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PEFA Assessment (Select PI’s). Udaya Pant IMF’s PFM Advisor, Nepal. In This session. General (may skip if required) PI-5-10 PEFA assessment issues (Comprehensiveness and transparency) Ground Situation in Nepal. PEFA . PEFA is a global initiative to improve Public Expenditure Management.

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pefa assessment select pi s

PEFA Assessment(Select PI’s)

Udaya Pant

IMF’s PFM Advisor, Nepal

in this session
In This session
  • General (may skip if required)
  • PI-5-10 PEFA assessment issues

(Comprehensiveness and transparency)

  • Ground Situation in Nepal
slide3
PEFA
  • PEFAis a global initiative to improve Public Expenditure Management.
  • PEFA is an integrated Public Financial Management Reform (PFMR) Agenda of countries..replaced CFAA
  • PEFA directly contributes to the overall Public Financial Management (PFM).
  • The PFM reform program starts from the planning, budget formulation and ends at public scrutiny and evaluation.
  • The core Objective of PEFA is to reduce Fiduciary Risk in the country through strengthening systems, processes and Institutions.
goals
Goals

The goals of the PEFA Program are to strengthen recipient and donor ability to :

  • Assess the condition of country public expenditure, procurement and financial accountability systems, and
  • Develop a practical sequence of reform and capacity building actions,
core objective
Core Objective
  • Core Objective of PEFA is to
    • Reduce Fiduciary Risk in the countries through strengthening:
      • Systems
      • Processes; and
      • Institutions
efforts undertaken by nepal
Efforts undertaken by Nepal

Public Financial Management Reform Program (PFMRP)

  • Based on PEFA-DAP, PFM Strategy for Nepal's PFMRP Phase I (2009/10 -2011/12..extended further till PFMRP-II) was prepared and approved by the Government.
  • PFMRP Phase-I had identified 18 output areas including institutional capacity improvement.
  • Under a separate budget head for Public Financial Management Reform Program has been provisioned from FY 2009/10 onwards.
  • MDTF funded project Strengthening PFM has components on TSA, IPSAS, Strengthening PEFAS, Strengthening OAG, PRAN (more sub-projects have been identified are: MTBF, Strengthening PFM in Line Ministries, IA, IFMIS; and NIPF)
pfm performance measurement framework
PFM Performance Measurement Framework
  • An Integrated monitoring framework that allows measurement of country PFM performance over time.
  • The PEFA Framework is designed to provide a snapshot of how PFM systems in aggregate are performing
  • It consists of a set of 28 indicators, broken into six thematic groups which measure the performance of national PFMA systems and 3 indicators which measure donor performance.
critical dimensions of performance of pfm
Critical Dimensions of Performance of PFM

Against the six core dimensions of PFM performance, the set of high level indicators measures the operational performance of the key elements of the PFM systems, process and institutions of a country.

  • Credibility of the budget: Budget is realistic and implemented as intended
  • Comprehensiveness and transparency: Budget and fiscal risk oversight are comprehensive and fiscal and budget information is accessible to the public
  • Policy - based budgeting: Budget is prepared with due regard to government policy
  • Predictability and control in budget execution: Budget is implemented in an orderly and predictable manner and there are arrangements for the exercise of control and stewardship in the use of public funds.
  • Accounting, Recording and Reporting: Adequate records and information are produced, maintained and disseminated to meet decision-making control, management and reporting purposes
  • External scrutiny and audit: Arrangements for scrutiny of public finances and follow-up by the executive are operating.
the set of high level performance indicators
The Set of High level Performance Indicators

The selected 28 indicators for the country’s PFM system are structured into three categories:

  • PFM systems out-turns
  • Cross-cutting features of the PFM system
  • Budget cycle

In addition to the indicators of country PFM performance, this framework also includes

  • Donor practice
slide11

Structure of the Performance Indicator Set

C. Budget Cycle

D. Donor Practices

Policy Based budgeting

A. PFM Out-turns

B. Cross-cutting features

Budget credibility

Predictability and control in Budget Execution

External scrutiny and audit

Comprehensiveness and Transparency

Accounting, Recording, Reporting

slide12

Cross-cutting features of the PFM system:

These capture the comprehensiveness and transparency of the PFM across the whole of the budget

