Management of Assets & Liabilities
Effective management of assets and liabilities ensures that public investments provide value for money, assets are recorded and managed, fiscal risks are identified, and debts and guarantees are prudently planned, approved, and monitored.
PI - 10. Fiscal risk reporting
The extent to which fiscal risks to central government are reported.
PI - 11. Public investment management
The extent to which the government conducts economic appraisals, selects, projects the costs, and monitors the implementation of public investment projects, with emphasis on the largest and most significant projects.
PI - 12. Public asset management
The ability of the government to manage and monitor its assets and ensure the transparency of asset disposal.
PI - 13. Debt management
Whether satisfactory management practices, records, and controls are in place to ensure efficient and effective management of domestic and foreign debt and guarantees.
Policy-based Fiscal Strategy & Budgeting
The fiscal strategy and the budget are prepared with due regard to government fiscal policies, strategic plans, and adequate macroeconomic and fiscal projections.
PI - 14. Macroeconomic and fiscal forecasting
The ability of a country to develop robust macroeconomic and fiscal forecasts, which are crucial to developing a sustainable fiscal strategy and ensuring greater predictability of budget allocations.
PI - 15. Fiscal strategy
The analysis of the capacity to develop and implement a clear fiscal strategy. It also measures the ability to develop and assess the fiscal impact of revenue and expenditure policy proposals that support the achievement of the government’s fiscal goals.
PI - 16. Medium-term perspective in expenditure budgeting
The extent to which expenditure budgets are developed for the medium term within explicit medium-term budget expenditure ceilings. It also examines the extent to which annual budgets are derived from medium-term estimates and the degree of alignment between medium-term budget estimates and strategic plans.
PI - 17. Budget preparation process
The effectiveness of participation by relevant stakeholders in the budget preparation process, including political leadership, and whether that participation is orderly and timely.
PI - 18. Legislative scrutiny of budgets
The nature and scope of legislative scrutiny of the annual budget. It considers the extent to which the legislature scrutinizes, debates, and approves the annual budget, including the extent to which the legislature’s procedures for scrutiny are well established and adhered to.
External Scrutiny & Audit
Public finances are independently reviewed and there is external follow-up on the implementation of recommendations for improvement by the executive.
PI - 30. External audit
The characteristics of external audit, including the audit of the government’s annual financial reports and the independence of the external audit function.
PI - 31. Legislative scrutiny of audit reports
The extent to which legislative scrutiny of the audited financial reports of central government is timely, significant and transparent. It also assesses whether the legislature issues recommendations and follows up on their implementation.
The government budget is realistic and implemented as intended. This is measured by comparing actual revenues and expenditures with the original budget.
PI - 1. Aggregate expenditure outturn
The extent to which aggregate budget expenditure outturn reflects the amount originally approved, as defined in government budget documentation and fiscal reports.
PI - 2. Expenditure composition outturn
The extent to which reallocations between the main budget categories during execution have contributed to variance in expenditure composition, and use of contingency reserves.
PI - 3. Revenue outturn
The change in revenue between the original approved budget and end-of-year outturn.
Transparency of Public Finances
Information on public financial management is comprehensive, consistent, and accessible to users. This is achieved through comprehensive budget classification, transparency of all government revenue and expenditure including intergovernmental transfers, published information on service delivery performance and ready access to fiscal and budget documentation.
PI - 4. Budget classification
The extent to which the government budget and accounts classification is consistent with international standards.
PI - 5. Budget documentation
The comprehensiveness of information provided in the annual budget documentation, as measured against a specified list of basic and additional elements.
PI - 6. Central government operations outside financial reports
The extent to which government revenue and expenditure are reported outside central government financial reports.
PI - 7. Transfers to subnational governments
The transparency and timeliness of transfers from central government to subnational governments with direct financial relationships to it.
PI - 8. Performance information for service delivery
The service delivery performance information in the executive’s budget proposal or its supporting documentation in year-end reports. It determines whether performance audits or evaluations are carried out and if information is collected and reported on resources received by service delivery units.
PI - 9. Public access to fiscal information
The comprehensiveness of fiscal information available to the public based on specified elements of information to which public access is considered critical.
Predictability & Control in Budget Execution
The budget is implemented within a system of effective standards, processes, and internal controls, ensuring that resources are obtained and used as intended.
PI - 19. Revenue administration
The procedures used to collect and monitor central government revenues. It relates to the entities that administer central government revenues and agencies that administer revenues from other significant sources such as natural resources extraction.
PI - 20. Accounting for revenue
The procedures for recording and reporting revenue collections, consolidating revenues collected, and reconciling tax revenue accounts. It covers both tax and nontax revenues collected by the central government.
PI - 21. Predictability of in-year resource allocation
The extent to which the central ministry of finance is able to forecast cash commitments and requirements and to provide reliable information on the availability of funds to budgetary units for service delivery.
PI - 22. Expenditure arrears
The extent to which there is a stock of arrears, and whether any systemic problem in this regard is being addressed and brought under control.
PI - 23. Payroll controls
How the payroll for public servants is managed, how changes are handled, and how consistency with personnel records management is achieved.
PI - 24. Procurement
Key aspects of procurement management, including transparency of arrangements, use of open and competitive procedures, monitoring of procurement results, and access to appeal and redress arrangements.
