Policy-Based Lending 2008 2017: Performance, Results, and Issues of Design, Linked Document 2 LINKED DOCUMENT 2: PUBLIC EXPENDITURE AND FINANCIAL ACCOUNTABILITY (PEFA) 1 A. Armenia: 2008 and 2013 1. Overall, the public financial management (PFM) system in Armenia performed well in 2013, with a score of at least B for 19 out of the 28 performance indicators, compared with 15 in 2008. 2 The public expenditure and financial accountability (PEFA) ratings improved for 11 indicators (9 performance indicators and 2 donor practice indicators), reflecting significant progress in implementing PFM reforms since the previous PEFA assessment in 2008. The main improvements were in the areas of budget credibility (expenditure and revenue performance), transparency (inter-governmental fiscal relations and procurement), revenue administration, cash management, internal audit, accounting and reporting, and external audit. Cash management and reporting and accounting have become more efficient and comprehensive, due to the advent of a Client-Treasury system in 2010. Improvements have been made to the periodic upgrading of the TOD system and development partner funding is increasingly being channeled through the Treasury. The procurement system is becoming more transparent in terms of reporting, facilitated by the advent of e-governance. 2. While a total of 11 indicators improved, 18 remained unchanged (11 of which had a score of at least B). Progress could not be assessed for two indicators due to changes in the scoring methodology. Table A2.1:ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector in Armenia (2008 2016) 3155 Infrastructure Sustainability Support Program 49.00 2014 3453 Infrastructure Sustainability Support Program (Phase 2) 90.00 2016 2529 Crisis Recovery Support Program 46.30 2009 2530 Crisis Recovery Support Program 33.70 2009 Total 219.00 B. Bangladesh: 2010 and 2016 3. Bangladesh has made positive strides in developing its PFM systems since the 2010 PEFA assessment. However, this is often not reflected in the scoring, as developments have not been fully implemented, for example, in procurement, internal audit, oversight of public corporations, and external audit. Weaknesses therefore remain, particularly in the control environment and tax reconciliation, as well as inefficiencies resulting from the fragmentation of the recurrent and development budgets that continue to exist. Sustainable political will is required to instill a compliance culture and to successfully implement the next generation of reforms. 4. Of the 28 performance indicators, PEFA ratings improved for 8 (budget documentation, transparency of intergovernmental fiscal relations, budget preparation, multi-year budget perspective, effectiveness of measures for taxpayer registration and tax assessment, predictability in the availability of funds for commitment of expenditures, effectiveness of payroll controls, availability of information on resources received by service delivery units), while 13 remained unchanged. Performance in four areas (aggregate expenditure, domestic revenue, classification of the budget, and timeliness and regularity of 1 Only countries with two or more PEFA assessments are included in this Annex. Dates against each country reflect the year the report was undertaken and are therefore different for each country. 2 Summary of Performance Indicator Ratings, 2008 and 2013 PEFA Assessments. pp. 17 29.
