PEFA FRAMEWORK FOR ASSESSING PUBLIC FINANCIAL MANAGEMENT Module

PEFA FRAMEWORK FOR ASSESSING PUBLIC FINANCIAL MANAGEMENT Module 5: Interpreting a draft Assessment Report

The PFM Performance Report Executive summary 1. Introduction 2. Country background information 3. Assessment of PFM systems 4. Conclusions from analysis of PFM system 5. Government PFM Reform Process Annexes 2

• The performance report • The indicator set 3

Executive Summary BRIEF summary (3 pages), addressing: • • Purpose & management of the assessment Coverage & timing PFM system impacts on 3 budgetary outcomes Summary of performance changes since previous assessment • Overview of ongoing or planned reforms • Table of scores, indicating direction of any changes assessment 4

Executive Summary: the Story Line • What is the story line, the number one message? • Make sure the story gets top billing – it may be all that readers remember! • It is also the likely starting point for discussion of PFM reform priorities 5

4. Conclusions from the analysis of PFM system 4. 1: 4. 2: 4. 3: 4. 4: Integrated assessment of PFM performance Effectiveness of internal control framework (Annex 2) PFM strength/weaknesses Performance changes since previous assessment 6

4. 1 Integrated assessment of PFM performance (across 7 pillars) • • Credibility of fiscal strategy & budget performance (PI-1: 3) Comprehensiveness & Transparency (PI-4 to 9) Asset & Liability Management (PI-10 to 13) Policy-based planning & budgeting (PI-15 to 18) Predictability & control in budget execution (PI-19 to 25) Accounting & reporting (PI-26 to 28) External scrutiny & audit (PI-29 & 30) 7

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 8

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. CG operations outside financial reports • • New: revenue outside financial reports New: Table on expenditure and financing details 7. Transfers to SNGs • Removed SNG financial reports (covered in 10. 2) 8. Performance information for service delivery • 3 New: performance and evaluation dimensions 1. Performance plans for service delivery 2. Performance achieved by services 4. Performance evaluations 9. Public access to fiscal information • • Expands list of documents Separates ‘basic’ and ‘additional’ requirements 9

III. NEW: Management of assets & 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 1. Economic analysis of investment proposals 2. Investment project selection 3. Investment project costing 4. Investment project monitoring 12. Public asset management • 3 New dimensions 1. Financial asset monitoring 2. Non-financial asset monitoring 3. Transparency of asset disposal 13. Debt management • New: debt management strategy 10

IV. Policy-based fiscal strategy & budgeting Indicator Main Improvements 14. Macroeconomic and fiscal forecasting • 3 New dimensions 1. Macroeconomic forecasts 2. Fiscal forecasts 3. Macrofiscal sensitivity analysis 15. Fiscal strategy • 3 New dimensions 1. Fiscal impact of policy proposals 2. Fiscal strategy adoption 3. Reporting on fiscal outcomes 16. Medium term perspective in expenditure budgeting 17. Budget preparation process 18. Legislative scrutiny of budgets • Completely reformulated and clarified • Timing of submission to legislature – moved here • • Public consultation – added for ‘A’ score 11 Timely approval of annual budget – moved here

V. Predictability & 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 M 2 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 12

VI. Accounting and reporting Indicator Main Improvements 27. Financial data integrity • 28. In-year budget reports 29. Annual financial reports • Reconciliation of advances and suspense accounts – separated New: processes supporting data integrity • Budget analysis - added • Content of financial reports - strengthened 13

VII. External scrutiny and audit Indicator 30. SAI independence and external audit 31. Legislative scrutiny of external audit reports Main Improvements • • Period covered – expanded to 3 years New: independence of SAI • • Focus on legislature’s follow up actions New: transparency of legislative scrutiny 14

4. 2 Effectiveness of Internal Control Framework • Control environment: rights & responsibilities in PFM system: controls are ex-ante, to prevent inappropriate decisions; & ex-post to detect them • Risk assessment: to ensure appropriate use of resources • Control activities: prescribed in roles & responsibilities of those using public resources to meet entity’s objectives • Information & communication: both are required in a timely manner for decision-making • Monitoring: necessary to ensure control environment remains effective against key risks 15 NB - all based on evidence collected to score PIs!

