11/24/2021

HODIS CPD

Understanding the PEFA Framework for

Assessing PFM System

24th November, 2021

Redeemer Krah (CA)

Presentation Outline
• What is PFM about?
Intro to PFM • Why PFM is important to us?
• Phases of PFM and interrelations.

• What Gap PEFA framework addresses?

• What are the institutional structure and arrangement of PEFA?
The PEFA • How useful PEFA assessment reports?
• What are the sources of information for the assessment?

• What are desirable outcome of an effective and orderly PFM system?

PEFA Methodology • What are the pillars of PFM
• How can we nuanced the pillars: Indicators and Dimensions?

• What other considerations are made in PEFA assessment

PEFA Report • How do we interpret the report
• How can we Compare country to country performance?

Conclusions and • what conclusions can we draw?

• What should the government , CSOs and Professional Accountants be doing about it?
Recommendations

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Public Financial Management

• What is PFM at all? • Why is PFM so important?

• PFM is a comprehensive and • PFM has a very strong correlation

systematic management of all with level of economic and human
financial and related resources development of country.
of state to ensure effective
delivery of service to the • It has also been established that PFM
people. cause national growth. An orderly
and open PFM system promotes
• It is about policies, national development
infrastructure and people (PIP).

Budgeting Budge Budget

Fiscal policy
systems Procedure Approval
making Tax
& Infrast system
Admin
system

IGF Mgt
Planning & system
Budgeting Revenue
Legislative Account
oversight ability
for Rev
Budget
Auditing Extern scrutiny PFM execution
Commit
systems and audit
ment
Spendin system
g
Peer Accounting Expendit
reviews and Reporting ure
systems

Payment
Figure 1: Comprehensive PFM system Infrastructu Reporting Professio systems
and interlinkages ral system system nalism

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The PEFA
• What Gap PEFA framework addresses?
• PFM is critical for economic and human
developments.
• However, there is lack of uniform framework for
measuring PFM effectiveness
• PEFA comes in to close this gap by providing a
consistent and evidence based framework for
assessing public PFM, with special focus of
spending and financial accountability.
The PEFA (cont)
• How useful PEFA assessment reports?
• Provides government with snapshot of
PFM performance
• Provides common basis of assessment of
PFM performance across central and local
government.
• Reveals strengths and weakness of PFM for
policy making.
• Basis of PFM dialogues by CSOs ad others
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• What are the institutional structure and
arrangement of PEFA?
• The PEFA program was initiated in 2001 by seven
international development partners:
• The European Commission,
• International Monetary Fund,
• World Bank, and the governments of France,
• Norway, Switzerland,
• the United Kingdom.
• Others joined: Slovak Republic and the Grand Duchy of
Luxembourg
• PEFA secretariat is at the World Ban
• PEFA began as a means to harmonize assessment of PFM
across the partner organizations.
• It has since established a standard methodology for PFM
diagnostic assessments, known as the PEFA framework.
• Since 2001 PEFA has become the acknowledged standard for
PFM assessments.
• Read more from https://www.pefa.org/about
• What are the sources of information for
the assessment?
• legislation,
• government policy papers,
• budget documents,
• reports and statistics,
• recent surveys
• analytical work at national, regional or
international levels
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PEFA Methodology
• What are desirable outcome of an • What are the pillars of PFM?
effective and orderly PFM system?

PFM ‘House’

Policy Based fiscal Strategy &

Management of Assets and

External scrutiny and Audit

Accounting and Reporting
Predictability & Control in
Aggregate Fiscal

Transparency in public
Budget Reliability

budget execution
Discipline (AFD)

budgeting
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Liabilities
finance
Pillars
Open and orderly Strategic Resource
PFM produces Allocation (SRA)
three Outcomes.

PI-05 PI-06 PI-07

Efficient Service PI-01 PI-02 PI-03 PI-04

Delivery (ESD)

PEFA methodology (cont)

• From Pilar to Indicators
Aggregate Exp Outturn Fiscal risk reporting

PI-01 Composite Exp Outturn

Public investment mgt
Revenue Outturn PI-03
Public asset mgt

Budget classification Debr mgt

Budget documentation
Macroeconomic &fiscal forcasting
Operation outside FR
Fiscal Strategy
PI-02 Transfer to subnational gov
PI-04
Medium Term perspective in budgeting
Perf. info about service
delivery Budget preparation proces
Public access to fiscal info
Legislative scrutiny of Budget

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PEFA Methodology (cont)

• From 7 pillars to 31 indicators (cont.)