2 Policy-Based Lending 2008 2017: Performance, Results, and Issues of Design accounts reconciliation) was less favorable in 2015 than in 2010, while the remaining 3 performance indicators were not rated. Table A2.2: ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector in Bangladesh (2008 2016) 2566/ 2567/ 2568 Public Expenditure Support Facility Program and Countercyclical Support Facility Support Program 744.85 2009 C. Bhutan: 2009 and 2016 5. The aggregate scores against each of the seven pillars of PEFA framework indicated that two pillars were stronger than the others: management of assets and liabilities (pillar III) and external scrutiny and audit (pillar VII). The pillars with low scores were transparency of government (pillar II) and accounting and reporting (pillar VI). Performance against budget reliability (pillar I) was significantly impacted by the low score on the revenue indicator (performance indicator 3), which was largely attributable to the unreliability of donor grants. 6. Of the 28 performance indicators, 10 showed an improvement in performance compared with 2009, while 10 remained unchanged. The PEFA rating in 10 areas deteriorated in 2016 against 2009. 7. While it always difficult to attribute score changes to particular reform activities, some of the improvements noted can be clearly attributed to the reform program. Examples were the improvement in budget reliability achieved through closer monitoring of outturns against the multi-year rolling budget from financial year (FY) 2010/11 onwards, and the introduction of quarterly budget situation reports from FY2015/16. Improvements in procurement included the publication of contract awards on the noticeboards of procuring entities: the risk of any mis-procurement was reduced by this public exposure. The procurement complaints process, which was new and untried in FY2009/10, is now fully operational. Table A2.3: ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector in Bhutan (2008 2016) Grant/ 338/2994 Strengthening Economic Management Program 35.00 2013 431/3258 Strengthening Economic Management Program II 36.20 2015 Total 71.20 D. Cambodia: 2010 and 2015 8. A comparison of 12 of the 31 indicators is not useful, while 2 other indicators (performance indicators 27 and 28) had no comparable scores in 2010. The reasons cited for non-comparability were: (i) the indicator structure and/or scoring criteria for three indicators were changed by the PEFA program in 2011 (performance indicators 2, 3 and 19), or (ii) the 2010 scores were not established on the same basis as the current scores either because of lack of data in 2010 or because of a different interpretation of the data requirements and their implications for the scores. Nevertheless, for 10 of those 14 indicators, it was possible to gauge the direction of change. 9. Improvement in performance was indicated for 7 performance indicators, but performance slippage was found in 3. Performance change was not possible to gauge for 4 performance indicators, while the remaining 14 remained unchanged from 2010. Performance improvements were found mainly
Linked Document 2 3 in the indicators that supported aggregate fiscal discipline (performance indicators 1, 3, and 16) and those related to monitoring and reporting of budget execution (performance indicators 21, 24, 25, and 26). On the other hand, performance slippage was noted, mainly in the indicators that affected strategic allocation of resources and related transparency (performance indicators 2, 6, and 10). 10. The predictability of donor budget support deteriorated, but improvements were made in reporting on project support through the Council for Development of Cambodia database and on the use of country systems. 11. While the overall performance of the PFM systems recorded a moderate improvement since the 2010 assessment, many important reforms were prepared during this period and the current status of implementation suggested that these may soon result in performance improvements. The 2016 assessment rated indicators only on the basis of developments until the end of 2014. Many reform initiatives were continuing in 2015. Table A2.4: ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector In Cambodia (2008 2016) Grant/Loan 132 Public Financial Management for Rural Development Program 6.71 2008 (Subprogram 1) 221/2674 Public Financial Management for Rural Development Program 20.00 2010 (Subprogram 2) 2886 Decentralized Public Service and Financial Management Sector 23.97 2012 Development Program (Subprogram 1) 3415 Decentralized Public Service and Financial Management Sector 15.00 2016 Development Program (Subprogram 2) 3428 Strengthening Public Financial Management Program 26.50 2016 (Subprogram 1) Total 92.18 E. Cook Islands: 2011 and 2014 12. In the last three years, PFM performance in Cook Islands has improved in terms of budget credibility, mainly because of better budget execution, monitoring, and reporting. Improvements have been made since 2011 in: budget credibility, arrears monitoring, comprehensiveness of budget documentation, transparency of allocation to sub-national governments, public access to reports on resources received by service delivery units, adherence to the budget preparation calendar, debt sustainability analysis, transparency of taxpayers obligations, effectiveness of the taxpayers registration and collection system, frequency and timeliness of debt reporting, payroll controls, publication of bid opportunities and contract awards, completeness and timeliness of bank reconciliation process, completeness of financial statements, and consistency of accounting policies. 13. Of the 31 indicators, 14 were rated at least a B in 2014 (compared with 9 in 2011), and 23 of the 28 country performance indicators have actually improved in actual performance as a whole. 3 Two indicators were not rated due to lack of data at the time of assessment, and 15 were rated C or lower. Of the other 5 performance indicators, for 3 there was no change in the scores (performance indicators 24, 25, and 27), but there was actually an improved in performance (this was due to either a difference in interpretation from the last assessment, or to an improvement in some but not all of the dimensions). None of the performance indicators registered a deterioration in performance. With regard to the 3 3 The numbers were taken from the country report, where the change in performance as shown by the movement in the performance indicators was based on the key performance change column of Table 1 of the report. A manual count of the change in the direction of the performance indicators gives a different number.
