Posted by Mario Pessoa
The IMF Fiscal Affairs Department has prepared a study comparing the approaches followed by the module of the Report on the Observance of Standards and Codes (ROSC) on fiscal transparency (usually known as “the fiscal ROSC”) and the assessment reports undertaken as part of the Public Expenditure and Financial Accountability (PEFA) Program (“the PEFA assessments”), respectively, as well as their respective coverage.
The note (copy attached) concludes that more than sixty percent of the good practices assessed in a fiscal ROSC are reported fully or partially in a PEFA assessment and about three-quarters of the indicators in a PEFA assessment can be derived from the material assembled for a fiscal ROSC.
However, despite some overlapping in coverage, each one has its own purposes and responds to specific needs. The note identified that since 2005 at least sixteen countries have undertaken both a PEFA assessment and a fiscal ROSC independently of each other, often with only a short time interval between the two exercises. Therefore, better coordination among all the stakeholders would avoid any risk of putting excessive demands on the limited capacity of aid-recipient countries and duplication of efforts by the agencies involved in undertaking the assessments.
The IMF introduced its Code of Good Practices in Fiscal Transparency in 1998, which was intended to encourage widespread adoption of transparent fiscal management practices. The Code, and its accompanying Manual on Fiscal Transparency, was established as part of a broad response by the international community to the Asian financial crisis of the late 1990s. A revised version of the Code and Manual was issued in 2007. It was constructed as a high-level strategy to minimize financial market and public finance risks that could arise from weak transparency in the fiscal area. The fiscal ROSCs were closely linked to the IMF’s surveillance role—in short, the IMF’s regular consultations with member countries on macroeconomic policy issues related to the Fund’s Articles of Agreement.
The PEFA framework by contrast, published in 2005, was perceived as an important element in the donor community’s development mission, and the associated technical assistance. It has also largely been used by development partners as a fiduciary risk assessment tool.
A fiscal ROSC differs from a PEFA assessment in focusing particularly on transparency and accountability aspects of PFM systems, grouped under four pillars:
• clarity of roles and responsibilities for PFM within government;
• open budget processes, covering all PFM-related processes of government;
• public availability of information, specifying the kinds of PFM information that should be accessible to the public; and finally,
• assurances of integrity, covering issues of data quality as well as the need for and quality of external scrutiny of PFM information.
A PEFA assessment focuses primarily on the extent to which PFM systems and procedures deliver efficient and effective outcomes in six critical areas:
• Budget credibility;
• Comprehensiveness and transparency;
• Policy-based budgeting;
• Predictability and control in budget execution;
• Accounting, recording, and reporting; and
• External scrutiny and audit.
It covers fiscal transparency issues insofar as they affect PFM effectiveness. The emphasis is on the budget process itself, particularly in respect of the main PEFA indicator set, although PEFA assessments also include some description of the legal framework for fiscal management, reforms being undertaken, and public access to key information. PEFA assessments have also focused predominantly on low- and middle-income countries, while fiscal ROSCs have also been carried out in a substantial number of high-income countries.
Ratings for PEFA indicators are derived from a selective sample of relevant good practices in PFM. Objective criteria are distinguished for each indicator, and scoring mechanisms are used which weight performance under each criterion.
The main conclusions to be drawn from the analysis are:
• More than sixty percent of the good practices assessed in a fiscal ROSC are reported fully or partially in a PEFA assessment and about three-quarters of the indicators in a PEFA assessment can be derived from the material assembled for a fiscal ROSC.
• Both PEFA assessments and fiscal ROSCs report in detail on several major elements of fiscal transparency, including PFM operations and tax administration, the content of budget documents, and institutional responsibility for the reliability of fiscal information. Indeed, in many of these areas, the descriptive material that needs to be collected and reported in either one of the instruments is sufficient to provide full coverage of the other.
• PEFA assessments do not cover much of the “first pillar” of fiscal transparency―clarity of roles and responsibilities; or of the “third pillar”―availability of information to the public. There is, in particular, much less in-depth coverage than in a fiscal ROSC of the legal framework, including relations with the rest of the public and private sectors, and the implementation of expenditure and revenue policies.
• Fiscal ROSCs do not assess donor practices and do not include quantified performance ratings. Some of the most recent fiscal ROSCs have included ratings of the observance of each of the ten “core principles” of fiscal transparency on a four-tier scale, but these are less visible and specific than the performance indicators that are a central feature of a PEFA assessment.
• It is notable that whereas a fiscal ROSC includes recommendations to the authorities for addressing specific shortfalls in relation to the good practices set out in the Code, a PEFA assessment contains no such recommendations. Instead, it provides a comprehensive framework/baseline for assessing the need for reform in various PFM areas.
For further details read the note attached. Download Note