Revenue Admin Financial data integrity

Accounting for Revenue

In-year budget reports
Predictability of in year Res alloc PI-06
Annual Financial Reports
Expenditure arreas

Payroll control
PI-05
Procurement

Internal control on nonsalary exp External Audit

PI-07
Legislative scrutiny
Internal audit

PEFA methodology (cont)

• From 31 indicators to 94 Dimension. • Scoring the Dimensions
• To put figures to the 31 indicators
that make up the Pillars, PEFA
translates the indicators to
Dimensions.
• Thus, Dimensions are the basic and
specific measure of PFM.
• This mentions are therefore scored to
deduce the indicators
• PEFA scores the dimension
based on a well defined criteria
as follows:
• A = 4 =Very good level
• B+
• B = 3 =Good level
• C+
• C = 2 = Average/basic level
• D+
• D = 1 = Below basic level/no
existing/insufficient info

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PEFA Methodology (cont)
• Scoring the Indicators
• Dimensions are pulled based the
method to derive the score of
the indicator.
• There are two methods of
scoring indicators:
• Weakest link (M1)
• Average method (M2)
PEFA methodology (cont)
• Average Method (M2)
• It is prescribed for selected
multidimensional indicators where a low
score on one dimension of the indicator
does not necessarily undermine the
impact of a high score on another
dimension of the same indicator.
• For example, indicator P1-01.3 required
average pooling to determine the score of
the indicator.
• Indicator P1-01.3 is revenue outturn
measured by two dimensions. Assume that
the dimensions were scored A and D, the
average will be (4+1)/2=2.5, which is C+
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• Weakest Link Method (M2)
• It used for multidimensional
indicators where poor
performance on one dimension
is likely to undermine the impact
of good performance on other
dimensions of the same
indicator.
• For example, indicator P1-01.2 is
scored using M1, so if the score
of dimensions are A, A,A,A,B,D,
the indicator is scored D.
• Multiple Dimensions
• Were there is only one dimension, as in
the case of P1-01.1, the dimension is equal
to indicator.
• There can also be multiple dimensions:
• Two dimensions
• Three dimensions, and
• Four Dimensions.
• So, the pooling of the multiple dimensions
depends on the method used ( M1 or M2)
• In PEFA assessment, the level of
aggregation ends at indicators.
• NB: Pillars are not scored, but used in
analyzing the Pillars
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PEFA Report
• PEFA Report Structure:
• An executive summary
• An introduction
• An overview of relevant country-
related information
• An assessment of performance in
terms of the seven pillars of the
PFM system.
• Conclusions of the crosscutting
analysis
Analysis of PEFA Assessment Data
• Assessment of performance report is
based on:
• The individual performance in each of
the 31 indicators and 94 dimensions.
• However, the focus of analysis is on the
indicators since they reflect the
dimensions in an aggregate manner.
• This results reveals the strengths and
weaknesses of individual country’s PFM.
• We can also performce comparative
analysis on peer countries, eg Ghana
and Rwanda.
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• Other Consideration in drawing
conclusion include:
• Integrated assessment of PFM
performance
• Effectiveness of the internal control
framework
• PFM strengths and weaknesses
• Performance changes since a previous
assessment
• Practical Demonstration
• Let pull the PFM assessment for
countries or regions of our choice
• Allocate country of interest and
identify the strengths and
weaknesses.
• Further, compare the result of
your chosen countries to the peers
to obtain insight into the country’s
PFM efforts.
• Visit pefa.org to assessment
details.
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Conclusions and Recommendations

• Conclusions
• That PFM is critical in nation building and all
efforts should be made to improve, if
possible, perfect it for an accelerated
development.
• That PEFA offers an incredible and evidence
based framework for assessing PFM,
focusing on the strengths and weakness for
possible reforms.
• Recommendations
• I recommend strongly that Ghana
government must pay serious attention to
the assessment of PEFA and work towards
improvement in the areas of weaknesses.
• I also recommend that PEFA assessment
result should not be politicised as in the
case of TI corruption index, so that national
efforts are made toward the building of
robust PFM System
• CSOs should also use the result of PEFA to
trigger conservation on PFM building.
• Professional accountants should develop
the skills and competence in translating
PEFA results into useful reforms.

Thank you!

Akpe na mi!