Monitoring Public Financial
Management System Performance:
Lessons and Future Directions
Bill Dorotinsky
The World Bank
ICGFM Conference
Miami May 3, 2005
Broad Lessons from PFM assessment work to date
A large amount of PFM assessment has been undertaken,
mostly by development agencies and a good deal of
knowledge generated.
Limitations :
• In some cases, the duplication and lack of coordination in the
work has led to a heavy burden on partner governments
• More focus on diagnostics, less on supporting implementation
of reform of country systems
• With the exception of the HIPC benchmarks, it has been difficult
to determine the extent of improvement in a country’s PFM
performance over time.
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Comparison of HIPC Expenditure Tracking
Assessment Outcomes of 2001 & 2004
Some improvement in HIPC PEM systems performance since 2001,
however a majority still require substantial upgrading.
Relative Need for Upgrading PEM Systems
(Number in Paranthesis indicate total of benchmarks met)
19
GNB (0)
15 GMB (3)
ZMB (3)
COD (3)
BOL (5) BOL (4)
CMR (4) MDG (4)
ETH (6) MOZ (4)
GMB (5) STP (4)
9 GHA (1)
GIN (5)
GIN (5)
MWI (5)
BEN (8) MDG (7) NER (5)
BFA (8) MWI (7) NIC (6)
GUY (8)
HND (8) 5 MRT (7)
MOZ (5)
CMR (7)
ETH (7)
MLI (8) BEN (8) NIC (5) GHA (7)
2 RWA (8) RWA (8) NER (3) HND (7)
TZA (8) UGA (8) STP (4) SEN (7)
SEN (4)
0 TZA (11) TCD (8) BFA (9) SLE (7)
MLI (12) UGA (8) GUY (10) ZMB (3) TCD (7)
Little Upgrading Required Some Upgrading Required Substantial Upgrading
Required
2001 2004
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Source: Fund-Bank AAP database http://www1.worldbank.org/publicsector/pe/hipcpapers.htm
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
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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
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1. A country-led PFM reform strategy and action plan
The government-led reform Home-grown, country
program specific agenda.
Good practices suggest
(i) sequence and priorities
Planning and of reform activities and
undertaking diagnostic measures, (ii) holistic view
work over time. of the PFM system,
institutions and processes.
Designing a prioritized
and sequenced reform Informed by policy
program. dialogue with donors.
Implementing reforms
Monitoring of progress
over time.
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2. Donor coordination around the PFM reform agenda of
the government
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.
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3. Monitoring progress of PFM reforms
Monitoring 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.
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The Performance Measurement Framework
A PFM Performance Report
A standard set of high • Integrative, narrative report
level indicators based on the indicators and
• Widely accepted but assessing performance; based
limited in number on observable, empirical
• Broad measures of evidence.
performance relative to • Updated periodically, depending
the key PFM system
on country circumstances and
characteristics
operational needs
• Enabling credible
monitoring of • Contributing to coordinated
performance and assessment
progress over time. • Feeds into government-donor
policy dialogue
An explicit performance measurement framework focuses on capacity-
building and results on the ground.
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MEASURING WHAT PERFORMANCE?
The questions the PFM performance indicators seek to answer
Budget
BudgetRealism:
Realism: Accountability
Accountabilityand
and
IsIsthe budget
the budget Transparency
Transparency: :
realistic,
realistic,and
and
implemented Are
Areeffective
effectiveexternal
implementedas as financial
external
intended
intendedininaa financialaccountability
accountability
predictable and
andtransparency
predictablemanner?
manner? transparency
arrangements
arrangementsininplace?
place?
Six core
Comprehensive,
Comprehensive,
objectives
Policy-based,
Policy-based,budget:budget: of PFM
Does the budget
Does the budget
capture
captureall
allrelevant
relevant
system Control
Control: :
fiscal
fiscal transactions,and
transactions, and IsIseffective
effectivecontrol
controland
and
isisthe
theprocess,
process,giving
giving stewardship
stewardshipexercised
exercised
regard
regardtotogovernment
government ininthe
theuse
useofofpublic
public
policy?
policy? funds?
funds?
Comprehensive
Comprehensivefiscal fiscalrisk
risk
oversight
oversight: : Information:
Information:
IsIsoversight
oversightofoffiscal
fiscalrisk
risk
arising from public IsIsadequate
adequate fiscal,revenue
fiscal, revenueand
andexpenditure
expenditure
arising from public information
enterprises
enterprisesandandsub-national
sub-national information produced and disseminatedtotomeet
produced and disseminated meet
governments decision-making and management purposes?
decision-making and management purposes?
governmentsadequate?
adequate?
