Credit: Public Expenditure and Financial Accountability (PEFA) 

Getting the PFM Basics Right : Insights from a New Study

David Fellows, John Leonardo

November 14, 2022

A recent PFMConnect study shows how PEFA assessment reports can be used to improve PFM performance. The Public Expenditure and Financial Accountability (PEFA) program provides a framework for assessing and reporting the strengths and weaknesses of a country’s public financial management (PFM) system. The PEFA Field Guide explains the components of the framework and describes how an assessment team should score each dimension on a scale of A to D, a D score representing the lowest level of performance.

The latest 2016 PEFA framework, which refined the previous 2011 framework, is structured under a hierarchy of 6 Pillars, 31 Indicators (PIs) and 94 Dimensions. The PFMConnect study concentrates the analysis on Dimensions which is the level at which problems and improvements can be most usefully assessed.

Evaluations have been published by 63 countries under the 2016 framework. A full list of the dimensions with D score data can be accessed here.

The PFMConnect study concentrates on the analysis of D scores at the dimension level given the frequency of D scores and the very poor level of performance they represent. The Field Guide requires a D score when: ‘the feature being measured is present at less than the basic level of performance or is absent altogether, or that there is insufficient information to score the dimension’. D scores represent 32% of all dimension scores in the 2016 framework evaluations, 39% amongst low-income countries. They were widely distributed with about half of the dimensions having an above average number of D scores.

The study assessed the key factors that contributed to performance. The results suggest that most D scores can be explained by the absence of ‘Management Effectiveness’, ‘Integrity’ and in one case of ‘High Level Technical Knowledge’ although poor “System Design” is another important contributing factor.

 

The PFMConnect study then focuses on a sample of 45 countries that have undertaken at least one PEFA evaluation under both 2011 and 2016 frameworks (the earliest and the latest studies were used for countries with more than two studies). This enables a country’s performance to be compared over a five-year period. The two frameworks differ in many respects, but PEFA suggests that they can be aligned for 37 ‘equivalent’ dimensions and PFMConnect has extended this comparison to 63 dimensions. This dual framework study revealed a generally deteriorating performance with most dimensions exhibiting a greater number of D scores in the later evaluations. The data can be accessed here

When the two evaluations for the same country were compared it was noted that most countries recorded a high proportion of D scores for the same dimension in both evaluations demonstrating a reasonably consistent poor performance. A few countries displayed less consistent results.

We suggest that country-specific studies should be undertaken (2016 framework studies for the full 94 dimensions and dual studies where the data are available) examining D scores at dimension level to establish potential causes of poor PFM performance and identify ways in which performance might be improved. Issues to consider with respect to areas of poor performance, include:

 

We have concentrated on D score analysis in this study, but it could be useful to extend the analysis to C-level scores where the performance of countries still remains below good international standards.

Country authorities might want to use PEFA assessment reports (which by convention do not include any recommendations) to develop proposals for improving performance, based on the topics noted above. A report by the Swedish International Development Cooperation Agency (SIDA) on PFM reform makes some useful suggestions about the necessary conditions to achieve effective reform. This includes the need for change agendas to be aligned with Government priorities and to treat PFM reform as a learning process with a strong emphasis on coordination and systematic evaluation of the activities performed by the teams in finance ministries set up to deliver specific reforms.

Groups of countries or subnational bodies may wish to collaborate in review and development exercises enabling challenges and learning to be shared and systems of mutual support developed. Do all finance ministries have a PFM development programme?

 

Any country, region or development institution wishing to participate in further work in this field is invited to discuss their interest with the authors.

Using PEFA assessment reports to improve PFM performance.
David Fellows , President of the Society of Municipal Treasurers
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