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ICGFM Conference

Miami May 3, 2005

Monitoring Public Financial

Management System Performance:Lessons and Future Directions

Bill Dorotinsky

The World Bank



2The World Bank

Broad LBroad Lessons from PFM assessment work to dateessons from PFM assessment work to date

A large amount of PFM assessment has been undertaken,mostly by development agencies and a good deal of knowledge generated.

Limitations :

• In some cases, the duplication and lack of coordination in thework has led to a heavy burden on partner governments

• More focus on diagnostics, less on supporting implementationof reform of country systems

• With the exception of the HIPC benchmarks, it has been difficultto determine the extent of improvement in a country’s PFMperformance over time.



3The World Bank

Some improvement in HIPC PEM systems performance since 2001,however a majority still require substantial upgrading.

0

0

Little Upgrading RequiredSome Upgrading Required Substantial Upgrading

Required

Relative Need for Upgrading PEM System(Number in Paranthesis indicate total of benchmarks

0000 2222

TZA ( )0

M LI ( )22

BEN ( )0

RWA ( )0

UGA ( )0

BFA ( )0

GUY ( )22

GNB ( )0

GMB ( )0

ZMB ( )0

COD ( )0BOL ( )0

MDG ( )0

MOZ ( )0

STP ( )0

GIN ( )0

MWI ( )0

NER ( )0

NIC ( )0

CM R ( )0

ETH ( )0

GHA ( )0

HND ( )0

SEN ( )0

SLE ( )0

TCD ( )0

BEN ( )0

BFA ( )0

GUY ( )0

HND ( )0

MLI ( )0

RWA ( )0

TZA ( )0

TCD ( )0

UGA ( )0

BOL ( )0

CMR ( )0

ETH ( )0

GMB ( )0

GHA ( )0

GIN ( )0

MDG ( )0

MWI ( )0

MRT ( )0

MOZ ( )0

NIC ( )0

NER ( )0

STP ( )0

SEN ( )0

ZMB ( )0

Source: Fund-Bank AAP database http://www1.worldbank.org/publicsector/pe/hipcpapers.htmhttp://www1.worldbank.org/publicsector/pe/hipcpapers.htm



4The World Bank

Unhelpful donor practices

Inadequate sequencing of reforms, due to donor pressure or

difficulties for government to determine the path of reforms

Fragmented approach to reforms and limited leadership in

government

-- PRSP and PEM reforms separate

Limited monitoring of progress, mainly concentrated on inputs -> did

not allow lessons learning and did not encourage focus on results on

the ground

Capacity constraints

Technical reform versus systemic/institutional change

BUT realism important on achievable pace of change

Why hasn’t there been more progress?



5The World Bank

The Way Forward: A Strengthened Approach

1. A country-led agenda – including a PFM reform strategy

and action plan

2. A donor coordinated program of support – coordinated,coherent, multi-year program of PFM work that supports

and is aligned with the government’s PFM strategy

3. A shared information pool – a common framework and

information set for measuring and monitoring resultsover time



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Planning and

undertaking diagnostic

work over time.

Designing a prioritized

and sequenced reform

program.

Implementing reforms

Monitoring of progress

over time.

1. A country-led PFM reform strategy and action plan

The government-led reformprogram Home-grown, countryspecific agenda.

Good practices suggest (i)

sequence and priorities of

reform activities and

measures, (ii) holistic view

of the PFM system,

institutions and processes.

Informed by policy dialogue

with donors.



7The World Bank

2. Donor coordination around the PFM reform agenda of the

government

Coordinated policy dialogue between government and donors would

facilitate sequencing and prioritization of reforms.

The limited available external resources for analytical support,

technical assistance, capacity-building and financing should be

allocated to the reform priorities of the government.

Multiple requirements of donors and competition between donors

should not burden the limited capacities of government.

Coordination may facilitate in the medium-term the development of

aid modalities that are more supportive of government processes

and institutions, e.g. multi-donor trust funds to support reform

implementation, use of national procedures, SWAPs, etc.



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3. Monitoring progress of PFM reforms

1. Reform measures/activities (training, new law, etc.).

1. Implemented institutional and system changes (IFMS, new budget

calendar, etc.).

2. Changes in the performance of the PFM system over the years.

-> requires a framework that ensures:Consistency over time;

Precise, objective measurement of progress;

Systematic coverage of the budget cycle.

