ࡱ > t v s [$ W bjbj .v ΐ ΐ O | | 4 L H t S S S S S . . . }H H H H H H H NJ L H . . H S S H W W W S S }H W }H W W A4 16 S @;L 4 iH H 0 H 4 6 M M , 16 M 16 8 . W | k . . . H H M . . . H M . . . . . . . . . | : $ Public Expenditure Framework/Peer Assisted Learning (PEFA) Budget Community of Practice (BCOP) Public Expenditure and Financial Assessment (PEFA) Work Group Report April, 2009 PEFA Work Group Report Background The Public Expenditure and Financial Accountability (PEFA) assessment was created by a consortium of international organizations for purposes of evaluating country financial management systems and monitoring progress in improving those systems over time. The consortium included the World Bank and IMF. The framework consists of 28 performance indicators in the following areas: Credibility of the budget. Comprehensiveness and transparency. Policy-based budgeting Predictability and control in budget execution Accounting, recording, and reporting External scrutiny and audit. The framework is designed to allow its use for conducting both self-assessment either using selected or all of the indicators as well as for conducting formal comprehensive assessments with the involvement of external expert consultants. Once a base line assessment is completed, it is expected that that repeated application of the assessment over time will provide information on the extent to which country PFM performance is improving or not. As part of its 2008-2009 action plan, the Public Expenditure Management-Peer Assisted Learning (PEMPAL) Budget Community of Practice (BCOP) formed a Work Group (WG) consisting of a sub-group of its members for purposes of sharing their experience in using PEFA. The group was formed in August and held meetings through April of 2009 to complete its work. The purpose of the WG was to examine how Ministries of Finance use PEFA to make improvements to financial management systems and to monitor incremental change and to share this information with the BCOP members. Work Group Objectives and Methodology At its initial meeting the WG established the following objectives: Document the experience of BCOP Countries in using PEFA. Identify the formal and informal ways to use PEFA in implementing and measuring public finance improvements. The WG would include its findings in a report to be distributed to the BCOP members and posted on its web site. To accomplish these outcomes the WG agreed to complete the following tasks: Country presentations to the WG on experience with PEFA. Completing case studies on the use of PEFA Conduct a survey of BCOP participants on the use of PEFA Collaborate with the PEFA Secretariat The WG held four Video Conference meetings to accomplish this task, one of which originated from the Center of Excellence in Finance Ljubljana, Slovenia in conjunction with the annual meeting of the BCOP. Work Group Participants Work Group participation at each meeting varied primarily because of scheduling conflicts. However the following countries participated in the deliberations: Kosova Georgia Belarus Moldova Armenia Montenegro Kyrgyzstan Ukraine Tajikistan Members of the BCOP Steering Committee and the PEFA Secretariat also participated in the Ljubljana video conference. The work group was chaired by Ms Liana Skhirtladze of the Georgian Ministry of Finance. Activities of the work group were supported by CEF and US Treasury staff. Video conference facilities and systems were provided by the World Bank. Country Reports Country Reports on the use of PEFA were completed for Georgia, Kosova, and Moldova. Each report was presented to the work group. The full Country Reports are attached. The following is a summary of those reports: Moldova. Ms. Liuba Ivanciucova of the Moldova Ministry of Finance presented an accounting of their experience in completing a PEFA Assessment. Moldova completed its baseline assessment in 2006 and its second assessment in 2008. Both of the assessments were coordinated by the Ministry of Finance. Having completed two assessments Moldova was able to evaluate progress in making reforms. Overall ten indicators improved in score in the second assessment while two received lower scores. Moldova noted the following advantages of PEFA: PEFA provides complex background information on the condition of financial systems. Identifies issues that need to be addressed by the government. Tracks progress on reforms Forms the basis for recommendations for maintaining and improving systems. Disadvantages of PEFA noted by Moldova included the following: Some of the scoring methodologies led to confusing findings, with PI 2 and 25 specifically noted. Countries with IMF Programs may be at a disadvantage because forecasts and budget estimates may be more conservative. There is little flexibility in resolving issues when there is disagreement about scores. Although indicators D1 D3 are for donors, the still affect the overall image of the country. Moldova noted the following improvements in financial systems as a result of using PEFA: Budget formulation was improved through revisions to the budget calendar and circular. Improved consistency between the budget and the Medium Term Plans. Improved internal auditing systems Improved chart of accounts and budget classifications. Establishment of a single treasury account. Improved treasury operations. In conducting the first assessment a Work Group was established within the ministry which included experienced staff, who were trained by the evaluators and the local consultants. A similar work group was formed for the second assessment. The members of the work group completed self assessments which were then compared to the scores derived from the formal assessment. There were cases where the self-assessment scores were different from those derived by the evaluators. In some cases the self-assessment scores were lower then those derived by the evaluators. Moldova attributes this to PEFA methodology deficiencies, a very rigid scoring system, and the accuracy and honesty of the self-assessments. Moldova concluded that their experience with PEFA has proved to be: A good tool for assessing performance. A good response to the question of whether or not reforms are being implemented in accordance with established plans Create a desire to know more about the sustainability of PFM systems Improvement in supporting donor requirements and in attracting donor funds. They also concluded that there is room for improving the methodology. Kosova completed its first PEFA Assessment in 2007. The report was used as a starting point for the development of a Public Financial Management Reform Plan. As a new Country the PEFA process provided a timely and ideal tool to use in accelerating the identification and