What are the diagnostic instruments used to assess public expenditure, procurement and financial accountability in developing countries? Do they provide an effective approach to assessing and strengthening public expenditure, procurement and financial accountability systems? This study from the Public Expenditure and Financial Accountability (PEFA) Secretariat aims to establish how diagnostic instruments could be improved and made more coherent.
The diagnostic instruments reviewed in the report are: the World Bank’s Public Expenditure Review; Country Financial Accountability Assessment (CFAA) and Country Procurement Assessment Report (CPAR); the IMF’s report on the Observance of Standards and Codes of Fiscal Transparency; the IMF/World Bank HIPC Public Expenditure Tracking Assessment and Action Plan; the European Commission’s work on assessment and audit of public financial management systems; and the UK Department for International Development’s approach to assessing fiduciary risk.
According to the study, instruments have evolved over the years in an uncoordinated way and with a variety of objectives. The instruments usually give insufficient attention to the analysis of institutional and governance issues, including corruption. Further understanding of the political, cultural and institutional underpinnings of the budget process is needed.
There are important gaps in the existing instruments, either in the formal guidelines, or in the way the guidelines are interpreted in providing the diagnostic reviews themselves.
- There is no single instrument that provides a broad and substantive coverage of the forecasting, collection and administration of taxes and other government revenues.
- Although asset management is included in the CFAA guidelines, no CFAA has yet covered this issue, which also needs a wider perspective than financial management alone.
- Although debt and aid management issues are covered in the Public Expenditure Review and CFAA, it is not on a systematic or comprehensive basis.
- Consideration should be given to mainstreaming the effective management of public records and combining it with the standard instruments, particularly the CFAA and the CPAR.
- Not enough attention is concentrated on sub-national government, and state owned enterprises and agencies funded directly from the national budget given the growing trend of fiscal decentralisation.
An overall approach to Public Finance Management assessment and reform should be adopted that is country-led, has multi-donor support, and is based on a coherent and integrated medium-term strategy. Such an approach should have the following broad objectives:
- Streamline the approach of instruments to avoid duplication
- Enhance collaboration and open sharing of information between donors, governments and other stakeholders
- Provide a more complete, accurate and timely assessment of fiduciary risk
- Improve the ultimate development impact of assessment and reform work
- The reform of existing instruments could conceivably go further than this; the report recommends the development of a ‘modular’ framework of public expenditure and financial management assets.
