## _cr0667 ## Source details **Canonical URL:** [_cr0667](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0667.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0667.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0667.pdf.json) --- ### Background, scope, and TA inputs - Internal FAD evaluation of technical assistance (TA) in public expenditure management (PEM) to a sample of 10 mostly Anglophone-heritage African countries (Ethiopia, The Gambia, Ghana, Kenya, Malawi, Nigeria, Rwanda, Tanzania, Uganda, Zambia); standardized country reviews conducted mainly in 2003. - Evaluation part of Fund-wide Technical Assistance Evaluation Program launched in FY2003; external peer reviewer: Professor Clive Gray; internal referees: Jim Brumby and Ian Lienert. - TA scale and modality (FY1998–FY2003): - The 10 sampled countries consumed an average of 54 percent of all Fund TA in PEM to the Africa region (measured in person-years). - The Africa region consumed an average of 35 percent of the total TA in PEM provided by FAD during the period. - The share of Fund TA in PEM provided to Africa averaged over 40 percent of total Fund TA in PEM in FY2002 and FY2003. - Trend toward greater reliance on resident advisors relative to missions; person-years measure rose sharply (does not include substantial off-field TA time such as mission preparation and backstopping). ### Diagnosis of PEM problems — principal findings - Historical inheritance: - Many countries inherited simple Westminster-model budget systems with weak statutory precision on preparation, execution, and reporting; detail left to executive regulations. - Substantial devolution of budget management to spending units; richer Westminster-system countries have reformed but many developing countries in the sample have not. - Two major governance weaknesses frequently underlying weak control and expenditure management: - Governments assumed functions beyond execution capacity, partly donor-encouraged; capacity eroded by loss of qualified staff due to declining real compensation and HIV/AIDS. - Political systems often failed to restrain politicians and senior bureaucrats from personal benefit from lax fiscal controls, leading to fiscal indiscipline. - Typical shortcomings (budget formulation, execution, governance): - Budget formulation: annual incremental budgeting, unrealistic revenue/expenditure projections, dual budgets separating recurrent and capital/development, detailed line-item focus, incomplete budget coverage, compressed budget timetables. - Budget execution: weak expenditure control and accumulated arrears, ineffective internal controls/audit, cash-based accounting not tracking commitments, dispersed government banking hindering cash management, poorly resourced external audit. - Governance/institutional impediments: weak high-level commitment/accountability, MOF inability to enforce discipline, institutional fragmentation, weak legal frameworks reliant on strong-willed executives. ### FAD TA scope, priorities, and mode of delivery - Main FAD TA focus areas (in order of priority): - Budget execution (improving expenditure control and fiscal reporting). - Budget preparation. - Promoting compliance with budget regulations (often in partnership with World Bank and bilateral donors). - Under budget execution: emphasis on supplementing cash controls with commitment controls to align expenditures with cash. - Within budget preparation: focus on budget classifications, realism of projections, consolidating recurrent and development budgets, extending coverage, supporting MTEFs, and realistic budget calendars. - Cash management reforms: modernizing government banking and consolidating cash in a treasury single account (TSA). - Accounting/IFMISs: efforts to improve accounting and fiscal data, often tied to donor-financed IFMIS projects; FAD provided temporary TA while larger IFMIS programs proceeded. - FAD TA delivery mode: - Typical delivery: infrequent missions and one resident advisor in a central agency. - Challenges: limited TA often insufficient to address system-wide capacity constraints, wide TORs spreading TA thinly, unrealistic reform timeframes, prolonged resident advisors (sometimes over two years). ### Assessment of TA performance and outcomes - Quality of FAD advice: - FAD experts have sound reputations and headquarters backstopping. - Main critique: responses often addressed immediate technical problems without sufficiently tackling root causes or ensuring follow-up and implementation. - Specific area critiques: - Commitment controls: advice too focused on technical fixes, not root causes (unrealistic budgets, weak cash planning). - Fiscal reporting: need for basic information and benchmarked procedures; strengthen accounting function and capacity. - IFMIS/computerization: require preconditions; need agreed exit point to avoid crowding out local capacity. - MTEFs: FAD less well-placed; better to refocus on core technical budget preparation. - Aggregate country outcomes across the 10 cases: - Two countries: encouraging or very encouraging results. - Two countries: mixed results. - Four countries: small or limited results. - One country: disappointing results. - One country: extremely disappointing results. - Influences on TA effectiveness grouped into four categories: - Lack of commitment by authorities to implement reforms. - Lack of local administrative and technical capacity; difficulties attracting/retaining staff; external constraints such as HIV/AIDS (sample adult infection rates at end-2001: Zambia 21.5 percent; Kenya 15 percent; Malawi 15 percent; Rwanda 8.9 percent; Tanzania 7.8 percent). - Reactive, demand-led TA orientation focusing on short-term urgent needs. - Possible excessive dependence on prolonged resident advisors. ### Commitment Control Systems (CCS): approach, failures, and guidance - CCS objective: require spending ministries to control incurrence of liabilities (commitments) rather than just subsequent cash payments; non-contract expenditures (wages, utilities, rent, debt service) must be estimated and treated as commitments. - Core CCS elements: - Quarterly expenditure plans from line ministries with projected monthly cash requirements. - MOF issues quarterly expenditure ceilings and projected monthly cash releases. - Spending ministries limit commitments to ceilings and report monthly on outstanding commitments and unpaid bills. - Each line ministry designates a commitment control officer (CCO); detailed approval/payment/accounting procedures issued. - Factors undermining CCS effectiveness: - Low priority to commitment control in cash-based accounting frameworks. - Budgets not credible (incremental, unrealistic revenues, extrabudgetary erosion). - Cash releases often not fully backing budget authorizations (warrants below authorizations; cash releases opaque and politically driven). - Poor cash management (multiple bank accounts, limited TSA adoption, weak cash-planning skills). - Corruption and weak internal controls; absence of enforced sanctions for noncompliance. - Leadership and management shortfalls; crisis management culture. - Country case evidence: - Uganda: comprehensive CCS from July 1999 (nonwage) and October 2000 (development) with quarterly ceilings backed by monthly cash releases; nearly 70 percent reduction in new nonwage arrears in the first year; success attributed to strong unified MOF leadership. - Zambia: CCS limited to recording/monitoring commitments and unpaid bills without supporting measures; CCS ineffective. - Malawi: CCS introduced and initial recording/audit progress made but no impact on new arrears due to noncompliance, lack of enforcement, political neglect, and limited capacity. - FAD guidance before establishing a CCS — review four aspects as preconditions or components: - Realism of budget estimates. - Quality of cash planning underlying cash release system. - Ability to identify/monitor stock of arrears and report new arrears. - Adequate assurances of political commitment to enforce accountability and sanction deficient accounting officers. - Technical constraints: CCS often covers only part of budget (wages, interest, utilities excluded), poor record keeping, and need for computerization which is difficult in context. ### Fiscal reporting, data quality, and IFMISs - Fiscal reporting assessment: - Systems inadequate and scattered; large discrepancies between above-the-line and below-the-line data impede program design and monitoring. - Budgeting/accounting systems do not provide cost information for policies, financial info for budget management, or reliable revenue/expenditure/financing data. - Dissemination to legislature/public is limited; fiscal reports often produced to satisfy international donors rather than to guide policy. - Short-term FAD TA on fiscal reporting: - Examples: The Gambia (closure of past accounts, loan/grant recording, flash reporting), Nigeria (interim software for warrants/cash releases/cash book), Malawi (improving consistency/quality). - Impact "inevitably limited"; many TA inputs were interim solutions; IFMISs seen as ultimate solution largely driven by World Bank. - Recommended interim measures before longer-term reforms: - Ensure coverage of fiscal reports meets Fund program requirements including tracking poverty-related spending. - Set up reporting mechanisms to track level of arrears (expenditure and tax arrears) and subsidiary auditable procedures. - Establish benchmark procedures for minimum data quality (reconcile bank accounts with monetary survey, close below-the-line accounts, reconcile debt stocks with financing flows, reconcile accounting ledger data with bank records). - Strengthen accounting function and timelier closing of accounts (immediate TA to close accounts plus strategy to strengthen OAGs). - IFMIS experience and recommendations: - Country status examples: Tanzania (successful core system in central ministries); Ghana (BPEMS pilot Jan 2003; PUFMARP since 1996); Malawi (pilot at four sites); Uganda and Kenya (procurement phase); The Gambia (not entered design phase after two years). - Track record problems: donor-driven projects with limited ownership; overly ambitious complex projects; inadequate implementation capacity; interdependency causing cascading delays; insufficient training and documentation. - Preconditions for successful computerization: adequate accounting procedures, address low computer literacy, reliable communications systems; manual accounting reform should precede computerization. - FAD recommended role: participate in design and testing stage only; ensure well-defined exit point; focus on reform of work practices and sound accounting core; interim TA to maintain current systems and adjust business practices in the interim 4–5 year period before full IFMIS institutionalization. ### MTEFs, decentralization, and subnational PEM challenges - MTEF benefits and caveats: - Useful tool for improving budgeting when preconditions met; otherwise can consume time/resources and distract from annual budget and execution improvements. - MTEF preconditions: - Reliable macroeconomic projections linked to fiscal targets, satisfactory budget classification and timely accounting, technical capacity to separate policy costs, budgetary discipline, and strong institutional/political support. - Decentralization trends and FAD engagement: - Decentralization increased since mid-1980s; FAD made limited TA contributions (missions/advisors to Tanzania, Uganda, Ethiopia). - Central challenge: tracking poverty-related spending and consolidating subnational expenditures for HIPC reporting. - Subnational expenditures, donor funding, and vertical imbalances: - Donor-funded subnational expenditures raise equity and coordination issues, lack of recurrent cost allowances, insufficient reporting and recording. - Tax effort in Africa low; vertical imbalances likely to persist requiring transfers; transfer formula design should reflect devolution costs and poverty disparities. - Recommended selective FAD PEM focus for decentralization: - Improve coverage, timeliness, and consolidation of fiscal plans and reports to meet HIPC requirements. - Ensure medium-term planning includes local-level expenditures. - Build consolidated budgets in standard format using GFS principles and common chart of accounts. - Rationalize subnational financial management (standardized accounting, consolidate bank accounts to subnational TSA, incorporate extrabudgetary operations). - Support regular in-year and end-year reporting from subnational governments and ensure legal/regulatory frameworks. ### Internal audit, debt management, and legal framework recommendations - Internal audit: - Roles: ensure compliance, reliability of financial data, efficiency and effectiveness. - Observed models: centralized MOF-managed cadre vs. decentralized ministry-managed auditors; common problems: weak practices, poor planning, inadequate resourcing. - Strategic TA recommendations: define internal audit tasks, establish line ministry audit committees and a central MOF audit committee, clarify responsibilities vis-à-vis external audit, restructure practices for efficient use of scarce audit skills, consider independent external review every two or three years. - Debt management: - Weaknesses: weak legal/institutional frameworks, separation of debt/aid units, unclear central bank roles, poor coordination with cash management. - FAD three-step approach: 1. Organizational consolidation of debt and aid functions and integrate with cash management. 