Moving PFM reforms forward:

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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
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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).
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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

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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

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Why hasnt 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 -gt did not allow
lessons learning and did not encourage focus on
results on the ground Capacity constraints Technic
al 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
   governments 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 program

• Home-grown, country specific agenda.
• Good practices suggest (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.

• Planning and undertaking diagnostic work over
  time.
• Designing a prioritized and sequenced reform
  program.
• Implementing reforms
• Monitoring of progress over time.

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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 ?

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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.

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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.

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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.

• -gt 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
• 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

• A standard set of high level indicators
• 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 capacity-building and results on the
ground.
Current indicator set available at WWW.PEFA.ORG
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Whats different ?
What we dont want Government reform strategy
influenced by ad-hoc donors requests encourages a
fragmented approach to PFM reforms
The Strengthened Approach 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
Donor 4
Budget preparation
Coordinated program of support by donors
Treasury reforms
Donor 1