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STRUCTURE AND CONTENT OF THE INDICATORS
Structure of the indicator set
C. Budget
Cycle A. PFM Out-turns
Policy-
based
budgeting
B. Key cross-cutting
features
External Budget Credibility
Comprehensiveness Credibility
Scrutiny and Execution
Audit Transparency
Accounting
and
Reporting
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Performance indicators
A. PFM-OUT-TURNS: Credibility of the
budget
PI-1 Aggregate expenditure out-turn compared to
original approved budget
PI-2 Composition of expenditure out-turn compared to
original approved budget
PI-3 Aggregate revenue out-turn compared to original
approved budget
PI-4 Stock and monitoring of expenditure payment
arrears
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B. KEY CROSS-CUTTING ISSUES:
Comprehensiveness and Transparency
PI-5 Classification of the budget
PI-6 Comprehensiveness of information included in budget
documentation
PI-7 Extent of unreported government operations
PI-8 Transparency of inter-governmental fiscal relations
PI-9 Oversight of aggregate fiscal risk from other public sector
entities.
PI-10 Public access to key fiscal information
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C. BUDGET CYCLE
C(i) Policy-Based Budgeting
PI-11 Orderliness and participation in the annual budget process
PI-12 Multi-year perspective in fiscal planning, expenditure policy and
budgeting
C(ii) Predictability and Control in Budget Execution
PI-13 Transparency of taxpayer obligations and liabilities
PI-14 Effectiveness of measures for taxpayer registration and tax
assessment
PI-15 Effectiveness in collection of tax payments
PI-16 Predictability in the availability of funds for commitment of
expenditures
PI-17 Recording and management of cash balances, debt and guarantees
PI-18 Effectiveness of payroll controls
PI-19 Competition, value for money and controls in procurement
PI-20 Effectiveness of internal controls for non-salary expenditure and
assets management
PI-21 Effectiveness of internal audit 14
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C(iii) Accounting, Recording and Reporting
PI-22 Timeliness and regularity of accounts reconciliation
PI-23 Availability of information on resources received by service
delivery units
PI-24 Quality and timeliness of in-year budget reports
PI-25 Quality and timeliness of annual financial statements
C(iv) External Scrutiny and Audit
PI-26 Scope, nature and follow-up of external audit
PI-27 Legislative scrutiny of the annual budget law
PI-28 Legislative scrutiny of external audit reports
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And three donor practice indicators
D. DONOR PRACTICES
D-1 Predictability of Direct Budget Support
D-2 Financial information provided by donors for
budgeting and reporting on project and program aid
D-3 Proportion of aid that is managed by use of national
procedures
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PI-1 Aggregate expenditure out-turn
compared to original approved budget
Dimensions to be assessed: The difference between actual primary expenditure and
primary budgeted expenditure (i.e. excluding debt service charges, but also excluding
externally financed project expenditure).
Score Minimum Requirements (Scoring Method M1)
(i) In no more than one out of the last three years has the actual expenditure deviated
A from budgeted expenditure by an amount equivalent to more than 5% of budgeted
expenditure.
(i) In no more than one out of the last three years has the actual expenditure deviated
B from budgeted expenditure by an amount equivalent to more than 10 % of budgeted
expenditure.
(i) In no more than one of the last three years has the actual expenditure deviated from
C budgeted expenditure by more than an amount equivalent to 15% of budgeted
expenditure.
(i) In two or all of the last three years did the actual expenditure deviate from
D budgeted expenditure by an amount equivalent to more than 15% of budgeted
expenditure.
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PI-22. Timeliness and regularity of
accounts reconciliation
Dimensions to be assessed:
• Regularity of bank reconciliations
• Regularity of reconciliation and clearance of suspense accounts
and advances.
Score Requirements: Scoring Methodology M2
A The average of the numerical scores of the dimensions is 86-100
B The average score of the dimensions is 56-85 (assign B+ if the average is above 70)
C The average score of the dimensions is 26-55 (assign C+ if the average is above 40)
D The average score of the dimensions is 00-25 (assign D+ if the average is above 10)
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Dimension Minimum requirements for dimension score
(i) Regularity Score = 100: Bank reconciliation for all central government bank accounts take
of bank place at least monthly at aggregate and detailed levels, usually within 4 weeks of
reconciliations end of period.
Score = 67: Bank reconciliation for all Treasury managed bank accounts take
place at least monthly, usually within 4 weeks from end of month.
Score = 33: Bank reconciliation for all Treasury managed bank accounts take
place quarterly, usually within 8 weeks of end of quarter.
Score = 0: Bank reconciliation for all Treasury managed bank accounts take
place less frequently than quarterly OR with backlogs of several months.
(ii) Regularity Score = 100: Reconciliation and clearance of suspense accounts and advances
of take place at least quarterly, within a month from end of period and with few
reconciliation balances brought forward.
and clearance Score = 67: Reconciliation and clearance of suspense accounts and advances take
of suspense place at least annually within two months of end of period. Some accounts have
accounts and uncleared balances brought forward.
advances Score = 33: Reconciliation and clearance of suspense accounts and advances take
place annually in general, within two months of end of year, but a significant
number of accounts have uncleared balances brought forward.
Score = 0: Reconciliation and clearance of suspense accounts and advances take
place either annually with more than two months’ delay, OR less frequently.
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Future Directions
Indicators developed by Bank in
collaboration with IMF, EC, DFID, France,
Switzerland, Norway
Consultations were held in OECD DAC JV
on PFM, and with countries
Under final review, with expected formal
issuance in mid-May
Within Bank, expected to be recommended
as good practice in working with clients
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