## Box 1–3, Annexes and PFTAC Forward Plan (wpiea2020183-print-pdf)

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### Regional context, role and PFTAC mandate
- PFTAC established in 1993 to provide support to 16 Pacific Island Countries (PICs) on public financial management (PFM) among other topics.
- Public Financial Management Roadmap for Forum Island Countries published and endorsed in 2010 with three broad objectives:
  - (i) PICs should undertake Public Expenditure and Financial Accountability (PEFA) assessments every three years;
  - (ii) derive practical, shared action plans from PEFA assessments as basis for delivering capacity development (CD);
  - (iii) support from dedicated regional PEFA resources and development partners (DPs), coordinated by PFTAC.
- Roadmap envisaged expansion of PFTAC resources; resident PFM advisors increased from one to two in fiscal year (FY) 2013.
- Review assesses progress ten years after Roadmap and across PFTAC funding Phases III–V (FY2009–FY2011; FY2012–FY2016; FY2017–FY2022).
- IMF fiscal year: starts on May 1 and ends on April 30.

### Demographics, geography and vulnerabilities
- High heterogeneity in location, size, population and economic profiles; eleven PICs among the smallest countries in the world (land area varying between 20 square km and around 900 square km).
- Some PICs are micro-states with populations between 11,000 and no more than 200,000.
- Remoteness and dispersion create high transportation costs and substantial dependence on the public sector; lowest connectivity includes FSM, RMI, Kiribati and Solomon Islands.
- Vulnerability to natural disasters:
  - PICs median damage and losses of most recent natural disasters: 9.4 percent of GDP.
  - Recent cyclones listed: 2020: Cyclone Tino (Tuvalu); 2019: Cyclone Rita (Vanuatu); 2018: Cyclone Gita (Tonga); 2017: Cyclone Donna (Vanuatu).

### Economic structure and exposures
- 2019 GDP growth across region ranged from 1 percent (Nauru) to 6 percent (Tuvalu).
- Economies highly dependent on imports and external income (including remittances) with limited diversification; main sectors: agriculture, fishing (licensing), and services (tourism).
- External-shock exposures:
  - Tourism, remittances, and Foreign Direct Intervention: 20-50 percent of GDP in Fiji, Palau, Samoa, Tonga and Vanuatu.
  - Terms-of-trade dependence: PNG, Solomon Islands, and Timor-Leste.
  - Financial channel dependence: large trust funds in Kiribati, RMI, FSM, Palau and Tuvalu.
- Narrow production/export base produces greater macroeconomic volatility than larger peers.

### Infrastructure, aid dependence and fiscal implications
- Electricity costs among the highest in the world; electrification rate less than 60 percent in Solomon Islands and Vanuatu.
- Aid represents about 40 percent of GDP in FSM and the Marshall Islands.
- Substantial U.S. grants for the RMI, FSM and Palau will terminate in 2023.
- RAMSI program in Solomon Islands terminated in 2013.

---

### PFM roadmaps, JPAMs and diagnostic practice
- Roadmap uptake:
  - 14 of the 16 PICs prepared roadmaps which were published; Niue, Palau and Timor-Leste have not prepared comprehensive roadmaps.
  - Only three countries (FSM, Samoa, and Tonga) prepared more than one roadmap.
  - In several countries roadmap periods have expired with no updates.
- Roadmap content:
  - Many roadmaps based on most recent PEFA assessments focusing on accounting and reporting, bank reconciliations, cash management, and development of an FMIS.
  - Some roadmaps included non-PEFA dimensions: governance and anti-corruption, gender inequality, public investment management, climate change.
- JPAMs:
  - Used in Kiribati, Samoa, Solomon Islands, Tonga, and Tuvalu to coordinate budget support conditions among DPs (principally ADB, Australia, the EU, New Zealand, World Bank).
  - JPAMs include: government economic/social priorities; indicative DP support amounts over 2-3-year periods; associated conditions (PFM, revenue, wage bill, procurement, PPPs, SOE reforms, public service management, sector reforms, disaster/climate change).
  - JPAMs consolidate reforms, prioritize a handful of reforms, provide clarity for budget support, link to TA/CD, and reduce transaction costs for governments.

### Critical success factors and constraints
- Critical success factors: country ownership and conducive political environment; political support and institutional capacity varied across countries (Samoa, Fiji, Tonga, Cook Islands cited as having stronger commitment).
- Constraints: patronage systems and informal arrangements can dominate budget decisions; small pools of qualified finance staff with high turnover; multiple approval levels for reforms (official, ministerial, legislature) can delay reform sequencing.

---

### PEFA assessments and framework revisions (2009–2019)
- 31 PEFA assessments carried out between 2009 and 2019 for the 16 PICs.
  - 18 assessments led by DPs (11 led by PFTAC).
  - 13 self-assessments.
- Breakdown by PEFA framework:
  - eight assessments based on the 2005 framework,
  - 15 assessments on the 2011 framework,
  - eight assessments on the 2016 framework.
- PEFA 2016 tightened scoring:
  - 2011 Framework: % of “A” Scores 14, % of “B” Scores 22, % of “C” Scores 27, % of “D” Scores 31
  - 2016 Framework: % of “A” Scores 10, % of “B” Scores 23, % of “C” Scores 27, % of “D” Scores 39
  - Average number of “A” scores declined from 14 percent (2011) to 10 percent (2016); “D” scores increased from 31 percent to 39 percent.
- PEFA Check introduced: reviews draft assessment reports for process compliance; all PEFA reports published since 2016 received a PEFA check; PEFA Check focuses on processes and does not validate scores themselves.
- Conversion for analysis: A = 4, B = 3, B+ = 3.5, C = 2, C+ = 2.5, D = 1, D+ = 1.5.

### Comparison with other country groups (scores for 2015-2019)
- Budget Reliability: LIDCs 2.05, EMEs 2.59, PICs 2.15
- Transparency of Public Finances: LIDCs 2.07, EMEs 2.86, PICs 2.04
- Management of Assets and Liabilities: LIDCs 1.94, EMEs 2.37, PICs 1.68
- Policy-Based Fiscal Strategy and Budgeting: LIDCs 2.35, EMEs 2.74, PICs 1.81
- Predictability and Control in Budget Execution: LIDCs 2.24, EMEs 2.73, PICs 2.12
- Accounting and Reporting: LIDCs 2.04, EMEs 2.28, PICs 2.09
- External Scrutiny and Audit: LIDCs 1.98, EMEs 1.95, PICs 1.64

---

### Regional PEFA trends and analytical findings (2009–2019)
- Periods analyzed: Index A 2009-2012, Index B 2013-2016, Index C 2017-2019 (mapping to PFTAC funding phases).
- Overall pattern:
  - Average score across five RBM objectives increased marginally from 2.02 to 2.06 between the first two periods, then fell by 11.6 percent to 1.82 in 2017-19.
  - Tendency for weaker PFM performance in Index C, partly reflecting PEFA methodology tightening after 2016.
- Objective-specific changes:
  - Comprehensive, credible and policy-based budget preparation: improved marginally between first two periods; declined from 2.29 to 1.69 in Index C.
  - Coverage and quality of fiscal reporting: decreased from 1.87 to 1.6 between first two periods; increased to 1.79 in Index C (improvements partly from CD in Fiji and Samoa).
  - Budget execution and control: increased from 1.65 to 2.07 (drivers: centralization of Treasury revenue collections, improved cash monitoring/reconciliations, strengthened internal audit, control of suspense and advance accounts).
  - Asset and liability management: declined from 2.25 to 1.89 across three periods (2016 PEFA indicators wider in scope; data gaps in some countries).
  - Management of fiscal risk: declined from 2.06 to 1.70 (2016 broadening to include SOEs, subnational governments and disclosure).
- Reform prioritization gaps:
  - CD delivery for 2017-2019: only 6 percent of total CD delivered by PFTAC covered comprehensive, credible and policy-based budget preparation compared to 20 percent for 2012-2016—possible factor in deterioration.
- Country-level notes:
  - Earlier improvements in internal control, accounting and reporting in PNG, Fiji, Samoa and Timor-Leste were not always sustained.
  - Figures for PNG 2019 and Timor-Leste 2018 are based on draft assessments and are provisional.
- Caveats:
  - Around 42 percent of PEFA assessments were self-assessments in the first two periods; these may be less reliable due to weaker peer review/validation.

