Purpose and management of the assessment

1.      In 2009 the Government of Tajikistan initiated a 10-year Public Financial Management (PFM) reform program (2009 - 2018).  The 2012 Public Expenditure and Financial Accountability (PEFA) Assessment occurred early in this process.  The 2017 PEFA Assessment assesses progress at a mid-point in the reforms and provides guidance for future PFM reforms.
2.      This assessment is based on a self-assessment process conducted by a Working Group of the Ministry of Finance of Tajikistan with participation from across Government. The World Bank provided support and training to the Working Group.  The Assessment was financed by a grant from the UK Foreign and Commonwealth Office.  
3.      The self-assessment was reviewed by an external team of consultants.  This review led to various agreed amendments being incorporated in the final PEFA assessment.

Coverage and timing

4.      This PEFA Assessment covers the central Government of Tajikistan, including autonomous agencies that are part of the general government sector, and public corporations. It also includes transfers to subnational levels of government. Subnational government means any level of government below the national level (i.e. regional and rayon), provided these entities have the authority to own assets, incur liabilities, and/or engage in transactions in their own right. The right to borrow is not a requirement for treatment as a subnational government in the PEFA framework.   
5.      The self-assessment was conducted in mid-2017.  When the assessment was conducted the most recent fiscal reports available were for the years 2013 – 2015.  Where data was available for 2016 it was incorporated in the assessment narrative, but not in the scores.

6.      The results of the current assessment show non-uniform progress across seven pillars of PEFA, as illustrated in Table A above. Performance of 16 out of 31 indicators are ranked in the A and B range reflecting strong progress, while performance of the other 15 indicators are ranked in the C and D range reflecting weaker progress. Each pillar has its strength and weaknesses, which are summarized below: 
7.      Budget reliability. In summary, execution of revenue collection and expenditure is reasonably in line with the original budget each year, and there has been a significant reduction in contingency expenditures. However, large variance in the functional composition of expenditures undermines the credibility of the budgetary process. There is also a weakness in forecasting the composition of expenditures.
8.      Transparency of public finances. The government performs well on several indicators under the fiscal transparency pillar, including budget classification, budget documentation, information on revenue and expenditure of extra-budgetary funds, and transfers to subnational governments. However, limited public access to fiscal information contributes to a lower overall score in this area.  
9.      Management of assets and liabilities. The government maintains a good functioning debt management system. Debt recording is adequate, while debt strategies, and the system for approval of debt and guarantees, are clear. Public investment management, in contrast, is a major challenge. Weaknesses in project selection and poor costing systems undermine the effectiveness and efficiency of public investment management decisions. While the government maintains basic records of financial and non-financial assets, lack of transparency and public access to financial information lowers the overall score on this PFM core dimension. Monitoring and reporting of fiscal risks of SOEs requires further improvement. 
10.      Policy based fiscal strategy and budgeting. Although the medium-term prospective is formally embedded in the processes for macro-fiscal planning and budgeting, budgeting is still treated as an annual funding exercise. The technical aspects of the budget preparation process are well developed, however strategic focus of the budget is reduced by lack of sector strategies for several sectors and poor integration of capital budget and recurrent budget planning processes. 
11.      Predictability and control in budget execution. Although the government made significant efforts to implement reforms in all areas under this pillar, challenges remain. There is impressive progress in revenue administration, but tax audit and tax arrears control require further improvements. Lack of a complaint mechanism and low competition in public procurement affect efficiency of public resource management. While the stock of budget expenditure arrears was insignificant over the review period, there is no ongoing system for estimating arrears, which means that should a problem develop, it could get out of control quickly as was experienced in 2016. Although all cash balances are held at the treasury single account and are consolidated, cash management is in infancy stage and should be further evolved. There is also significant scope to improve payroll control and internal audit.  An integrated database of human resource management and payroll in civil service should be implemented and risk-based and performance based internal audit principles should be introduced.   
12.      Accounting and reporting. While there is noticeable progress in accounts reconciliation and the integrity of financial data, the government should take further efforts to improve coverage and timing of the reports. Both in-year and annual financial reports could be further improved by bringing them closer to international financial reporting standards.
13.      External scrutiny and audit. The operations of the Chamber of Accounts have improved, but the organization is not a truly independent external auditor. In recent years there has been significant improvement in the timing of Parliament’s scrutiny of the audit report and followup from this. Parliament now holds in-depth hearings with representatives of a few ministries, departments and agencies and makes recommendations. However, the public are not yet able to access any of this information. 