4 Policy-Based Lending 2008 2017: Performance, Results, and Issues of Design donor-related indicators, all remained unchanged, except for an improvement in the timeliness of providing information to the government authorities for budget formulation purposes. Table A2.5: ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector in Cook Islands (2008 2016) 2565 Economic Recovery Support Program - Subprogram 1 10.00 2009 2946 Economic Recovery Support Program - Subprogram 2 6.00 2012 3479 Disaster Resilience Program 10.00 2016 Total 26.00 F. Georgia: 2008 and 2012 14. Georgia had advanced significantly its budgetary and financial managements systems since the previous PEFA assessment report in 2008. Basic systems have been put in place for strategic budget planning, budget formulation and execution. The integrated public financial management system is being implemented and, according to the Ministry of Finance, several key modules are already in place. The introduction of international good practices in the budget cycle of the government is well advanced, including robust systems for budget preparation, adequate chart of accounts, reliable execution (including accounting and reporting,) and sufficient controls. 15. Overall, Georgia s PFM performance in 2012 remained strong, with 22 of the 28 performance indicators receiving a score of at least B (compared with 14 in 2008), and 20 of the 28 posting an improvement from 2008. However, performance in three areas (aggregate revenue, timeliness and regularity of accounts reconciliation, and legislative scrutiny of external audit reports) was less favorable in 2012 than in 2008. The remaining four performance indicators remained unchanged in 2012, while one had no comparable rating in 2008. Table A2.6: ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector in Georgia (2008 2016) 2531/2532 Growth Recovery Support Program 80.00 2009 2664 Social Services Delivery Program 100.00 2010 3190/3191 Improving Domestic Resource Mobilization for Inclusive Growth 75.00 2014 (Subprogram 1) 3282/3283 Improving Domestic Resource Mobilization for Inclusive Growth 75.00 2015 Program (Subprogram 2) 3417/3418 Improving Domestic Resource Mobilization for Inclusive Growth 100.00 2016 Program (Subprogram 3) Total 430.00 G. Indonesia: 2007 and 2011 16. In general, Indonesia made steady progress in strengthening the quality of its PFM systems and processes between 2007 and 2011. Improvements in the ratings reflected the continued progress toward achieving the broad-based and ambitious PFM reform agenda outlined in the government white paper of 2002. Of the 31 indicators (28 performance indicators and 3 donor partner indicators), 13 improved from 2007, while 15 remained unchanged. Of the 28 performance indicators, 13 received a score of at least a B in 2011, compared with 8 in 2007. The 2011 assessment underscores progress in the area of budget execution, with the development of a unified budget and a Treasury single account (TSA) to
Linked Document 2 5 strengthen comprehensiveness and control over spending and cash management. In addition, there were improvements in the coverage of fiscal accounts, accounting practices, payroll, internal controls and fiscal risk management. Meanwhile, 1 performance indicator (variance in expenditure composition) and 1 donor partner indicator (financial information provided by donors for budgeting and reporting on project and program aid) suggested a less favorable performance compared with 2007. Progress was not assessed for 1 performance indicator, the extent of unreported government operations, because this performance indicator was not scored during the 2007 assessment. In spite of the improvements as shown by a number of indicators, many reforms remain work in progress. Table A2.7: ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector in Indonesia (2008 2016) 2478 Second Local Government Finance and Governance Reform 350.00 2008 Program - Subprogram 1 2488 Fourth Development Policy Support Program 200.00 2008 2595 Fifth Development Policy Support Program 200.00 2009 2723 Sixth Development Policy Support Program 200.00 2010 2786 Second Local Government Finance and Governance Reform 200.00 2011 Program - Subprogram 2 3164 Stepping Up Investments for Growth Acceleration Program - 400.00 2014 Subprogram 1 3454 Fiscal and Public Expenditure Management Program (Subprogram 500.00 2016 1) Total 2,050.00 H. Kyrgyz Republic: 2009 and 2014 17. The 2014 assessment showed a considerable improvement over 2009, with 14 indicators receiving an A or a B, as compared with 7 in 2009. The number of indicators with a D score fell from 13 to 6 (Source: Table 1, page 12). 18. Of the 28 performance indicators, performance in 15 areas improved in 2014 compared with 2009. However, performance in 2 areas (variance in expenditure composition and budget documentation) was less favorable in 2014, while 10 indicators remained unchanged. One performance indicator could not be compared due to the absence of a comparable figure in 2009. 19. Overall, the assessment showed considerable improvements in particular parts of the PFM infrastructure since 2009, but some of the key elements to ensure the coherence of the structure are still lacking.
