Moving PFM reforms forward:
A Strengthened Approach
David Biggs
DFID
Bill Dorotinsky
The World Bank
On behalf of the
PEFA Steering Committee
PEM reforms in PRSP countries from Europe and Central Asia
Warsaw, February 6-9, 2005
An Overview of PFM reform in ECA PRSP Countries
Higher levels of fiscal discipline, but challenges remain because of low
revenues, high debt levels, risks related to State Owned Enterprises, need
for retrenchment, pay reform.
Strategic prioritisation has improved over the years, but further progress
needed in the quality of allocative decisions.
Poor delivery of essential public goods and services in part caused by
weak public finances. Further progress is required.
Importance of PFM reforms to create an enabling environment for
achieving the various policy goals of the ECA countries (e.g.
reducing poverty, economic growth, joining the EU).
What is the current state of affairs of PFM reforms in
ECA countries? (1)
The Conference has highlighted a very wide range of reform initiatives
occurring across the region
There is a daunting array of issues to be resolved, including:
• Financing sub-national government
• Improving the links between policy and budgeting (NB costing)
• Securing political support for difficult reforms
• Coping with uncertainty eg revenue forecasts (NB donors)
• Developing a medium-term framework for financial management
• Improving institutional co-ordination
• Better procurement practice
What is the current state of affairs of PFM reforms
in ECA countries? (2)
•
Improving cash-flow management
•
Making the budget comprehensive
•
Strengthening audit, parliamentary scrutiny and accountability
•
Debt management
•
Capacity development
•
Wider Public Administration Reform
•
Managing the revenue consequences of capital spending
•
Building public participation in budgeting and managing
expectations
•
Applying “international standards”
Why hasn’t there been more progress?
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
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 results
over time
1. A country-led PFM reform strategy and action plan
The government-led reform
program
 Home-grown, country
specific agenda.
 Good practices suggest
Planning and
undertaking diagnostic
work over time.
Designing a prioritized
and sequenced reform
program.
Implementing reforms
Monitoring of progress
over time.
(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.
Sequencing of reforms
Moving to reform implementation requires prioritization and
sequencing of PFM reforms by government.
Good practices show that some key factors for prioritization and
sequencing of reforms include:
Policy objectives of government: what are the key priorities of the
government (EU accession, reduction of deficit, implementation of
PRSPs, etc.).
The risks of the PFM system: what are the main weaknesses of the
PFM system that are likely to impact aggregate fiscal discipline,
strategic allocation of reforms and service delivery.
Technical sequence of reforms: what are the building blocks to move
towards a performing PFM system ?
Capacities of government: what are the capacities of the government
to implement the reforms ?
Holistic view of the PFM system
Holistic view of the PFM system facilitates prioritization and
sequencing of reforms
Good practices show that a holistic view of the PFM system includes
considering:
Budget cycle – Formulation, execution, procurement, accounting and
reporting, external audit.
Both sides of PFM – Revenues and expenditures
The central government – Ministry of Finance and line Ministries.
Autonomous agencies and state-owned enterprises
The levels of government – National government versus sub-national
government.
2. Donor coordination around the PFM reform agenda of
the government
Fewer donors involved in PFM reforms in CIS-7 countries relative to
some other regions of the world, but donor coordination remains
important:
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.
3. Monitoring of progress of PFM reforms
Monitoring of progress enables decision-makers in government
and donor agencies to assess the success and difficulties of the
reform process and make decisions accordingly.
Depending of the purpose and interest, different levels for monitoring
progress:
1.
Reform measures/activities (training, new law, etc.).
2.
Implemented institutional and system changes (IFMS, new budget
calendar, etc.).
3.
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.
The Performance Measurement Framework
A PFM Performance Report
A standard set of high
level indicators
•
Integrative, narrative report
based on the indicators and
assessing performance; based
on observable, empirical
evidence.
•
Updated periodically, depending
on country circumstances and
operational needs
•
Contributing to coordinated
assessment
•
Feeds into government-donor
policy dialogue
• Widely accepted but
limited in number
• Broad measures of
performance relative to
the key PFM system
characteristics
• Enabling credible
monitoring of
performance and
progress over time.
An explicit performance measurement framework focuses on capacitybuilding and results on the ground.
Current indicator set available at WWW.PEFA.ORG
What’s different ?
What we don’t want
The Strengthened Approach
Government reform strategy
influenced by ad-hoc donors
requests encourages a fragmented
approach to PFM reforms
A government-led reform strategy,
supported by a coordinated program of
work by donors, facilitates an integrated
and sequenced reform process.
Donor 2
Donor 3
Government-led PFM
Reform Strategy
External
audit
Procurement
Budget
preparation
Donor 1
Donor 4
Treasury
reforms
Coordinated program of
support by donors