---

### PFTAC capacity development (CD) activity evolution and metrics
- PFTAC objective: support growth of strong and sustainable institutions in PICs for sound macroeconomic and fiscal policies.
- Shift in focus over funding Phases:
  - Phase III (FY09-11): medium-term fiscal framework; cash vs. accrual accounting; coordination of expenditure and revenue.
  - Phase IV (FY12-16): development/implementation of PFM roadmaps; core PFM reforms (cash management, commitment controls, medium-term budgeting); PEFA process support.
  - Phase V (FY17-22): improve PFM institutions and legal framework; strengthen budget preparation and execution, fiscal reporting, asset/liability integration; strengthen fiscal risk identification and management.
- PFTAC CD activity statistics (FY09-19 totals and yearly averages by phase):
  - Phase III (FY09-11)
    - Total Number of Activities: 77
    - Yearly Average: 26
    - Capacity Development: 69 (Yearly Average 23)
    - Technical Assistance, of which: 54 (Yearly Average 18)
      - conducting PEFA or Roadmap Related: 3 (Yearly Average 1)
    - Training (In-country and regional): 15 (Yearly Average 5)
    - Others: 8 (Yearly Average 3)
  - Phase IV (FY12-16)
    - Total Number of Activities: 160
    - Yearly Average: 32
    - Capacity Development: 149 (Yearly Average 30)
    - Technical Assistance, of which: 119 (Yearly Average 24)
      - conducting PEFA or Roadmap Related: 40 (Yearly Average 8)
    - Training: 30 (Yearly Average 6)
    - Others: 11 (Yearly Average 2)
  - Phase V (FY17-until 19)
    - Total Number of Activities: 104
    - Yearly Average: 35
    - Capacity Development: 95 (Yearly Average 32)
    - Technical Assistance, of which: 79 (Yearly Average 26)
      - conducting PEFA or Roadmap Related: 9 (Yearly Average 3)
    - Training: 16 (Yearly Average 5)
    - Others: 9 (Yearly Average 3)
- Observations:
  - Average annual number of activities increased between Phase IV and Phase V.
  - Second PFM adviser recruited in FY 2013; each advisor became principal contact for about eight PICs.

### Shifts in thematic focus and gaps
- Phase III emphasis: comprehensive, credible and policy-based budget preparation.
- Phase IV emphasis: diagnostic tools and roadmaps—24 percent of workplan dedicated to supporting roadmaps/PEFA.
- Phase V emphasis: improving fiscal reporting (currently 30 percent of Phase V workplan).
- Identified gaps:
  - Fiscal transparency and oversight (internal/external audit, legislatures, civil society).
  - Managing fiscal risks related to SOEs: only 6 percent of Phase V workplan dedicated to strengthening identification, monitoring and management of fiscal risks.
  - Climate resilience and climate-related PFM diagnostics.
  - Gender budgeting emerging as a growing CD priority (PEFA gender module piloted in Tonga in November 2019).

---

### Authorities’ views (survey of PICs)
- Survey: 16 PICs surveyed; 10 responded.
- Key findings:
  - PFTAC support widely welcomed and generally well integrated with other DPs.
  - Most beneficial CD areas cited: cash and debt management; fiscal and financial reporting; medium-term budgeting.
  - Preferred delivery modalities: longer-term CD engagement; one- or two-week missions; regional/sub-regional workshops.
  - Future support priorities:
    - Continue basic PFM issues: macro-fiscal forecasting, budget preparation and execution, financial reporting, internal audit, cash and debt management.
    - Increased support desired on emerging topics: mainstreaming climate change resilience, gender budgeting, SOE management, public investment management and PPPs, fiscal risk analysis.

---

### Coordination with other development partners (Annex 4 highlights)
- Good informal coordination exists among DPs; complementarity with PFTAC CD support over past two years.
- Annex 4 (FY 2018-20) shows multiple partner activities across RBM categories for selected PICs (Fiji, Kiribati, Marshall Islands, PNG, Samoa, Tuvalu) covering:
  - Improved laws and effective PFM institutions (e.g., PFTAC – Development of a PFM Bill; ADB – FMIS assessment; WB – climate change financing).
  - Comprehensive, credible, policy-based budget preparation (e.g., ADB – budgeting processes; PFTAC/UNDP – budget documentation workshops).
  - Improved budget execution and control (e.g., PFTAC – risk based internal audit; NZ/WB/ADB – procurement reforms).
  - Improved coverage and quality of fiscal reporting (e.g., ADB/PFTAC – Revised Chart of Accounts; PFTAC – IPSAS cash accounting and reporting).
  - Improved asset/liability management (e.g., WB regional debt workshop; PRIF valuation framework).
  - Strengthened fiscal-risk identification and SOE oversight (e.g., PFTAC – SOE fiscal risks; ADB/NZ – SOE monitoring units).
- DP abbreviations used in Annex: ADB, AU (Australia), EU, JICA, NZ, PFTAC, PIFS, PRIF, UNDP, WB.

---

### Retrospective assessment and main conclusions
- 2010 FEMM PFM reform strategy assessed as over-ambitious; emphasis on PEFA assessments and roadmaps broadened CD scope and thinned resources on weakest areas.
- PFTAC catalytic role: leveraged scarce CD resources, piloted innovations (agile PEFAs, gender PEFA module), promoted PEFA assessments and diagnostic benchmarking.
- Diagnostics delivered useful assessments (31 PEFA assessments in ten years) but imposed burdens on finance ministries and PFTAC coordination capacity.
- PFM progress over the decade:
  - Improvements in budget execution, accounting and fiscal reporting.
  - Little change or worsening in budget credibility, internal/external audit, public procurement.
  - No country achieved an improvement rate greater than 20 percent.
- Political economy and capacity constraints: variable political support, organizational fragmentation, and capacity shortages limit reform pace.

---

### COVID-19 implications
- COVID-19 alters PFM CD requirements: short-term crisis relief measures and medium-term recovery priorities.
- Risks: bypassing control systems for emergency measures increases risk of financial irregularities; strong internal/external audit systems critical to mitigation.
- Opportunities: accelerate fiscal transparency improvements and adoption of digital solutions.
- Immediate CD priority: reprioritize delivery to address PFM aspects of the COVID-19 crisis and protect vulnerable groups.
- Longer-term CD priority: restart economic growth through public investment and other means.

---

### Key quantitative facts and milestones (selection)
- 31 PEFA assessments conducted between 2009 and 2019.
- PEFA score distribution change: “A” from 14 to 10; “D” from 31 to 39 (2011 vs 2016 frameworks).
- Median disaster damage/losses: 9.4 percent of GDP.
- 2019 GDP growth range in PICs: 1 percent (Nauru) to 6 percent (Tuvalu).
- Aid share: about 40 percent of GDP in FSM and the Marshall Islands.
- U.S. grants for RMI, FSM and Palau scheduled to terminate in 2023.
- Samoa: by 2019, 91 percent of committed roadmap actions completed.
- PFTAC CD activity totals (FY09-19): Phase III 77 activities; Phase IV 160 activities; Phase V 104 activities.