Monitoring progress enables decision-makers in government

and donor agencies to assess the success and difficulties of thereform process and make decisions accordingly.

Depending of the purpose and interest, different levels for monitoring

progress:



9The World Bank

A standard set of highlevel indicators

• Widely accepted butlimited in number

• Broad measures of

performance relative tothe key PFM systemcharacteristics

• Enabling crediblemonitoring of performance and

progress over time.

A PFM Performance Report

• Integrative, narrative report

based on the indicators and

assessing performance; based

on observable, empirical

evidence.

• Updated periodically, dependingon country circumstances and

operational needs

• Contributing to coordinated

assessment

• Feeds into government-donor policy dialogue

The Performance Measurement Framework

An explicit performance measurement framework focuses on capacity-

building and results on the ground.

Current indicator set available at WWW.PEFA.ORG



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Comprehensive fiscal riskoversight :

Is oversight of fiscal riskarising from public enterprisesand sub-national governments

adequate?

Comprehensive fiscal riskoversight :

Is oversight of fiscal riskarising from public enterprisesand sub-national governments

adequate?

Information:

Is adequate fiscal, revenue and expenditureinformation produced and disseminated to meetdecision-making and management purposes?

Information:

Is adequate fiscal, revenue and expenditureinformation produced and disseminated to meetdecision-making and management purposes?

Comprehensive,Policy-based, budget:

Does the budget captureall relevant fiscal

transactions, and is theprocess, giving regard to

government policy?

Comprehensive,Policy-based, budget:

Does the budget captureall relevant fiscal

transactions, and is theprocess, giving regard to

government policy?

Budget Realism:

Is the budgetrealistic, and

implemented asintended in a

predictable manner?

Budget Realism:Is the budgetrealistic, and

implemented asintended in a

predictable manner?

Control :

Is effective control andstewardship exercised inthe use of public funds?

Control :

Is effective control andstewardship exercised inthe use of public funds?

The questions the PFM performance indicators seek to answer

Accountability andTransparency :

Are effective externalfinancial accountability

and transparencyarrangements in place?

Accountability andTransparency :

Are effective externalfinancial accountability

and transparencyarrangements in place?

MEASURING WHAT PERFORMANCE?MEASURING WHAT PERFORMANCE?

Six core

objectivesof PFMsystem



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CredibilityCredibility

Structure of the indicator set

A. PFM Out-turns

Comprehensiveness

Transparency

B. Key cross-cutting features

ExternalScrutiny and

Audit

Accountingand Reporting

BudgetExecution

Policy-based

budgeting

C. Budget Cycle

STRUCTURE AND CONTENT OF THE INDICATORSSTRUCTURE AND CONTENT OF THE INDICATORS



12The World Bank

Performance indicatorsPerformance indicators

A. PFM -OUT -TURNS: Credibility of thebudget

PI-0 Aggregate expenditure out -turn compared tooriginal approved budget

PI-0 Composition of expenditure out -turn compared tooriginal approved budget

PI-0 Aggregate revenue out -turn compared to original

approved budget

PI-0 Stock and monitoring of expenditure paymentarrears



13The World Bank

B. KEY CROSS-CUTTING ISSUES:Comprehensiveness and Transparency

PI-0 Classification of the budgetPI-0 Comprehensiveness of information included in budget

documentationPI-0 Extent of unreported government operations

PI-0 Transparency of inter-governmental fiscal relations

PI-0 Oversight of aggregate fiscal risk from other public sector

entities.PI-00 Public access to key fiscal information



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C. BUDGET CYCLE

C(i) Policy-Based Budgeting

PI-00 Orderliness and participation in the annual budget process

PI-22

Multi-year perspective in fiscal planning, expenditure policy and budgeting

C(ii) Predictability and Control in Budget Execution

PI-22 Transparency of taxpayer obligations and liabilitiesPI-22 Effectiveness of measures for taxpayer registration and tax

assessmentPI-22 Effectiveness in collection of tax paymentsPI-22 Predictability in the availability of funds for commitment of

expenditures

PI-22 Recording and management of cash balances, debt and guarantees

PI-22 Effectiveness of payroll controlsPI-22 Competition, value for money and controls in procurement

PI-22 Effectiveness of internal controls for non-salary expenditure andassets management

