Framework for assessing - PEFA

1 Improving public financial management. Supporting sustainable for assessing public financial managementPEFA was developed by the seven PEFA Partners: The European Commission, International Monetary Fund, World Bank, and the governments of France, Norway, Switzerland, and United Kingdom, in collaboration with PEFA users and other international Secretariat1818 H Street NWWashington DC 20433, February 2016 PEFA SecretariatWashington DC 20433, USAF ramework for assessing public financial managementPR E FACEE ffective institutions and systems of public financial management (PFM) play a critical role in the implementation of national policies concerning development and poverty reduction. Good PFM is the linchpin that ties together available resources, delivery of services, and achieve-ment of government policy objectives.

2 If it is done well, PFM ensures that revenue is collected efficiently and used appropriately and sustainably. The centrality of good PFM for effective global development has been acknowledged in many forums including United Nations commitments on financing for development and Sustainable Development Goals, and the Effective Institutions Platform. For instance, the representatives to the Addis Ababa Action Agenda in July 2015 committed themselves to addressing the chal-lenge of financing and to creating an environment at all levels that enables sustainable develop-ment, building on the 2002 Monterrey Consensus and the 2008 Doha Declaration. In accord with widespread international agreement on the importance of PFM, the Public Expenditure and Financial Accountability (PEFA) program was initiated in 2001 by seven international development partners: The European Commission, International Monetary Fund, World Bank, and the governments of France, Norway, Switzerland, and the United Kingdom.

3 PEFA began as a means to harmonize assessment of PFM across the partner organizations. It was created to establish a standard methodology and reference tool for PFM diagnostic assessments. PEFA was also expected to provide a basis for dialogue on PFM reform strategies and priorities as well as a pool of information that could contribute more broadly to research and analysis of PFM. Since 2001 PEFA has become the acknowledged standard for PFM assess-ments. More than 500 PFM assessment reports from 149 countries have been completed as of December 31, 2015. PEFA 2016 is a substantial upgrade from the previous version of PEFA, which was largely the same as the version introduced at the program s inception. PEFA 2016 acknowledges the changing landscape of PFM reforms and the evolution of good practices over the last decade.

4 Experience has also identified areas for clarification and refinement that have been integrated with the core PEFA guidance. The upgrade has benefited from significant feedback from partners, users, beneficiaries, and observers of PEFA during global public consultation in 2014, followed by extensive testing during 2015. PEFA 2016 builds on the foundations of the 2005 and 2011 versions through the addition of four new indicators, the expansion and refinement of existing indicators, and a recalibration of baseline standards for good performance in many areas. PEFA 2016 introduces a stronger focus on the elements of internal financial control that can be observed in PEFA assessments, and establishes a clearer and more consistent structure for reporting PEFA findings. From the date of commencement, PEFA 2016 replaces PEFA 2011 as the Framework to be applied for all new PEFA volume is the first of several documents produced by the PEFA Secretariat to explain and support the use of PEFA 2016.

5 More detailed guidance and other information about PEFA is available on the website: CONTENTSPREFACE ..IIILIST OF ABBREVIATIONS AND ACRONYMS ..VIPART 1: PEFA OVERVIEW .. Introduction .. Scope and coverage of the Framework .. The PEFA performance indicators .. The PEFA report .. Overall structure of PEFA ..6 PART 2: PEFA PERFORMANCE INDICATORS .. General guidance on scoring .. Scoring of indicators with multiple dimensions .. Specific guidance scoring for each indicator and dimension ..11 Pillar I. Budget reliability ..14 Pillar II. Transparency of public finances ..20 Pillar III. Management of assets and liabilities ..33 Pillar IV. Policy-based fiscal strategy and budgeting ..44 Pillar V. Predictability and control in budget execution ..55 Pillar VI. Accounting and reporting ..73 Pillar VII.

6 External scrutiny and audit ..79 PART 3: THE PEFA REPORT ..84 Executive summary ..861. Introduction ..872. Country background information ..893: Assessment of PFM Conclusions of the analysis of PFM systems ..965. Government reform process ..99 Annex 1. Performance indicator summary ..101 Annex 2. Summary of observations on the internal control Framework ..102 Annex 3. Sources of information ..103 BCG budgetary central governmentCG central governmentCOFOG Classifications of Functions of GovernmentDAC Development Assistance Committee of OECDEUR euroFY fiscal yearGDP gross domestic productGFS government financial statisticsIAASB International Auditing and Assurance Standards BoardIFAC International Federation of AccountantsIGF Inspection G n rale des FinancesINTOSAI International Organization of Supreme Audit InstitutionsIPSAS International Public Sector Accounting Standards (of IFAC)

7 ISA International Standards on AuditingISO International Standards OrganizationISSAI International Standards of Supreme Audit InstitutionsMOF Ministry of FinanceOECD Organisation for Economic Co-operation and DevelopmentPC public corporationPFM public financial managementPI PEFA indicatorPPP public-private partnershipSAI Supreme Audit InstitutionSNG subnational governmentTSA Treasury single accountUSD United States dollarsLIST OF ABBREVIATIONS AND ACRONYMSPART 1: PEFA Introduction The Public Expenditure and Financial Accountability (PEFA) program provides a Framework for assessing and reporting on the strengths and weaknesses of public financial management (PFM) using quantitative indicators to measure performance. PEFA is designed to provide a snapshot of PFM performance at specific points in time using a methodology that can be replicated in successive assessments, giving a summary of changes over time.

8 The PEFA Framework includes a report that provides an overview of the PFM system and evidence-based mea-surement against 31 performance indicators. It also provides an assessment of the implications for overall system performance and desirable public financial management outcomes. It provides a foundation for reform planning, dialogue on strategy and priorities, and progress monitoring. PEFA is a tool that helps governments achieve sustainable improvements in PFM practices by providing a means to measure and monitor performance against a set of indicators across the range of important public financial management institutions, systems, and processes. The PEFA methodology draws on international standards and good practices on crucial aspects of PFM, as identified by experienced practitioners. PEFA incorporates a PFM performance report for the subject government that presents evidence-based indicator scores and analyzes the results based on existing evidence.

9 It emphasizes a country-led approach to performance improvement and the alignment of stakeholders around common goals. PEFA reports outline the economic environment faced by the public sector, examine the nature of policy-based strategy and planning, and analyze how budget decisions are implemented. PEFA assessments examine the con-trols used by governments to ensure that resources are obtained and used as intended. PEFA provides a frame-work for assessment of transparency and accountability in terms of access to information, reporting and audit, and dialogue on PFM policies and actions. PEFA considers the institutions, laws, regulations, and standards used by governments in the PFM process. It also examines the results arising from the operation of PFM in key areas such as budget outturns, effectiveness of controls, and timeliness of reporting and audit.

10 Governments use PEFA to obtain a snapshot of their own PFM performance. PEFA offers a common basis for examining PFM performance across national and subnational governments. In addition to governments, other users of PEFA include civil society organizations and international development institutions. PEFA scores and reports allow all users of the information to gain a quick overview of the strengths and weaknesses of a country s PFM system. Users also see the implications of the overall performance results for the key goals of fiscal disci-pline, strategic resource allocation, and efficient service delivery. The PEFA analysis thereby contributes to dia-logue on the need and priorities for PFM addition to guidance for analysis and reporting, the PEFA program provides support, monitoring, and analysis of PEFA assessments.