---

### Recommendations for 2020–2025 (prioritized)
- Develop less ambitious, more focused PFM reform roadmaps:
  - limit number of reform measures and sequence realistically;
  - assess interactions between new and ongoing reforms;
  - improve linkages between roadmaps, JPAMs, IMF surveillance and DP budget support.
- PFTAC and DPs to develop “good practice” roadmap templates and deliver training workshops with PICs.
- Continue sustained PFTAC/DP support for basic PFM: budget preparation, financial reporting, expenditure and payroll controls, FMIS development.
- Use IMF RBM framework analysis to assess progress through milestones and inform CD focus.
- Leverage post-COVID opportunities for digital technology adoption in PFM processes and service delivery to vulnerable citizens.
- Diagnostic guidance:
  - carry out no more than one PEFA assessment per country during 2020-2025;
  - emphasize self-assessments and use “agile” PEFAs or partial assessments focused on critical indicators.
- Prioritize diagnostics and CD on climate-change-related PFM implications (PEFA climate module, PIMA climate module).
- Target especially weak PFM areas: climate change management and disaster response; public infrastructure maintenance and investment; gender inequality measures; SOE oversight.
- Improve fiscal transparency: empower independent audit institutions, legislatures and civil society; increase timely public availability of fiscal information.
- Adopt new CD delivery technologies: webinars, peer learning through remote exchanges, remote CD missions supplemented by in-person delivery.

*Source: wpiea2020183-print-pdf.*

### Box 1. Overview of the Pacific Islands __________________________________________6

### Box 1. Overview of the Pacific Islands

### Regional context and PFTAC role
- PFTAC was established in 1993 to provide support to 16 Pacific Island Countries (PICs) on public financial management (PFM) among other topics.  
- The Public Financial Management Roadmap for Forum Island Countries was published in 2010 and endorsed at the Forum Economic Ministers Meeting (FEMM) in 2010. The Roadmap focused on three broad objectives:
  - (i) PICs should undertake Public Expenditure and Financial Accountability (PEFA) assessments every three years;
  - (ii) practical, shared action plans should be derived from these PEFA assessments and used as the basis for delivering capacity development (CD);
  - (iii) this work would receive support from dedicated regional PEFA resources and development partners, coordinated by PFTAC.
- The Roadmap provided for an expansion of PFTAC’s resources to support CD activities in PFM; the number of resident PFM advisors was increased from one to two in fiscal year (FY) 2013.
- IMF fiscal year definition preserved: the IMF’s fiscal year starts on May 1 and ends on April 30.
- The Review presented in the report assesses progress ten years after the Roadmap, including achievements against Roadmap objectives, adaptation of tools/modalities, coordination with development partners (DPs), and progress across PFTAC funding Phases III–V (FY2009–FY2011; FY2012–FY2016; FY2017–FY2022).

### Heterogeneity and demographic/geographic characteristics
- The Pacific Islands are very diverse in location, size, population and economic profiles.
- Eleven PICs are among the smallest countries in the world in terms of size and population (land area varying between 20 square km and around 900 square km).
- Some PICs are micro-states, with population varying between 11,000 and no more than 200, 000, attempting to implement basic PFM architecture.
- Remoteness and dispersion produce significant constraints resulting in high transportation costs and substantial dependence on the public sector.
- Lowest connectivity: FSM, RMI, Kiribati and Solomon Islands are among the highest dispersed in the world.

### Economic structure, exposures, and vulnerabilities
- In 2019, GDP growth rates varied across the region from the 1 percent of GDP in Nauru to 6 percent in Tuvalu.
- Economies are highly dependent on imports and external income (including remittances) with limited economic diversification; main sectors: agriculture, fishing (licensing), and services (tourism).
- Some countries depend on goods exports such as fish and copra (Kiribati, Marshall Islands); others are resource-rich exporters (Timor-Leste and Solomon Islands).
- High exposure to external shocks:
  - Tourism, remittances, and Foreign Direct Intervention: 20-50 percent of GDP (Fiji, Palau, Samoa, Tonga and Vanuatu).
  - Terms of trade dependence: PNG, Solomon Islands, and Timor-Leste.
  - Financial channel dependence: large trust funds (Kiribati, RMI, FSM, Palau and Tuvalu).
- Narrow production and export base leads to greater macroeconomic volatility than larger peers.
- Vulnerability to natural disasters:
  - 9.4 percent of GDP is the PICs median related to damage and losses of most recent natural disasters.
  - Recent cyclones listed by year and country: 2020: Cyclone Tino (Tuvalu); 2019: Cyclone Rita (Vanuatu); 2018: Cyclone Gita (Tonga); 2017 Cyclone Donna (Vanuatu).

### Infrastructure, aid dependence, and fiscal implications
- Infrastructure gap and high cost of electricity:
  - Electricity costs in PICs are among the highest in the world; lack of electrification and lack of infrastructure is widespread.
  - Electrification rate is less than 60 percent in Solomon Islands and Vanuatu.
- Aid dependency:
  - Aid represents about 40 percent of GDP in FSM and the Marshall Islands.
  - Substantial U.S. grants for the RMI, FSM and Palau will terminate in 2023.
  - The RAMSI program in Solomon Islands terminated in 2013.

### PFM reform implications and country heterogeneity
- Roadmaps: FEMM proposed PFM reform roadmaps as comprehensive, PEFA-based action plans prepared by PICs, with a recommended PEFA periodicity of every three to five years.
- Roadmap uptake and periodicity:
  - Eventually 14 of the 16 PICs prepared roadmaps which were published, but with different periodicity and timetables.
  - Three PICs (Niue, Palau and Timor-Leste) have not prepared any comprehensive roadmap.
  - Only three countries (FSM, Samoa, and Tonga) have prepared more than one roadmap.
  - In several countries the period covered by the roadmap has expired and no updated version has been put in place, raising questions about sustained role of roadmaps in supporting PFM reforms.
- Roadmap content and scope:
  - Many roadmaps were based on the most recent PEFA assessments and focused on PFM process improvements such as accounting and reporting, bank reconciliations, cash management, and development of an FMIS.
  - Some countries included non-PEFA dimensions (governance and anti-corruption, gender inequality, public investment management, climate change) in their roadmaps.
- Donor coordination and JPAMs:
  - Several PICs prepare Joint Policy Action Matrices (JPAMs) used with DPs during discussions of future budget support operations; JPAMs include some PFM conditions and are used in Kiribati, Samoa, Solomon Islands, Tonga, and Tuvalu.
  - DPs providing general and sectoral budget support include the ADB, Australia, the EU, New Zealand and the World Bank.
- Critical success factors identified:
  - Country ownership of PFM reform strategies and a conducive political environment for reforms vary widely across countries and are critical for success.

*Source: PFTAC, Authors.*

### Box 2. PFM Roadmaps and Joint Policy Action Matrices (JPAMs)

### Box 2. PFM Roadmaps and Joint Policy Action Matrices (JPAMs)

### Purpose and use of JPAMs
- JPAMs have been utilized in preparing joint policy action matrices in some countries in the region that benefit from budget support.
- The first JPAM was prepared for the Solomon Islands in about 2010, followed shortly after by Tonga (called the JPRM).
- JPAMs are now used by five countries in the region: Kiribati, Samoa, Solomon Islands, Tonga, and Tuvalu.
- JPAMs represent a structured dialogue or a coordination mechanism between development partners (DPs) that provide budget support in the region (principally the ADB, Australia, the EU, New Zealand, and the World Bank), ministries of finance and other arms of the national government.
- JPAMs also inform the policy dialogue between the countries and the IMF’s Article IV missions.