PI-00 Effectiveness of internal audit



15The World Bank

C(iii) Accounting, Recording and Reporting

PI-00 Timeliness and regularity of accounts reconciliation

PI-22 Availability of information on resources received by service

delivery units

PI-22 Quality and timeliness of in-year budget reportsPI-22 Quality and timeliness of annual financial statements

C(iv) External Scrutiny and Audit

PI-22 Scope, nature and follow-up of external audit

PI-22 Legislative scrutiny of the annual budget lawPI-22 Legislative scrutiny of external audit reports



16The World Bank

And three donor practice indicatorsAnd three donor practice indicators

D. DONOR PRACTICES

D-0 Predictability of Direct Budget Support

D-0 Financial information provided by donors for

budgeting and reporting on projec t and program aid

D-0 Proportion of aid that is managed by use of national

procedures



17The World Bank

PI-1PI-1 Aggregate expenditure out-turnAggregate expenditure out-turn

compared to original approved budgetcompared to original approved budget

Score Minimum Requirements (Scoring Method M )0

A

(i) In no more than one out of the last three years has the actual expendituredeviated

from budgeted expenditure by an amount equivalent to more than0% of budgeted

expenditure.

B

(i) In no more than one out of the last three years has the actual expendituredeviated

from budgeted expenditure by an amount equivalent to more than00% of budgeted

expenditure.

C

(i) In no more thanone of the last three years has the actual expendituredeviated from

budgeted expenditure by more than an amount equivalent to00

% of budgetedexpenditure.

D

(i) In two or all of the last three years did the actual expendituredeviate from

budgeted expenditure by an amount equivalent tomore than 0 0% of budgeted

expenditure.

Dimensions to be assessed: The difference between actual primary expenditure and primary budgeted expenditure (i.e. excluding debt service charges, but also excluding

externally financed project expenditure).



18The World Bank

PI-22. Timeliness and regularity of PI-22. Timeliness and regularity of

accounts reconciliationaccounts reconciliation

Score Requirements: Scoring Methodology M0

A The averageof the numerical scores of the dimensions is00-000

B The average score of the dimensions is00- (ass00 ign B+ if the average is above )00

C The average score of the dimensions is00- (assign C+ if the average is above )22 22

D The average score of the dimensions is00- (assign D+ if the average is above )00 00

Dimensions to be assessed:

• Regularity of bank reconciliations• Regularity of reconciliation and clearance of suspense accounts

and advances.



19The World Bank

Dimension Minimum requirements for dimension score

(i) Regularityof bank reconciliations

Score = : Bank reconciliation for all central government bank accounts take000

place at least monthly at aggregate and detailed levels, usually within weeks o0

end of period.Score = : Bank reconcilia00 tion for all Treasury managed bank accounts take

place at least monthly, usually within weeks from end of month.0 Score = : Bank reconciliation for all Treasury managed bank accounts take00

place quarterly, usually within weeks of end of quarter.0 Score = : Bank reconciliation for all Treasury managed bank accounts take0

place less frequently than quarterly OR with backlogs of several months.

(ii) Regularityof reconciliationand clearanceof suspenseaccounts and

advances

Score = : Reconciliation an000 d clearance of suspense accounts and advancestake place at least quarterly, within a month from end of period and with few balances brought forward.Score = : Reconciliation and clearance of suspense accounts and advances take00

place at least annually within two months of end of period. Some accounts haveuncleared balances brought forward.

Score = : Reconciliation and clearance of suspense accounts and advances take00 place annually in general, within two months of end of year, but a significantnumber of accounts have uncleared balances brought forward.Score = : Reconciliation and clearance of suspense accounts and advances take0

place either annually with more than two months’ delay, OR less frequently.



20The World Bank

Future DirectionsFuture Directions

Indicators developed by Bank inIndicators developed by Bank incollaboration with IMF, EC, DFID, France,collaboration with IMF, EC, DFID, France,Switzerland, NorwaySwitzerland, Norway

Consultations were held in OECD DAC JVConsultations were held in OECD DAC JVon PFM, and with countrieson PFM, and with countries

Under final review, with expected formalUnder final review, with expected formal

issuance in mid-Mayissuance in mid-May Within Bank, expected to be recommendedWithin Bank, expected to be recommended

as good practice in working with clientsas good practice in working with clients

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