Impact of PFM on fiscal and budgetary outcomes

14.      Achieving strong PFM requires further improvements in (i) aggregate fiscal discipline, (ii) strategic allocation of resources, and (iii) efficient use of resources for service delivery.
15.      Aggregate fiscal discipline was satisfactory for the period from 2013 to 2015. The government completed all three years with a surplus up to 1.7% of GDP. The negative impact of external factors began to emerge by the end of 2015. In early 2016 total revenue fell to the level of 2014; own revenue to the level of 2013 and the budget deficit was 1.2%. To lower dependence of the economy on foreign trade revenue and remittances, the government needs to develop and implement a long-term program of diversification of economic activities and extend the tax base for domestic taxes such as property tax and personal income tax. Also, modern methodologies on macroeconomic and fiscal forecasting should be applied. Over the assessed period there were substantial variations between budget and actual expenditure for many functional and economic classification item lines (PI-2), especially the energy sector and purchasing of goods and services, as well as significant growth in expenditure arrears in 2016 (PI-22). This is an indication of existing weaknesses in budget approval and execution processes, which requires that all revenues and expenditures should be planned and discussed during the budget formulation process, restricting the use of supplementary budgets within-year to unexpected emergency requirements. Also, effective mechanisms for commitment control and expenditure arrears monitoring should be developed and implemented.
16.      Strategic resource allocation has improved over the recent years. In particular, the organization and coordination of the annual budget preparation process has been strengthened with the early release to all budget organizations of clear budget preparation instructions and timetable. The Government Budget Commission and the parliamentary Committee of Majlisi Namoaydagon on Economy and Finance are actively involved in the budget formulation process, which contributes to a better link between policy and budget allocations. A mediumterm perspective is evolving that is expected in time to strengthen the policy-based nature of the budget process.  However, capital budgeting is fragmented, and needs to be further integrated with recurrent budgets. The high share of capital spending in total expenditures means that discretionary resources are a substantial share of the budget, and hence underlines the need for policy-based budgeting. Since a large part of capital spending is financed by development partners, it also underlines the need for a more effective approach to aid management on the side of the government, and to harmonization and alignment with national priorities on the side of donors. Some steps in this direction have been undertaken over the recent years, but institutionally capital budget planning remains weak (PI-11).
17.      Efficient use of resources for service delivery can be further enhanced by improvements in public procurement processes, implementing performance budgeting and more efficient oversight mechanisms. Public procurement practices are improving but low competition affects the efficiency of service delivery and the achievement of best value for money of government purchases. Internal and external audits are still focused on compliance rather than addressing systemic or performance issues. Program budgeting is just in its infancy. The government should enhance the quality of ongoing reforms in public procurement, internal and external audits, and initiate reforms in performance budgeting. 

  A summary of main performance changes

19.      PFM systems in 2007 did not perform well with most indicators being rated C and D. It also shows that progress has been made by 2012 and 2017. 
20.      The 2017 assessment indicates modest but steady improvement, with most indicators reflecting enhanced PFM since the last assessment. The main improvements were observed in areas of: (i) comprehensiveness and transparency of budget information; (ii) predictability and control in budget execution; (iii) accounting and reporting; and (iv) external scrutiny and audit. There have been no improvements in the areas of (i) credibility of the budget and (ii) policy based budgeting. 
21.      In summary, aggregate fiscal discipline has not changed due to significant variances in original and actual budget expenditure allocations.
22.      There has been no change in the strategic allocation of resources, due to poor integration of capital budget and recurrent budget planning processes. 
23.      Some improvements are observed in efficient use of resources for service delivery, which are due to establishing and developing internal and external audit functions in the public sector. However, poor competition in public procurement as well as the lack of performancebased budgeting negatively impacted efficient use of public resources.  

Ongoing and planned PFM reform agenda

24.      As indicated above, Tajikistan is approaching the end of the 10-year PFM reform program (2009 – 2018). Several areas of concern are being addressed, including public access to information, and internal and external audit.  There are also ongoing reforms to implement the medium-term budget framework across government and to improve the management of public investments, particularly public corporations.  The PFM Reform Action Plan provides a structured and time bound approach to reform through to 2018, after which future PFM reforms will need to be considered.
25.      However, from the above analysis it is apparent that there are a number of areas of concern that will not be completely addressed under the current reform program. In order to sustain continuing improvements in PFM, based on the current PEFA Assessment there will need to be an action plan extending beyond 2018.
26.      In summary, much has been achieved, but there is still some way to go to complete the PFM reform goals