2. Create an integrated debt recording and management system (DRMS) tracking loans from agreement through disbursement and debt service. 3. Use DRMS and upgraded skills for integrated debt management strategy, risk analysis, improved controls (on-lending, guarantees), and procedural clarity for commodity aid and reimbursements. - Legal framework: - Many countries inherited Accounts and Audit Acts with layered regulations; reforms observed in South Africa, Tanzania (Public Finance Management Act, 2000), Malawi (revising law), Sierra Leone (draft organic budget law), The Gambia and Rwanda (considering new frameworks), Uganda (MTEF introduced by 2000 law). - FAD approach for organic budget laws: balance fiscal powers between legislature and executive, timely budget submission, better budget document presentation, rationalize appropriation structures, prohibit unbudgeted expenditures except via supplementary appropriations, fully integrate recurrent and development budgets, transform OAGs into modern treasury departments within MOF, define fiscal relationships across tiers and consider fiscal responsibility legislation. ### Coordination, management of resident advisors, and quality assurance - Coordination challenges: - Short-term, demand-driven TA led to duplication/conflict and weak government coordination; donors respond to country and donor priorities causing misalignment. - AFRITAC regional approach (first in Tanzania Nov 2002; next in West Africa 2003) offers ongoing liaison with governments and donors; AFRITACs to be externally evaluated. - Headquarters management and advisor quality control measures: - Recruitment: senior FAD interviews and trial missions prior to roster enlistment. - Tighter TORs involving country authorities and area departments; clearer expected outputs and work plans. - Backstopping: alternates assigned; enforced monthly reporting by advisors; inspections shortened to six months; annual performance reviews and ex post evaluations. - Practical issues: dual accountability of advisors (authorities and IMF), potential for advisors to replace rather than support counterparts, importance of nontechnical attributes, need for improved recruitment given competition for talent. - Suggested improvements: tighter backstopping, focused TORs, detailed work plans, more frequent backup missions, in-field workshops, e-room sharing. ### Reformulated TA strategy and operational priorities (selectivity and focus) - Strategic shifts recommended: - Place PEM TA into a more strategic, country-centered framework aligned with national PRSs, PRGFs, and HIPC AAPs; use HIPC AAP to determine priorities and coordinate donors. - Seek demonstrable national commitment and set preconditions and performance milestones for TA; continue six-month renewable resident expert practice with inspection before extension; consider withdrawing assistance when reform steps not implemented. - Pay more attention to follow-up and implementation through strengthened oversight, backstopping, and reviews of FAD’s role when countries lose interest. - Ensure TORs are focused, negotiated with authorities/donors, and reinforced by HQ oversight. - Apply realistic timeframes tailored by country/topic and accept need for longer, regular involvement where necessary. - Agree division of labor with other providers; support experts engaged by others through information sharing. - Core PEM priorities to continue/emphasize: - Budget preparation: budget classification aligned with international standards, strengthened budget processes and calendar, improved MOF fiscal analytical capacity, realistic revenue/expenditure forecasting. - Budget execution: emphasis on fiscal reporting to address data quality needs for Fund programs; tracking poverty-reducing expenditures per PRSPs; mechanisms to track arrears (stock and flow) and meet basic data-quality benchmarks: - Timely reports. - Government bank accounts coverage matches monetary survey. - Closure of below-the-line accounts. - Reconciliation of debt stock changes with financing flows. - Reconciliation of below- and above-the-line data. - Commitment control systems: continue emphasis but treat CCS as a package; assess realism of budgets, minimum cash-planning capacity, and arrears-monitoring feasibility before introduction. - Three priority coordination areas with medium-term capacity-building: 1. MTEFs: selective support focused on "nuts-and-bolts" TA (budget classification, macro envelope realism); where viable, ensure realistic macroeconomic envelope. 2. IFMISs: limit FAD involvement to early design/testing/pilot stages with clear exit points and precondition assessment; protect existing systems if preconditions negative. 3. Legal framework modernization: ensure adopted budget processes are realistic given administrative capacity and press for institutional changes to make laws effective. - Selective expansion candidate areas (subject to firm ownership and strategic importance): - Decentralization (reporting, consolidation, subnational financial management to meet HIPC/reporting needs). - Internal audit (clarify tasks, institutional arrangements, restructure work practices). - Debt management (organizational consolidation, integrated database, skill upgrading). ### Operational/resource implications - More regular interaction, longer-term involvement, and stronger follow-up will increase TA costs. - Given resource constraints, FAD should adopt greater selectivity: assist fewer countries but with larger commitments to each country served. - Fiscal Strategy Briefs (FSBs) initiated in 2002: - Prepared for more than 40 countries, seven of which are within the review sample. - Early experience suggests FSBs may help prioritize TA and strengthen dialogue with area departments and external partners. *Source: Preface, Executive Summary, Boxes, and Sections from the FAD internal evaluation report (standardized country reviews conducted mainly in 2003).* ### Preface................................................................................................................. ### _cr0667 - Preface ### Background and scope - The report is an internal evaluation by the International Monetary Fund’s Fiscal Affairs Department (FAD) of technical assistance (TA) in public expenditure management (PEM) delivered to a sample of 10, mostly Anglophone-heritage African countries. - The evaluation formed part of the Fund-wide Technical Assistance Evaluation Program launched in FY2003. - The study is based on standardized reviews of FAD’s TA to each country—conducted mainly in 2003—focusing on: principal PEM issues addressed by FAD TA; problems encountered; successes and failures; and main factors affecting TA effectiveness (positively and negatively). - The sample of 10 countries comprises: Ethiopia, The Gambia, Ghana, Kenya, Malawi, Nigeria, Rwanda, Tanzania, Uganda, and Zambia. - The evaluation benefited from an external peer reviewer, Professor Clive Gray, and internal referees Jim Brumby and Ian Lienert. ### TA inputs and coverage (findings on scale and modality) - Between FY1998 and FY2003: - The 10 sampled countries consumed an average of 54 percent of all Fund TA in PEM to the Africa region (measured in terms of the field time of staff and experts in person-years). - The Africa region consumed an average of 35 percent of the total TA in PEM provided by FAD during the period. - The share of Fund TA in PEM provided to Africa increased in recent years, averaging over 40 percent of total Fund TA in PEM in FY2002 and FY2003. - There was a trend toward greater reliance on resident advisors relative to missions in the delivery of TA. - This shift toward resident advisors was reflected in a sharp increase in the amount of TA delivered during the period, as measured in person-years. - The person-years measure does not include considerable resources devoted to TA outside the field (for example, mission preparation and backstopping of resident advisors). ### Diagnosis of PEM problems (principal findings) - Historical inheritance: - Most examined countries were colonies of the United Kingdom and inherited similar, relatively simple budget systems based on an interpretation of the “Westminster model” at independence. - These systems generally involved budget laws that were not specific about requirements for budget preparation, execution, and reporting, leaving detail to regulations drafted and enforced by the executive branch. - The Westminster model involved substantial devolution of authority for budget management to spending units; richer Westminster-system countries have since initiated major reforms, but many developing countries studied have not. - Typical shortcomings summarized in Box 1 (not reproduced here) cover main weaknesses in budget formulation and execution and governance/institutional impediments to improving PEM systems. - Two major governance weaknesses frequently underlying inadequate control and management of public expenditure: - Governments have often assumed functions and tasks beyond their capacity to execute, in part encouraged by donors; capacity eroded further by loss of qualified staff due to declining real compensation and HIV/AIDS. - Political systems have frequently failed to restrain politicians and senior bureaucrats from benefiting personally from lax fiscal controls, leading to common fiscal indiscipline. ### Purpose of the evaluation and report structure - The full report: - Section I reviews typical PEM problems in the selected countries. - Section II describes TA inputs delivered by FAD and country experiences, as well as revealed TA prioritization and mode of delivery. - Section III evaluates FAD TA impacts on expenditure and commitment control; fiscal reporting; accounting systems and IFMISs; and budget preparation including support for MTEFs; and considers other PEM areas not substantially addressed by FAD. - Section IV reviews TA delivery and suggests improvements to TA planning and management. - Section V summarizes lessons learned and offers a possible reformulated TA strategy to improve focus and mode of delivery. *Source: Preface and Executive Summary from the FAD internal evaluation report (standardized country reviews conducted mainly in 2003).