Bridging HIPC and PEFA: Progress in PFM Reforms in 15 Countries, 2001-2006

Posted by Paolo de Renzio

In two previous blog posts of December 10, 2007 and April 21, 2008, Bill Dorotinsky explored the background, rationale and results of the joint World Bank-IMF HIPC AAP (Assessment and Action Plan) instrument, and provided a brief history of the origins of the Public Expenditure and Financial Accountability (PEFA) approach.

The two approaches are clearly linked to each other (the PEFA Performance Measurement Framework draws and builds on many of the HIPC AAP indicators), and share the common objective of providing a reference framework for assessing the quality of PFM systems in developing countries. While the PEFA framework has now come to be generally accepted as the overall assessment tool for this purpose, therefore replacing the HIPC AAP instrument, comparing the two and bringing together their complementary information can shed light on progress in PFM reforms across countries while the PEFA framework is still being rolled out.

A recent paper, "Tracking Progress in the Quality of PFM Systems in HIPCs: An update on past assessments using PEFA data", supported by the PEFA Secretariat has attempted to do just that, bridging the two approaches in order to track progress in the quality of PFM systems in poor countries. Using the original HIPC indicators as a basis, information contained in PEFA assessment reports was "retro-fitted" onto 11 of the 16 indicators, for the 15 countries for which both HIPC AAP assessments in 2001 and 2004 were carried out, followed by a PEFA assessment in the period between 2005 and 2007 (Benin, Burkina Faso, Ghana, Guinea, Guyana, Honduras, Madagascar, Malawi, Mali, Mozambique, Nicaragua, Sao Tome and Principe, Tanzania, Uganda and Zambia). The results are provided by country either in terms of benchmarks met or of underlying raw scores, which permit a more detailed analysis.

Results for 2001-2006 show progress, although limited and uneven

The actual results suggest limited and uneven progress across the countries covered. Results for 2004-6 show a slightly more marked improvement in PFM systems than 2001-2004 across the 11 indicators. More specifically:

• For the 11 indicators covered, 2001-2004 results for the 15 countries show no change or a slight improvement in PFM system performance. Four countries improved the number of benchmarks met, four declined, and seven remained constant. The total number of benchmarks met for the pool of countries remained constant over 2001-2004. Raw results (changes in raw score, irrespective of benchmarks met) for the same period show nine countries improving, four declining, and two remaining unchanged.
• For the period 2004-6, using the original approach, the results show a further slight improvement compared to 2001-2004. In terms of benchmarks met, seven countries improved, five declined, and three remained constant. The total number of benchmarks met for the entire pool of 15 countries improved slightly. In terms of raw scores, eight countries improved, five declined, and two remained constant.
• In terms of trajectories of change, most countries showing improvements in PFM system performance tended to continue to improve, and about half of those on a declining trend reversed course (to reach 2001 levels or better), at least over the limited time horizon under review.

Looking at the whole period from 2001 to 2006, again the overall picture hides significant variation across countries. Looking at benchmarks met, five countries showed an improvement over the 2001-2006 period (with increases of up to six benchmarks for Ghana), six experienced a decline and four remained largely unchanged. Looking at raw scores, the picture improves, with eight countries improving, four declining and three presenting no change in performance.

The group of better performers remains similar but expands over time, with Burkina Faso, Tanzania, Ghana and Guyana leading both in terms of benchmarks met and raw scores. Poor performers include Benin, Guinea, Malawi and São Tomé & Príncipe. Changes across areas and indicators also reveal interesting patterns. Improvements are evident, for example, in budget classification, budget reliability and external audit. Areas where weaknesses persist include internal controls, the inclusion of donor funds in the budget and expenditure arrears.

Looking to the future

While these results need to be interpreted with caution, they offer an interesting, varied and sobering picture of progress in the quality of PFM systems in a sample of low income countries. The emerging overall trend is one of limited and uneven progress, but with about half of the countries making steady improvements. Clearly, there is great scope for further research and analysis aimed at better understanding the underlying dynamics leading to an improvement in PFM performance, in order to inform government strategies and donor interventions. In the future, similar updates should be done on the basis of PEFA assessments and methodology, as PEFA reports constitute a much improved source of data and information, covering additional aspects of PFM (such as, for example, taxation and transparency) for a wider set of countries than just HIPCs.