### Content and conditionalities in JPAMs
- The matrices include:
  - information on the economic and social priorities of the government (e.g., education, health, energy, and climate resilient infrastructure) to which disbursements of budget support will contribute,
  - the indicative amounts of support that each DP will provide over a 2-3-year period,
  - the conditions that will be attached to that support.
- Conditionalities include PFM and fiscal issues such as:
  - revenue/tax policy and administration,
  - wage bill management,
  - procurement,
  - management of PPP,
  - and other topics such as reforms of the business environment, SOEs, public service management (performance, job sizing, etc.), education and health, social protection, fisheries, tourism, and disaster/climate change.

### Effectiveness and benefits of JPAMs
- JPAMs have proved an effective tool for negotiating budget support by:
  - consolidating the supported reforms in one place for all partners,
  - prioritizing a handful of reforms,
  - providing clarity on what needs to be done to get budget support,
  - usually linking to TA/CD if needed to ensure that happens,
  - minimizing the transaction costs of government relative to every partner having their own matrices with potentially overlapping and inconsistent actions and conditionalities.
- The process of preparing JPAMs has been useful in:
  - bringing DPs and government officials together to discuss and clarify issues,
  - improving coordination,
  - avoiding overall duplication in CD/TA support.
- JPAMs prepare the ground for the legal agreements on budget support that are signed by the governments and DPs concerned.

_Source: Authors, PFTAC, and World Bank._

### Critical success factors and constraints for roadmaps
- Country ownership and a conducive political environment are critical success factors.
- Political will and institutional capacity were important in countries like Samoa, Fiji, Tonga and Cook Islands to successfully implement reforms and move forward.
- Political support for PFM reform varies across the region; in some countries PFM reform is not welcomed by politicians because it limits their freedom of action.
- Patronage systems and informal arrangements can dominate budget and fiscal decision making, limiting scope for measures to improve PFM performance and fiscal transparency and hindering implementation of basic PFM reforms.

### Capacity constraints
- Ministries of finance in many PICs have only a small pool of qualified professionals with a high level of turnover.
- It is very important that these staff are used in areas where they can have the greatest impact and can achieve results.
- PFM reform efforts should prioritize and target the weakest areas that hinder achievement of reforms and constrain broader development objectives.
- Advanced communication technologies can help address capacity constraints via regional and global networking focusing on peer learning and peer review of reform plans.
- The Pacific has extensive experience with regional approaches which can be enhanced and used more frequently in hands-on exchanges.
- Roadmaps produced for Solomon Islands and Nauru were less used due partially to capacity constraints.
  - In Nauru, the focus on preparing PEFA assessments and (related) roadmaps broadened the country’s requests for CD support and failed to concentrate resources on strengthening areas that were weakest and exacerbated by severe capacity constraints.

### Approval processes and sequencing of reforms
- A practical challenge: roadmaps in some countries required several levels of approval within government—official level, ministerial level, and in some cases approval by the legislature—leading to delays and reduced utility.
- Recommended pragmatic approach: recognize reforms fall into three broad categories:
  - (i) reforms implementable by simple modifications to internal operations and processes without changes in existing laws or regulations;
  - (ii) reforms that require new financial regulations or a ministerial decree, requiring the approval of the finance minister;
  - (iii) reforms that need high-level decisions by the government or primary legislation, requiring approval of the cabinet and/or parliament.
- A well-sequenced PFM reform plan should anticipate these approval levels and give priority to reforms for which approvals can be obtained relatively easily and quickly.

### Guidelines on sequencing and prioritization
- Sequencing depends on each country’s circumstances and cannot be generalized.
- General guidelines:
  - concentrate on only a few key reforms at any one time;
  - avoid targeting too many changes simultaneously, which often causes reform failures;
  - ensure targets of reform are related to the most important fiscal or budgetary problems or greatest fiscal risks (e.g., eliminating expenditure arrears, imposing effective caps on the annual budgets of line ministries);
  - distinguish between basic and more advanced PFM reforms to determine priority PFM functions;
  - be “problem-driven”, not “solution-driven”.

### Regional examples and implementation outcomes
- Roadmaps in Fiji and Samoa are exceptions that were well used by their governments in moving forward with reforms.
- Samoa:
  - critical actions from the roadmap were integrated into the Ministry of Finance’s Finance Action Plan and the Finance Sector Plan;
  - the action plan was monitored on an annual basis and benefited from continuous political support;
  - Samoa focused first on basic elements of strengthening PFM institutions such as legal and regulatory framework;
  - it has a dedicated unit adequately resourced within the MoF responsible for implementing and monitoring the roadmaps;
  - the status of implementation was monitored yearly and disclosed to the public;
  - by 2019, 91 percent of the committed actions were completed.
- Even in countries with strong finance ministries like Samoa, challenges remain in extending PFM reforms to line ministries (e.g., ministries lacking capacity to prepare credible annual budgets will struggle to make forward estimates covering three or four years).

### Comparison of implementation of roadmaps: Kiribati, PNG, and Samoa
- Table 2 summary (√ indicates achieved and x indicates not achieved):
  - Based on PEFA as starting point: Kiribati √, PNG √, Samoa √
  - Goes beyond PEFA by identifying additional priorities: Kiribati x, PNG x, Samoa (blank)
  - Goes beyond PEFA to fiscal management: Kiribati √, PNG (text: "Goes beyond PEFA to fiscal management"), Samoa (text: "Goes beyond sole objective of improving PEFA indicators")
  - Goes beyond sole objective of improving PEFA indicators: Kiribati x, PNG √, Samoa (blank)
  - Accountability, managing fiscal risks and better fiscal accounts: Kiribati √
  - Fiscal discipline: (row lists "Clear sequencing x Very little sequencing √")
  - Clear sequencing: Kiribati x, PNG (text: "Very little sequencing"), Samoa √
  - Identifies priorities for each sub-set of time span: Kiribati √
  - Sequencing in stages with a precise time frame: (Kiribati: blank) PNG (text: "Sequencing in stages with a precise time frame")
  - Detailed action plan and milestones: Kiribati x, PNG √
  - Detailed action plan within a high-level milestone. Each milestone has a defined deadline: Kiribati (blank), PNG (blank), Samoa √
  - Departmental Accountability clearly articulated: Kiribati x, PNG √, Samoa √
  - Monitoring progress of milestones: Kiribati x, PNG x, Samoa √
  - Progress report for each planned period: Kiribati x, PNG x, Samoa √
  - Disclosing relevant documents to the public: Kiribati x, PNG x, Samoa √

### PEFA assessments, 2009–2019 (context for roadmaps)
- 31 PEFA assessments were carried out between 2009 and 2019 for the 16 PICs.
- Eighteen of these assessments were led by DPs, of which 11 were led by PFTAC, and 13 were self-assessments.
- The PEFA diagnostic framework underwent three revisions: first published in 2005, updated in 2011, and a more substantial revision in 2016.
- Breakdown of the 31 PEFA assessments by framework:
  - eight assessments were based on the 2005 PEFA framework,
  - 15 assessments on the 2011 framework,
  - eight assessments on the 2016 framework.
- The revisions to the PEFA framework in 2011 and 2016 resulted in many changes to the indicators and scoring methodology; the most intensive revision was introduced in 2016.

