Purpose and management of the assessment
The overall objective of this PEFA assessment was to produce a comprehensive “PFM Performance Report” according to the upgraded PEFA Performance Measurement Framework Methodology of 2016 to provide an analysis of the overall performance of the PFM systems of the country and to provide a baseline against which future progress can be measured.
Assessment coverage and timing
This assessment covered the central government of Rwanda, and the fieldwork took place in June and July 2015: most of the indicators were assessed using data from 2013/2014 and the two previous completed FYs. This data was supplemented by further fieldwork in November 2016 to comply with the additional requirements of the upgraded Framework released on 1 February 2016.
Impact of PFM Systems on the three main budgetary outcomes
Aggregate fiscal discipline
Overall, fiscal discipline is reasonably good, and most elements in the overall PFM system that contribute to achieving this objective appear to be sound. On the revenue side, performance is good (PI-3, rated ‘B+’), although while there are variances in expenditure against the original budget (PI-2.1), these are not distorted by payment arrears, the stock of which is declining (PI-22.1).
In addition, the risks to attaining fiscal discipline have been reduced, due to several factors: there are few unreported operations (PI-6); monitoring of fiscal risks from other Public Sector entities is reasonable (PI-10), although there are exceptions with contingent liabilities and ‘Public Private Partnerships’ (PI-10.3); the recording of government debt and the inclusion of donor funded project bank accounts into the consolidation of government cash/bank balances is comprehensive (PI-13); and the multi-year focus in fiscal planning is also good (PI-16.3 and 4). There are two new indicators that relate to this budgetary outcome, ‘Macroeconomic and Fiscal Forecasting’ (PI-14) and ‘Fiscal Strategy’ (PI-15) both of which score very well.
With the exception of the large volume of very old tax arrears (which the law does allow to be written-off: PI-19.4), the various elements of the system concerned with budget execution – including internal controls – are sound and contribute to the attainment of aggregate fiscal discipline.
Strategic allocation of resources
The five indicators concerned with ‘policy-based fiscal strategy and budgeting’, (PIs 14 to 18) all received good overall ratings, and demonstrate that the process to allocate budgetary resources in accordance with GoR’s declared strategic objectives is sound and has in fact, strengthened. There are two exceptions to this: the first is the absence of medium-term expenditure ceilings in the budget preparation process (PI-16.2); and, secondly, PI-18.4 regarding Parliamentary oversight of in-year amendments to the approved budget, (but this is an improvement from the previous assessment). This conclusion is consistent with a reasonable rating for PI-2, which suggests that the budget formulation process (which benefits from considerable political engagement at an early stage) produces the desired results.
Most of the other indicators that contribute to the strategic allocation of resources have continued to function well, notably the comprehensiveness of the budget documentation, and its classification in accordance with international norms (PIs 5 (‘B’) and 4 (‘A’) respectively). The indicators related to revenue collection (PIs 19 and 20) have been reformulated, and with the exception of tax audits and the monitoring of arrears (PI-19-3 and 4) perform well, which is important as the RRA is expected to increase domestic revenues in the years to come.
There is another completely new indicator relevant to this budgetary outcome which is ‘Public Investment Management’ (PI-11), and this reflects “generally accepted good practice”, with ‘A’ ratings for two of the four dimensions.
Efficient use of resources for service delivery
Financial management is not an end in itself, but rather a tool to assist a government to deliver services to its citizens, and of course, services cannot be delivered in the absence of funds. In this respect, GoR’s PFM system works well, as can be seen in the good ratings for the processes that plan services (PIs 16 and 17 mentioned above); the revenue indicators (PIs 19 and 20 – with the exception of arrears, mentioned above); predictability in the availability of funds to support expenditure (PI-21, ‘B+’); the fact that intergovernmental fiscal relations are transparent (PI-7, rated ‘A’) as many services are actually delivered to communities by the Districts.
While the indicators listed above reveal what may be regarded as a satisfactory level of performance, the rating for ‘performance information’ which can demonstrate the efficiency with which services are delivered (PI-8, ‘D”) is disappointing, as is that of the last of the completely new indicators introduced into the Framework: ‘Public Asset Management’ (PI-12), which reveals a weak performance – with potentially severe consequences, in that resources are unlikely to be utilized efficiently or effectively by a government that does not know what assets it owns.
Importantly, the mechanisms in place to reduce possible leakages in the system, such as internal controls, and controls over payroll (PIs 25 and 23 respectively) are good, while Internal Audit continues to improve (PI-26), as do the basic accounting controls (PI 27) and the procurement indicator (PI-24).
Lastly, while the oversight arrangements (addressed in PIs 30-31) are reasonably effective: they show a mixed picture. There are improvements, for example in the Parliamentary scrutiny of the Auditor-General’s reports, while on the other hand, the lack of financial independence of the OAG – a new dimension introduced to the Framework – can be seen as a constraint on the scope and nature of the work performed.
In summary, most aspects of the PFM system are functioning at a satisfactory level – one that should allow GoR to attain its fiscal and budgetary objectives. This said, there remain areas for improvement (such as performance information on service delivery; capturing all assets bought with public funds in registers – and maintaining the registers; managing revenue arrears; issuing budget execution reports; and improving the (financial) independence of the OAG), some of which are already incorporated in the PFM SSP.
Performance changes since last assessment
This is the first assessment using the ‘Upgraded’ Framework, and the guidance issued by the PEFA Secretariat (October 2016) states that only 14 dimensions are directly comparable with the 2011 version: however, one of these is PI-2 (iii) which was part of one of the three indicators amended in 2011, i.e. after the previous assessment in Rwanda (PIs-3 and 19 were the others amended in 2011).
Overview of on-going and planned PFM reforms and main weaknesses identified
There are seven key programmes in the current PFM reform strategy, which are:
- Economic Planning and Budgeting
- Resource Mobilisation
- Budget Execution, Accounting and Reporting
- External Oversight and Accountability
- Electronic Service Delivery and IFMIS
- Fiscal Decentralisation
- PFM Sector Coordination and Management
In addition, four priorities have emerged for urgent consideration:
- Increased resource mobilisation: domestic tax and non-tax revenue mobilisation to ensure Rwanda becomes self-reliant in the medium to long term
- Scaling up of the implementation of IFMIS: extend IFMIS to remaining government agencies both at central and local government levels as well as initiate the process for the use of a full-fledged IFMIS that has all the functionalities such as procurement, fixed asset management, and inventory modules
- Strengthen PFM systems at sub-national level: integrate sub-national service delivery units such as schools and primary healthcare institutions into IFMIS for effective PFM systems in order to improve decentralised service delivery; joint staff training for both district councils and local service delivery units will be delivered
- Enhance training, professionalization and capacity building across all PFM disciplines: provide professional training to augment staff to ensure sustainability.
The World Bank is also providing support to the tune of USD 100 million for the Public Sector Governance ‘Programme-for-Results’, which aims to improve Rwanda's PFM and statistics systems for the enhancement of transparency and accountability in the use of public funds, revenue mobilisation and the quality and accessibility of development data for decision-making.