Public financial management and accountability

Donor diagnostic tools and harmonisation

A number of analytical tools and diagnostic instruments have been developed to assess PFM systems and capacity in developing countries.  Such information can be useful in implementing reform and is also used in the assessment of fiduciary risk to both donor and recipient governments.  This page looks at some of the main diagnostic tools in use by donors and international financial institutions and the attempts to harmonise them under the Public Expenditure and Financial Accountability (PEFA) partnership and other initiatives. 

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Where is a good place to start?

Allen, R., Schiavo-Campo,S., Thomas,G., 2005, ‘Assessing and Reforming Public Expenditure Management.  A New Approach’, PEFA, Washington
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.
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Public expenditure reviews

Swaroop, V., 1999, ‘Public Expenditure Reviews: Progress and Potential’, PREM Notes Number 20, April 1999, World Bank, Washington D.C.
Public expenditure reviews typically analyse and project tax revenue, determine the level and composition of public spending assess intersectoral and intra-sectoral allocations, review financial and non-financial public enterprises and consider the structure of governance and the functioning of public institutions. Over the last 10 years studies of public expenditure reviews have suggested that, although their coverage has been comprehensive, the quality of analysis has been uneven. 
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Country financial accountability assessments

World Bank, 2002, 'Country Financial Accountability Assessment Guidelines to Staff', Financial Management Sector Board, World Bank, Washington, D.C.
The Country Financial Accountability Assessment (CFAA) is a diagnostic tool designed to enhance the World Bank’s knowledge of public financial management and accountability arrangements in client countries. Being formally introduced in 2000 it is currently updated to reflect recent experiences and changes in the World Bank’s policy. 
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Fiscal Report on the observance of standards and codes

Fiscal Reports on the Observance of Standards and Codes (Fiscal ROSCs) emerged from the IMF’s Code of Good Practices on Fiscal Transparency and are designed to assess a country’s fiscal systems against the standards laid out in the Fiscal Transparancy Code and Manual.  For an introduction and links to various country Fiscal ROSCs, see http://www.worldbank.org/ifa/rosc.html

IMF & WB, 2005, ‘The Standards and Codes Initiative - Is It Effective? And How Can It Be Improved?’, World Bank, Washington
Financial stability is more likely in certain institutional environments. The standards and codes initiative aims to promote financial stability through the development, dissemination, adoption and implementation of international standards and codes. This review by the International Monetary Fund (IMF) and the World Bank assesses the effectiveness of this initiative. It finds that the initiative has been beneficial for countries, particularly in identifying vulnerabilities and establishing priorities for strengthening domestic institutions.
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Public expenditure and financial accountability (PEFA)

The multitude of diagnostic instruments in operation, which one study numbers at over 60, can lead to substantial transaction costs and increased workloads for aid recipient countries and their donor / IFI partners. Public Expenditure & Financial Accountability (PEFA) is a partnership between some of the main donors to try and harmonise their approaches and thus reduce this burden on recipient countries and donor staff.

The two documents below show that whilst part of the PEFA initiative has been designed to strengthen donor approaches to PFM, one of the main thrusts of the initiative has been to produce the PEFA Performance Measurement Framework:

PEFA Public Expenditure Working Group, 2005, ‘Supporting Better Country Public Financial Management Systems: Towards a Strengthened Approach to Supporting PFM Reform. Consultative Draft’, PEFA Secretariat, WB, Washington 
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PEFA Secretariat (2005), ‘Public Financial Management. Performance Measurement Framework’, PEFA Secretariat, World Bank,Washington DC
How can a country's 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.
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Other harmonisation and reform initiatives

There are a variety of other diagnostic instruments which have not been covered on this page, such as the IMF-World Bank Public Expenditure Tracking Assessments and Action Plans for Heavily Indebted Countries (HIPCs AAPs) and EU Audits of Public Expenditure.  For more information, see the comprehensive review of the main measures (including those mentioned above) undertaken for the PEFA initiative, which we have included under ‘Where is a good place to start’ in this section.

A co-ordinated approach to diagnostics and reform can also help by filling gaps in coverage, drawing on the best practice of all donor diagnostic measures and sharing information between different donors, institutions and recipient governments.  The OECD’s DAC Donor Harmonisation Committee and the Commonwealth Secretariat have also carried out work towards this end.

OECD DAC, 2003, ‘Harmonising Donor Practices for Effective Aid Delivery. Volume 1’, OECD DAC, Paris
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OECD DAC, n.d, ‘Budget Support, Sector Wide Approaches and Capacity Development in Public Financial Management (Harmonising Donor Practices Volume 2)’ OECD DAC, Paris
How can donors deliver budget support in ways that maximise its benefits while reinforcing partners' capacity to achieve effective public financial management (PFM) systems? How can Sector Wide Approaches (SWAps) improve the effectiveness of development policies and government ownership of public sector policy? How can the effectiveness of aid delivery, aimed at capacity development in Public Finance Management (PFM), be enhanced? This paper, by the Organisation for Economic Co-operation and Development (OECD), highlights good practice and offers benchmarks in these areas.
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Commonwealth Secretariat, n.d, ‘Guidelines for Public Financial Management Reform’, Commonwealth Secretariat, London
Reform of ineffective public financial management (PFM) systems, processes and institutions in developing countries is critical to generate more and better services for citizens. The Commonwealth Secretariat draws on case studies from Commonwealth countries and previous reports to provide universally accepted principles, best practices and processes for PFM reform. Successful reform should take account of local conditions and focus on both the process of reform as well as substantive changes to the fiscal framework.
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Financial Accountability and Anti-Corruption Team, 2005, 'A Platform Approach to Improving Public Financial Management,' Briefing note, UK Department for International Development
Why has technical support not led to more progress in PFMA reform? The platform approach to Public Financial Management and Accountability (PFMA) reform is being implemented in a number of countries, supported by a wide range of development agencies. This briefing paper from the UK Department for International Development suggests that more attention should be Given to the coordination and sequencing of reform. 
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What other resources are available on the GSDRC?

Use the site search at the top of this page if you wish to look for wider resources on donor diagnostic tools and harmonisation.

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