(our concern for this session PI 5 to 10)

pi 5 classification of the budget
PI-5. Classification of the budget
  • The budget formulation and execution is based on administrative, economic and sub-functional classification, using GFS/COFOG standards or a standard that can produce consistent documentation according to those standards.
  • (Program classification may substitute for sub-functional classification, if it is applied with a level of detail at least corresponding to sub-functional.)
slide14
PI 5
  • Dimension to be assessed (Scoring method M1):
  • (i) The classification system used for formulation, execution and reporting of the central government's budget.
  • Points to note:
  • Reports often only refer budgetary classification for “formulation”, but execution and reporting are part of the requirement.
  • Dimension (i) The classification system used for formulation, execution and reporting of the central government’s budget.
key questions
Key questions

1. Is budget formulation & execution based on administrative, economic & functional classification?

2. If not, what types of classification are not possible?

3. Is any economic classification compatible with GFS (1986 or 2001 manuals)?

4. Is any functional classification compatible with UN-COFOG to main function level, or to sub-function level, or to program level?

  • Coverage Budgetary central government.
  • Critical period/time Last completed FY.
  • Quantifiable data required Requires review of types of classification actually in use in budget documents and chart of accounts.
  • Information sources Budget books provided by the Budget entity for the last completed FY
rating criteria
Rating criteria
  • A The budget formulation and execution is based on administrative, economic and sub-functional classification, using GFS/COFOG standards or a standard that can produce consistent documentation according to those standards. (Program classification may substitute for sub-functional classification, if it is applied with a level of detail at least corresponding to sub-functional.)
  • B The budget formulation and execution is based on administrative, economic and functional classification (using at least the 10 main COFOG functions), using GFS/COFOG standards or a standard that can produce consistent documentation according to those standards.
  • C The budget formulation and execution is based on administrative and economic classification using GFS standards or a standard that can produce consistent documentation according to those standards.
  • D The budget formulation and execution is based on a different classification (e.g. not GFS compatible or with administrative break-down only).
pi 6 comprehensiveness of information included in budget documentation
PI-6 Comprehensiveness of information included in budget documentation
  • Dimension to be assessed (Scoring method M1):
  • (i) Share of the above listed information in the budget documentation most recently issued by the central government (in order to count in the assessment, the full specification of the information benchmark must be met).
  • Points to note:
  • Requires review of types of information included in actual budget documentation PEFA Field-guide:
  • Dimension (i) Share of the 9 elements listed information in the budget documentation most recently issued by the central government (in order to count in the assessment, the full specification of the information benchmark must be met).
key questions1
Key questions
  • Does the annual budget documentation (annual budget & budget supporting documents), as submitted to the legislature for scrutiny & approval include 9 elements?
  • Coverage Budgetary central government.
  • Critical period/time Last budget presented to legislature.
  • Quantifiable data Requires review of the types of information included in actual budget documentation.
  • Information sources Latest budget & supporting documents presented to the legislature
rating criteria1
Rating criteria
  • A. recent budget documentation fulfils 7-9 of the 9 information benchmarks
  • B recent budget documentation fulfils 5-6 of the 9 information benchmarks
  • C recent budget documentation fulfils 3-4 of the 9 information benchmarks
  • D recent budget documentation fulfils 2 or less of the 9 information benchmarks
pi 7 extent of unreported government operations
PI-7 Extent of unreported government operations
  • Dimensions to be assessed (Scoring method M1):
  • (i) The level of extra-budgetary expenditure (other than donor funded projects) which is unreported i.e. not included in fiscal reports.
  • (ii) Income/expenditure information on donor-funded projects which is included in fiscal reports.
rating criteria2
Rating criteria
  • A. The level of unreported extra-budgetary expenditure (other than donor funded projects) is insignificant (below 1% of total expenditure).
  • B. The level of unreported extra-budgetary expenditure (other than donor funded projects) constitutes 1-5% of total expenditure.
  • C. The level of unreported extra-budgetary expenditure (other than donor funded projects) constitutes 5-10% of total expenditure.
  • D. The level of unreported extra-budgetary expenditure (other than donor funded projects) constitutes more than 10% of total expenditure.
pi 8 transparency of inter governmental fiscal relations
PI-8 Transparency of Inter-Governmental Fiscal Relations
  • Dimensions to be assessed (Scoring method M2):
  • (i) Transparent and rules based systems in the horizontal allocation among SN governments of unconditional and conditional transfers from central government (both budgeted and actual allocations);
  • (ii) Timeliness of reliable information to SN governments on their allocations from central government for the coming year;
  • (iii) Extent to which consolidated fiscal data (at least on revenue and expenditure) is collected and reported for general government according to sectoral categories.
slide23