* ### Box 1. Typical Problems Affecting PEM ### Box 1. Typical Problems Affecting PEM ### The process of budget formulation - Annual budgeting is incremental, with no forward medium-term framework. - Budgets are based on unrealistic revenue and expenditure projections. - Dual budget systems de-link recurrent and capital and development spending. - Detailed line item budgeting is the norm, emphasizing inputs without much regard for functions or programs. - The coverage of the budget is often seriously incomplete. - The budget timetable is typically compressed, allowing little time for parliamentary discussion. ### The process of budget execution - Expenditure control is weak, with associated accumulation of arrears. - Decentralized PEM systems, where spending ministries often have a large amount of delegated authority over the expenditure process, may complicate modernization efforts associated with computerization or management reforms, compared with more centralized systems. - Internal control systems and internal audit are often ineffective and compliance is weak. - The accounting framework, usually cash-based, does not provide useful management information, such as tracking commitments. - Dispersed government banking arrangements, in the absence of a single treasury account, hinder effective cash management. - The external audit is often poorly resourced and lacks trained staff; enforcement is not supported by technical and political institutional arrangements. ### Governance and institutional impediments to improving PEM - There is a lack of commitment and accountability by high-level authorities, coupled at times with high levels of corruption. - The ministry of finance is unable to enforce fiscal discipline over spending units, which are often protected through political patronage. - There is an institutional fragmentation in the finance functions, with poor coordination between budget preparation and budget execution functions. - There is a weak legal framework, which presupposes a strong-willed executive branch to enforce good practices through regulations. ### Overview of FAD’s TA — scope and priorities - FAD’s TA was typically preceded by missions reviewing the entire PEM system but, given limited resources, had to prioritize and concentrate on some areas more than others. - Main focus areas, in order of priority: - Budget execution (primarily improving expenditure control and fiscal reporting). - Budget preparation. - Promoting compliance with budget regulations. - Under budget execution, a major emphasis was placed on supplementing cash controls with commitment controls to align expenditures with cash availability and prevent payment arrears. - Within budget preparation, TA focused on: - Enhancing budget classifications; - Improving the realism of budget projections; - Ending dual budgeting by consolidating recurrent and development budgets; - Extending budget coverage; - Supporting development of a medium-term expenditure framework (MTEF); - Reviewing budget procedures, particularly by introducing more realistic budget calendars. - TA to promote compliance with budget regulations was often undertaken in partnership with the World Bank and other bilateral donors, who focused on financial regulations, procurement, and internal/external audit. - Cash management reforms included modernizing government banking arrangements and consolidating cash in a treasury single account (TSA). - Major efforts were made to improve accounting systems and basic fiscal data, often tied to longer-term IFMIS projects financed by other donors; FAD occasionally provided temporary TA to fill gaps while larger IFMIS programs proceeded. - FAD advised on systems to report on poverty-reducing expenditures in response to the enhanced HIPC debt relief initiative; strengthening pro-poor spending reporting became a major task for resident advisors toward the end of the sample period. ### Performance of PEM systems in selected African countries - Joint World Bank–Fund HIPC PEM assessments indicate Anglophone African HIPCs share many weaknesses with other HIPCs. - Anglophone systems performed slightly better in budget reporting (more timely final accounts closure and better in-year reporting). - Anglophone systems performed considerably less well in budget preparation and slightly less well in execution. - The best performing PEM system of any HIPC was in an Anglophone country (Uganda), as was the worst (Ghana). - Implementation of HIPC PEM action plans (first review) for the eight Anglophone African HIPCs covered: - Fully implemented or initiated about 78 percent of the 116 actions specified. - This compares to a rate of 79 percent in other HIPCs. - The Anglophone countries had completed 16 percent of the actions, compared with 24 percent for the rest of the HIPCs. ### Quality of technical assistance provided - FAD experts generally retain sound reputations for the quality of their advice, supported by headquarters backstopping. - Main critique: FAD’s responses often addressed immediate technical problems without sufficiently tackling chronic root causes or ensuring follow-up and implementation. - Specific findings by priority area: - Commitment controls: advice remained too focused on technical fixes and not on root causes of payment arrears (unrealistic budget preparation and ineffective cash planning). - Fiscal reporting: two needs — (i) ensure basic information for fiscal monitoring (including arrears) with benchmarked procedures for minimum data quality; (ii) bolster the standing of the accounting function and build accounting capacity. - Computerization/IFMIS: certain preconditions are required for success; an agreed exit point is needed to avoid crowding out local capacity. - MTEFs: FAD was least well-placed to contribute; better to refocus on core technical budget preparation (budget classifications, macro-fiscal analysis, integrating capital and current budgets, improving forecasting). ### FAD’s mode of TA delivery - Typical delivery: infrequent missions and one resident advisor in a central agency. - Challenges: - Limited TA was often insufficient to address system-wide capacity constraints, particularly where responsibility for reforms lies at spending ministry level. - Wide TORs sometimes spread TA thinly and drew advisors into keeping inadequate systems running rather than reforming them. - Expectations on reform timeframes were often unrealistic; progress was generally much slower than expected. - Rationale for resident advisors: - Many FAD interventions supported Fund programs and addressed issues other providers might not prioritize. - Other providers in Anglophone Africa often had their own agendas and resources, reducing likelihood they would follow FAD strategic assessments. - Low administrative capacity in many countries required hands-on support from resident advisors, missions, or peripatetic advisors for basic implementation. ### The overall impact of TA — outcomes across country cases - The impact of Fund TA in PEM in mainly Anglophone Africa was mixed: some clear successes, distinct failures, and some reversals. - Wider political and economic environment was critical to PEM reform success; good advice was not always acted upon. - Summary outcomes for the 10 countries covered: - Two countries had encouraging or very encouraging results. - Two countries had mixed results. - Four countries had small or limited results. - One country had disappointing results. - One country had extremely disappointing results. ### Influences on the effectiveness of TA Problems grouped into four broad categories: - Apparent lack of commitment by the authorities to implement PEM reforms, including ministry of finance inability to enforce changes and doubts about local ownership and fiscal discipline at the highest level. - Lack of local administrative and technical capacity to carry through reforms; difficulties in attracting and retaining qualified staff at competitive remuneration; external constraints such as the HIV/AIDS pandemic (sample country adult infection rates cited: Zambia 21.5 percent at end-2001; Kenya and Malawi 15 percent each; Rwanda 8.9 percent; Tanzania 7.8 percent). - Reactive, demand-led orientation of Fund TA, which tended to focus on short-term urgent needs rather than longer-term fundamental problems. - Possible excessive dependence on resident advisors with prolonged stays (over two years) as the mode of TA delivery. ### A reformulated TA strategy: being more strategic - FAD should give more consideration to the institutional and governance environment when designing assistance strategies and reviewing TA requests. - Integrate PEM issues into national poverty reduction strategies (PRSs) and supporting programs such as the Poverty Reduction and Growth Facility (PRGF); use the HIPC assessment and action plan process as a potential mechanism to align TA with national PRS and donor coordination. - Fiscal Strategy Briefs (FSBs) initiated in 2002: - Prepared for more than 40 countries, seven of which are within the review. - Early experience suggests FSBs may help prioritize TA and strengthen dialogue with area departments and external partners. - Improved management of resident advisors: - Greater emphasis on terms of reference (TOR), recruitment, backstopping, impartial inspections, and reporting (technical and personnel). - Country authorities and area departments now more involved in drafting TORs with clarity on focus, expected outputs, and detailed work plans. ### Coordinating FAD work with other medium-term capacity-building efforts Three main priority areas for coordination with longer-term TA projects by other providers: - Selective support for the introduction of MTEFs, focusing on "nuts-and-bolts" TA for budget preparation (e.g., improved budget classification) and ensuring realism of the macroeconomic envelope. - Selective support for IFMISs, particularly at the conceptual design stage; involvement should be conditional on preconditions for success and include a well-defined exit point based on a realistic implementation timeframe. - Modernization of the legal framework for PEM, with advice directed to ensure the adopted budget process is realistic given administrative capacity. ### Areas of specialization and modest expansions - Continue core work in budget preparation: introducing and refining budget classification approaches in line with international standards, strengthening budget processes, improving the budget calendar, and assisting ministries of finance to develop fiscal analytical capacity (including more realistic revenue and expenditure forecasting). - Continue emphasis in budget execution on strengthening fiscal reporting and, where relevant, addressing data quality issues with the IMF Statistics Department (STA). - Continue emphasis on establishing commitment controls and strengthening cash management, but be more selective in introducing such systems and ensure supporting elements are in place; if not, focus first on removing impediments. - Modest expansion possibilities, subject to strong justification and focus: - Assistance with quality of data associated with fiscal decentralization. - Development of internal control systems. - Fiscal sustainability focus through debt management. *Source: Box 1. Typical Problems Affecting PEM (content unit: _cr0667 - Box 1. Typical Problems Affecting PEM).* ### Box 2. Selectively Deepening Technical Assistance ### Box 2. Selectively Deepening Technical Assistance ### Overarching policy goal - Effective fiscal control exercised across general government, with efficient and effective execution of expenditure responsibilities at the subnational level while ensuring that the central government’s responsibility in macroeconomic management is not compromised. - Short-term focus: improve coverage, timeliness, and consolidation of fiscal plans and reports—particularly where these enable compliance with the enhanced HIPC debt relief reporting requirements. ### Internal controls (expenditure control and personnel) - Observation: much of FAD’s expenditure control efforts have concentrated on transfers and other recurrent transactions, with personnel expenditures—the single most important current expenditure class—often left aside. - Measures to strengthen expenditure control: - Strengthen personnel management and bolster the ministry of finance’s role in personnel matters. - Create a reliable database of government personnel. - Introduce a standardized, computerized human resources management system; FAD role should be supportive and cooperative with others who provide software and bear implementation and training costs. - Longer-term internal control and audit improvements should include: - A clear and agreed definition of internal auditors’ tasks. - Establishment of line ministry audit committees and a central audit committee in the MOF. - Clear demarcation of responsibilities in relation to external audit. - Restructuring of work practices. ### Debt management - FAD’s three-step approach to strengthening debt management: 1. Assure effective organizational consolidation of debt and aid functions and restructuring of tasks. 