6 Policy-Based Lending 2008 2017: Performance, Results, and Issues of Design Table A2.8: ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector in Kyrgyz Republic (2008 2016) Grant/Loan 319 Investment Climate Improvement Program - Subprogram 2 20.00 2012 393 Investment Climate Improvement Program - Subprogram 3 22.00 2014 432 Second Investment Climate Improvement Program 20.00 2015 (Subprogram 1) 487/3410 Second Investment Climate Improvement Program 25.00 2016 (Subprogram 2) Total 87.00 I. Nepal: 2008 and 2014 20. Nepal has made substantial progress in deepening the structures and processes of PFM, particularly in the use of information technology. Investment efficiency gains were achieved despite the political transition period (2006 2010) when reform was not a first priority. 21. The commitment to change and reform to PFM systems and process by the government has produced results. Of the 28 performance indicators, 16 improved, 10 remained unchanged, and 2 deteriorated. Also, 12 of the 28 performance indicators were rated at least B in 2014, compared with 4 in 2008. However, compared with 2008, improved systems and greater data availability have assisted in fine-tuning the assessment and downgrading the rating of an indicator to reflect the current system. The absence of the parliament during the assessment period added to the downgrading of another indicator. 22. An improvement in donor practices was noted, as shown by the three indicators: predictability of direct budget support, financial information provided by donors for budgeting and reporting on project and program aid, and proportion of aid that is managed by use of national procedures. Table A2.9: ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector in Nepal (2008 2016) Grant 305/306 Strengthening Public Management Program 27.95 2012 J. Pakistan: 2009 and 2012 23. The 2012 PEFA assessment indicated that there had been improvements in some areas in recent years, which have served to improve general public financial management. Nonetheless, there continue to be areas which require further strengthening if better budgetary outcomes are to result. 24. Overall, the maximum number of indicators remained unchanged. There was a decline in five indicators while 11 indicators showed positive progress over the period between the assessments. Of a total of 31 indicators, 2 were not scored because of their non-applicability or lack of information, while three could not be compared due to a change in methodology. Twelve of the performance indicators received a score of at least a B in 2012, compared with 9 in 2009. 25. At a higher level, the credibility of the budget improved but 3 indicators out of 4 were either not rated or could not be compared. The only comparable indicator, the comparison of aggregate expenditure with original budget estimates, improved over the period. Aggregate expenditure showed minor deviations from the original budget.