4. 3 PFM Strengths & Weaknesses • Fiscal discipline • Strategic allocation of resources • Efficient delivery of services A PEFA Report does not necessarily explain if these outcomes are being met (other inputs required for this), but should explain if government has functioning PFM system to achieve these outcomes 16

4. 4 Performance changes since previous assessment • Provides dynamic perspective on PFM performance & impact on achieving 3 budgetary outcomes (i. e. relevant only to successive assessments) • Draws on description of performance changes in analysis of each PI & overview in section 3 & table in Annex 1 • Assessment of how changes since previous PEFA are likely to strengthen ability to achieve 3 budgetary outcomes & address main weaknesses 17

Transitional arrangements - 4. 4: Performance changes since previous assessment • For comparisons with previous assessments using PEFA 2005 or 2011, supplementary ‘Annex 4’ required to show what scores WOULD HAVE BEEN using earlier PEFA on current data (recalibrating previous assessment using PEFA 2016 NOT recommended) • Main performance changes between assessments, based on Annex 4, should be outlined in executive summary & discussed in more detail in section 4. 4 18

Transitional arrangements – ‘Testing version’ 2015 to PEFA 2016 • PEFA 2016: 31 PIs, 94 dims: testing 30 PIs & 90 dims. New PI-22, refinements to 14 PIs (simplifications; new dims; revisions; recalibrations; removal of negative references; alignment with GFS 2014). Hence: • 50% of dims largely unchanged – no reassessment • 25% of dims can be reassessed using same data • 25% of dims require additional data to assess or reassess dimension (& indicator) scores • If report not finalized - countries may revise draft to use PEFA 2016 • If report finalized – could be revised & re-issued as PEFA 2016, or addendum included with updated PI summary & explanation of 19 requirements met

5. Government PFM Reform Process • Overall approach to the PFM reform process • Description of recent and on-going reforms • Institutional factors supporting reform planning and implementation • Impact of PFM reforms for sustainable reform process • Transparency of PFM programs for stakeholder collaboration and support 20

Annexes Annex 1. Annex 2. Annex 3. Annex 4. Performance indicator summary Summary of observations on the internal control framework Sources of information Performance changes from the previous assessment using PEFA 2005 or PEFA 2011 21

In Summary…. Readers of a PEFA assessment should: • Carefully consider both ratings & the narrative • Consider whethere is consistency between different indicators • Not conclude that a country with some poor ratings has a poor PFM system • Use the ‘Conclusions of the analysis of PFM systems’ to understand how well each of the seven dimensions of PFM practices are operating, as a basis for assessing how far the country has gone towards achieving the three budgetary outcomes 22 • Use the assessment to monitor progress in PFM reforms

Thank you for your attention: Questions?

Group Work Instructions Interpreting a draft Assessment Report

Group Work Schedule • • Read & analyze the case individually – 45 mins Group assignments to be announced Discuss in your group & reach conclusions – 45 mins Each group reports to plenary - with discussion

Case Study Assignments - : Comment on Group 1: Aggregate fiscal discipline, including relevant PIs Group 2: Strategic allocation of resources, including relevant PIs Group 3: Efficiency of service delivery, including relevant PIs Group 4: Transparency & Accountability Group 5: Overall - does summary provide adequate overview of PFM system performance & areas where reform efforts should be focused?

Indicator relevance to budgetary outcomes – possible answers Aggregate fiscal discipline: e. g. ? Strategic allocation of resources: e. g. ? Efficient use of resources in service delivery: e. g. ? All are influenced by integrity of fiscal information