2. Create an integrated debt recording and management system (DRMS) to track all loans from agreement through disbursement stages and associated debt service payments (note: some standard software packages exist to facilitate this). 3. Use the DRMS, with appropriate upgrading of skills, to assist implementation of debt management strategy within an integrated risk management framework. ### Summary implications for TA delivery (operational implications) - Place PEM TA into a more strategic framework: - Prioritization should be country-specific and account for institutional and governance factors, technical priorities, and assistance from other donors. - Suggests more discussion and joint consideration at the outset of what assistance is required and who should provide it. - Ideally, PEM reform strategy would be reflected in countries’ poverty reduction strategy, recognizing constraints from PEM development, domestic capacity, and governance. - FAD TA should support and be coordinated with longer-term or more comprehensive reform efforts by national authorities and other donors where possible. - Seek national commitment: - Strategic frameworks can provide a basis for mutual commitment—countries agreeing to implement reforms at certain stages; FAD advice shaped accordingly. - FAD assistance may be withdrawn when countries fail to implement reform steps satisfactorily. - Builds on practice of appointing resident experts for six-month renewable terms, with inspection missions before extending long-term assignments. - Pay more attention to follow-up and implementation: - Strengthen oversight, support, and follow-up to recommendations. - Maintain backstopping role—ensure advice is subject to quality assurance by leading experts. - If countries lose interest, FAD should more speedily review its role; if FAD fails to address authorities’ concerns, authorities should advise FAD accordingly. - Ensure TORs are more focused: - Better prepare missions with deliberate focus on resources and information required to deliver high-quality advice. - Negotiate TORs more directly with authorities to ensure shared and well-informed understanding of problems. - Apply realistic time frames for PEM reforms: - Time frames should be adopted per country or topic; some cases require more regular, ongoing involvement over longer periods, consistent with the strategic framework. - Agree on division of labor with other providers: - Decide the best mode of TA delivery in conjunction with other providers and country authorities. - Where possible, FAD should support work of experts engaged by other providers (e.g., through information sharing). - Emphasize more regular interaction with client countries: - Aim to diagnose emerging problems and provide focused interventions before problems reach crisis proportions. - Regular interaction should be coordinated with other providers and nested in an overall country TA strategy with demonstrated ownership by authorities. ### Resource implications and selectivity - Some adaptations described (more regular interaction, longer-term involvement, stronger follow-up) will add to costs. - Given overall resource constraints, these adaptations may need to be accompanied by greater selectivity: providing assistance to a smaller number of countries in any given period but with a larger commitment to each country served. *Source: Box 2. Selectively Deepening Technical Assistance, _cr0667 - Box 2. Selectively Deepening Technical Assistance_* ### Section II identified that, in the latter part of the 1990s, FAD’s TA in the PEM area stressed ### _cr0667 - Section II identified that, in the latter part of the 1990s, FAD’s TA in the PEM area stressed ### The approach to Commitment Control Systems (CCS) - Key objective: require spending ministries (SMs) to focus on controlling the initial incurrence of liabilities rather than subsequent cash payments. - Definition: A commitment occurs when a formal action is taken (e.g., placing an order or awarding a contract) that renders the government liable to pay immediately or sometime in future. Non-contract expenditures (wages, utilities, rent, debt service) must be estimated and treated as commitments. - Core elements of a CCS: - Each line ministry (LM) sends to the MOF a quarterly expenditure plan supported by projected monthly cash requirements; MOF issues quarterly expenditure ceilings and projected monthly cash release before each quarter. - SMs must limit commitments to quarterly expenditure ceilings and keep planned payments within monthly cash release. - SMs submit a monthly report on outstanding commitments and unpaid bills to the MOF. - Each LM should have a commitment control officer (CCO), usually the controlling/accounting officer, responsible for managing the system; detailed procedures for approval of commitments, payment, and accounting are issued. ### Factors undermining commitment control and expenditure discipline - Accounting framework gives low priority to commitment control: - Commitment records typically appear as a column in a manual “vote book” or “commitment and expenditure ledger” and are poorly maintained. - Statutory requirements focus on controlling expenditures with respect to budget appropriations; financial reports reflect cash execution and annual appropriations expire at end of financial year. - MOF budget office focuses on presenting the next budget and satisfying government and political pressures for cash, relegating commitments to a distant second place. - The budget as the basis for commitments is not credible: - Budgets often use an incremental approach and unrealistic revenue projections; expenditures are underestimated or omitted; contingencies and extrabudgetary decisions erode credibility. - Politically powerful SMs accept lower provisions knowing they can recover through cash release process and supplementaries. - Authority to spend not fully backed by cash: - Warrant systems release tranches of the budget; cash releases often below warrant levels and warrants often below budget authorizations, making arrears inevitable if SMs base commitments on budget authorizations. - Cash release decisions typically made by a small group in the MOF in a nontransparent way, generating mistrust and perceptions of politically driven allocations. - Cash-rationing undermines regular recurrent and capital expenditures; capital expenditures usually receive lowest priority. - Cash management is poor: - Decentralized multiple bank accounts resist consolidation; move to a TSA constrained by banking systems lacking electronic networks and inability to use zero-balance accounts. - Cash-planning skills in the MOF remain basic; top management underappreciates the TSA’s importance. - Corruption is a factor: - Nontransparent control of cash releases encourages diversion to unapproved activities, reducing funds for legitimate requirements and contributing to arrears. - Weak internal controls: internal audit is retrospective and underfunded, prosecution of fraud is low, and accounting and purchasing controls are inadequate. - Inadequacy of civil servant remuneration legitimizes some practices. - Separation of stock and flow solutions to arrears is impossible: - Special budget provisions to pay existing arrears assume no new arrears are created; such provisions can create moral hazard by incentivizing SMs to generate arrears to access cash releases. - Sanctions for noncompliance are absent: - Formal sanctions often unenforced; MOF may lack power to confront ministers or accounting officers (AOs) without risking conflict with the president. - A lack of enforced financial discipline throughout government undermines accountability for arrears. - Leadership and management shortfalls: - Perpetual crisis management prevents reforms from being properly managed or implemented to conclusion. - Inadequate management skills, reluctance to delegate authority, poor basic wages, skewed reward systems, job insecurity, patronage, and dependence on political connections weaken adherence to directives and procedures. ### Case studies: Uganda, Zambia, and Malawi (Box 4) - Uganda - Pre-1997 problems: (i) expenditure overruns, particularly in the nonwage recurrent budget; (ii) lack of adequate system to monitor and control commitments; (iii) accumulation of expenditure arrears by central spending agencies. - Timeline and TA: Government requested FAD TA in 1997; FAD resident advisor began November 1998. - FAD TA package: (i) design and implement CCS; (ii) closely monitor commitments and expenditures and avoid new arrears; (iii) verify accumulated stock of arrears by the AG; (iv) training and capacity building. - Measures implemented: - CCS for nonwage recurrent expenditures for all central ministries and departments in July 1999. - CCS for development expenditure effective October 2000. - Maintain quarterly expenditure ceilings fully backed by monthly cash releases, based on improved cash management. - Provide adequate funds for priority and essential budget items and more realistic budget estimates. - Create public awareness through the media about CCS and responsibility of accounting officers to pay bills within 30 days. - Strengthen internal audit and inspection to enforce compliance and improve commitment data quality. - Comprehensively audit stock of arrears by the AG and implement liquidation strategy. - Results: At the end of the first year, new nonwage arrears were reduced by nearly 70 percent compared with the previous financial year; gains maintained in subsequent years. Concerns remained over overcommitment by some power ministries and timeliness/accuracy of data. Success attributed to strong and unified commitment of MOF leadership and senior management. - Zambia - CCS limited to recording and monitoring outstanding commitments and unpaid bills; not combined with supporting measures (quarterly ceilings with monthly cash releases and inspection) as in Uganda. - Result: CCS did not prove effective; symptom of MOF unable or unwilling to impose financial discipline. - Malawi - CCS similar to Uganda’s introduced; initial progress in recording and reporting commitments and audit of arrears. - Result: No impact on accumulation of new arrears due to noncompliance by spending agencies, lack of enforcement and penalties by MOF, political neglect, and lack of institutional capacity. ### Future options and guidance for FAD TA on CCS - Before establishing a CCS, review four main aspects: - First, assess realism of budget estimates; if not credible, refrain from emphasizing CCS and focus on improved budget preparation. - Second, assess quality of cash planning underlying the cash release system; if deficient, strengthen cash planning before CCS. - Third, assess whether it is possible to identify and monitor present stock of arrears and develop reporting to capture incurrence of new arrears. - Fourth, obtain adequate assurances of political commitment to enforce accountability and sanction deficient AOs. - Recommendation: Treat these four aspects as components or preconditions of an effective CCS; if deficient, strengthen them simultaneously or as preconditions for CCS introduction. - Technical constraints: - Commitment controls often cover only a small part of the budget; wages, interest, and utilities frequently excluded as “fixed” commitments. - Poor record keeping and data quality within SMs impede commitment reporting and control. - Moving from manual commitment recording to control ideally requires computerization, which has proved difficult to introduce in the African context. ### Fiscal reporting: sources of poor data quality (analysis and Box 5) - Observation: Poor fiscal reporting stems from weaknesses throughout the PEM system and is difficult to address because central reporting requires inputs from many units. - FAD TA experience: Much TA focused on improving fiscal data and reporting, but problems underestimated; placing a single FAD resident advisor at the MOF center was insufficient. - Box 5: Sources of poor data quality and fiscal reporting - Incomplete coverage: - Extrabudgetary funds. - Lower levels of government. - Information on donor-funded projects. - Cash reporting: - Hence no expenditure and taxation arrears data. - Other noncash fiscal impacts absent. - Gaps in important fiscal information: - Government guarantees. - Quasi-fiscal activities. - Contingent liabilities. - Data inconsistencies: - Coverage of government accounts in monetary