This PEFA assessment is intended to enhance the effectiveness of the Government of Myanmar’s (GOM) Public Financial Management (PFM) systems and aid GOM to consolidate its ongoing and planned reforms. In addition, the assessment provides a diagnostic analysis on the progress made since the previous assessment (in 2013) and can be used as the basis for further dialogue on PFM reforms: this will inform future updates and design work on the PFM reform strategy and subsequent action plans.
The assessment was carried out jointly by the GOM and the World Bank, in close collaboration with interested development partners, who provided funding from a MDTF. A multi-disciplinary team supported by an experienced consultant participated in the data analysis and report-writing with GOM counterparts. Other development partners working on various aspects of the PFM systems in Myanmar were invited to contribute their comments on the draft report.
Details of these management and quality assurance arrangements (with the names of all individuals who participated in the different stages of the assessment process) are listed in the Introduction (below).
Assessment coverage and timing
The assessment was undertaken as a joint review of the quality and performance of the central (Union) GOM’s PFM systems for the fiscal years 2015/16, 2016/17 and 2017/18. The scope covered all types of budgetary agencies, including line Ministries, central and subnational governments, Office of the Auditor-General of the Union and Office of the Pyidaungsu Hluttaw. The assessment included the six largest Ministries (which together comprise 72% of the Union budget appropriation as per the 2017-18 Citizen’s budget).
PFM system performance
Aggregate Fiscal Discipline
Fiscal discipline in Myanmar is very good with most elements of Myanmar’s public financial management system contributing to this outcome. On the expenditure side, aggregate estimates are good (PI-1, ‘A’) with small (but growing) differences between the original estimates and the actual expenditure composition (PI-2.1, ‘C’ and PI-2.2, ‘B’), and actual expenditure is not distorted due to expenditure arrears (PI-22), partly due to the restrictions to carry over amounts. Compositional variations could be explained by the systematic use of the supplementary budget, which in practice acts like de-facto second budget during a fiscal year. Current virement rules and contingency budget have proven inadequate to respond to unforeseen needs and emergencies (e.g. COVID). This incentivizes and promotes the use of the in-year supplementary budget, which in turn induces important transaction costs and affects budget discipline and credibility.
Although revenue estimates are accurate in total, the composition is not (PI-3.2, rated ‘C’), and shows an increasing variation from the amounts budgeted for ‘financial revenues’ over the three years reviewed. However, revenue administration and the accounting arrangements are sound (PIs-19 and 20).
A PEFA assessment also recognizes broader issues that may affect fiscal discipline. For example, while there appear to be relatively small extrabudgetary revenues and expenditures that are not reported (PI-6.1 and .2), there is no evidence of detailed financial reports being submitted by the extrabudgetary units themselves (PI-6.3, rated ‘D’). In addition, the monitoring of financial risks is weak (PI-10) as are the management of both public investments and public assets (both PI-11 and 12 are rated ‘D’). While the budget documents have a very limited medium-term perspective (PI-16, rated ‘D+’), medium-term projections do inform the internal budget process, and debt management has improved significantly since the previous assessment.
Strategic Allocation of Resources
With the exception of PI-17 (the budget preparation process, rated ‘B+’) most indicators directly related to ‘policy-based fiscal strategy and budgeting’ (PI-14 to 18) receive low ratings, in some cases, simply because the data used internally by MOPFI is not presented to Parliament (and hence is not available to citizens), or does not follow the policy priorities set out in GOM’s guiding document, the ‘Myanmar Sustainable Development Plan’. More specifically, macroeconomic and fiscal forecasting (PI-14, rated ‘C’ overall) use time-series forecasts to inform the overall budget envelope, but the details are not included in the documentation submitted to the legislature, nor is there any subsequent analysis or reporting on their accuracy, although there is some sensitivity analysis, particularly on the revenue side.
Both ‘public investment management’ and the ‘management of public assets’, PIs-11 and 12 respectively, received weak ratings (both ‘D’), and although a fiscal policy statement was produced for the last budget, and a key result (that the deficit is within 5% of GDP) is quantified, this was only reported internally (PI-15). The budget is approved before the start of the fiscal year. Although the legislative review of the budget is lengthy, it lacks a strategic perspective which has impacted on the overall rating for this indicator (PI-18, ‘C+’).
There are other indicators relevant to resource allocation which are evaluated as satisfactory or better: for example, execution of the budget (by composition PI-2.1 and .2) is good; the classification complies with international standards (PI-4) and budget documentation (PI-5), is good: all are assessed as ‘B’. Similarly, the integrity of financial data (PI-27), the coverage of in-year budget reports (PI-28.1), and the availability of timely information to the Region and State governments about the resources that will be transferred to them (PI-7.2): are all rated ‘B’ or better.
Efficient use of resources for Service Delivery
For aspects related to efficiency in the use of resources, the public financial management system appears satisfactory, as shown for example, by indicators such as ‘predictability of resource allocation in the year’ (PI-21, rated ‘B’); ‘transfers from central government to States and Regions’, which are transparent (PI-7, ‘A’), and the rating of the ‘performance information’ indicator is also reasonable (PI-8, score ‘C+’).
However, mechanisms to minimize the risk of losses are mixed: for example, while payroll controls are good (PI-23, ‘B+’), procurement (PI-24, ‘D+’) is weak, but this is at least partially mitigated by the system of internal control in operation (PI-25, ‘B’). Further, there is no functional internal audit (PI-26.1 ‘D’) to monitor these controls, and – as mentioned above – there are concerns about weaknesses in the management of both public investments and public assets (PIs-11 and 12, both ‘D’). By contrast, accounting control mechanisms are good (PI-27, ‘B’).
