Lesson 6 - Pefa Framework
Lesson 6 - Pefa Framework
LESSON 4
PUBLIC EXPENDITURE AND FINANCIAL ACCOUNTABILITY
Lesson Outline
• In this lesson we will:
– Elements of PFM system
– Purpose of PEFA
– PFM outcomes
– Pillars of PFM
– PEFA methodology
Concept of PFM
• Public financial management system is a system
through which government achieves economical,
efficient and effective use of public resources in a
sustainable manner.
• PFM involves five stages
–Fiscal planning and budgeting
–Budget approval
–Budget execution
–Accounting and reporting
– External scrutiny and Audit
Concept of PFM
• Public financial management system comprise
several sub-systems that function in an integrated
manner.
– Legal systems
– Budgeting systems
– Revenue system
– Expenditure management system
– Procurement systems
– Payment systems
– Payroll systems
– Accounting and reporting system
– Auditing systems
What is PEFA?
• Public Expenditure and Financial Accountability
(PEFA) is a framework developed for assessing
the status of public financial management at
central and local government levels of
government.
• A PEFA’s assessment provides a thorough,
consistent and evidence-based analysis of
PFM performance at a specific point in time.
Development of PEFA
• The development of PEFA is predicated on the
international recognition of the critical role of PFM
in public service delivery.
• PEFA program was initiated in 2001 by seven
international development partners:
– The European Commission,
– International Monetary Fund,
– World Bank, and
– France,
– Norway,
– Switzerland, and
– United Kingdom
PEFA Framework
Pillars of PFM
• PEFA is built on Seven Pillars
– Budget reliability.
– Transparency of public finances.
– Management of assets and liabilities.
– Policy-based fiscal strategy and budgeting.
– Predictability and control in budget execution.
– Accounting and reporting.
– External scrutiny and audit.
Pillars PFM
• Management of assets and liabilities.
Effective management of assets and liabilities ensures
that public investments provide value for money, assets
are recorded and managed, fiscal risks are identified, and
debts and guarantees are prudently planned, approved,
and monitored.
• Policy-based fiscal strategy and budgeting.
The fiscal strategy and the budget are prepared with due
regard to government fiscal policies, strategic plans, and
adequate macroeconomic and fiscal projections.
• Predictability and control in budget execution.
The budget is implemented within a system of effective
standards, processes, and internal controls, ensuring that
resources are obtained and used as intended
Pillars of PFM
• Accounting and reporting. Accurate and
reliable records are maintained, and
information is produced and disseminated at
appropriate times to meet decision-making,
management, and reporting needs.
• External scrutiny and audit. Public finances
are independently reviewed and there is
external follow-up on the implementation of
recommendations for improvement by the
executive.
Indicators of PFM
• PEFA measures the pillars by 31 indicators
which are scored based on certain dimension.
• The indicators are measured by:
– one dimension,
– two dimensions,
– three dimensions or
– four dimension.
Methodology
• Weakest Link Method ( Method 1)
– This method is used for multidimensional indicators
where poor performance in one dimension is likely
to undermine the impact of good performance on
other dimensions of the same indicator. In other
words, this method is applied where there is a
“weakest link” in the connected dimensions of the
indicator
Methodology
• Average Method (Method 2)
– The aggregate indicator score awarded using this
method is based on an approximate average of the
scores for the individual dimensions of an
indicator.
– This method is prescribed for selected
multidimensional indicators where a low score on
one dimension of the indicator does not
necessarily undermine the impact of a high score
on another dimension of the same indicator.
Example of Scoring
Table 3: Scoring of Dimension of an Indicator
P1-1: Aggregate expenditure outturn
Score Minimum requirements for scores
Aggregate expenditure outturn was between 95% and 105% of the
A approved aggregate budgeted expenditure in at least two of the last three
years.
B Aggregate expenditure outturn was between 90% and 110% of the
approved aggregate budgeted expenditure in at least two of the last three
years.
C Aggregate expenditure outturn was between 85% and 115% of the
approved aggregate budgeted expenditure in at least two of the last three
years
D Performance is less than required for a C score.
Assignment on PEFA
• Obtain the PEFA 2018 Report and compare the
PFM performance of Ghana with any country
of your choice (Justify your choice) on each of
the 31 indicators.
• Write your report on your appraisal.
• Submission deadline: 29th March, 2023.
Trial Questions
• Explain the purpose of PEFA framework.
• Explain the three outcomes of an orderly and
open public financial management system.
• Explain the seven pillars of PEFA.
• Explain the two scoring methodology of PEFA,
• A country scored A, C, C on three dimensions of
an indicator. Compute the score of the indicator
using both Method 1 and Method 2.