survey not the same as above-the-line fiscal data. - No reconciliation of debt stocks with financing flows. - No reconciliation of accounting ledger data with bank account records, undermining reliability. - Budget and outturn data are very different because of poor revenue forecasting techniques, weak expenditure controls, and poor cost estimation. - Fiscal programs not the same as represented by budget approved by parliament. - Lags in reporting: - In-year reports slow or incomplete. - End-year accounts and audited accounts delayed. ### Donor coordination and capacity building - Observation: Other donors have often not prioritized resources for strengthening SM capacity for data recording and reporting and internal management controls; donor inputs tend to focus on upstream reforms in budget preparation. - Recommendation: Promote greater donor participation in building capacity in SMs to strengthen data recording and reporting and establish solid internal management controls. - Note: A sufficient volume of TA resources is required at the SM level; central-level TA alone is inadequate to address pervasive data and reporting weaknesses. *Source: _cr0667 - Section II identified that, in the latter part of the 1990s, FAD’s TA in the PEM area stressed* ### Box 6. The Focus on Fiscal Reporting ### Box 6. The Focus on Fiscal Reporting ### Assessment of fiscal reporting systems - The fiscal reporting system in most of the sample countries is "inadequate and weak." - Sources of available data are "quite scattered and are not easily integrated." - Large discrepancies in fiscal data negatively impact Fund program design, implementation, and monitoring. - Budgeting and accounting systems do not provide: - (i) information on costs of policies and programs for planning and budgeting; - (ii) financial information for budget management; - (iii) reliable data on revenue, expenditures, and financing for monitoring economic performance. - Banking information in revenue and expenditure bank accounts is mainly used for monitoring program targets; the fiscal situation is derived from the books of the central bank. - Serious concerns about quality and consistency of fiscal data produce a sizable discrepancy between above-the-line and below-the-line data, making it very difficult to assess and monitor fiscal deficit. - Government policymakers and financial managers at various levels often do not use fiscal data for monitoring, controlling, and decision making. - Dissemination of fiscal data to the legislature and the public is very limited; fiscal reports are often produced to meet requirements of international organizations and bilateral donors rather than as a key tool to set fiscal policy and monitor fiscal targets. ### Short-term FAD technical assistance and impact - Much of FAD’s TA input has been directed toward improving availability and quality of fiscal data. - Country examples of FAD TA: - The Gambia: closure of past annual accounts, recording of loan and grant transactions, development of a flash reporting system in the absence of a timely general ledger in the Accountant General Department. - Nigeria: development of interim software applications for recording warrants, cash releases, and maintenance of the cash book; improved monitoring of budget implementation. - Malawi: work on improving the consistency and quality of the various sources of fiscal data. - The impact of FAD’s TA on improving fiscal reporting has been "inevitably limited" in the countries reviewed. - FAD’s TA has focused on interim solutions to immediate problems; the ultimate solution is establishing IFMISs, which is largely being addressed by the World Bank. ### Responding to fiscal reporting needs from a short-term perspective - Question raised: by concentrating on data quality and fiscal reporting, has FAD adopted a short-sighted "Band-Aid" approach instead of a structural approach that yields sustained improvements? - Tension identified between addressing fundamentals (medium- to long-term reforms across PEM areas) and meeting the short-term need of the area department for reasonably reliable data. ### Future options — basic minimum interim solutions before longer-term reforms - First: support area department to ensure coverage of fiscal reports meets Fund program requirements; for HIPC countries, this includes the ability to track poverty-related spending even if at lower levels of government. - Second: assist in setting up reporting mechanisms for tracking the level of arrears and subsidiary procedures to allow an audit of at least the most substantial arrears; include both expenditure and tax arrears. - Third: establish benchmark procedures to assure a basic minimum level of data quality, including procedures for: - Checking that the government bank accounts included in the fiscal reports match those for the government sector in the monetary survey. - Closing all below-the-line accounts used for evading financial controls. - Reconciling changes in debt stocks with financing flows. - Reconciling accounting ledger data with bank account records. - In addressing weaknesses in the accounting system underlying fiscal reporting, two focal areas: - Stress the importance of the accounting function: - Timely record keeping and accounting in the SMs and the OAG are essential. - FAD could play a more proactive role in stressing to MOF managers the importance of the accounting function to counter the tendency for the OAG to be the "poor relative" of MOF top management or divorced from direct MOF involvement. - Stress timelier closing of accounts: - Failure to close government accounts timely after the fiscal year end is widespread in Anglophone African countries. - FAD has provided recent technical support to complete this task (e.g., in The Gambia and Lesotho). - Proposed twofold approach: immediate TA to help close accounts and a strategy to strengthen OAGs to prevent recurrence (combination of downstream and upstream technical advice). ### Accounting systems and IFMISs - FAD’s advice on accounting systems tended to focus on rectifying weaknesses in current accounting systems to improve fiscal data short-term. - Two recurring problems: - Local capacity constraints, notably a general shortage of accounting skills in OAGs and migration of skilled labor to the private sector for higher pay. - Need to accommodate medium-term computerized solutions (IFMISs) and the pressure on FAD advisors to support large donor-supported computerized projects. - Experience with IFMIS and similar projects: - When FAD TA supported IFMIS development, experience "has not generally been good." - These projects have taken considerably more time and resources than initial project estimates and have tended to be a time-consuming distraction for FAD advisors, although peripheral to their TOR. - Very few successful projects exist despite substantial TA and financial resources by donors. - Preconditions for successful computerization: - Accounting procedures must be adequate since the accounting system is the backbone of the IFMIS. - Low level of computer literacy must be addressed before projects are viable, especially government-wide. - Greater reliance on communications systems—which are poor in Africa—may be a constraint. - The Anglophone system may be at a disadvantage because it is more difficult to computerize a system spread between OAGs and SMs. - Conclusion: IFMISs may be the medium-term solution to many PEM problems, but it is important to be realistic about the time horizon for implementation. *Source: Box 6. The Focus on Fiscal Reporting (extracted from the provided content).* ### Box 7. Implementation of IFMISs ### Box 7. Implementation of IFMISs ### Overview and country status - In the early 1990s, developing countries in Africa added IFMIS introduction to PEM reform agendas to improve budgeting, accounting, and fiscal reporting. - Status by country: - Tanzania: successfully implemented a core budgeting and accounting system in central ministries and departments. - Ghana: ongoing development of IFMIS (BPEMS); pilot implementation started in January 2003. PUFMARP has been implemented since 1996. - Malawi: initiated budget reforms in 1995 with an MTEF and an IFMIS; IFMIS is still under pilot implementation at four selected sites. - Uganda and Kenya: still in the process of procuring hardware and software for their IFMISs. - The Gambia: IFMIS project has not entered the design phase after more than two years of “development” work. ### Track record and principal implementation problems - General observations: - Reform programs, including IFMIS introduction, have been largely donor-driven with limited political and local ownership. - IFMIS components were embedded in overly ambitious, complex projects with interrelated interventions, resulting in design and implementation delays. - Necessary capacity to manage and implement IFMISs has been inadequate. - Specific adverse effects noted: - Ghana: new budget classification was introduced while IFMIS (BPEMS) was not ready to record expenditure transactions, producing no accounts for almost two years; an interim system was developed to record transactions conforming to the new classification. - The interdependency of project components means implementation problems in one area impact related areas. - In The Gambia, an unrealistic delivery date closed down manual general ledger entries. ### Leadership and political commitment - Key constraints: - Leadership of politicians and top bureaucrats is weak. - Decision makers are risk averse toward IT innovations, perceive complexity and staffing demands, and may distrust expatriate-introduced IT. - Donor-imposed conditions do not increase success rates. - Top decision makers often lack a perception of urgency for prompt implementation. ### Institutional constraints and business-practice reform - The IFMIS introduction requires changes to traditional “ways of doing business”: - Standardization and modification of manual procedures, documentation, and procedural rules across ministries. - Redesignation and strengthening of internal controls to underpin durable system design. - Benefits of sequencing: - Strengthening the manual accounting system first (with minimal electronic data processing) creates a robust paper trail that promotes accountability and supports a robust computerized system. - Computerization tends to expose incompleteness of manual systems; thus manual reform should be a top priority. ### Project management, coordination, and human resources - Implementation weaknesses: - Inadequate information and capacity in implementing agencies hinder sound project decisions. - Senior staff rarely delegate and are often overloaded; IFMISs should not place extensive demands on overburdened senior staff. - MOF should lead but other ministries must participate fully in system development. - In Anglophone Africa, IFMIS projects have often been centered in OAGs, which can be disconnected from other MOF departments. - Training and documentation: - Adequate training and user manuals/documentation are often insufficient, reducing user acceptance and local IT expertise development. ### Time frames and realistic expectations - Time and cost estimates for computer system development and installation have almost universally been understated. - Human resource shortages in these countries imply IT introduction will take longer than in advanced countries—experience suggests perhaps two to three times as long. - There is a tendency to tell top management what they want to hear, reinforced by short political time horizons. ### User involvement and design-phase emphasis - Due to lack of local IT expertise, system development has often been left to private consultants or suppliers with little user involvement, producing no local capacity for maintenance or modification. - Functional requirements documents are critical; faulty requirements are difficult to remedy later. - Requirements analysis can take substantial time—a detailed analysis can take three months to a year for the accounting function alone. - Excessive focus on IT solutions has sometimes undermined manual systems and diverted attention and advisor resources (Malawi, The Gambia, Ghana). ### FAD experience during interim period - In the interim period of four to five years prior to full IFMIS implementation, FAD