Some reflections on the PEFA
experience in Latin American
“PEFA in Latin America, Seven Years of Implementation”
EuropeAid's Workshop
Brussels, 4-5 December 2012
Public Sector and Governance Unit
Latin America and the Caribbean Region
The World Bank
Objective and scope of the presentation
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Provide some feedback based on experience from
practitioners and individuals working with Governments for ad
hoc workshop input
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Some studies taken into consideration, but this presentation
is not really based on a rigorous study
The use of PEFA has been extensive in LAC
An incomplete inventory…
Country
Total
PEFAs
Country
Total
PEFAs
Country
Total
PEFAs
Antigua & Barbuda
1
Ecuador
2
Peru
1
Anguila
1
Grenada
2
Paraguay
2
Aruba
1
Guatemala
1
Suriname
1
Barbados
2
Guyana
2
El Salvador
1
Bolivia
2
Honduras
3
Turks & Caicos Islands
1
Brazil
1
Haití
2
Trinidad & Tobago
2
Bahamas
1
Jamaica
2
Uruguay
1
Belize
1
St. Kitts &Nevis
2
St. Vincent & Grenadines
2
Colombia
1
St. Lucia
2
TOTAL NATIONAL
51
Costa Rica
1
Montserrat
2
Dominica
2
Nicaragua
1
Dominican Republic
4
Panama
1
…and also at the subnational level
Country
Total
PEFAs
Argentina
4
Brazil
4
Colombia
1
Honduras
1
Peru
3
TOTAL
13
In total, there are 64 PEFAs official
performed in the LAC Region.
Fairly, wide spread use across
countries and well-known
instrument.
Some Public Financial Management Features in LAC
Progress with pending challenges
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Great variation across countries (from Chile to Haiti)
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Progress over recent decades (Dener et al, 2011; Vani,
2012), but also stagnation… very country specific.
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In general, challenges remain:
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Budget management and the linkages between medium-term fiscal
management and budget;
Treasury management; Arrears recording and management
Budget transparency and upgrading of accounting standards.
Sector level PFM operations
Other areas: investment, performance budgeting, revenue
Subnational dimension
Differences between LAC and other Regions
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LAC FMIS World Bank portfolio: larger,
somehow better performing (IEG) and with
follow up operations (Cem et al, 2011), first
movers (pioneers?)
On transparency related indicators, LAC
average performance was above the
average global performance.
PFM system performance varies across
regions, and in general terms, Eastern
European and LAC perform better,
reaching on average roughly equivalent to a
C+ score, while South Asian countries
average slightly below C (Renzio, 2009).
Region
Transparency
Average
Africa
2.37
East Asia & Pacific
2.46
Eastern Europe &
Central Asia
3.10
Latin America &
Caribbean
2.83
Middle East & North
Africa
2.63
Norway
3.67
South Asia
2.96
Global
2.66
Source: PEFA assessments 2005-2010.
PEFA usefulness in LAC
Messages from practitioners
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Very useful instrument to open up and trigger policy discussion with
governments, including subnationals, willing to improve their PFM practices,
particularly when linked with fiscal and macroeconomic management efforts.
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Very effective entry point for policy dialogue, particularly on overall
system of control and compliance (even if changes are not materialized right
away; e.g. Nicaragua, Brazil.)
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Can help track progress. If implemented on regular basis, the methodology
also serves as a monitoring and evaluation (M&E) tool event if selectively
used in some of the dimensions or indicators. (e.g. El Salvador, Paraguay,
selected PEFA indicators were used as outcome indicators for lending
operations.)
The subnational dimension
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Challenges at the subnational level drive demand for PEFA
Diverse world of subnational entities (size, autonomy, capacity)
PEFA already present in large federal countries Argentina, Brazil and Mexico.
Experience so far is mixed and shows that :
• The strict approval and review process required by the PEFA
Secretariat and the political sensitivities can generate problems in the
formal approval of the reports (Argentina)
• Problems with quality and accuracy of report findings. Despite the
quality control processes, the quality of PEFAs depends mostly on the
experience and diligence of the consultants (Brazil).