PI 8: Dimension (i) Transparent and rules based systems in the horizontal allocation among SN governments of unconditional and conditional transfers from central government (both budgeted and actual allocations)

  • Rating criteria
  • A. The horizontal allocation of almost all transfers (at least 90% by value) from central government is determined by transparent & rules based systems
  • B. The horizontal allocation of most transfers from central government (at least 50% of transfers) is determined by transparent and rules based systems.
  • C. The horizontal allocation of only a small part of transfers from central government (10-50%) is determined by transparent and rules based systems.
  • D. No or hardly any part of the horizontal allocation of transfers from central government is determined by transparent and rules based systems.
slide24
P 8: Dimension (ii) Timeliness of reliable information to SN governments on their allocations from central government for the coming year
  • Rating criteria
  • A. SN governments are provided reliable information on the allocations to be transferred to them before the start of their detailed budgeting processes.
  • B. SN governments are provided reliable information on the allocations to be transferred to them ahead of completing their budget proposals, so that significant changes to the proposals are still possible.
  • C. Reliable information to SN governments is issued before the start of the SN fiscal year, but too late for significant budget changes to be made.
  • D. Reliable estimates on transfers are issued after SN government budgets have been finalized, or earlier issued estimates are not reliable.
slide25

P8:Dimension (iii) Extent to which consolidated fiscal data (at least on revenue and expenditure) is collected and reported for general government according to sectoral categories

  • Rating criteria
  • A. Fiscal information (ex-ante and ex-post) that is consistent with central government fiscal reporting is collected for 90% (by value) of SN government expenditure and consolidated into annual reports within 10 months of the end of the fiscal year.
  • B. Fiscal information (ex-ante and ex-post) that is consistent with central government fiscal reporting is collected for at least 75% (by value) of SN government expenditure and consolidated into annual reports within 18 months of the end of the fiscal year.
  • C. Fiscal information (at least ex-post) that is consistent with central government fiscal reporting is collected for at least 60% (by value) of SN government expenditure and consolidated into annual reports within 24 months of the end of the fiscal year.
  • D. Fiscal information that is consistent with central government fiscal reporting is collected and consolidated for less than 60% (by value) of SN government expenditure OR if a higher proportion is covered, consolidation into annual reports takes place with more than 24 months delay, if at all.
pi 9 oversight of aggregate fiscal risk from other public sector entities
PI-9 Oversight of aggregate fiscal risk from other public sector entities
  • Dimensions to be assessed (Scoring method M1):
  • (i) Extent of central government monitoring of AGAs and PEs.
  • (ii) Extent of central government monitoring of SN governments’ fiscal position.
pi 9 dimension i extent of central government monitoring of agas and pes key questions
PI 9: Dimension (i) Extent of central government monitoring of AGAs and PEs. …..Key questions
  • 1. What are major AGAs & PEs?
  • 2. Do current legislation & regulations oblige AGAs & PEs to forward in-year financial statements & yearend financial statements to the central government? And do they do so?
  • 3. Do current legislation & regulations require central government to monitor fiscal risk of AGAs, PEs & SN entities on a regular basis (at least annually)? And does it do so?
  • 4. Can SN governments borrow without prior approval of the central government? Does „borrowing‟ include short-term overdrafts and suppler credit?
  • 5. Does central government monitor AGAs & PEs?
  • 6. If yes, is monitoring carried out through (semi-annual or annual) fiscal reports & annual audited accounts submitted by AGAs & PEs?
  • 7. Are fiscal risk issues of AGAs & PEs consolidated annually into a report by the central government?
pi 9 dimension i rating criteria
PI 9: Dimension (i) Rating criteria
  • A. All major AGAs/PEs submit fiscal reports to central government at least six-monthly, as well as annual audited accounts, and central government consolidates fiscal risk issues into a report at least annually.
  • B. All major AGAs/PEs submit fiscal reports including audited accounts to central governments at least annually, and central government consolidates overall fiscal risk issues into a report.
  • C. Most major AGAs/PEs submit fiscal reports to central governments at least annually, but a consolidated overview is missing or significantly incomplete.
  • D. No annual monitoring of AGAs and PEs takes place, or it is significantly incomplete.
pi 9 dimension ii extent of central government monitoring of sn governments fiscal position
PI 9: Dimension (ii) Extent of central government monitoring of SN governments’ fiscal position
  • Key questions
  • 1. Are SN entities legally entitled to borrow with or without CG approval? Does this cover short-term overdrafts and supplier credit?
  • 2. Does central government monitor SN entities‟ fiscal position at least annually?
  • 3. Does government elaborate a consolidated overview (in form of an annual report) on the fiscal position of SN entities?
slide30