*Source: Authors, PFTAC.*

### Annex 2 presents an overview of the main differences between each framework.

### wpiea2020183-print-pdf - Annex 2 presents an overview of the main differences between each framework.

### Differences between the 2011 and 2016 PEFA frameworks
- Revisions in PEFA 2016 produced a more stringent scoring system:
  - Average number of “A” scores declined from 14 percent under the 2011 framework to 10 percent under the 2016 framework.
  - Number of “D” scores increased from 31 percent to 39 percent.
  - Proportion of “B” and “C” scores was broadly unchanged (2011: B 22, C 27; 2016: B 23, C 27).
- Reasons for tightening:
  - The bar of success has been raised: for some indicators the requirements in PEFA 2016 to get an “A” score is higher than in PEFA 2011.
  - PEFA 2016 includes some new dimensions of PFM which are more demanding.
  - The quality assurance process introduced in January 2018 (strengthening of requirements to receive a PEFA Check from the PEFA Secretariat) is likely to have increased the rigor of scoring.
- Table 4 (comparison of scores under 2011 and 2016 Frameworks, percent):
  - 2011 Framework: % of “A” Scores 14, % of “B” Scores 22, % of “C” Scores 27, % of “D” Scores 31
  - 2016 Framework: % of “A” Scores 10, % of “B” Scores 23, % of “C” Scores 27, % of “D” Scores 39
- PEFA Check:
  - Reviews draft assessment reports to certify compliance with PEFA guidelines on assessment and reporting processes.
  - All PEFA reports published since 2016 have received a PEFA check; validation methodology tightened in 2018.
  - PEFA Check focuses largely on processes and does not validate the scores themselves, which remain the responsibility of the assessment team.
- Implementation notes:
  - Nine of the 13 self-assessments carried out by PICs since 2010 were reviewed by the PEFA Secretariat.
  - PFTAC PFM advisors participated in some self-assessments to apply additional rigor; PFTAC encouraged production of self-assessment reports, though rarely produced.

### Methodology to assess PEFA scores (mapping to IMF RBM objectives)
- Analytical approach:
  - PEFA scores were analyzed using the list of objectives in the IMF’s RBM catalogue as the base of comparison.
  - All PEFA assessments over the 10-year period were included; each PEFA performance indicator was mapped into the relevant RBM objective to avoid bias from framework revisions.
- PEFA 2016 framework structure:
  - Seven pillars: (i) budget reliability, (ii) the transparency of public finances, (iii) the management of assets and liabilities, (iv) policy based fiscal strategy and budgeting, (v) predictability and control in budget execution, (vi) accounting and reporting, and (vii) external scrutiny and audit.
  - The 2016 framework includes 31 performance indicators broken down into 94 dimensions.
- Comparison of PICs with LIDCs and EMEs (Table 5; scores for 2015-2019):
  - Budget Reliability: LIDCs 2.05, EMEs 2.59, PICs 2.15
  - Transparency of Public Finances: LIDCs 2.07, EMEs 2.86, PICs 2.04
  - Management of Assets and Liabilities: LIDCs 1.94, EMEs 2.37, PICs 1.68
  - Policy-Based Fiscal Strategy and Budgeting: LIDCs 2.35, EMEs 2.74, PICs 1.81
  - Predictability and Control in Budget Execution: LIDCs 2.24, EMEs 2.73, PICs 2.12
  - Accounting and Reporting: LIDCs 2.04, EMEs 2.28, PICs 2.09
  - External Scrutiny and Audit: LIDCs 1.98, EMEs 1.95, PICs 1.64
- RBM objectives used as metrics:
  - (i) comprehensive, credible and policy-based budget preparation;
  - (ii) improved coverage and quality of fiscal reporting;
  - (iii) strengthened budget execution and controls;
  - (iv) strengthened asset and liability management;
  - (v) improved management of fiscal risk.
- Scoring conversion:
  - PEFA alphabetical scores converted to numerical scores for analysis: A = 4, B = 3, B+ = 3.5, C = 2, C+ = 2.5, D = 1, D+ = 1.5.
  - Method applied to all PEFA assessments for 2009-2019.

### Analysis of PEFA results across the region (2009–2019)
- Time periods analyzed:
  - Index A 2009-2012, Index B 2013-2016, Index C 2017-2019 (corresponding to PFTAC funding phases).
- Overall pattern:
  - Mixed results across objectives with modest improvements in budget execution and control but varied changes elsewhere.
  - There is a tendency for PFM performance in Index C (final period) to be weaker than in the first two periods; this partly reflects tightening of PEFA methodology and review procedures after 2016.
  - Average score across all five objectives:
    - Increased marginally from 2.02 to 2.06 between the first two periods.
    - Fell by 11.6 percent to 1.82 in the period 2017-19.
- Objective-specific findings:
  - Comprehensive, credible and policy-based budget preparation:
    - Improved marginally between the first two periods before declining from 2.29 to 1.69 in Index C. Decline probably reflects tightening in PEFA methodology in 2016.
  - Coverage and quality of fiscal reporting:
    - Decreased from 1.87 to 1.6 between the first two periods before increasing to 1.79 in Index C.
    - Decrease attributed to changes in PEFA methodology in 2011; later improvements partly reflect CD support improving quality and timeliness of in-year budget reports (examples: Fiji and Samoa).
  - Budget execution and control:
    - Average scores increased from 1.65 to 2.07.
    - Drivers include centralization of Treasury revenue collections (examples: Fiji, Samoa and Timor-Leste), improved cash monitoring and forecasting (regular reconcilations), strengthened internal audit with risk-based processes (examples: Fiji and Samoa), and initiation of control of suspense and advance accounts (examples: Fiji, Samoa, Nauru, and Solomon Islands).
  - Asset and liability management:
    - Declined from 2.25 to 1.89 across the three periods.
    - The 2016 PEFA indicators mapped to this objective are wider in scope than in 2011; fall driven by increased information and due diligence requirements.
    - Some countries lacked sufficient information to rate these indicators under 2016 (examples: Tonga and PNG).
    - Where data existed, there were deficiencies in appraising and recording investments (examples: Fiji and Samoa), recurrent costs of investments not factored into future budgets, and weak/absent economic analysis.
  - Management of fiscal risk:
    - Declined from 2.06 to 1.70.
    - 2016 PEFA broadened notion of fiscal risk to include SOEs, subnational governments, and disclosure—highlighting weaknesses in disclosure and monitoring (examples: Tonga, Fiji, Kiribati).
- Reform prioritization and CD sequencing:
  - Insufficient focus on prioritization and sequencing of reform; many basic areas of PFM have not sustained improvements and may have regressed because roadmaps were insufficiently targeted on weaker areas.
  - Example: the PEFA indicator on comprehensive, credible and policy-based budget preparation deteriorated in 2017-2019; possible causes include methodology changes and a reduction in CD delivery (for 2017-2019, only 6 percent of total CD delivered by PFTAC covered this topic compared to 20 percent for 2012-2016).
- Country-level time-series observations:
  - Examples for PNG, Fiji, Samoa, and Timor-Leste show earlier improvements in areas such as internal control, accounting, and reporting, but these improvements were not sustained in the latest assessments.
  - Note: figures for PNG 2019 and Timor-Leste 2018 are based on a draft assessment and are provisional.
- Caveats:
  - CD by PFTAC and other development partners focuses on specific PFM weaknesses, not necessarily to achieve across-the-board PEFA score improvements.
  - Improvements in PFM tend to be slow and incremental, especially in LIDCs; a ten-year period is not long.
  - Around 42 percent of PEFA assessments were self-assessments in the first two periods; these may be less reliable because they often lacked the same level of peer review and validation.

