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Key Text Public Financial Management. Performance Measurement Framework

Author: N Smithers and O Keller
Date: 2005
Size: 74 pages (310 KB)

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Summary

How can a countrys Public Financial Management (PFM) performance be measured over time? How can governments determine the extent to which PFM reforms are yielding improved performance? This analytical framework developed by the Public Expenditure and Financial Accountability (PEFA) multi-agency programme provides an integrated monitoring tool fulfilling these two tasks.

Good PFM is essential for policy implementation and achieving development objectives. It supports aggregate fiscal discipline, strategic allocation of resources, and efficient service delivery. The PFM Performance Measurement Framework is one element of a strengthened approach to supporting PFM reform. It includes a set of high level indicators that measure and monitor PFM performance over time, and a PFM Performance Report (PFM-PR). The framework applies to the key elements of PFM systems in central government, the legislature and external audit. Other levels of government and public enterprise are considered only to the extent they impact the national central government's PFM system and its linkages to national fiscal policy. The framework identifies the critical performance dimensions of an open and orderly PFM system as:

Credibility: The budget is realistic and implemented as intended
Comprehensiveness and transparency: Budget and fiscal risk oversight are comprehensive, and fiscal and budget information are available to the public
Policy based: the budget is prepared with due regard to government policy
Predictability and control: The budget is implemented in an orderly and predictable manner, and there is stewardship of public funds
Accountable, recorded and reported: Adequate records and information are produced, maintained, and disseminated
External scrutiny and audit: Arrangements for scrutiny of public finances and follow up by the executive are operating.

The information provided by the framework facilitates harmonisation between government and donors on PFM dialogue, reducing transaction costs for partner governments. The information provided by the PFM-PR shows policy makers the extent to which reforms are yielding results, and increases the ability to identify and learn from reform success. However, there are limits to the scope of the framework. The indicators do not measure factors impacting performance, such as institutional capacity or legal framework. They also do not involve fiscal expenditure policy analysis, which would determine if policy is sustainable, pro-poor, or value for money. These would require country-specific indicators. However, they do indicate the extent to which the PFM system enables such outcomes. Policy relevant output from the 28 indicators can be grouped into four categories:

PFM system out-turns, which capture actual expenditures and revenues compared to original budget, together with level and changes in expenditure arrears
Cross-cutting features, which capture the comprehensiveness and transparency of the PFM system across the whole budget cycle
Budget cycle, which captures the performance of key systems, processes and institutions in the central government budget cycle
Donor practices, which captures elements of donor practice which impact on country PFM systems.

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Source: PEFA Secretariat, 2005, 'Public Financial Management. Performance Measurement Framework', PEFA Secretariat, World Bank, Washington