Rating criteria

  • A. SN government cannot generate fiscal liabilities for central government OR the net fiscal position is monitored at least annually for all levels of SN government and central government consolidates overall fiscal risk into annual (or more frequent) reports.
  • B. The net fiscal position is monitored at least annually for the most important level of SN government, and central government consolidates overall fiscal risk in report.
  • C. The net fiscal position is monitored at least annually for the most important level of SN government, but a consolidated overview is missing or significantly incomplete.
  • D. No annual monitoring of SN governments‟ fiscal position takes place or it is significantly incomplete.
pi 10 public access to key fiscal information
PI-10 Public Access to key fiscal information
  • Elements of information to which public access is essential include:
  • (i) Annual budget documentation: A complete set of documents can be obtained by the public through appropriate means when it is submitted to the legislature.
  • (ii) In-year budget execution reports: The reports are routinely made available to the public through appropriate means within one month of their completion.
  • (iii) Year-end financial statements: The statements are made available to the public through appropriate means within six months of completed audit.
  • (iv) External audit reports: All reports on central government consolidated operations are made available to public through appropriate means within 6 months of completed audit.
  • (v) Contract awards: Award of all contracts with value above approx. USD 100,000 equiv. are published at least quarterly through appropriate means.
  • (vi) Resources available to primary service units: Information is publicized through appropriate means at least annually, or available upon request, for primary service units with national coverage in at least two sectors (such as elementary schools or primary health clinics).
  • Dimensions to be assessed (Scoring method M1):
  • (i) Number of the above listed elements of public access to information that is fulfilled (in order to count in the assessment, the full specification of the information benchmark must be met).
slide32

Rating criteria

  • A. the government makes available to the public 5-6 of the 6 listed types of information
  • B. the government makes available to the public 3-4 of the 6 listed types of information
  • C. the government makes available to the public 1-2 of the 6 listed types of information
  • D. the government makes available to the public none of the 6 listed types of information
slide33

NEPAL

Ground Situation on select Items

RATC

budget coverage
Budget Coverage
  • These items are still not part of the budget program and neither disclosed in the budget document:
  • Revenues not covered by the budget are revenues paid direct to extra-budgetary funds. These include the Army Welfare Fund (AWF), and the Police Welfare Fund. While the mission does not have access to all full list of such funds, various documentation mentioned the Local Operational Fund, National Level Welfare Fund, Pashupati Area Development Trust, Peace Fund, Roads Fund and Rural Water and Sanitation Fund. The Tourist Board also receives revenue from tourist development fees. In most cases the funds are managed by sector ministers/ministries.
  • Expenditures of autonomous agencies such as universities and public hospitals are not also covered in the budget documentation.
  • Not all external financial assistance (grants) which is an important share of foreign aid to Nepal is recorded in the budget.These grant-funded activities— “off-budget”—donor-funded activities, are largely managed by donors directly with the relevant line ministry and in some cases are passed through to District Development Committees (DDCs).
  • Monitoring of progress on the use of Nepal’s country systems by donors under the 2005 Paris declaration indicates that there is an improvement. On average for each donor, 58 percent of assistance was on budget in 2011 (an increase from 46 percent in 2008) and on average 63 percent of donor funds used the FMIS for budget execution. However, given donor concerns about the condition of Nepal’s PFM system, many are still reluctant to put their assistance on budget or execute it through the FMIS. The International Economic Coordination and Cooperation Division (IECCD) of MOF estimates that about 30 percent of external assistance bypasses the budget.
slide35

Putting such organizations or funds “on budget” does not necessarily mean that all expenditures would become subject to parliamentary appropriation or that autonomous agencies would lose their financial autonomy