PI - 25. Internal controls on nonsalary expenditure
The effectiveness of general internal controls for nonsalary expenditures.
PI - 26. Internal audit
The standards and procedures applied in internal audit.
Accounting & Reporting
Accurate and reliable records are maintained, and information is produced and disseminated at appropriate times to meet decision-making, management, and reporting needs.
PI - 27. Financial data integrity
The extent to which treasury bank accounts, suspense accounts, and advance accounts are regularly reconciled and how the processes support the integrity of financial data.
PI - 28. In-year budget reports
The comprehensiveness, accuracy and timeliness of information on budget execution. Consistency of in-year budget reports with budget coverage and classifications, which allows monitoring of budget performance and, if necessary, timely use of corrective measures.
PI - 29. Annual financial reports
The extent to which annual financial statements are complete, timely, and consistent with generally accepted accounting principles and standards.
The PEFA Ten Steps
Phase 1: Planning
Phase one describes the key steps for planning and preparing the PEFA assessment. Careful planning and preparation are critical to the success of the PEFA assessment. Phase one establishes the basis for the government’s engagement in, and ownership of, the assessment process. It also defines the objectives, scope, coverage and resources required for the PEFA assessment. Phase one can take up to six months, but may be longer or shorter, depending on the extent of agreement between stakeholders and readiness to undertake the assessment.
Phase 2: Field Work
The PEFA assessment process itself can be organized so that counterparts and stakeholders build a common understanding both on the “as-is” situation and possible and desirable reform options. Assessment teams will meet government officials across the PFM cycle and get a detailed understanding of regulatory frameworks, practices, individual actors, ongoing and stalled reform plans and challenges. Only a part of the information and ideas exchanged during the assessment process will typically be documented in the final PEFA report.
Phase two involves the field work to collect in-country evidence and information needed to score assessment dimensions and indicators (data collection having started in step 3) and undertake data analysis needed for writing the PEFA report and annexes. At the same time this phase will also prepare the ground for reform dialogue. The field work phase often commences with an initial workshop for government officials, including representatives of the legislature and supreme audit institutions, and oversight team members and development partners. The purpose of the workshop is to explain the PEFA 2016 framework and methodology and the scope of the assessment. Thereafter, this phase involves extensive data collection and analysis by the assessment team, and meetings with oversight team members, senior government officials, development partners and other stakeholders.
Field work typically requires up to four weeks in country depending on the size, scope, and coverage of the assessment and on other country circumstances.
Phase 3: Reporting
Phase three of the PEFA assessment process involves preparation of the PEFA assessment report. The primary audience for the PEFA report consists of government policy makers, senior officials, heads of key agencies and main ministries, development partners, civil society organizations etc. The report is intended to be owned by the government and is expected to inform PFM and associated reform initiatives. For the assessment to serve its purposes, it is crucial that government be engaged in all phases of the assessment, provide input and comments throughout the process and understand the rationale behind the report content, including scores.
The reporting phase can take up to two or three months. The time required is crucially dependent on the availability of sufficient information from the data collection and analysis phase and the timeliness of consultation and peer review. Any delays in obtaining sufficient data to validate scores, or slow feedback and peer review can have significant impact on the time taken to finalize the report. Local consultants are often very effective in closing the data gaps when they have strong connections with relevant officials and understand the processes for obtaining the data needed.
It is expected that PEFA reports will be published by governments and made available to those interested within and outside the country covered by the report. The PEFA Secretariat maintains a database of all PEFA assessment reports submitted since the program commenced. All reports published by governments are also available to the public on the PEFA website at pefa.org under assessment data and reports.
Phase 4: Post PEFA PFM Reform Action
Phase four focuses on the Post PEFA actions to be taken after the PEFA assessment has been completed. This phase is necessary to make effective use of the assessment. Indeed, it is not clear whether an assessment would have any value without this phase. However, assessment funding agencies should aware that as Phase 4 follows the completion of the PEFA report, it will require additional resources to be undertaken.
In this phase, the assessment stakeholders should work to ensure that the completed assessment informs initiatives to strengthen PFM, that it facilitates stakeholder cooperation and that it serves as a common information pool for any subsequent diagnostic or PFM reform work. As mentioned in the previous section, a final assessment workshop is usually held to disseminate the report to all interested stakeholders (e.g. government, development partners, civil society organizations and representatives etc.). Although the PEFA does not include recommendations, such a workshop can provide the transition to the use of the assessment as input into further work on PFM reform.
While the end-to-end PEFA assessment process should be organized to ensure ownership, build capacity and facilitate consensus among stakeholders, the emphasis of phase IV is on the process after the PEFA report is completed. In this context good PFM performance is determined by the ability of the PFM systems to support the effective and efficient achievement of political objectives while maintaining macro-fiscal control as measured by the three-main fiscal and budgetary outcomes – aggregate fiscal discipline, strategic allocation of resources and efficient service delivery.
More detailed guidance on how to utilize PEFA assessments to support reform initiatives is included in Volume IV of the PEFA Handbook. Volume IV provides guidance to countries on the issues that need to be considered in developing effective reform initiatives, strategies or action plans design to address each country’s unique situation.