This indicator measures the extent to which reallocations between the main budget categories during execution have contributed to variance in expenditure composition. It contains the following three dimensions and uses the M1 (WL) method for aggregating dimension scores:

  • Dimension 2.1. Expenditure composition outturn by function
  • Dimension 2.2. Expenditure composition outturn by economic type
  • Dimension 2.3. Expenditure from contingency reserves


Variations in expenditure composition may indicate an inability to spend resources in accordance with the government’s plans, as expressed in the originally approved budget. The variations may also reflect in-year adjustments in response to unanticipated events, some of which may have been outside the government’s control or may have been difficult to predict. Such variations may affect functional allocations or expenditure composition. The larger the deviations in expenditure composition, the greater the effects are likely to be on allocative efficiency and service delivery.


2:1. Functional or program comparisons provide the most useful basis for assessment of policy intent. However, budgets are usually adopted and managed on the basis of an administrative classification (ministry/department/agency) and economic classification. The same basis should be used for comparison between appropriation and execution.

2:2. Actual expenditure outturns can deviate from the originally approved budget for reasons unrelated to the accuracy of forecasts—for example, a major macroeconomic shock. The calibration


accommodates one unusual or ‘outlier’ year and focuses on deviations from the forecast that occur in two or more of the three years covered by the assessment for dimensions 2.1 and 2.2. Dimension 2.3 uses data from all three of the last completed fiscal years.

2:3. If there are amounts in suspense accounts at the end of the financial year that could affect the scoring of this indicator if included, it should be noted in the PEFA report narrative. Assessors will need to decide whether the amounts in suspense accounts are sufficient to result in misleading scores based on the amounts allocated to expenditure categories used for this indicator. If the score is likely to be misleading— for example, if the unallocated expenses exceed 10 percent of total annual expenditure—dimensions 2.1 and 2.2, and therefore PI-2 as a whole, should be scored D.

2:4. If there is no contingency vote identified as a budget line item, but contingency budgets are embedded within budget lines, these contingency budgets should not be subtracted from the budget lines for the purposes of calculation of PI-2.1 and PI-2.2. Contingency items should only include clearly defined items which are unallocated at budget preparation time but used to cover excesses in spending in any budget unit during execution. Hence, for dimension PI-2.3, one should consider that there is no contingency vote which leads to a score A (see below – PI-2.3).

Dimension 2.1. Expenditure composition outturn by function


2.1:1 This dimension measures the difference between the originally approved budget and end-of-year outturn in expenditure composition, by functional classification, during the last three years, excluding contingency items, and interest on debt. Other expenditures should be included—for example, expenditures incurred as a result of exceptional events such as armed conflict or natural disasters, expenditures financed by windfall revenues including


Pillar One: Budget Reliability