implementation of PFM systems. In conducting the assessment an internal working group was formed which had frequent meetings with the World Bank reviewers and had responsibility for providing information to the reviewers. In mid-2008 the World Bank and DFID jointly began working with the Ministry in developing a comprehensive PFM reform action plan (PFMRAP). The Ministry believes strongly that the PEFA assessment should feed directly into the PFMRAP. At the end of 2008 the government formed three groups: PEFA Secretariat: The Secretariat consisted of staff from across the MFE. As a result the Ministry has now institutionalized the PEFA process. The PEFA Steering Committee: Consists of senior managers from the Ministry and other relevant organizations. The Steering committee will set policy for the overall planning process. PEFA Working Group: Consists of senior staff, technical experts, and program representatives from the main ministries which will participate in the PFMRAP implementation. At the beginning of 2009, the Secretariat started conducting Kosovas first self-administered PEFA assessment. The results of the assessment will become the basis for developing and implementing the PFMRAP. Georgia: Since 2006, the Georgian Ministry of Finance has used the PEFA assessment to conduct internal self-assessments. Its baseline assessment report was issued in February of 2009. PEFA indicators were initially used in 2006 to conduct self-assessments of the budget format and process. Two internal work groups were formed within the budget department, one focusing on the budget circular and the other on the budget format and content. Each work group consisted of budget specialists from all of the sections of the budget department, as well as the MTEF consultant and a representative of the Technology Department. As a result of the assessments, significant improvements were made to the budget format including inclusion of a multi-year macro economic table; a statement of government priorities, inclusion of information on non-financial assets, and the formulation of a citizens budget document. It was also decided that the budget classification system would be converted to GFS 2001. PEFA continues to be used on an annual bases as a means of identifying additional improvements to budget related systems. The formal baseline assessment was conducted between May 29 and July 7, 2007. Five expert consultants were engaged by the World Bank and EC to conduct the assessment. In organizing for the assessment lead coordinators were identified consisting of high level officials from the Ministry, World Bank and EC. These leads were responsible for the overall project and resolving issues. Task leaders were also identified for each of the involved organization which were responsible for collecting data, scheduling meeting and developing and monitoring the work plan. Team coordinators were also identified, one for the Ministry and one for the external organizations. These coordinators were responsible for the monitoring the collection of the data and the status of meetings. The Ministry also formed an internal Project Management team chaired by the First Deputy and including representatives from each section of the Ministry as well as other involved governmental organizations. It was the responsibility of the project team to review draft reports and discuss issues with the World Bank and EC. The final report was used by the Ministry in updating it Public Financial Management Reform Policy Vision, its primary guide for managing reforms. It also developed a detailed action plan for improvements to be implemented in 2009. The PEFA Report and the reform plans were presented at work shop hosted by the Ministry for international organizations Based upon its experience with PEFA the Ministry concluded that: PEFA is a very useful tool to use in assesses sing systems and identifying improvements. Conducting self assessments in advance of the formal assessment can be useful in educating and familiarizing staff on the use of the tool. Self-assessments can be successfully used in making improvements for selected PFM systems, e.g., budgeting systems. Having a well thought out project management structure is important in efficiently conducting a formal PEFA Assessment. Once completed, PEFA should be used in completing and/or updating Public Financial Reform Plans. Survey Results As part of its approach, the WG developed a survey which was sent to all BCOP participating countries. Seven responses were received to the survey. The following findings were derived from the survey: The responders represented the full range of experience with PEFA. Some responses were from countries that were involved in completing their first baseline assessment while one responding country was completing its second assessment. Most had used PEFA both for conducting self-assessments as well as formal assessments. By far the majority of respondents rated their experience with PEFA as good. In all but one case, respondents indicated that some type of team was established to manage the assessment. These teams ranged from those including representative from all involved governmental organizations to those including only members of the Ministry of Finance. Based upon the responses it appears that in most cases the formal PEFA Assessments are used to formulate and/or update Public Expenditure Reform Plans. Most countries make the PEFA Assessment available to the public PEFA is used as a tool for monitoring progress in implementing reforms and as a benchmark for comparing to the practices of other countries. Responders considered a weakness of PEFA was that it did not sufficiently recognize the reforms that were already underway at the time the assessment was conducted. PEFA Secretariat During the February WG meeting in Ljubljana, Mr. Frans Ronsholt, the Head of PEFA Secretariat gave a presentation on Recent Developments of the PEFA Program. A copy of the full presentation is attached. Highlights of the presentation included the following: To date, more then 100 PEFA Assessments have been completed with baseline reports completed for 90 countries. The primary uses of PEFA are to track performance over time, identify and prioritize reforms; and peer learning. PEFA was designed for in-country use. However there appears to be growing interest in its use to conduct comparisons amongst countries. It is an individual countrys decision as to whether or not their PEFA Assessment will be made public or posted on the PEFA Website. To prepare for a PEFA Assessment a country should form and train a team of its officials who are stakeholders in the project. In-country teams should do as much of the assessment as possible. An assessment, whether