Requires an understanding of a government’s desired outcomes from PFM reform. For most low- and middle-income countries, two major objectives of fiscal policy will be to strengthen fiscal discipline and to improve the credibility of the annual budget. In relation to the PEFA framework, this understanding narrows down the focus quite substantially. Other areas of PFM could still be featured as priorities, subject to further analysis (discussed later). During this stage, it is important to ask what constitutes a country’s overall strategy for fiscal policy and PFM. For example, do any documents published by the government—such as budget speeches, a fiscal strategy statement, or a PFM reform strategy—define policies or strategies? If a country has a program with the International Monetary Fund, its overall policy objectives may also be enshrined in the program documents, which could include specific benchmarks, such as a commitment to produce a new budget law or fiscal rules or to bring spending arrears under control. Such documents may be useful in identifying a country’s short- or medium-term PFM reform priorities.
Focuses on designing specific reform initiatives aimed at achieving the desired outcomes. Each reform initiative or action should include a brief description of the intended result of that action, the impact on (or progress toward) the desired outcome, an initial time frame for completing the action (and any milestone reached over the short, medium, and longer term depending on the nature of the reform), and the allocation of government responsibility for implementation. It is important to note that alternative desired outcomes may lead to different reform priorities and initiatives.
Assesses the possible obstacles (technical, institutional, or political) to achieving improvements in the areas identified. As set out in chapter 2, a template could be prepared, based on this analysis, that identifies the areas of reform that should potentially be allocated high priority, with observations about whether the reform is likely to be relatively easy to achieve, moderately challenging, or extremely challenging. Only areas in the first two categories should be considered further.
Even with the filters applied in the stages of prioritization described above, the process is likely to result in a large menu of high-priority reforms. There is some justification for this outcome since in most low- and middle-income countries, almost by definition, many PFM areas are relatively weak compared with the PEFA benchmarks. However, an approach that includes all areas in a country’s PFM reform strategy leads to overly detailed strategies, which are commonplace in low- and middleincome countries. Such an approach leads to both unrealistic expectations of what can be achieved in a particular time frame and, consequently, often unfair perceptions of failure, as reform programs exceed the capacity of countries to implement them.