### Capacity development to support the strategy (PFTAC focus and evolution)
- Relationship and coordination:
  - PFTAC benefits from a close relationship between IMF surveillance by Asia and Pacific Department (APD) and CD activities.
  - CD activities by FAD and PFTAC are closely coordinated and related to program conditionalities in PICs with programs or recent programs.
- PFTAC objective:
  - Support growth of strong and sustainable institutions in PICs to implement sound macroeconomic and fiscal policies.
- Phases of funding and CD focus:
  - Over the last 10 years PFTAC went through three funding phases; focus shifted from core PFM functions to supporting the PEFA process and more recently to broadening advice to strengthen resilience and create fiscal space for natural disaster costs and inclusive growth.
  - CD topics that have grown in importance include gender budgeting, fiscal risk analysis, reform of state-owned enterprises, and public investment management.
- Immediate and longer-term priorities:
  - Immediate: reprioritize CD delivery to address PFM aspects of the COVID-19 crisis and protect vulnerable groups.
  - Longer-term: restart economic growth through public investment and other means.
- Continuity of support:
  - Despite broadened scope, much CD support in late 1990s/early 2000s resembled current CD, reflecting slow pace of reform.
  - Strong emphasis remains on basic PFM elements: budget preparation, financial reporting, expenditure and payroll controls, development of an FMIS.
  - New elements receiving greater prominence: gender budgeting, fiscal aspects of implementing the SDGs, and resilient infrastructure.

*Source: PEFA reports; PEFA Secretariat; Authors (wpiea2020183-print-pdf).*

### Box 3. PFM Reforms in the PFTAC Region in the Early 1990s

### Box 3. PFM Reforms in the PFTAC Region in the Early 1990s

### Historical PFM reform themes (early 1990s)
- Early PFTAC missions (examples: Tonga, Kiribati, Cook Islands) focused on basic elements of PFM:
  - budgeting
  - financial reporting
  - fiscal and macro-economic policy advice
  - problems of expenditure and payroll controls
  - consolidation of recurrent and development expenditure in the budget
  - computerized vs. manual systems of accounting
- Document example: PFTAC Memorandum for Files: PFM Project—Explanatory Visit to Tonga, December 4-8, 1993.
- Political influence on reform priorities:
  - New Zealand/Australian-inspired reforms emphasized:
    - devolving PFM functions to subnational governments
    - implementation of program and performance-related budgeting focused on outputs and outcomes rather than inputs
    - adoption of accrual accounting and budgeting
- 1995 reports:
  - Michael Moriarty (PFTAC Budget Advisor) emphasized importance of capital budgeting, linkages between capital and recurrent expenditure, and steps to build program performance-based budgeting systems.
  - Isaac Chow (IMF Advisor) on Accrual Accounting and Budgeting for the Government of Fiji set out rationale, benefits and implications of accrual approaches.
- Implementation pace:
  - Reforms were slow to bear fruit; 25 year later their influence remained detectable in some countries (examples: Fiji, Samoa, Tonga) where challenges of implementing accrual accounting persisted.

*Source: PFTAC, authors.*

### PFTAC program phases and focal areas (summarized)
- Phase III (FY09-11)
  - Medium-term fiscal framework
  - Cash vs. accrual accounting
  - Better coordination of expenditure and revenue activities
- Phase IV (FY12-16)
  - Development and implementation of PFM roadmaps
  - Core PFM reforms, e.g., cash management, commitment controls, and medium-term budgeting
  - Support for the PEFA process including coordinating and participating in PEFA assessments and advising on their outputs
- Phase V (FY17-22)
  - Improve PFM institutions and legal framework
  - Strengthen budget preparation and create more comprehensive, credible and policy-oriented budget processes
  - Improve budget execution and control, coverage and quality of fiscal reporting and integration of asset and liability framework
  - Strengthen identification, monitoring and management of fiscal risks

### Evolution of PFTAC’s support to PICs (since 2010)
- Trend: PFM CD support provided by PFTAC to PICs has been increasing since 2010.
- Response to Phase III evaluation concerns about sustainability:
  - A second PFM adviser was recruited by PFTAC in FY 2013.
  - Each advisor became principal contact for about eight PICs on PFM issues and took primary responsibility for a sub-set of PFM topics.
- Table 6. Evolution of PFTAC’s CD Activities during FY09-19 (totals and yearly averages by phase)
  - Phase III (FY09-11)
    - Total Number of Activities: 77
    - Yearly Average: 26
    - Capacity Development: 69 (Yearly Average 23)
    - Technical Assistance, of which: 54 (Yearly Average 18)
      - conducting PEFA or Roadmap Related: 3 (Yearly Average 1)
    - Training (In-country and regional): 15 (Yearly Average 5)
    - Others (coordination meetings, conferences, etc.): 8 (Yearly Average 3)
  - Phase IV (FY12-16)
    - Total Number of Activities: 160
    - Yearly Average: 32
    - Capacity Development: 149 (Yearly Average 30)
    - Technical Assistance, of which: 119 (Yearly Average 24)
      - conducting PEFA or Roadmap Related: 40 (Yearly Average 8)
    - Training (In-country and regional): 30 (Yearly Average 6)
    - Others (coordination meetings, conferences, etc.): 11 (Yearly Average 2)
  - Phase V (FY17-until 19)
    - Total Number of Activities: 104
    - Yearly Average: 35
    - Capacity Development: 95 (Yearly Average 32)
    - Technical Assistance, of which: 79 (Yearly Average 26)
      - conducting PEFA or Roadmap Related: 9 (Yearly Average 3)
    - Training (In-country and regional): 16 (Yearly Average 5)
    - Others (coordination meetings, conferences, etc.): 9 (Yearly Average 3)
- Observations:
  - Average annual number of activities increased between Phase IV and Phase V.
  - Increase was enabled by additional resources and adding a second PFM advisor in FY13.
  - Phase V (funding ends in FY22) was mid-way but support levels appeared similar to Phase IV.

### Trends in CD activities and thematic focus
- Shift in focus over three funding phases:
  - Phase III emphasis: comprehensive, credible and policy-based budget preparation.
  - Phase IV emphasis: application of diagnostic tools; 24 percent of the workplan dedicated to supporting PICs in preparing roadmaps and undertaking PEFA assessments.
- PEFA results informed PFTAC and other development partners’ workplans.
  - Correlation noted between PEFA ratings and volume of PFTAC support for improving coverage and quality of fiscal reporting.
  - Phase IV showed the lowest average PEFA score of 1.60 among all RBM objectives.
  - As a result, PFTAC ramped up support in fiscal reporting.
  - Currently 30 percent of the workplan of Phase V is dedicated towards improving fiscal reporting.
- Gaps in support and recommended focus areas going forward:
  - Fiscal transparency:
    - Critical for effective fiscal management, accountability, and decision-making by legislatures, markets, and citizens.
    - IMF adopted a framework on Enhanced Engagement on Governance in 2018.
    - Post-COVID-19, support to enhance transparency and address PFM governance vulnerabilities in PICs could be considered.
    - Managing fiscal risks related to SOEs has received relatively little support; only 6 percent of the Phase V workplan has been dedicated to strengthening identification, monitoring and management of fiscal risks.
  - Building resilience to climate change:
    - PICs face increased droughts, cyclones, erosion, coastal flooding, etc.
    - Strengthening PFM systems needed to enable mitigation and adaptation measures.
    - Tonga and the Federated States of Micronesia underwent assessments using the IMF’s Climate Change Policy Assessment (CCPA) Framework which identified PFM weaknesses and actions to strengthen resilience to climate change.
  - Gender budgeting:
    - PFTAC and other development partners are stepping up CD activities on gender budgeting.
    - Example: In November 2019, PFTAC piloted in Tonga a PEFA assessment module on gender responsive budgeting; the ADB carried out a similar assessment in Fiji.