  • The new Chart of Accounts (COA) introduced for 2011-12 mostly complies with the standards suggested by the IMF.
    • In addition to the standard COA elements, the budget and accounts provide a multi-dimensional classification.
    • The new COA includes GFSM 2001 revenue and expenditure classifications, but the codes for assets and liabilities have not been included
transparency of fiscal forecasts and targets
Transparency of fiscal forecasts and targets
  • There are some data completeness issues in preparing the macro-economic forecasts and they are sometimes prepared using only eight months of data from the previous year.
  • On fiscal targets, the Minister’s Budget speech makes no reference to any fiscal targets, either in terms of past results or intentions for the ensuing budget year.
  • The Budget Speech provides no reference to the MTEF document which is part of the Budget Documents.
  • Fiscal forecasts and targets reflected in the MTEF or MTBF in the future, should be acknowledged and referred to in the annual Budget Speech or any consolidated budget document.
local bodies
Local bodies
  • At present, there is no consolidated financial statement of LBs, thus adequate analysis of the financial capacity of local bodies is not be possible.
  • There is no clear fiscal reporting oversight on LBs.The existing legislations do not clearly state accounting and reporting standards
  • To address these issues, the development and implementation of the LBs reporting system should be pursued and well-coordinated.
  • ADB-funded project to strengthen PFM at the local level and enhance linkages between central and local fiscal management.
public enterprises
Public Enterprises
  • The existing classification of enterprises should follow GFS Manual 2001.
  • The reliability of financial reports from SOEs seems to be a problem.
  • The Public Enterprises Board should develop and enforce corporate governance standards on financial management by SOEs to improve quality of information
  • Transparency of information on SOEs should be improved through proper disclosure in the various fiscal reports.
  • The PECD should identify the focus of monitoring by identifying the public corporations that pose the greatest fiscal risks to the central government.
reporting and monitoring of fiscal risks
Reporting and monitoring of fiscal risks
  • There is no systematic discussion of fiscal risks in the Budget Documents

Components of Fiscal Risks Statement

  • Variations from key economic forecasting assumptions
  • Contingent liabilities, such as guarantees, indemnities and warranties entered into by the government
  • Uncertainty about the size of specific expenditure commitments already made in the budget
  • Other items not included in the budget because of the extent of uncertainty about their timing, magnitude or eventuality
fiscal risks continued
Fiscal Risks..continued…
  • In Nepal, the guarantees provided for public enterprise borrowing are a clear component of fiscal risk. Related to this is the need to fund operating losses of some public enterprises which are financially insolvent.
  • There are significant quasi-fiscal activities (QFAs) carried out by industrial, financial and utility based SOEs but they have not been quantified. Nepal has a large number (37) of state owned enterprises which are reported on in detail in the Yellow Book which is part of the Budget documents. Fourteen of them are currently loss making (several of which are insolvent) and others have low profitability due to government decisions to control their prices as well as to over-staffing and management problems.
  • In the coming budget preparation, the Budget Division should prepare a formal statement of fiscal risks as part of the annual budget documentation.
reporting of tax expenditures
Reporting of tax expenditures
  • The IMF Manual of Fiscal Transparency states that the inclusion of a statement of tax expenditures as part of the budget documents is a basic requirement of fiscal transparency.
  • Tax expenditures in Nepal are significant with many exemptions and differential rates included in the tax laws. For example the Budget Speech for 2012-13 contains a series of proposed initiatives involving exemptions and tax rate changes to support a range of social objectives.
  •  MOF’s Revenue Division is of the view that the existing tax exemptions and other concessions are well documented and understood, are not put in place without some costing by Inland Revenue Department and Customs Department and are subject to some form of review.
  • MOF should consider the preparation of a statement of tax expenditures to be included in the budget documentation.
reporting on debt and financial assets
Reporting on debt and financial assets
  • CFS already contains some information on financial assets and liabilities it would not be difficult to present such a report in the budget documents and in the CFS.
  • The CFS already includes extensive information on domestic and external debt, including on-lending; and loans and equity investments in SOEs and information on cash balances. Information on financial assets such as tax arrears could be readily added.
comparative status of pefa indicators
Comparative status of PEFA Indicators
  • Nepal (2007)
  • Afghanistan (2005)
  • Afghanistan Repeater (2007)
  • Norway (2008)
  • India (2010)
important references for details
Important References for Details

GON

  • Nepal PEFA Assessment Report 2008
  • PFMRP-Phase I, Nepal

PEFA HQ

  • PEFA Field Guide
  • SNG Supplementary Guidelines
  • New and amended ‘Clarifications’ to the PEFA Framework, March 2012
  • Good Practices in PEFA Framework
  • Note on Aggregation and Comparison of PEFA Rating, May 2013
  • No score methodology
  • Procurement Indicators Table
  • Guidance Note on repeat Assessments