the PEFA website
36
www.pefa.org
And many more…
Join us on social media
37
https://www.facebook.com/PEFA-Secretariat
https://twitter.com/PEFASecretariat
https://www.linkedin.com/company/pefa-secretariat
https://www.youtube.com/
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