has tried to: - Ensure present accounting and reporting systems are maintained. - Ensure business practices in the MOF are adjusted to the new computerized environment. - Slow IFMIS implementation has been a recurrent problem throughout the stay of FAD’s resident advisors in some countries (e.g., Malawi). ### Future strategy and recommended FAD technical assistance (TA) approach - Rationale: - IFMISs remain important to long-term PEM reform agendas; FAD involvement is needed to avoid poor design and implementation. - FAD should be cautious in committing TA given long time frames and capacity constraints. - Proposed principles for FAD involvement: - First, assess preconditions before offering support: - Commitment of top managers. - Adequate project management capability and coordination mechanisms. - Second, establish a well-defined exit point. Broadly define three stages of IFMIS projects: - Design: determine client information needs and develop user-friendly software to produce necessary reports. - Adoption: operate the computerized system parallel to manual systems, ensure performance and make required modifications. - Institutionalization: the computer system is fully combined with government financial operations and fully managed and operated by government staff. - Recommendation: FAD should participate only in the initial design and testing stage. - Third, in design work FAD should ensure: - Reform of work practices rather than mere computerization of existing procedures. - That the accounting core of the IFMIS is sound and will generate information required for MOF management and fiscal analysis. - That general functionality requirements are comprehensive enough to accommodate present and future needs. - That the timetable for implementation is realistic. - Interim-period TA focus: - During the four to five year interim before full IFMIS implementation, FAD’s role should be to: - Maintain present accounting and reporting systems. - Adjust MOF business practices to operate in the new computerized environment. - Ensure desired IFMIS functionality is incorporated into design. *Source: Box 7, “Implementation of IFMISs” from the provided IMF chapter/section PDF.* ### Box 8. Introducing MTEFs in Africa ### Box 8. Introducing MTEFs in Africa ### Multiyear expenditure frameworks (MTEFs): benefits and caveats - Both the Bank and the Fund have an active interest in implementing PEM reforms in developing countries and "tend to reinforce one another in providing TA in the PEM area." - In Africa, collaboration has sometimes been hampered by failure to coordinate the Fund’s short-term objectives (strengthening treasury and fiscal reporting systems) with the Bank’s ambitious medium-term reforms (introduction of MTEFs and development of IFMISs). - Developing comprehensive MTEFs can be effective when circumstances and capacities permit; otherwise, they can: - consume significant time and resources, and - distract attention from immediate needs for improving the annual budget and budget execution processes. - The MTEF is described as "a feasible means of improving budgeting" but requires specific preconditions (see next subsection). ### Preconditions required for feasible MTEFs - Reliable macroeconomic projections, linked to fiscal targets in a stable economic environment. - A satisfactory budget classification and accurate and timely accounting to produce a detailed pattern of expenditures over a past period of time. - Technical capacity for separating the cost of policy changes from that of continuing policies and disciplined policy decision making. - Budgetary discipline—large deviations between what is budgeted and what is spent tend to undermine the usefulness of multiyear budgeting. - Strong institutional support and political discipline for fiscal management. ### Timing, implementation risks, and experience - Before introducing an MTEF, the critical question is whether the country has adequate support for the preconditions listed above. - Where these preconditions were inadequate in a number of African countries, the MTEF was introduced prematurely and "is turning out to be merely a paper exercise." - The MTEF concept was often "oversold at inception" as a tool for creating resources and meeting demands of all spending agencies; inability to deliver that objective has led to growing discredit. - In principle, the MTEF is a sound tool; "a number of countries have prepared rolling multiyear expenditure programs since 1960." - A multiyear perspective is especially important in developing countries; the outstanding question is when and how it is implemented. - A reform process typically entails complex technical, procedural, institutional, and political adjustments; neglecting these dimensions in Africa carries substantial risks. ### Issues not substantially addressed by FAD technical assistance: Fiscal decentralization - Decentralization of government operations has been an increasing trend across Africa since the mid-1980s, with responsibilities and resources transferred to subnational governments. - In terms of TA in the PEM area, FAD has made only a limited contribution thus far: Tanzania (mission), Uganda (mission and resident advisor for two years), and, recently, Ethiopia (two missions). - The main attempt in Uganda—TA through an advisor—"yielded limited success." - FAD confronted decentralization issues when examining means of tracking poverty-related spending through the HIPC AAP (Assessment and Action Plan) exercise; this identified a need for the central government to develop reporting and monitoring mechanisms for decentralized expenditures. - Given resource implications, FAD needs to be selective (for example, focusing on reporting and consolidation problems of budgets) and leave other aspects to others. ### Motivation, benefits, and concerns about decentralization - Drivers of decentralization include return to democracy, donor promotion as a way to reach the poor and bring services to neglected areas, and movement toward better governance away from unaccountable centralized regimes. - Many countries have low levels of tax collection and large central government deficits; even with decentralization, services supplied by lower-level governments can be expected to be very low. - The World Bank's argument: decentralization yields superior information to target services and makes them more effective; local monitoring increases awareness of local needs and keeps local officials accountable. - Concerns include: - Deadweight costs of additional layers of bureaucracy possibly exceeding the centralized bureaucracy they replaced (or being added to it). - Services produced at the local level may increase personnel costs; some empirical evidence suggests that with decentralization, wages begin to absorb a larger share of total expenditures. ### Selected country notes from Table 4 (highlights) - Eritrea - "Quite centralized: a central government and local government. Municipalities are under LGs." - 1995, 1997: major restructuring of the local level. - Functional responsibilities: Education, health, agriculture, trade and industry, public works, courts. - Revenue: "LGs are supported entirely by the central budget and have no taxing rights. Municipalities do have some meager revenues." - Ethiopia - "Introduced federal system (Proclamations of 1992/93 and Constitutions of 1994)." - "Introduced elections of regional councils (last one in 1995)." - Functional responsibilities: Education, health, and roads transferred to regions. - Revenue: "Introduced revenue sharing." - Revenue decentralization: 45 percent (1995/96). - Kenya - "Has a highly centralized system. No decentralization process is on the agenda." - Rwanda - "Centralized system." - "Elections of submunicipalities held in March 1999." - Tanzania - "Reinstated in 1984 a two-tiered system based on urban and rural authorities. Intends to strengthen local government (Government Reform Agenda, 1996–2000)." - "Has held local elections since 1983." - Functional responsibilities: Locals governments (LGs) have typical urban services, plus primary schools, health, development and physical planning. - Revenue: Property, business, fuel, and other minor taxes. - Revenue decentralization: N.A. - Botswana - Districts (9); town councils (5). - Holds local elections. - Functional responsibilities: Primary education, urban services, rural roads, minor development projects. - Revenue: LG tax (personal income tax), school fees, and grants (7 percent of central government expected in 1990). - Revenue decentralization: N.A. - Ghana - Replaced (1989) deconcentrated system with a decentralized one: districts (110); regions (10) are still deconcentrated. - Introduced elections in Districts (since 1988). - Functional responsibilities: Regions coordinate with districts for typical urban services, local roads, primary education, and health. - Revenue: Property tax, minor taxes, fees. Central government transfers. District Assembly Common Fund (at least 5 percent of domestic tax revenue). - Revenue decentralization: Approximately 10 percent. - Malawi - Introduced (law of 1998) decentralized system based on districts, cities, towns, and municipal assemblies. - Intends to introduce elections of assemblies after September 2000. - Functional responsibilities: LGs have typical urban services, plus primary schools, health, development, and physical planning. - Revenue: Property taxes, fees, ceded revenues, block grants of no less than 5 percent of national revenue, distributed on selected criteria. - Revenue decentralization: N.A. - Namibia - Regions (13); local authorities. - Holds elections for regional councils and local authorities. - Functional responsibilities: Typical local services, local roads, electricity distribution. - Revenue: Share of property taxes, electricity and water fees, and central transfers. *Source: Box 8 and related text on decentralization from the provided IMF content unit.* ### 13.6 percent (1993/94). ### _cr0667 - 13.6 percent (1993/94). ### Country examples: Nigeria, Sierra Leone, South Africa, Zimbabwe - Nigeria - Has a federal system. States have been increased to 36. 774 municipalities. Federal capital territory: Abuja. - Introduced elections of state and local councils. - Education, health, and welfare to states. Typical urban services to municipalities. - Revenue sharing: 24 percent of federation revenue to states; 20 percent to LGs. VAT: 50/50 to states and LGs. - States: 12.6 percent (1998)LGs: 3.9 percent (1998). - Sierra Leone - Intended to proceed to a reform of its decentralized system but civil war delayed plan. - Intended to introduce elections of districts councils, but prevented by conflict. - South Africa - Constitution of 1996 introduced a quasi-federal system: Provinces (9); local government (800 to 300). - Introduced elections of municipal and provincial councils (1994 and 1999). - Education, health, and welfare to provinces. Typical urban services to municipalities. - No major taxes to provinces. Introduced unconditional grant for provinces. Property and business taxes to municipalities. - 50 percent (1998/99). - Zimbabwe - Has a deconcentrated system with 8 provinces and a decentralized one based on Urban and Rural Districts (57 have been created by amalgamation in 1987). - Holds local elections regularly. - Typical urban services, plus health care services to districts. - Property tax, vehicle tax, poll tax, fees account for most of revenue (similar to South Africa). - 20 percent (early 1990s). ### Donor-funded subnational expenditures — problems and one proposed approach - Problems identified when donors cover a substantial share of subnational expenditures: - Expenditures concentrated in some “favored” regions, raising interregional equity issues. - Poor coordination with central and subnational recipient government budgets. - No allowance for recurrent cost implications of investments. - Insufficient reporting of donors’ operations at the local level to the central government. - Insufficient recording by subnational governments of these expenditures. - Proposed approach: - Include donors’ contributions in the country’s general-purpose, unconditional transfers system, so that the transfer to each region is adjusted by the amounts it receives from donors. ### Tax effort, vertical imbalances, and