Linked Document 2 7 26. Budgetary comprehensiveness and transparency improved from 2009 in terms of the comprehensiveness of the information provided in the budget document, which can be directly attributed to use of a new accounting model, and to improvements in public accessibility to fiscal information. Oversight of fiscal risk arising from autonomous bodies and public enterprises remained weak. 27. Policy-based budgeting remained strong and further improvement was observed through the successful implementation of a medium-term budget framework in all line ministries at the federal level. 28. Budget execution remained the most troubled area, especially the tax system, procurement and internal audit, and the control function. While external audit practices showed positive impacts, legislative scrutiny is still lagging. Meanwhile, the ratings for donor practices declined from 2009, largely because a major donor, USAID, did not comply with good practices for aid effectiveness. Table A2.10: ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector in Pakistan (2008 2016) 2482/2483 Second Balochistan Resource Management Program - 100.00 2008 Subprogram 1 2484 Sindh Growth and Rural Revitalization Program - Subprogram 1 100.00 2008 2644 Punjab Millenium Development Goals Program - Subprogram 2 150.00 2010 2645 Sindh Growth and Rural Revitalization Program - Subprogram 2 120.00 2010 Total 470.00 K. Samoa: 2010 and 2013 29. Overall, there were significant improvements across a number of PEFA assessment criteria between the 2010 and 2013 assessments. There are a number of other areas where relatively little effort would be required for the government to achieve a higher score. 30. Of the 28 performance indicators, 13 were rated at least B, as against 6 in 2010. Seventeen of the 28 performance indicators improved over the scores recorded in 2010. Noteworthy improvements since 2010 were made in expenditure, commitment and arrears reporting; taxation awareness programs; debt and guarantees processes; payroll and other expenditure processing; and bank/suspense account reconciliation. Many of these improvements have resulted from improvements to the Finance One and People One systems used for finance and human resources processing, which have enabled more timely and accurate data processing and reporting. 31. Nonetheless, there were still some areas where further effort is required to improve PFM. Notably, significant taxation arrears issues remained, there were issues with registration and linking information on taxpayers across government systems and to the financial sector, and there was a lack of availability of resourcing information for primary service delivery units (e.g., individual hospital budgets). There was also an absence of reconciliation across all phases of revenue operation from assessment, collection, arrears and transfers to the Treasury.
8 Policy-Based Lending 2008 2017: Performance, Results, and Issues of Design Table A2.11: ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector in Samoa (2008 2016) Grant/Loan 2625 Economic Recovery Support Program (Subprogram 1) 16.00 2010 360 Public Sector Financial Management Program 14.00 2013 525 Fiscal Resilience Improvement Program, Subprogram 1 5.00 2016 Total 35.00 L. Solomon Islands: 2008 and 2012 32. Comparing the PFA assessment in 2012 with the original 2008 assessment reveals an overall improvement across most performance indicators, with slippage in some areas and no change in the rating for others. Of the 28 performance indicators, 6 received a score of at least a B in 2012 compared with only 1 in 2008. Also, performance in at least 15 areas improved or was improving; although two performance indicators (scope, nature and follow-up of external audit; and legislative scrutiny of external audit reports) performed less favorably in 2012. 33. The 2012 PEFA assessment took place at a time of considerable transition. Some PFM reforms were being newly implemented, including Aurion, Axapta (a new financial management information system then being rolled out by the Ministry of Finance and Treasury), and BERT. Others were in the process of being implemented or were close to being implemented. These included an automated system for customs data, a new chart of accounts; a new Public Finance and Audit Act; revised Financial Instructions; and a new dedicated procurement unit within the Ministry of Finance and Treasury. Table A2.12: ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector In Solomon Islands (2008 2016) Grant 197 Economic Recovery Support Program (Subprogram 1) 5.00 2010 255 Economic Recovery Support Program (Subprogram 2) 5.00 2011 339 Economic and Financial Reform Program 5.00 2013 478 Economic Growth and Fiscal Reform Program 5.00 2016 Total 20.00 M. Tajikistan: 2007 and 2012 34. Comparing the 2012 PEFA assessment with that of 2007 revealed an overall improvement across most performance indicators, with slippage in some areas and no change in the rating for others. Specifically, 10 of the 28 performance indicators received a score of at least a B in 2012, compared with 6 in 2007. Of the 28 performance indicators, 13 improved from their 2007 levels, while only 1 (availability of information on resources received by service delivery units) performed less favorably in 2012. Scores for 9 performance indicators remained unchanged. Four of the indicators were not comparable either because of a difference in methodology or because the indicator was not rated in 2007. 35. The 2012 PEFA assessment took place at a time of considerable transition as various PFM reforms were either being newly implemented, in the process of being implemented, or close to being implemented (e.g., a new chart of accounts; a new supreme Audit Act; adoption of a medium-term expenditure framework and the implementation of a PFM reform program).
Linked Document 2 9 Table A2.13: ADB Policy-Based Support for the Public Expenditure and Financial Management Subsector in Tajikistan (2008 2016) Grant 152 Crisis Recovery Support Program 40.00 2009 251 Strengthening Public Resource Management Program 45.00 2011 Total 85.00