### Authorities’ views on PFTAC’s support (survey of PICs)
- Survey scope: 16 PICs surveyed; 10 countries responded.
- Key survey results:
  - Countries greatly welcomed PFTAC support, noting it was generally well integrated with support from other development partners.
  - PFTAC CD assistance supported priorities set in countries’ PFM roadmaps.
  - Most beneficial CD areas cited:
    - cash and debt management
    - fiscal and financial reporting
    - medium-term budgeting
  - Preferred CD delivery modalities:
    - longer-term CD engagement (e.g., an expert returning periodically on a specific topic)
    - one- or two-week missions focusing on a specific PFM topic
    - regional or sub-regional workshops
  - Future support priorities (as expressed by countries):
    - Continue support on basic PFM issues: macro-fiscal forecasting, budget preparation and execution, financial reporting, internal audit, cash and debt management
    - Increased support desired on emerging topics: mainstreaming climate change resilience, gender budgeting, management of state-owned enterprises, public investment management and PPPs, fiscal risk analysis
  - Preferred formats going forward:
    - national workshops, regional and sub-regional workshops on specific PFM topics
    - standard one- or two-week PFTAC missions and longer-term CD engagement

*Source: Authors, based on PFTAC reports and a Survey of PICs.*

### Annex 4 summarizes the available information on CD support provided by other DPs in

### Annex 4 — CD support provided by other DPs and PFTAC coordination

### Coordination and complementarity of CD support
- Other DPs’ CD support over the past two years has generally complemented the CD provided by PFTAC.
- Good informal mechanisms exist for PFTAC advisors and their equivalents in other DPs to discuss PFM reform priorities in the 16 PICs and how donor resources should best be deployed and coordinated.
- Strong collaboration helps mitigate challenges from many small economies spread over a huge geographical area where visits by PFTAC advisors are relatively infrequent and coordination can be challenging.
- Coordination could be further strengthened and formalized to ensure consistent messages to the authorities on PFM priorities and solutions.

### Client ownership and IMF quality assurance
- Client countries should ascertain the best option when advice is contestable due to different views.
- In many PICs, PFTAC has become a trusted stakeholder to whom ministers and senior officials can turn for good quality advice.
- The IMF applies a strong system of internal peer review and quality control; the region benefits from this process and from the IMF’s role in ensuring consistent messaging by various DPs.

### Retrospective assessment of the 2010 PFM reform strategy
- The PFM reform strategy approved by FEMM in 2010 was assessed as over-ambitious; by focusing on PEFA assessments and roadmaps it broadened CD scope and thinned resources on the weakest areas.
- The breadth of the strategy may have contributed to mixed PFM performance across the region over the past decade.
- There may be an upper bound to the scope and scale of reforms that small island states can viably undertake given size and capacity limitations.

### PFTAC’s role and impact
- PFTAC has played an important and catalytic role in improving PFM across the region over the last ten years.
- The Center has leveraged scarce CD resources effectively, had a greater impact than its size suggests, and built effective partnerships with other DPs and the Pacific Island Forum Secretariat (PIFS).
- PFTAC promoted and managed PEFA assessments, piloted innovative tools such as “agile” PEFAs and gender based PEFA assessments (the first one carried out in Tonga), and will participate in piloting the new PEFA climate change module.
- PEFA assessments have been useful in establishing benchmarks against which budgeting performance in key PFM areas can be assessed, and improvements measured and monitored.

### PEFA assessments, roadmaps, and diagnostics
- Over the last ten years, 31 PEFA assessments were carried out across the region, with several PICs undertaking three or more assessments.
- The diagnostic program broadly achieved its aim of providing a general assessment of PFM systems but imposed a significant burden on overstretched finance ministries and on PFTAC coordinating many assessments.
- PFM Reform Roadmaps have often not fully delivered because they were too broad and insufficiently considered capacity limitations; some countries (e.g., Samoa) developed good roadmaps linked to PEFA, focused on few key deliverables, and included cost assessments and pledges of support.
- Many roadmaps contained unrealistic “wish lists” of CD activities, rolled forward mechanically from one roadmap to the next and insufficiently linked to the JPAMs.
- Recommendation: diagnostic work should become more granular and targeted on specific areas identified by PEFA assessments; implementation should be emphasized over diagnosis. Periodic expert evaluations supported by long-term engagement remain necessary; self-assessments will not replace expert evaluations.

### PFM progress, capacity, and political economy
- Improvements observed include budget execution, accounting, and fiscal reporting; other areas such as budget credibility, internal and external audit, and public procurement show little change or worsening performance.
- In no country has the rate of improvement been greater than 20 percent.
- Leadership by the finance ministry is critical; some larger PICs (e.g., Samoa) have established a PFM reform unit to manage reforms—this model may be hard to replicate in very small ministries.
- Capacity across the region varies widely. A few countries (e.g., Samoa, Tonga) are ready for “second-generation” PFM reforms such as accrual accounting, whole of government reporting, and fiscal risk analysis. Many PICs (examples: the Solomon Islands, Nauru, and the RMI) remain heavy users of capacity supplementation provided by DPs.
- Developing human capacity in basic PFM areas—revenue forecasting, budget preparation, accounting—remains a priority for very small island economies.
- Political support varies. In some countries (examples: the Solomon Islands and Nauru) patronage systems and widespread use of Constituency Development Funds (CDFs) and similar arrangements limit scope for improved PFM performance and fiscal transparency.
- Organizational fragmentation (e.g., dual budgeting, separation of ministries of planning and finance) may contribute to inefficiencies and governance vulnerabilities.

### Climate change, climate finance, and diagnostics
- The Pacific region is particularly vulnerable to climate change (rising sea levels, stronger and more frequent cyclones and weather-related incidents) and faces increased adaptation and climate-resilient infrastructure costs.
- Accessing climate finance may require meeting fiduciary criteria and demonstrating relatively robust PFM systems, especially when seeking accreditation as a National Implementing Entity (NIE).
- Mixed and incremental PFM improvements over the past decade highlight challenges countries will face in meeting climate financiers’ conditions that are not always clearly defined.
- Diagnostic tools developed (or under development) by the IMF and other DPs can help address these issues, for example the IMF’s Climate Change Policy Assessment (CCPA) tool, a PEFA Climate module and a climate module for the IMF’s Public Investment Management Assessment (PIMA) tool (both under development).

### COVID-19 implications for PFM CD
- The COVID-19 crisis will decisively impact future PFM-related CD requirements: short-term crisis relief measures and medium-term efforts to kick start economic growth.
- Bypassing or streamlining control systems to deliver emergency measures rapidly may enhance risks of financial irregularities and increase the need for mitigation measures.
- Strong internal and external audit systems will play a key role in mitigating these risks.
- The crisis may accelerate improvements in fiscal transparency and adoption of new digital solutions to manage public resources.
- IMF Fiscal Affairs Department special notes on the COVID-19 crisis highlight tools for public investment management, cash management, cash transfers to vulnerable groups, management of fiscal risks, and opportunities for digitalization.

