Purpose and management
The purpose of the GoM PEFA is to obtain a snapshot of PFM performance by diagnosing the PFM processes, systems and institutions of Maldives to gauge the progress made since the last assessment in 2014 and guide future PFM reforms. The assessment covers the GoM central government. A Government Oversight Team (OT) led by the Ministry of Finance that is responsible for the overall PFM reforms and strategy was set up to monitor this assessment. An external consultant provided training to the GoM Assessment Team and facilitated the initial self-assessment with guidance from the OT throughout the process. The self-assessment took place between 23 February and April 23, 2020. Thereafter, the joint assessment included participation by development partners supporting PFM reforms in Maldives. This approach provided full government ownership of the overall assessment funded by the Maldives PFM Systems Strengthening Project (P145317).
The result of the PEFA assessment that will be published will be used to drill-down into the causes of the PFM performance to prepare a PFM Reform Strategy and a prioritized and sequenced Action Plan that will be the rallying point for any reform activities.
Main strengths and weaknesses of the PFM systems in Maldives
The aggregate expenditure for the three years under review was above the budgeted expenditure while both functional and economic resource allocations are weak. On the positive side, contingency expenditure is very low. Revenue outturn was not far from the budgeted level, whereas, the results are less positive for the variation in revenue composition. The risks to fiscal discipline are also mitigated by the following factors: (i) off-budget operations are very low (PI-6), (ii) the recording and reporting of debt and guarantees is adequate and a medium-term debt management strategy.
Macro-economic and fiscal forecasting and the budget preparation process perform well. Although a fiscal strategy is developed annually, no report is prepared by the government on the progress made against its fiscal strategy.
The medium-term perspective in expenditure budgeting performs poorly. Medium-term strategic plans are prepared for some ministries, but none are costed.
Public Investment Management does not sufficiently reflect generally accepted good practice in project management.
The indicators related to revenue collection are also performing relatively well with the exception that there is no assessment of arrears in the revenue collections and the risk-based approach on revenue risk management is still underdeveloped.
The system of allocating transfers to local governments was not rule-based.
The specific service delivery performance indicator, which can demonstrate the efficiency with which services are delivered, is poor.
The public procurement domain does not perform adequately overall.
Oversight arrangements for external audit and legislative scrutiny of audit reports are undermined by the fact that AGO has not reported on the annual financial statements for the years 2016 and 2017, although the 2018 audit report on the accounts of the whole of government accounts was submitted to the legislature on January 2020.
Impact of PFM performance on budgetary and fiscal outcomes
Aggregate Fiscal Discipline
Aggregate expenditure for the three years under review was above the budgeted expenditure. The deviation between actual and budget was modest, under 10% (PI-1). That said, both functional and economic resource allocation have room for improvement, though the variation between actual and budgeted expenditure was less than 15% in 2 of the 3 years assessed for both expenditure by functional and economic category (PI-2). Such reallocations are not in line with the original budget and indicate that there are gaps in the budget planning process and /or in the control of the budget execution process. This negatively impacts efficient fiscal discipline and service delivery. On the positive side, contingency expenditure is very low, at 1.3% on average for the 3 years under review, well within the 3% level considered as good practice. Revenue outturn was not far from the budgeted level, with actual revenue materializing between 97% and 106% of budgeted revenue 2 of the 3 years assessed. The results are less positive for the variation in revenue composition, which was between 10% and 15% in 2 of the 3 years assessed.
The stock of expenditure arrears was low in FY 2017 and FY 2018, at 2% of the total budget and 0.3% respectively, though higher in FY 2019 at 7%, though still below 10%. The risks to fiscal discipline are also mitigated by the following factors: (i) off-budget operations are low (PI-6), (ii) the recording and reporting of debt and guarantees is adequate and a medium-term debt management strategy, covering existing and projected government debt, with a horizon of at least three years, is developed and made public. All in all, the performance of these indicators fairly contributes to the attainment of aggregate fiscal discipline.
The total amount of revenue arrears as a percentage of collections is very high, at 89% at the end of 2019. Internal controls of budget execution (PI-23 to PI-25) are well functioning, even though best practices of risk based internal audit are not being used. The procurement domain (PI-24) performs poorly at the overall level.
Strategic Allocation of Resources
The five indicators concerned with policy-based fiscal strategy and budgeting, PIs 14 to 18, received mixed ratings. Macroeconomic and fiscal forecasting (PI-14) and the budget preparation process (PI-17) perform well and are scored at B and A respectively. The indicator relating to fiscal strategy is scored C as, although a fiscal strategy is developed annually, the estimates of all proposed changes in revenue and expenditure were incorporated into the report for FY 2019 only. Moreover, no report is prepared by the government on the progress made against its fiscal strategy. The indicator relating to the medium-term perspective in expenditure budgeting (PI-16) performs poorly and is rated D. The annual budget presents estimate of expenditure for the budget year and the two following fiscal years allocated by administrative, economic classification or functional classification. That said, aggregate expenditure ceilings are approved by the government before the first budget circular is issued, but for the budget year only. Medium-term strategic plans are prepared for some ministries, but none are costed. As a result of the mixed performance record for this group of indicators, the process to allocate budgetary resources is not fully in accordance with the strategic objectives stated by the Government in its development policies.