done internally or independently will have greater success if it has strong governmental leadership and commitment. Case studies were presented for both Mozambique and Norway. A Monitoring Report will be completed in mid-2009 which will provide information on the trends in the use of framework. Work Group Recommendations Using the information provided by the Country Reports, the Survey, and the presentation from the PEFA Secretariat, and based upon their own experience the Work Group developed a list of findings and actions that they believe are conducive to improving the quality and accuracy of PEFA Assessments. Self-Assessments. PEFA can be used very successfully in conducting self-assessments of either individual PFM components or entire systems. Conducting self-assessments will: Increase the knowledge of staff in the use of PEFA. Provide a basis of comparison when formal assessments are conducted. Provide a means of monitoring progress between formal PEFA assessments. Improve systems in advance of formal baseline assessments. Pre-assessment planning. Prior to participating in a formal PEFA assessment countries should: Have strong support and commitment from leadership at all levels of the government. Develop a structure for managing the assessment including: An internal government mental leader and project manager. A project team including representatives from all governmental organizations both within and external to the Ministry of Finance. Staff assigned with responsibility for collecting data, scheduling meetings, and resolving issues. Reviewing draft reports and resolving areas of disagreement. Agreement on the structure and frequency of meetings between government officials , project sponsors, and external consultations to monitor project status and resolve identified issues. Provide training on PEFA to all participating officials and staff. Agreement with all participants, including sponsoring international organizations on the schedule for the assessment and the publication of the report. Country Assessment. Where possible, Country teams should strive to complete as much of the assessment on their own that is feasible based upon their competency. This will serve to increase the competency of internal staff in using the assessment tool and likely will enhance the internal commitment to address findings. The external experts should provide guidance and review the resulting information for accuracy and credibility. Basis for Reform Action Plan. The PEFA Assessment should feed directly into a Public Financial Reform Action planning process and provide a clear indication of the areas requiring strengthening and improvement based upon the assessment. However, the objective of reforms should not be to improve the PEFA score, but rather to improve financial management. Other considerations for post-assessment actions include: Indicators should not be used simplistically. A low score is not sufficient justification to make a reform a high priority. Other factors must be taken into consideration including the relative importance of the subject, organizational preparedness to address the issue, the complexity and timeframe for making the improvement, and interdependence with other elements, and focusing on improvements that will have the greatest benefit to the government. Creating an organizational structure and systems for monitoring the Action Plan between formal PEFA Assessments. This could include institutionalizing a permanent work group responsible for regularly monitoring project status. It could also include conducting PEFA Self-assessment annually, between formal assessments. Issues Resolution. If there are areas of disagreement arising from the review of draft reports, then the project team should prepare a written evaluation of the issue with accompanying data supporting the governments positions. Generally, if an issue is documented, it will increase the likelihood of the report being modified. Public Release. In the interest of transparency the PEFA report should be shared publicly. The assessment forms a good basis for educating elected officials and the general public on necessary reforms as well as in reporting results. It also offers and opportunity for the government to report on actions being taken in response to the assessment. In completing its work, the Work Group also identified areas where they believed PEFA could be improved. All participants in the process need to agree to and adhere to a work plan and schedule in advance of the assessment. In developing the schedule consideration needs to be given to other government activities, such as the annual budget process, to ensure that the government will have adequate resources to complete the assessment. Some indicators need to be re-evaluated. Examples identified included PI-3 Revenue Out-turn which provides a high score for actual revenues being 97 % or above even if they significantly exceed 100%. Similarly, there should be indicators directed toward the overall financial performance of a country. For example, a country might receive a low score because of a large amount of historical and/or inherited tax payment arrears. Yet at the same time that country might have an excellent record of improving annual tax collections. The PEFA reports does a good job of documenting the history of reforms in the Country being assessed. However greater detail and attention should be given to reforms that have been completed or that are in progress beyond the years examined in the assessment. PEFA by design is intended to only produce findings on the strengths and weaknesses of financial systems. It does not provide recommendations on improving systems. However the consultants conducting the assessments have significant expertise with public financial systems. Governments would benefit from receiving their ideas and suggestions on options for improving systems as part of the report. PEFA should consider the potential influence that an active IMF program may have upon assessment results. Countries with an active IMF program may be more conservative in their forecasting and budgeting. Like countries using PEFA assessment to identify financial reforms, international organizations should identify actions they will take in response to indicators D-1 though D-2. There also needs to be greater sensitivity to how these indicators may indirectly affect the image of the country. For example a low score on D-3, proportion of aid that is managed by use of national procedures, could be construed to mean a lack of confidence in governmental systems by international organizations. 4 5 \ g | 2 ~ $ % & K M : ; \ { } : A ǭß h\ 5>* hvn h h_ hvn 5>* h 5>* hvn h\ h?7 h+ hWG h/ h >*h( 5>* h 5>* h h 5>* h( hb