Box A2.3

Improving public oversight of public expenditures

Bangladesh-During 1999-2000, a Country Financial Accountability Assessment was conducted by the World Bank and UNDP with participation from the Ministry of Finance, line ministries, parliamentary oversight bodies and private firms of accountants. The assessment focused on the quality of financial accountability and transparency in Bangladesh, and made recommendations for improvements. The financial management standards and practices of agencies using public funds were compared to international good practices as well as those of external oversight agencies-nine Audit Directorates of the Comptroller and Auditor Generals Office, parliamentary committees concerned with public expenditure, donor agencies and the media. It included an assessment of the steps that would be needed to support a shift by donors from projects to budget support and sector programmes. Among the responses of the government is the creation of an independent Public Expenditure Review Commission, headed by a retired Comptroller and Auditor General. The Commission will review all aspects of public expenditure on an annual basis and report to the government and to Parliament.

financial management system. This should lead to the elaboration of an agreed action plan and follow-up activity.

Collaboration on follow-up is important and should also involve identification of capacity development needs and provision of technical assistance where necessary. The partner country should co-ordinate this process and avoid donor competition.

Updating of the review

Consistent with the reviews role as a knowledge tool, the information needs to be kept up to date. While a full diagnostic review may be undertaken only every three to four years, updating of the overall assessment should be undertaken every year. This includes using appropriate public financial management performance indicators. Desirably, this should take place through a joint mechanism agreed between the partner country and donors and built into the countrys budget cycle.

Box A2.4

Partners support government-led diagnostic process in Tanzania

The Government of Tanzania owns and leads the diagnostic work program in public financial management-and that is what accounts for its success. The programme, of which the centrepiece is the annual Public Expenditure Review (PER)-is closely integrated into the governments budget cycle and involves a broad cross-section of stakeholders, and close partnership with donors. The PER process has evolved from its traditional role of external evaluation of budget management to support the governments programme to improve budget management within a medium term expenditure framework. It supports better donor co-ordination by ensuring that aid is consistent with budgetary objectives and priorities and increasingly integrated in the budget. More recently, the PER has been supplemented by the Country Financial Accountability Assessment (jointly undertaken by the World Bank and DFID, published as a government document, and shared with all donors) and the Country Procurement Assessment Review, which look at critical aspects of budget execution. The programme has the following benefits: (a) donors share their sector specific or thematic experience, to the benefit of all who participate, (b) more effective use of resources in undertaking technical studies on budget issues, (c) a higher profile of budgetary issues in the work of all parties, and (d) a platform to support the shift from project to budget support by several donors.

GOOD PRACTICES IN PERFORMANCE MEASUREMENT

Given the emerging nature of work in this area, good practices have yet to fully emerge. However, based on work to date, the following appear important:

Partner country governments and donors should collaborate in the setting and monitoring of country-specific performance indicators in public financial management.

Donor collaboration should take place within a government-led strategy for improving the overall management of public finances that sees performance measurement fully integrated with diagnostic work and capacity building efforts. Common performance indicators can avoid governments being presented with an excessive number of-potentially conflicting-targets, and can serve to co-ordinate donor capacity building efforts.

Box A2.5

Elements of a performance measurement framework

Among the elements of an emerging international framework for performance measurement in public financial management are:

International standards, such as the International Public Sector Accounting Standards (IPSAS) of the International Federation of Accountants and the auditing standards of the International Organisation of Supreme Audit Institutions (INTOSAI). Work is also commencing on IPSAS for development assistance and budget reporting.

Codes of good practice, such as the IMFs Code of Good Practices on Fiscal Transparency and budget classification procedures promulgated by the IMF (Government Finance Statistics) and United Nations (COFOG).

Current benchmarks, such as the set of 15 performance benchmarks in public financial management used by the IMF and World Bank in tracking poverty reducing expenditures in Heavily Indebted Poor Countries (HIPCs). An updated set of these benchmarks will be available in 2003. In addition, UK DFID has developed a set of public financial management performance benchmarks in the context of managing fiduciary risk when providing direct budget support.

Given the absence of a comprehensive, internationally accepted performance measurement framework in public financial management, donors should support work on the development of such a framework. They should also ensure that developing country conditions and voice are reflected. Where available, donors should be guided by existing international standards, codes and approaches in formulating country-specific performance targets, as appropriate to country conditions (see Box A2.5 below).

Indicators of public financial management performance assist donors in assessing risks to their programmes. While donors should collaborate in the formulation of performance indicators in individual countries, donors decide individually on the nature and level of resource transfers in a given set of circumstances. They will take into account previously agreed measures.