transfers - Tax effort in Africa: - Generally low as measured by the share of taxes in GDP. - Concentrated heavily on foreign trade, with weak tax administration. - Implication: subnational governments typically rely on user charges and property taxes. - Consequences: - In the absence of substantial new tax sources, huge vertical imbalances are likely. - Transfers will be an important part of the decentralization picture at least in the near future. - Transfer design guidance: - Distribution formulas should take into account actual budget implications of devolution of functions and reduction of disparity in poverty levels among areas. - Specific purpose grants are difficult because they require greater administrative capacity. ### PEM needs for decentralization and HIPC reporting - Reporting and consolidation needs: - Establish reporting systems for information on subnational government operations. - For HIPC debt relief, need to assess whether government expenditures at all levels are pro-poor. - Authorities must produce consolidated budget reports, which are trigger points for reaching HIPC completion points. - Recommended FAD PEM focus (selective, non-policy-oriented): - Facilitate efficient and effective execution of expenditure responsibilities at the subnational level. - Ensure central government’s responsibility in macroeconomic management is not compromised. - Short- and medium-term operational suggestions: - Improve coverage, timeliness, and consolidation of fiscal plans and reports to meet HIPC-reporting commitments. - Ensure an effective medium-term planning function that incorporates expenditures at the local level. - Ensure a consolidated budget in a standard format can be constructed using GFS classification principles and incorporating all external assistance; requires a common chart of accounts and budget classification. - Rationalize financial management systems at subnational levels: standardize accounting, consolidate bank accounts to a subnational TSA, and incorporate extrabudgetary fiscal operations in budgets. - Support regular in-year and end-year reporting from all subnational governments and EBFs to ensure expenditure and borrowing control and to determine conditional transfers. - Ensure a suitable legal framework and associated regulations to support fiscal decentralization. ### Internal audit: role, problems, and strategic TA recommendations - Role and objectives: - Ensure compliance with laws and regulations; ensure reliability of financial data and reports; facilitate efficiency and effectiveness of government operations. - Internal audit seen as central to public fiduciary safeguards and good governance. - Observed models in Anglophone Africa: - Centralized MOF-managed internal audit cadre (e.g., Kenya, Malawi, Uganda): internal auditors posted in ministries but personnel based in MOF; reports to MOF and AO. - Decentralized ministry-managed internal audit (e.g., South Africa, Ghana): internal auditors recruited and managed by ministries; report directly to AO with copies to MOF. - Tension exists between centralized MOF responsibilities and delegated AOs’ management needs. - Problems found: - Internal audit often weak: poor work practices, lack of planning and personnel management, little support from external audit, inadequate resourcing. - FAD strategic TA advice (dimensions): - A clear and agreed upon definition of internal auditors’ tasks. - Establish line ministry audit committees composed of top management and technical experts to steer internal audit work and recommend corrective/preventive action. - Create a central audit committee in the MOF to review internal audit findings and pursue remedial action; consider independent external review of internal audit practices every two or three years. - Clearly demarcate responsibilities vis-à-vis external audit and encourage symbiotic use of each other’s work. - Restructure work practices to deploy scarce audit skills efficiently: - Prioritize internal audit scope and adopt sampling approaches instead of extensive pre-audit of vouchers where appropriate. - Create special central teams to conduct audits in agencies with local internal audit staff assistance. - Formulate efficient work plans for varying time periods (quarter, year, longer). ### Debt management: weaknesses and three-step approach for FAD TA - Identified weaknesses: - Lack of attention to debt management contributed to unsustainable debt accumulation. - Weak legal and institutional frameworks; poor coordination among budget, cash management, financial planning, and debt operations. - Separation of debt and aid management units; separation of foreign and domestic debt management; central bank roles sometimes not clearly distinguished between fiscal agent and monetary policymaker. - Debt management often not a significant TOR item in FAD advisory work; coordination with cash management often missed. - FAD’s recommended three-step approach: - First: Organizational consolidation of debt and aid functions into one institution; integrate debt management with cash management and establish a transparent annual debt management strategy to finance government operations at minimum cost and with minimum disruption. - Second: Create an integrated database to track all loans from agreement through disbursement and debt service payments; allow reconciliation with bank statements and generate standard and diagnostic reports, including on-lending and guarantees. - Third: Upgrade government debt management skills using the database: improve debt contracting methods, risk analysis (including contingent liabilities), controls, follow-up on on-lending and guarantees, and develop procedures for commodity aid, direct payments to suppliers, and reimbursements. ### Legal framework: trends and FAD’s approach - Historical context: - Many Anglophone African countries inherited an Accounts and Audit Act supplemented by financial regulations; layers of regulation sometimes obscure basic legal framework. - Reforms: South Africa first; Tanzania (Public Finance Management Act, 2000); Malawi revising law; Sierra Leone submitted draft organic budget law; The Gambia and Rwanda considering new legal frameworks; Uganda’s MTEF framework introduced by a 2000 law. - Recommended FAD approach when assisting with organic budget laws: - Balance fiscal powers between legislative and executive branches; ensure consistency with fiscal democracy and transparency principles. - Include timely submission of the budget to parliament, enhanced data presentation in budget documents, rationalization of appropriation structures to increase legislative power over appropriations and virements. - Prohibit initiation of unbudgeted expenditures by the executive except through supplementary appropriations. - Make provisions for management of different types of external grants and loans and full integration of recurrent and development budgets. - Transform OAGs into modern treasury departments fully integrated into MOF organizational structure. - Help define fiscal relationships among tiers of government and strengthen macro-fiscal discipline; consider assisting with fiscal responsibility legislation where appropriate. ### Review of FAD Technical Assistance (TA) delivery: issues observed - Authorities’ commitment - Strong MOF commitment essential but often difficult to gauge; poor support from President’s Office or lack of decision-maker engagement can undermine reforms. - Recommendation: Use authorities’ track record in implementing recommendations when considering TA requests; consider performance milestones to condition further support. - Ensuring capacity preconditions - FAD advice should be grounded in what is realistically implementable; past TA sometimes patched deficient systems unsustainably. - Recommendation: Diagnose capacity weaknesses and develop viable strategies; invest in human and institutional capacity development. - Quality and stability of counterparts - Frequent turnover of counterparts (e.g., Malawi ~ every 18 months) undermines continuity; low wages and poor conditions reduce morale and retention. - Recommendation: For resident advisors, insist on a designated counterpart who will remain for the advisor’s assignment duration. - Impact of HIV/AIDS on capacity - Example adult infection rates at end-2001: Zambia 21.5 percent (according to UNAIDS), Kenya 15 percent, Malawi 15 percent, Rwanda 8.9 percent, Tanzania 7.8 percent. - Implication: HIV/AIDS is an external constraint on administrative capacity. - Institutional change difficulties - FAD TA concentrated on PEM functions rather than institutional reform; institutional constraints often limit technical achievements. - Recommendation: Recognize institutional reform needs (e.g., integration of OAG in MOF, unifying development and recurrent budgets) and address them where feasible. - Timetable realism - Past expectations of reform speed were sometimes unrealistic; TA is often long-term but FAD resources are limited. - Recommendation: Reassess timelines, apply pressure for results, and avoid perpetual short-term “Band-Aid” approaches. - Coordination with other TA providers - FAD often a minor TA provider overshadowed by others; inconsistent donor actions can conflict with FAD advice (e.g., TSA vs. donor project accounts; World Bank MTEF focus diverting attention). - Recommendation: Improve coordination with other TA providers and align deliverables. - Follow-up shortcomings - Scarce resources led to lack of follow-up to TA; possible remedies include follow-up letters, regular follow-up TA when resident advisors are withdrawn, and more regular interaction in core countries. - Fit of advice into overall TA plans - FAD advisors’ TORs sometimes did not fit into an overall reform plan; risk of building dependence rather than capacity. - Recommendation: Develop country-specific TA plans in collaboration with other providers and seek earlier handoff to other donors when appropriate. ### Implications and recommendations for improving FAD TA delivery - Adopt a more comprehensive and strategic approach to TA planning: - Shift from demand-driven, short-term responses to country-centered comprehensive PEM reform strategies with concrete short- and medium-term plans. - Align FAD TA with country reform priorities and broader programs (e.g., PRSs, PRGF). - Use diagnostic tools such as the HIPC Assessment and Action Plan (AAP) framework or similar instruments to incorporate priorities, capacity, and donors into PEM reform plans. - Use of Fiscal Strategy Briefs (FSBs): - FAD’s experimental FSBs (41 countries prepared, seven in the review sample) prioritize across TA areas, adopt a proactive view of main reform needs, and link reform priorities to macroeconomic and institutional vulnerabilities. - Early experience suggests FSBs may help prioritize TA and strengthen dialogue with area departments and external partners. *Source: See Brosio (2000).