A complete history (abridged)
Posted by Bill Dorotinsky
The term 'PEFA' is rapidly entering the international public financial management lexicon, but there is still some confusion over the term and its application. This post provides some of the background and origins of the approach.
In a December 10, 2007, blog post, we wrote about the HIPC expenditure tracking initiative, which illustrated that an indicator-based tool could track PFM system performance over time. The result of this work by the IMF and World Bank also clearly illustrated that many country PFM systems were weak, despite many years of technical assistance. The Boards of the two institutions asked staff the right question -- What is wrong with PFM reform and capacity-building? Why has there not been more progress?
This set in motion some work by the IMF, World Bank, and other development partners to try to identify barriers to PFM reform and the lessons of successful reform. The post cited above listed some of the lessons that emerged from the HIPC work. The work on identifying cases and lessons is an on-going process, and focuses on several dimensions: country incentives; development partner and international financial institution (IFI) behavior; and technical approaches to PFM system improvement.
Responding to the need to improve PFM systems as a critical element for economic growth and development, several institutions came together in 2001 to form the Public Expenditure and Financial Accountability (PEFA) initiative -- a multi-donor effort composed of the European Commission, the UK's Department for International Development, the Swiss State Secretariat for Economic Affairs, the French Ministry of Foreign Affairs, the Royal Norwegian Ministry of Foreign Affairs, the World Bank, the International Monetary Fund and the Strategic Partnership with Africa.
What were some of the barriers to PFM reform?
Among the many barriers to PFM reform, the PEFA partners and program identified some donor practices that stood out as problematic. One was the focus on diagnostics, to the extent that countries were being over-diagnosed -- and perhaps under-supported. A 2003 Strategic Partnership with Africa (SPA) Survey found that, for 2003, each country in the survey had an average of 4.6 PFM reviews in that year. Niger had the record, with 10 reviews in one year by different organizations.
One of the first PEFA reports, "Assessing and Reforming Public Financial Management, A New Approach Study", documented the over-lap in some of the most frequently used diagnostics, and encouraged development of a unified framework, with wide international support, for assessing PFM systems - hopefully leading to reduction in diagnostics and liberating efforts for more capacity-building.
A second 'barrier' was country ownership (or lack thereof)- over half of the reviews in the SPA Survey noted above produced a PFM reform action plan, with some 70 percent stating they were a comprehensive plan (including the plans of other diagnostics). Not mentioned were a country's own plans for reform.
A third was plethora of PFM reform projects, often uncoordinated, sometimes competing, and frequently over-taxing the ministries of finance staff charged with implementing them --- not to mention their duties to actually mind their country's finances when not being diagnosed.
And some lessons of 'success'?
Beyond identifying what was wrong with the international aid architecture for PFM reform, some good examples were identified where PFM reform was seen as going well, especially over a longer period of time. Success is often relative, and the success factors tended to be the mirror of the challenges noted above.
For example, the importance of country leadership and donor coordination. In Tanzania, the annual government-led pubic expenditure review process is managed by the joint govt/donor/civil society PER working group. Each year the PER work includes a budget review, and in-depth analysis of selected policy and management issues. As of 2004, Government was transferring the Secretariat supporting the work to the Ministry of Finance. Government leadership in setting the 'research' or 'diagnostic' agenda is as important for impact as the same leadership in PFM reform measures.
The various lessons were distilled into the "Strengthened Approach to Public Financial Management Reform", with three pillars of good practice in PFM
- A country-led agenda - a country led PFM reform strategy and action plan
- A coordinated program of support (where needed) - a coordinated IFI-donor multi-year program of PFM work that supports and is aligned with the government’s PFM strategy, where needed by the country
- A shared information pool – a framework for measuring results that provides consistent information on country PFM performance, including progress over time.
At the center of the approach is country-level dialogue, led by government, supported by the various international organizations. The graphic to the left nicely summarizes the concepts.
The World Bank site link above provides much background and reference material for the Approach, as does the PEFA web site. The Approach came to be embedded in the 2005 Paris Declaration for Aid Effectiveness and OECD DAC Guidelines "Harmonising Donor Practices for Effective Aid Delivery Volume 2: Budget Support, Sector Wide Approaches and Capacity Development in Public Financial Management."
Pulling it together --- PEFA
The PEFA program has furthered the Approach with development of PFM Performance Measurement Framework -- a concrete tool to serve as a common diagnostic and provide a common information pool. The Framework --- commonly referred to as the PEFA Framework --- consists of 28-indicators of country PFM system performance, as well as three indicators of donor performance. The Framework is available for free at the link above, in English, French, Spanish, Portuguese (Brazilian and Continental), Russian, Ukrainian, and most recently Arabic.
A future post will provide a brief review of the Framework itself.......
