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May 19, 2010

Maldives: Public Expenditure and Financial Accountability (PEFA) Assessment Report Published

Posted by Tej Prakash 

The PEFA assessment report for the Maldivesthe first PEFA assessment led by the IMFhas just been published, together with a PFM reform action plan.

In late 2008, the government of Maldives asked FAD to help carry out a PEFA assessment. This request should be seen in the overall economic and financial context of the Maldives’ economy at that time. While the economy continued to grow after the 2004 Tsunami, so did domestically financed expenditure, but at a much more rapid pace. By 2008, spending growth had resulted in a significant fiscal imbalance. To continue accommodating the desirable developmental and investment expenditure, there was a need not only to scale back current spending, but also to make overall spending more efficient. At this time, FAD was already providing technical assistance to the Maldives on integrated financial information systems. Other donors such as the World Bank (WB) and Asian Development Bank (ADB)were providing assistance in different areas. Through the PEFA assessment, and a reform action plan based on its findings, the authorities expected to move over time to a more robust PFM system.  

The authorities demonstrated their commitment by establishing a Technical Committee to coordinate and guide the PEFA process. It had wide ranging membership including the Ministry of Finance, the Central Bank, the Auditor General, and the Anti Corruption Commission. An initial FAD mission (one staff member) visited Male in February 2009 to lay the ground work for the PEFA assessment. In addition to the Technical Committee, this mission had discussions with other important stakeholders including the parliament. The mission also prepared an assessment of two indicators as examples of the assessment process. The authorities were to prepare the initial assessment themselves. Other donors such as the WB and the ADB also expressed a desire to participate in the process in reviewing different indicators that were self assessed.

Following the completion of the initial mission, the authorities prepared a self assessment. The second (full size) mission took place in April 2009. It reviewed the self assessment prepared by the authorities and discussed each indicator in depth. It prepared an assessment report for the authorities based on its review of the self assessment. It found many areas both of strength and of relative weakness where further reforms were needed.

A third and final (small) mission took place in November 2009 and finalized the assessment in discussion with the authorities. Its main task was to arrive at an agreement on indicators where there seemed to be a difference of opinion. This was successfully done and an agreed report was finalized. At the same time, this mission prepared an "action plan" for reforms based on PEFA findings for implementation in a sequenced manner.
 
The authorities are following the Action Plan prepared by the final mission and going about it systematically. PEFA reports are published only with the concurrence of the authorities. They gave their consent to the publication of the report in April 2010.

PEFA and its objectives

Public Expenditure and Financial Accountability Assessment (PEFA) is a system to monitor the performance of public financial management (PFM) in any country and to provide a common pool of information to measure progress.

It is a set of 28 high level performance indicators to evaluate PFM systems. In addition there are three supplemental indicators on donor practices that affect country’s PFM systems. This framework was designed specifically for central governments, although it has since been applied to some sub national levels also.

PEFA is an integrated monitoring framework to measure PFM performance overtime through six critical dimensions. These are:

• Credibility of the budget to determine if the budget is realistic and implemented as intended;
• Is the budgetary and fiscal risk oversight comprehensive and is this information available to the public;
• Does the budget reflect government policy;
• Is the budget implemented in a predictable and orderly manner and is the stewardship of public funds adequate;
• Are timely and accurate accounting records produced;
• Are systems for audit sound?

The 28 indicators apply a consistent methodology to determine how well an assessed indicator is performing. Each indicator has a rating scale of A to D, with A being the best performing. These indicators can have one or more dimensions (there are a total of more than 70 dimensions). The scoring methodology provides comprehensive guidance on rating taking into account each dimension of a given indicator.  

However, PEFA does not provide any insight into the underlying reasons for the level of performance. It also does not provide any guidance on the sequencing of the reforms process.   

Fund’s role in it

The Fund and in particular its Fiscal Affairs Department (FAD) has been a part of the PEFA initiative from the beginning. Endorsed by the OECD/DAC Joint Venture on PFM, the main partners of PEFA are, in addition of the IMF, the WB, the EC, the UK, France, Norway, and Switzerland. While PEFA drew on many sources, its basic building block was the initial HIPC set of indicators and IMF’s Fiscal ROSC.

Coordination and developmental work on PEFA is done by the PEFA Secretariat, physically based in the WB. FAD continues to play a major role in the PEFA through its membership of the Steering Committee of PEFA. FAD has contributed to PEFA through active participation in its evolution and development, through peer reviews and active participation in the Steering Committee meetings. While FAD had been involved in previous PEFA assessment reports conducted in collaboration with other institutions, including the WB, the Maldives report is, however, the first where FAD assumed the leadership of the assessment work, in close cooperation with the country authorities.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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