* ### Box 9. HIPC Expenditure Tracking Assessment and Action Plans: ### Box 9. HIPC Expenditure Tracking Assessment and Action Plans: Toward a Comprehensive Country-Centered TA Strategy ### Overview of the AAP (Assessment and Action Plan) - Purpose: Assess capacity of the PEM system to deliver and report on implementation of a country’s poverty reduction strategy and lead directly to an action plan supported by development partners where necessary. - Process: Joint assessment by the World Bank, the IMF, and the government. - Status: - First assessments: conducted in 2001 and reported to the Boards of the Bank and Fund in 2002. - Second round: results to be reported to the Boards of the Bank and Fund in early 2005. - An additional indicator was added for the second round of assessments in 2003/04, relating specifically to the adequacy of the procurement system. ### Main features of the AAP - An assessment framework: - A questionnaire leads to 15 indicators representative of a well-functioning PEM system. - Indicators cover performance (e.g., level of arrears, timeliness of reporting) and institutional dimensions (internal audit, medium-term expenditure framework). - Coverage: preparation, execution, and reporting—with focus on planning, monitoring, and tracking poverty-related spending. - Countries are assessed against a minimum benchmark standard for each indicator. - An action plan: - Articulates short- and medium-term measures required to develop the PEM system to demonstrate the basic characteristics of a well-functioning PEM system. - Regularly monitored, with reports included in IMF Article IV consultations. - A technical assistance plan: - Maps donor programs for measures identified in the action plan and identifies areas where further support is needed. ### Coordination challenges in TA delivery - Short-term and supply-on-demand approach led to insufficient attention to ongoing TA by others and broader local reform efforts. - Consequences observed: - Potential duplication of effort and conflicting advice. - Confusion in TA priorities; difficulty enforcing country ownership and accountability. - Weak government coordination institutions; FAD often lacked influence or resources to assist coordination. - Donors respond to both country priorities and their own headquarters priorities, complicating alignment. - AFRITAC regional approach: - Offers opportunity to liaise with governments and other TA donors on an ongoing basis via regional advisors. - First AFRITAC set up in Tanzania in November 2002; next in West Africa in 2003. - AFRITACs to be externally evaluated to assess suitability for coordination needs. ### Enhanced headquarters management of TA and advisor quality control - Shift required from primarily technical backstopping to greater headquarters involvement in planning, coordination, oversight, and human-resource management. - Quality assurance measures implemented: - Recruitment: interviews by senior FAD staff; trial missions before panel enlistment. - Tighter TORs: inclusion of country authorities and area departments; clarity on focus and expected outputs to enable detailed work plans. - Backstopping: alternates assigned; enforced monthly reporting by advisors; attempts to reduce reporting lag. - Inspections: frequency shortened from annually to six months; inspections by staff other than the backstopper. - Annual reviews of advisor performance; ex post evaluation leading to corrective measures or early contract termination for under-performance. - Practical challenges and lessons: - Advisors face dual accountability to authorities and to the IMF, creating "gray areas" and potential conflicts. - In weak administrative environments, advisors sometimes replace counterparts rather than support them; correction by backstoppers was necessary. - Non-technical attributes (“people skills”, local experience) often as important as technical qualifications. - Areas for further improvement: - Invest more time and resources in recruitment to maintain roster as other providers compete for talent. - Tighten backstopping: more focused TORs, detailed and updated work plans, increased telephone/electronic contact. - Options: in-field workshops for resident advisors, more frequent backup missions instead of inspections, stronger contacts among backstopper, FAD economist, and area department team. - More frequent in-depth reviews of FAD’s TA followed by specific TA country strategies. - Experimental tools: an “e-room” approach to allow PEM advisors access to headquarters information and peer sharing. ### Reformulated technical assistance strategy (summary) - Strategic aims: Be more selective, improve TA management, prioritize better, and learn from past experience. - For long-term Fund clients (many Anglophone African countries): more regular, coordinated interaction to diagnose emerging problems earlier; nested in an overall TA country strategy with country ownership. - FAD management improvements: experimenting with internal Fiscal Strategy Briefs to coordinate, prioritize, and manage TA. Key strategic changes recommended (bulleted from text): - Place PEM TA into a more strategic framework: - Fit FAD TA into nationally owned overall PEM TA plans agreed with authorities and donors; coordinate closely with IMF country teams. - Use the HIPC AAP process as one tool to determine country priorities, coordinate providers, and determine mode of delivery. - Provide TA only where consistent with the framework or required following a shock to the PEM system. - Seek national commitment: - For countries with problematic commitment or low capacity, agree preconditions and PEM reform performance milestones to justify new and ongoing TA and identify stable counterparts. - Consider withdrawing assistance when mutually agreed reform steps are not satisfactorily implemented. - Continue practice of six-month renewable resident expert appointments and inspection missions before extending long-term assignments. - Pay more attention to follow-up and implementation: - Strengthen oversight, support, and follow-up to recommendations. - Retain backstopping role to ensure quality assurance; review FAD’s role when countries lose interest or when FAD fails to address authorities’ concerns. - Ensure TORs are more focused: - TORs should be well-researched, concentrate on priority issues with clearly defined outcomes, and be negotiated with authorities and donors. - Reinforce with ongoing oversight and backstopping from headquarters. - Apply realistic timetables for PEM reforms: - Different timetables for different countries or topics; recognize potential need for more regular involvement over longer periods. - Agree on division of labor with other providers: - Coordinate short-term FAD interventions with longer-term projects of governments and other providers. - Support experts engaged by other providers through information sharing where possible. ### Core PEM priorities and operational guidance - Continue strengthening core PEM operations, balancing downstream TA (data quality, links to IMF program needs) and upstream TA (diagnostic and strategic reform overviews). - Budget preparation priorities: - Introduce or refine budget classification in line with international standards. - Strengthen budget processes, the budget timetable, and MOF analytical capacity. - Budget execution priorities: - Focus on fiscal reporting from a short-term perspective to tackle general data quality issues relevant for Fund program work. - Explicit FAD priorities to ensure: - Coverage in reporting is adequate for Fund programs. - Tracking of poverty-reducing expenditures, as specified in PRSPs, is effective, as a subset of fiscal reporting. - Mechanisms are in place to track arrears (stock and flow). - Basic benchmarks for data quality are met: - Reports are timely. - Coverage of government bank accounts matches that of the monetary survey. - Below-the-line accounts are closed. - Changes in debt stock are reconciled with financing flow data. - Below- and above-the-line data are reconciled. - Commitment control systems (CCS): - Continue emphasis on establishing commitment controls but be selective in introducing CCS; view CCS as a package of supporting elements. - Feasibility of introducing a CCS should be gauged by: - Undertaking an assessment of the adequate realism of budget estimates. - Ensuring a minimum cash-planning capacity underlying the cash-release system. - Assessing the feasibility of putting in place arrears-monitoring mechanisms. - If these elements cannot be met, redirect TA toward removing impediments to establishing a comprehensive CCS. ### Three priority areas for enhanced coordination with medium-term capacity-building efforts (1) Introduction of MTEFs - FAD support should be selective: - For countries where MTEFs strain capacity, provide “nuts-and-bolts” TA to form the sound basis of an MTEF: - Develop macroeconomic policy and analysis. - Improve budget classification. - Assist in integration of recurrent and development budgets. - For countries where MTEFs are more viable, focus on ensuring the realism of the macroeconomic envelope. (2) Support of IFMISs - FAD support should be limited to early stages of lengthy projects; require judgment that preconditions for success exist and have a well-defined exit point. - Focus on design and test stage (including pilot implementation) to ensure sound functionality. - If preconditions are negative, engage country authorities and sponsor-donor(s) to address impediments and protect existing systems. (3) Modernizing the legal framework - Direct advice to ensure the adopted budget process in revised legislation is realistic relative to administrative capacity. - Press for required institutional changes to make legislation effective. ### Selective involvement in new PEM areas (conditions and candidate areas) - Conditions for FAD involvement in additional PEM areas: - Urgent and strategically important to macroeconomic goals (e.g., PRSPs). - Firm country ownership demonstrable. - No other donors filling critical TA gaps. - Candidate areas for potential more extensive TA: (1) Decentralization issues (focus on Fund program needs): - Ensure intergovernmental relations allow efficient execution of expenditure responsibilities and protect macroeconomic management. - Allow countries to meet HIPC-reporting commitments. - Ensure a consolidated budget in a standard format can be constructed. - Rationalize and standardize financial management at subnational level. - Ensure regular in- and end-year reporting from subnational governments. - Ensure adequate data reporting and procedures to determine and execute central transfers to subnational levels. - Note: FAD can only expect minimal direct input at subnational level given resources. (2) Internal audit: - Clarify and strengthen internal audit tasks. - Introduce supporting institutional arrangements. - Restructure work practices to increase audit effectiveness. (3) Debt management, especially for HIPC countries: - Assure effective organizational consolidation of debt and aid functions and restructuring of tasks. - Create an integrated database to track all loans, including on-lending, from agreement through debt service payments. - Use such a database to promote debt management skills (debt contracting; risk analysis; improved controls, especially on on-lending; guarantees; commodity aid; and reimbursements). ### Concluding observation - The approaches imply more regular interaction with client countries to diagnose emerging problems and provide focused interventions before crisis. - Effectiveness requires coordination with other providers and nesting TA in an overall country TA strategy with demonstrable country ownership. - Some adaptations will raise costs; given resource constraints, greater selectivity is likely—assisting fewer countries but with a larger commitment to each country served. *Source: Box 9. HIPC Expenditure Tracking Assessment and Action Plans (_cr0667).* ### References ### _cr0667 - References ### Public financial management and reform - Allen, R., S. Schiavo-Campo, and T.C. Garrity, 2004, “Assessing and Reforming Public Financial Management: A New Approach” (Washington: World Bank). - Craig, J., 2002, “Improving Fiscal Data Quality” (Washington: International Monetary Fund, Fiscal Affairs Department). - Diamond, J., 1994, “The Role of Internal Audit in Government Financial Management: An International Perspective,” Working Paper No. 02/94 (Washington: International Monetary Fund). - Lienert, I.C., and F. Sarraf, 2001, “Systemic Weaknesses of Budget Management in Anglophone Africa,” Working Paper No. 01/211 (Washington: International Monetary Fund). ### Fiscal stress, structural adjustment, and fiscal performance assessment - Diamond, J., 1996, “Fiscal Stress and Structural Adjustment,” Policy Studies and Developing Nations, Vol. 3. pp. 45–68, JAI Press. - Gupta, S., M. Plant, B. Clements, T. Dorsey, E. Baldacci, G. Inchauste, S. Tareq, and N. Thacker, 2002, Is the PRGF Living Up to Expectations? IMF Occasional Paper No. 216 (Washington: International Monetary Fund). ### Decentralization, aid, and medium-term frameworks in Africa - Brosio, G., 2000, “Decentralization in Africa,” paper presented at the Conference on Fiscal Decentralization (Washington: International Monetary Fund) November 20–21. - Devarajan, S., D. R. Dollar, and T. Holmgren, eds., 2001, Aid and Reform in Africa: Lessons from Ten Case Studies (Washington: World Bank). - Le Houerou, P., and R. Taliercio, 2002, “Medium-Term Expenditure Frameworks: From Concept to Practice—Preliminary Lessons from Africa Region,” Working Paper No. 28 (Washington: World Bank). *Source: _cr0667 - References* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr0667.pdf_