### Main conclusions (summary bullets)
- The 2010 FEMM-approved PFM reform strategy was over-ambitious and may have diluted focus on weakest areas.
- PFTAC has been catalytic and effective relative to its size, leveraging partnerships and piloting innovations.
- PFM Reform Roadmaps have often been too broad and insufficiently capacity-aware; some countries produced focused, costed roadmaps.
- Thirty-one PEFA assessments in ten years provided useful diagnostics but created burdens; future diagnostics should be more targeted and implementation-focused.
- Improvements have occurred in budget execution, accounting, and fiscal reporting, but progress is uneven and limited (no country improvement rate > 20 percent).
- Capacity building in basic PFM remains a priority for many PICs; political economy and organizational fragmentation constrain reforms.
- Climate change and COVID-19 add to PFM demands; diagnostic tools and stronger audit systems are important.

### Recommendations for the period 2020–2025
- Develop less ambitious but more focused PFM reform roadmaps: limit number of reform measures, sequence realistically, assess whether new reforms help or delay ongoing processes, and improve linkages between roadmaps, JPAMs, IMF surveillance, and other DPs’ budget support operations.
- PFTAC, in coordination with other DPs, could develop “good practice” templates for roadmaps and conduct training workshops with PICs to implant concepts of good practice.
- Continue sustained support from PFTAC and other DPs for basic budgetary and PFM practices; use IMF RBM framework analysis to assess progress through milestones and inform areas needing further attention.
- Leverage opportunities in the post-COVID period for increased use of digital technology in PFM processes and to improve service delivery to vulnerable citizens.
- During 2020-2025, carry out no more than one PEFA assessment per country. Emphasize self-assessments and use “agile” PEFAs being piloted by the PEFA Secretariat, or partial assessments focused on updating a selection of critical indicators.
- Prioritize diagnostics focused on climate change impacts and PFM implications, for example through climate-related modules of PIMA and PEFA under development.
- Countries should address especially weak PFM areas: climate change management and disaster response; public infrastructure maintenance and investment; measures to overcome gender inequalities; oversight of state-owned enterprises.
- Improve fiscal transparency: empower and improve effectiveness of oversight bodies (independent audit institutions, legislatures, civil society); increase timely public availability of fiscal information.
- Adopt new technologies and communication methods for CD delivery: webinars, peer learning through remote exchange, remote CD missions as supplements to in-person delivery to allow closer engagement and broader participation.

*Source: wpiea2020183-print-pdf — Annex material on CD support and PFTAC coordination.*

### 2.  PFTAC PFM CD Activities – Going Forward:

### 2. PFTAC PFM CD Activities – Going Forward

### Future timeframe and respondent prompt
- Respondents were asked to think about capacity development activities they would like to receive from PFTAC in the future (i.e., next 5-10 years).

### Priority PFM areas for PFTAC CD activities (select all that apply)
- The survey listed the following PFM areas as options for priority selection:
  - Strategic Budgeting and Planning
  - Fiscal Risk Analysis
  - Medium-term budgeting
  - Budget Preparation
  - Budget execution and internal control
  - Fiscal and financial reporting
  - Cash and debt management
  - Internal audit
  - Public investment management and/or PPPs
  - Management of state-owned enterprises
  - Climate change resilience
  - Other (please specify)

### Diagnostic assessments (PEFAs and others)
- Single-choice question options on future stance toward diagnostic assessments:
  - Maintain current level of support for diagnostic assessments
  - Support diagnostic assessments less frequently
  - Focus on specific PFM topics, with no support for diagnostic assessments
- Optional free-text: Comment [optional]: ________________________________________

### Delivery modalities for PFTAC CD activities (select all that apply)
- One- or two-week missions by one or more PFM experts focusing on a specific topic
- Longer-term CD engagement, e.g., an expert returning to the country every few months on a specific topic
- National workshops and seminars
- Regional workshops and seminars
- Optional free-text: Please provide any other comment on PFTAC PFM Capacity Development Activities going forward: [optional]

### Annex 4 — CD support for selected PICs by all development partners, FY 2018-20
- Timeframe covered: FY 2018-20
- Countries listed: Fiji, Kiribati, Marshall Islands, PNG, Samoa, Tuvalu
- PFM RBM Categories and illustrative partner activities by category and country:

  - Improved laws and effective PFM Institutions
    - PFTAC – Development of a PFM Bill
    - NZ/ADB – procurement legislation and processes
    - WB – Review of national legal and regulatory framework for PFM
    - EU/AU – Implementation of PMMR and consistency with PFMA
    - PFTAC – PEFA assessment
    - AU – Capacity supplementation in MoF
    - AU – Assessment of National Systems
    - WB – Climate change financing
    - PFTAC/EU – PEFA assessment
    - AU – PFM diagnostic
    - ADB – FMIS assessment
    - PFTAC – PEFA self-assessment
    - AU – Implementation of FMIS
    - ADB – Various CD activities since 2012
    - ADB – cross government FMIS

  - Comprehensive, credible, policy-based budget preparation
    - ADB – Budget process; PER of social sectors; costing of spending programs
    - PFTAC/UNDP – budget documentation workshop for several countries
    - PFTAC – Improved budget documentation
    - ADB – Fiscal strategy and budget documentation
    - PFTAC – Improved budget documentation
    - PFTAC/PRIF – Presentation of capital projects in budget
    - PFTAC/UNDP – Regional workshop on budget documentation
    - WB – Inter-governmental transfer system

  - Improved budget execution and control
    - PFTAC – risk based internal audit
    - NZ – Design and implementation of procurement framework
    - WB – Public procurement reforms
    - ADB – Public procurement reforms
    - AU – Reforms of budget execution
    - ADB – Public procurement reforms
    - PFTAC – PIMA diagnostic
    - AU – Expenditure management
    - PFTAC – Strategic plan for internal audit
    - PIFS – Internal audit capacity
    - JICA – Investment appraisal and project selection
    - NZ – Central contract management

  - Improved coverage and quality of fiscal reporting
    - ADB/PFTAC – Revised Chart of Accounts
    - PFTAC – Regional workshop on IPSAS cash reporting
    - WB – formulation of new Chart of Accounts
    - PFTAC – IPSAS cash accounting and reporting
    - PFTAC – Asset accounting and reporting policy
    - ADB – IPSAS-based reporting
    - PFTAC - Regional workshop on IPSAS cash reporting
    - UNDP – Training for parliamentary committees
    - AU – Audit Office twinning

  - Improved framework for asset/liability management
    - WB – Regional workshop on debt management
    - NZ – National asset management system
    - AU – Cash and debt management reforms
    - PFTAC – Revised warrant system
    - PRIF – Valuation framework for fixed assets

  - Strengthened identification, monitoring and management of fiscal risks
    - PFTAC – SOE fiscal risks
    - ADB/NZ – Establishing an SOE monitoring unit
    - ADB/NZ/AU – SOE reforms
    - PFTAC – Risk indicators for SOEs
    - ADB – Financial reporting and oversight of SOEs

- Source attribution for partner abbreviations as listed in the Annex:
  - ADB: Asian Development Bank
  - AU: Australia
  - EU: European Union
  - JICA: Japan International Cooperation Agency
  - NZ: New Zealand
  - PFTAC: Pacific Technical Assistance Center (PFTAC)
  - PIFS: Pacific Islands Forum Secretariat
  - PRIF: Pacific Region Infrastructure Facility
  - UNDP: United Nations Development Program
  - WB: World Bank

*Source: wpiea2020183-print-pdf — 2.  PFTAC PFM CD Activities – Going Forward; Annex 4 (CD SUPPORT FOR SELECTED PICS BY ALL DEVELOPMENT PARTNERS, FY 2018-20).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2020/english/wpiea2020183-print-pdf.pdf_