• All in all, useful instrument for clients that can support subnational and
federal initiatives (Mexico, accounting harmonization)
PEFA limitations in LAC
Messages from practitioners
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Culture and political economy context. Lacks a strong legal and political economy analysis. (e.g. in El Salvador
and Nicaragua, the report was delivery during political transition, causing the lack of involvement of the incoming
Government administration and the present one on the final report.)
Quality and independence.
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Even though the PEFA methodology is oversight by the PEFA Secretariat, the standards of the reports might
depart significantly among them depending on the experience and diligence of the technical team.
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Ratings may be influenced by country relationship issues (e.g. Brazil ).
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Quality of the report and the way they are presented might influence the policy dialogue.
Client ownership. Assessment by external consultants or individual experts can create lack of local ownership
(Nicaragua, Colombia, Trinidad and Tobago).
Methodology / indicators.
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Adequacy of existing assessment methodologies and performance indicators are mostly suitable for
central/upstream PFM functions (Ministries of Finance)
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It is more oriented towards public expenditure and includes only a few indicators for revenue, customs and
procurement. Lack of quantitative indicators in some areas.
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Issues on measures of budget credibility since PEFA does not distinguish between deviations due to
ineffective budget processes or external shocks.
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Indicators do not allow for a detailed understanding of the quality of PFM and in particular ought to have more
regard to the quality of management.
Heavy review process. The approval process required by the PEFA Secretariat is quite heavy creating political
sensitivities in some cases (e.g. subnationals in Argentina).
The way forward
Some ideas and questions for discussion
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Can / should PEFA capture the political economy of the reform? Successful PFM
reports depends on political support and leadership. It is essential to take into account
the political context when designing reform. Coordination between the technical level
and the political level is crucial.
Can ownership and independence be maintained? Without ownership, reform
stops when the money from donors stops. Without independent review the quality is
compromised. Can the methodology combine self assessment with independent
review? Strong process guidelines and good practices cases could guide.
Areas covered and indicators. Should under-served areas such as revenue or
procurement reviewed? What is the balance between quantitative and qualitative
indicators? Can exercises of “PEFA plus” (e.g. Brazil) provide some inspiration for
further areas (e.g. public investment, budget performance orientation)? Can tools and
exercises like CATT or IAMTAX inspire some changes?
Enhancing quality without increasing the heaviness of the review process. Is it
possible to simplify the review process and maintain a consistent quality? Does it
make sense to come up with a “lighter PEFA”, both in terms of scope and the review
process, for subnationals, without losing the systemic view?
Country
Case Studies
Case Study: Guatemala
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Donors provided long-standing support to develop PFM systems.
Country’s IFMIS considered among the best practices in LAC
Despite robust systems in place PEFA reveals weaknesses in actual practices and
identifies rooms for improvement:
• multi-year budgets and linkages to medium-term planning;
• arrears recording and management;
• sector level PFM operations.
The Guatemala PEFA 2010 might be considered as a good practice for promoting
effective policy as well as technical dialogue based on the report findings.
The good practices are referred to:
• The way the methodology was presented and executed in order to promote
country’s ownership. The PEFA report was carried out through a joint
assessment between the PEFA evaluation and a local team.
• At government’s request, the exercise went beyond traditional PEFA and
included a policy recommendation section jointly developed by PEFA and
Government’s team (PEFA plus).
Case Study: Nicaragua
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Nicaragua is an IDA donor-dependent country that made progress in improving PFM
arrangements over years.
However, it that faces serious issues of transparency and used of off-budget funding.
PEFA was suggested as a means to identify issues and areas for improvement as well
as to inform preparation of PFM modernization engagement and to help benchmark
and monitor progress.
Government rejected the preparation of a formal PEFA as they feared it would
become a source to condition future financial assistance from Bank and donors.
Selected PEFA indicators were chosen and used for monitoring purposes in absence
of a formal report.
Case Study: El Salvador
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The PEFA exercise was undertaken in close collaboration between the EU and the
World Bank as part of strategic engagement to support macro and fiscal management
in the country in 2009.
Donors used the PEFA together with a Public Expenditure Review (PER) to engage in
strategic policy discussion with the new administration.
PFM specific areas of improvement highlighted by the report included:
• budget management and its linkages between medium-term fiscal management;
• treasury management;
• budget transparency and upgrading of account standards.