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Assessing and Reforming Public Expenditure Management. A New Approach

Author: R Allen and S Schiavo-Campo
Date: 2005
Size: 141 pages (563 KB)

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Summary

There is a strong link between good public expenditure management and effective aid. This report, published by the Public Expenditure and Financial Accountability (PEFA) programme, calls for the establishment of a more radical framework for public expenditure assessment and reform by development agencies. A programmatic and modular approach would eliminate the current overlap between the various public expenditure assessment instruments and enable recipient countries to take a lead role in the design and implementation of assessment strategies.

Public expenditure management comprises all the components of a country’s budget process, including both ‘upstream’ (preparation and programming) and ‘downstream’ (execution, accounting, control, reporting and evaluation) processes. It includes the legal and organisational framework and arrangements for forecasting revenues and expenditures, preparing the budget, performing internal and external and audits, accounting and reporting, and ensuring oversight by the legislature and other bodies.

The PEFA is a multi-donor partnership that aims to help international development agencies generate more coordinated, effective instruments and procedures for assessing and strengthening public expenditure, procurement, and financial accountability systems in developing countries – particularly in countries that receive international assistance for budget support.

A ‘mapping exercise’ of the main instruments for assessing public expenditure management reveals that:

• Development agencies have a wide variety of instruments at their disposal, including: DFID’s assessments of fiduciary risk; the World Bank’s Public Expenditure Reviews (PERs) and Country Financial Accountability Assessments (CFAAs); and EC audits of public expenditure management systems.
• The wide variety of assessment instruments have evolved in an uncoordinated way. Consequently, these instruments often impose high transaction costs on recipient governments and development agencies.
• The instruments have a range of objectives, including gauging fiduciary risk, supporting development goals and devising and monitoring the implementation of action plans. Some instruments – such as CFAAs, the CPARs and EC audits – contain a mix of objectives, which often inhibits a coherent assessment work.
• Collaboration between donors on assessments is relatively weak leading to a substantial overlap of coverage, despite efforts being made to strengthen coordination by the World Bank, IMF and European Commission.

Significant improvements are needed to streamline the coverage of assessment instruments to avoid unnecessary duplication and to enhance collaboration between donors, governments and other stake-holders. The overriding aim, however, is to foster more far-reaching reform of public expenditure management by developing a new programmatic and modular approach. This involves:

• Emphasising the importance of recipient governments participating in and ideally leading the design and implementation of public expenditure reforms.
• Adopting a strategic approach, taking a medium-term or long-term perspective that focuses on the steps that should be taken to move from a diagnostic assessment to the design and implementation of public expenditure reforms.
• Promoting a programmatic agenda, which should not be based on the delivery of standardized products – such as the existing PER or CFFAA reports – but on a coordinated, sequenced programme of diagnostic and capacity building work that is agreed between development agencies and recipient governments.
• Designing a work programme that links into a developing country’s Poverty Reduction Strategy Paper (PRSP) and the associated financial and technical support provided by donors.
• Examining the possibility of providing a standardised overview that would include a concise analysis of public expenditure issues and assessments of fiduciary risk, highlighting areas of reform and providing a tool for monitoring progress.

Access full text: available online

Source: Allen, R., Schiavo-Campo,S., Thomas,G., 2005, ‘Assessing and Reforming Public Expenditure Management: A New Approach’, Public Expenditure and Financial Accountability (PEFA), Washington
Author: Public Expenditure and Financial Accountability Program (PEFA), http://www.pefa.org