Moreover, Public Investment Management (PI-11) does not sufficiently reflect generally accepted good practice in project management. Other indicators that contribute to the strategic allocation of resources function better. Notably, the comprehensiveness of budget documentation and budget classification, PI-6 and PI-5 respectively, both rated B. The indicators related to revenue collection (PIs 19 and 20) are also performing relatively well with the exception that there is no assessment of arrears in the revenue collections and the risk-based approach on revenue risk management is still underdeveloped.
Efficient Use of Resources for Service Delivery
In this respect, the PFM system in the GoM does not work particularly well. This is demonstrated by the low score for the processes that plan services in public investment management (PI-11), and medium-term in expenditure budgeting (PI-16). Moreover, for FY 2019, the system of allocating transfers to local governments (PI-7) was not rule-based. That said the budget preparation process (PI-17) performs very well and is rated A and provides ceilings for budget estimates to the budget entities that have been pre-approved by Cabinet.
As a result, the rating related to the specific service delivery performance indicator (PI-8), which can demonstrate the efficiency with which services are delivered, is poor, with all dimensions rated D, except the first dimension, on the performance plans for service delivery, which is rated A, as strategies and corresponding actions together with their objectives are clearly laid out, published and are mapped by programmes and functions of the government. Output indicators are identified with quantified targets. Outcomes are clearly defined with most outcomes tied to a measurable target. This is prepared at the whole of government level, and therefore covers all ministries. Public Asset Management (PI-12) performs well under dimension 1 on financial assets monitoring which is scored B, and less well on the monitoring of nonfinancial assets and the transparency of asset disposal, both scored C.
The mechanisms in place to reduce possible leakages in the system, such as payroll controls (PI-23), internal controls on non-salary expenditure (PI-25) and internal audit (PI-26) are not adequate but not poor either, and rated at C+, C+ and C respectively. Financial data integrity demonstrates good accounting controls as the last dimension on financial data integrity processes performs well, with access and changes to records restricted and recorded, and Lastly, oversight arrangements for external audit and legislative scrutiny of audit reports (PIs-30 and PI-31) are undermined by the fact that AGO has not reported on the annual financial statements for the years 2016 and 2017, although the 2018 audit report on the accounts of the whole of government accounts was submitted to the legislature on January 2020. Moreover, no effective follow-up system established by AGO to monitor the implementation of the audit recommendations by the audited entities. As to legislative scrutiny of the annual audit reports, it cannot be assessed as no reports have been submitted to the legislature for scrutiny in the period covered by the assessment. resulting in an audit trail (PI-27.4). The public procurement function does not perform adequately overall.
Performance changes since the previous PEFA assessment (if applicable)
Based on the 2011 method, between the 2014 and the 2020 Assessment, the results on performance changes over time are very good. As most indicators have improved in performance between 2014 and 2020, and the number of PIs that have improved is over 17 times the number that has deteriorated the overall performance of the PFM system has fundamentally changed for the better. Only 1 indicator of the 28 assessed deteriorated in performance, namely 4 % of total. Of the 26 remaining, 2 (also 7 % of total) are not comparable, as PI-28 could not be assessed in 2020, and PI-7 was Not Rated in 2014. For most PIs, i.e. 17 out of 28, namely 61 % of total, performance improved. For the remaining 8, or 29% of total, there is no change in performance. This is shown in Table 01. Annex 4 gives the details of performance change.
Aggregate fiscal discipline
Aggregate fiscal discipline has improved overall. Although there is no improvement for the indicators PI 1,2,3 taken together as the performance for PI-1 has deteriorated, that of PI-2 has stayed the same, and that of PI-3 has improved, budget credibility has improved as a result of : (i) decrease in the stock of arrears; (ii) improved budget preparation process including budget ceilings that have been approved by Cabinet; (iv) improved quality of the in-year budget reports allowing direct comparison to the original budget; (v) improved payroll controls and controls on non salary expenditure; (vi) a more performing internal audit function.
Strategic resource allocation
The observable changes that promote strategic allocation of resources identified are: (i) an improved budget preparation process; (ii) improved predictability of in year resource allocation; (iii) a slightly more performing medium-term perspective in expenditure budgeting, which nonetheless remains weak; (iv) a slightly more performing procurement function, which also remains weak; (v) improved performance for the 3 indicators relating to tax (PIs 13, 14, 15).
Efficient use of resources for service delivery
Performance under the indicator measuring the tracking of resources received by service delivery units, PI- 23, has remained unchanged since the PA. That said, an improved budget preparation process, and improved predictability of in year resource allocation promote a more efficient use of resources for service delivery, as do a slightly more performing a slightly more performing medium-term perspective in expenditure budgeting and procurement function. The fact that payroll controls and controls on non-salary expenditure have improved in performance, and that the internal audit function has strengthened since 2014, also promotes a more efficient use of resources for service delivery.