EXPERIENCE SHARING ON
LOCAL PFM & CURRENT
REFORM INITIATIVES
Babu Ram Shrestha, MOFALD
Assessment of Nepal’s Public Financial
Management System (PFM)
Nepal’s PFM at the national level.
 Nepal’s PFM at the sub-national level.
 Current reform initiatives in local PFM
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Nepal’s PFM at the national level.
The Government’s PFM Initiatives.
To address PFM issues, the government developed a
Public Financial Management Reform Program
(PFMRP) for 2010-2013
Nepal’s PFM at the sub-national level.
The Government’s local government program and subnational PFM issues
The government’s Local Government and Community
Development Program (LGCDP, 2008-2014) has at the
forefront of local governance reforms.
In the course of LGCDP implementation, there were
occasional reports of fiduciary risks and compliance issues.
FIDUCIARY RISK ANALYSIS (FRA)
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ADB and its development partners conducted a
Fiduciary Risk Assessment (FRA) of LGCDP.
Donors subsequently financed a Public Expenditure
Tracking Survey (PETS) of LGCDP.
The FRA highlighted cases of
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lack of transparency in grant allocation,
Undue interference by political parties,
Poor accounting and reporting,
Non-compliance with procurement regulations, and
Lack of internal and external audit.
Fiduciary risks were identified such as
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Poor compliance with participatory processes,
Diversion of resources,
Abuse of authority in decision-making,
Poor design and budgeting,
Delays in budget releases,
Poor revenue management,
Weak procurement systems,
Poor internal controls, and weak oversight.
Categorizing the issues
Budget and fiscal management issues at the
local level.
 Fiduciary risk at the sub national level
 Public procurement problems.
 Governance problems.
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The new PFM and Fiduciary Risk Reduction
Action Plan (FRRAP)
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In response to the above assessments of LGCDP, the Ministry
of Federal Affairs and Local Development (MOFALD) in
March 2012 approved a Fiduciary Risk Reduction Action
Plan (FRRAP).
The plan reflects lessons learned from LGCDP
implementation, notably importance of strengthening PFM
systems and
Capacity building in PFM at the local level, and the value
of demand-side mechanisms.
Purpose and Objectives of the Plan
The purpose of the PFM & FRRAP is to identify the
tasks and activities involved in addressing essential
PFM reform initiatives and mitigating and minimising
the fiduciary risks in LBs’ operations with the
following objectives:
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Aggregate fiscal discipline
Strategic allocation of resources
Efficient use of resources for service delivery
Introduction to the Plan
This PFM & Fiduciary Risk Reduction Action Plan
(FRRAP) integrates the many PFM and related
fiduciary risks into a comprehensive action plan.
The action plan includes the tasks, priorities,
timings, resource estimates, responsibilities,
management controls, reporting procedures, as
well as risks to the plan itself.
PFM cycle and key fiduciary risk Areas
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Planning programming and budgeting
Funds flow, including budget release
Implementation, including procurement management
Internal accountability
External auditing, reporting and monitoring and
evaluation, and
Revenue management
Strategies
Strengthen participatory planning process
 Improve accounting and reporting systems
 Promote transparency,
 Enhance capacity
 Mitigate perceived risks
 Strengthen civic oversight
PEFA FRRAP will mainly be executed through local bodies
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Expected results
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Improved planning programming and budgeting
Improved funds flow,
Improved implementation,
Improved internal accountability
Improved auditing and monitoring & evaluation, and
Improved revenue management
Fiduciary risk rating matrix for LBs
LBs comprise all 75 DDCs, 58 Municipalities and 3,915 VDCs. This
action plan categorizes risks rating into low (L), medium (M), and
high (H).
Low risk - Represents a situation where there is basic compliance
with existing rules of LBs of Nepal, although coverage may not be
100%
Medium Risk - Indicates there are some significant weaknesses in
compliance or that procedures need to be changed
High Risk - Indicates substantial failure to comply or that the
system will require substantial upgrading to meet the standard
Classifying fiduciary risks in LBs
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Fiduciary risks in local bodies have been classified
into process, result and corruption related risks
Process Risk
Fiduciary
Risk
Result Risk
Corruption Risk
Reform cycle
Implement
PFM reforms
Local PEFA
Assessment
Formulate PFM
reform program
PFM-FRRAP
Identify main
PFM
Identify main
weaknesses
PFM
weaknesses
Recommend
Recommend
PFM
reform
PFM reform
measures
measures
Investigate
underlying causes
Reform initiatives
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Strengthening Public Management Program (SPMP)
2012/13-2014/15
supported by ADB, implementation under LGCDP-II
Reform budget, fiscal and fiduciary risk management at
the sub national or local government level DDCs,
Municipalities and VDCs
Public procurement and
Oversight and accountability institutions
Current reform initiatives in Local PFM
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Budget and fiscal management
Fiduciary Risk management at the sub- national
level (FRRAP)
Public procurement reforms
Oversight and accountability capacity building
Objectives of reform initiatives
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Budget and fiscal management
Objective: To promote fiscal sustainability and more
predictable and timely fiscal transfers to the local
governments through improved budget and
expenditure management
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Fiduciary Risk management at the sub- national
level
Objective – To promote transparency and
accountability of public expenditures of local
governments.
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Public procurement reforms
Objective: To promote economy and efficiency and
reduce fiduciary risks in public spending at the
national and local level.
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Oversight and accountability capacity building
Objective – To help prevent and reduce corruption
in public institutions by strengthening the capacity of
anti-corruption and accountability institutions.
Components of SPMP reform program supported
by ADB at the National & sub national level
Component 1
Local government budget
and fiscal management
7 MILLION $
COMPONENTS
OF SPMP
Component 3
Public procurement
reform
3 MILLION $
30 MILLION $
Component 2
Component 4
Fiduciary risk
management at the local
government level
18 MILLION $
Oversight and
accountability capacity
building
2 MILLION $
Component wise activities
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Local government
budget and fiscal
management
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Enforcement of blended block-grant guidelines
and prescribed timelines to improve fiscal
transfers;
introduction of results-based management for
DDCs and municipalities;
Strengthening local accounting systems, including
use of IT tools to automate transactions;
Enhancing local resource mobilization and fiscal
sustainability, including the development and pilot
implementation of a Municipal Administration and
Revenue System (MARS); and
Support for drafting a Fiscal Responsibility Bill.
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Fiduciary risk
management at the local
government level
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Promotion of public auditing by Ward
Citizen Forums and Citizen Awareness
Centers;
Strengthening external and internal audits
of local bodies, including application of
risk-based internal audits of village
development committees (VDCs) by DDCs;
Capacity-building on auditing and resultsbased reporting of local bodies; and
Follow-on subnational PEFA survey and
PETS of LGCDP.
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Public procurement
reform
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Institutional, legal and regulatory
reforms to strengthen public
procurement;
Development and implementation of eGovernment Procurement (e-GP);
improved procurement management at
national and local levels, including
developing local bodies’ procurement
plans, drafting standard bidding
documents, etc; and
Capacity development of PPMO and
key staff at central and local levels.
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Oversight and
accountability
capacity building
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Legal and regulatory reforms to elevate
Nepal’s anti-corruption regime per its
commitment to the U.N. Convention
against Corruption (UNCAC);
Human resource development of the
National Vigilance Center (NVC);
Implementation of Corruption
Vulnerability Diagnostics of select
ministries; and
Social audits of select local bodies.
Stay in touch
Babu Ram Shrestha
email: brshresth@gmail.com
Cell no. 98511 92 992
THANKS FOR YOUR KIND
ATTENTION