Finally, external oversight and monitoring mechanisms show reasonable results. The OAGM operates independently from the executive and uses national standards to audit and highlight significant issues in the financial reports of all central government entities, and in the last year, reported to Parliament within six months.
Once Parliament receives the OAGM’s reports, the review by the Joint Public Accounts Committee is completed within six months, and this includes hearings on the key findings, with officials from the MOPFI and line Ministries, also in public (with exceptions for national security or sensitive matters). The legislature issues recommendations on actions to be implemented by the executive. Committee reports are provided to the full chamber of the legislature and published on an official website, and hence are accessible to the public.
Performance changes since the previous assessment
This is the first assessment of Myanmar using the upgraded 2016 PEFA Framework. An earlier assessment took place in 2013, and the guidance issued by the PEFA Secretariat in October 2016 states that only 14 dimensions are directly comparable with the 2011 version of the Framework which was used in 2013.
Annex 4: ‘Tracking changes in performance based on previous versions of PEFA’, provides an analysis using current data with the 2011 version of the Framework, and demonstrates that a remarkable eighteen indicators show an improved level of performance (i.e. PI’s 1, 2, 5, 6, 8, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 23 and 25), resulting in enhanced attainment of the three budgetary outcomes.
So, when compared to the 2013 assessment:
• Aggregate Fiscal Discipline has been improved as budget credibility in terms of both revenue and expenditure, and there have been improvements to both budget classification and the associated documentation: top-down budget ceilings are now issued. However, limited information on contingent liabilities and future costs of investments remain threats to the management of medium and long-term fiscal sustainability, and fiscal risks remain unreported. Parliament is functioning more effectively to monitor and enforce aggregate fiscal discipline through the annual budget process.
• Strategic Allocation of Resources
Compositional expenditure deviations continue to remain substantial, as the budget is significantly remade during the year, although the level of unreported government operations has been reduced. Sector strategies are now prepared for most sectors but continue to lack complete costing of investments and recurrent expenditure, which limits the ability of planning efforts to influence future budgets.
Accounting and reporting tend to be viewed as a largely technical process that exerts control in avoiding overspending of budget provision and providing the basis for audit. It does little to establish deeper accountability for how resources are used or play a role in active in-year financial management.
Parliament is functioning effectively to monitor and reorient spending allocations through the annual budget process. The process can benefit from a more thorough review of fiscal policies and medium-term fiscal projections.
• Efficient use of resources for Service Delivery
The significant changes in the composition of spending during the year raise the likelihood of inefficiencies in service delivery. However, the improved budget classification system together with more comprehensive budget documentation, and improved availability of information combine to improve public scrutiny, although regulations still focus on detailed transaction control. Budgeting for investment and recurrent expenditure remain separate processes, which leads to inefficiencies in service delivery
Parliament is functioning more effectively to monitor and enforce the emphasis on service delivery through the annual budget process.
PFM reform initiatives
The 2013 PEFA assessment informed the development of a phased reform program coordinated by a PFM Executive Reform Team (ERT) led by the Deputy Minister for Planning, Finance and Industry. The reform strategy focused on a phased modernization of the PFM system to develop the internal capacities needed to effectively manage the transition and support improved service delivery. The 2013 Nay Pyi Taw Accord established the GOM’s aid coordination architecture which included 16 sector working groups that brought together key Government Ministries with development partners active in these sectors. In July 2017, the Union Government Economic Committee meeting (No. 10/2017) agreed to the formation sector coordination groups (SCG) by the Development Assistance Coordination Unit (DACU). Regular sector coordination group meetings were organized. Macroeconomic Management Sector Coordination Group (MMSCG), one of sector coordination groups, has been headed by Union Minister, MOPFI since 2017. MMSCG meeting are organized at least bi-annually, where stakeholders discuss progress, activity planning, monitoring, and donor support for macro-fiscal and PFM reforms.
The Modernization of Public Finance Management Project (MPFMP) has supported the GOM since 2014. It has assisted the modernization and strengthening of the PFM systems in line with modern international good practices, and aims to support efficient, accountable and responsive delivery of public services through the modernization of Myanmar’s PFM systems and strengthening institutional capacity.
The GOM has published its ‘Public Financial Management Reform Program Strategy, 2018 to 2022’. In preparing this strategy, the GOM reflected on the previous reform experience and the PFM Reform Report jointly prepared by the World Bank and line Ministries.
Use of the results of this assessment
The results of the assessment provide important input to refine ongoing reform activities. It will support the GOM in prioritizing and implementing the medium-term PFM Reform strategy (2018-2022) through timely technical advice and policy recommendations in line with the Myanmar Sustainable Development Plan (MSDP) (2018-2030). The assessment will inform the reform priorities of the second phase of the PFM strategy aimed at strengthening the core MOPFI functions including tax administration, the new public financial management law, the procurement reform as well as the modernization of accounting and financial reporting. The assessment will also inform the second World Bank PFM program supporting these areas as well as second generation of reforms identified as weak by PEFA, such as public investment management, public asset management, and fiscal risks management. This PEFA will further serve as a baseline to monitor progress in the implementation of the PFM strategy and reforms. The GOM’s fiscal space is constrained and thus it is critical that there is proper prioritization of major investments informed by improved financial and fiscal risk information. Development partner engagement will continue to play an important role in supporting this deep and comprehensive PFM reform agenda. The PEFA assessment, which was done with the main development partners in PFM will provide a unique platform for a coordinated approach.