Fiduciary Risk and Poverty Reduction Budget Support

[Martin Johnson]

If fiduciary risk is judged to be high and / or if the risk of corruption is judged to be high, how do we assure the international taxpayer that Poverty Reduction Budget Support (PRBS) - i.e. providing lots of money to the consolidated fund of a government partner to be budgeted, expended, accounted, reported, audited and scrutinised through government systems - is a good thing?

[petagny]

We can't assure the taxpayer that it's a good thing. Or am I missing something?

[Martin Johnson]

If we can't assure that it's a good thing, then why are we doing it?

[atseacliff]

I'm not sure who the international taxpayer might be; however my opinionated London cabbie (we'll call him Reg) might be a useful barometer of public opinion. For him the local policeman taking a group of kids to re-build a school Rwanda is worthwhile. Gordon Brown providing (pushing) large amounts of UK taxpayers money to prop up corrupt regimes in Africa - less so (I'm being polite!)

A more nuanced view would be that we (donors and consultants alike) are committed to support some of the poorest countries in the World. Unlike the situation 10 years ago we prefer to do that with our eyes open to the realities of weak systems; and support governments who can demonstrate that they are serious about incremental improvements over the medium to long term. In the short term we insist on greater transparency and the encourage civil society and mass media to participate in the budget process. We also diversify our reputational risk through the use of a range of aid instruments - supporting for example community driven development and micro finance projects.  In this brave new world we recognize bad things happen but demand governments investigate evidence of corruption with our support. Finally where the countries political elites back-slide on their commitments, we scale back budget support operations and are more selective in our entry points.

You all know a Reg. He doesn't buy any of what I said in the last paragraph. I usually attempt to placate him further with a sentence or two about the importance of addressing aid dependency.  That issue is for another posting. 

[petagny]

Martin didn't say anything about the government being 'serious about incremental improvements'. We all know cases of BS recipients where that seriousness is seriously missing.

There have to be some minimum standards. Sometimes these will be arbitrary and have some perverse incentives -  but there you go! How about having a 'budget' as a good starting point. I mean a budget in a meaningful sense, i.e., an annual expenditure plan that gets implemented more or less (wide, but declining, margin of error allowed) as the legislature intended. Once a government has shown it can do that over a 3-year period, then we can talk. Oh yes, and it would be nice if the legislature had some sort of mandate from an electorate that had had the opportunity to vote for a choice of candidates (again, recognising the inevitable imperfections).

Reg is likely to become more vocal as 'fiscal consolidation' bites and he sees more potholes being unfilled and teaching assistants being withdrawn from his kids'school. Doesn't he have as much right to be taken as seriously as civil society in the recipient country?

[harnett]

Not sure a meaningful budget would placate Reg - or me.  Even a meaningful budget can mask systemic corruption. 

[Napodano]

It may be a bit off-topic, but what do you make of donors's policy matrices and financial agreements to try and link budgetary support to PFM conditionalities?

In some countries I have seen negotiations with Governments on those policy matrices that lasted for months.
I had the impression that the policy matrix had become the goal rather than a sound PFM system!

Any experience of a good negotiation donors-Government and a meaningfull policy matrix?
What do you think of conditionalities that are SMART, i.e. quantifiable to make them really monitorable and not open to political bending?

[pc]

Contrary to what is suggested or recommended by contributors to this discussion I do not consider that corruption should deter donors from providing budget support.

Pouring money into the Treasury legitimates donor claims to have a look into public finance management, and allows them to link disbursement of their aid to tangible progress in this area. It therefore gives them a possibility, which they don’t have when providing project aid, to fight corruption from inside the system.
 
For sure, providing budget support to a country plagued with corruption (is there so many clean countries? Mine – France – is not, as demonstrated by ever renewed political scandals) will result in some part of the aid resources distracted to private pockets. But is the objective of aid that donors’ money is well managed or that public money, whatever its origin (foreign aid or tax and non-tax revenues), is better managed? If budget support gives donors a tool to promote improvements in the management of public resources (notably public procurement) and thus to reduce corruption, then it is worth accepting that some part of this aid is misused.

[John Short]

Absolutely.  There would be no budget support at all and to take your analogy further taxpayers should not pay any tax where there is corruption.  Fiduciary Risk Assessment  re corruption is about looking at what steps are being taken to combat corruption in the context of corruption perceptions rather than ensuring that there is no corruption as a precondition to budget support.  If in addition national systems are effective and efficient and cannot be (easily) manipulated, then the risk is further mitigated.  That is why there is often TA associated with budget support to work on addressing improvements from within.  But if only zero corruption means budget support, then there will be no budget support! 

[petagny]

It's a question of degree isn't it? There are some countries where there is no chance of budget support being a lever for PFM and other reforms: the political-economic context is just so much more complex than donor-recipient relations. It's not clear that donors are yet very good at distinguishing such intractable situations from others, where there are genuine opportunities for pushing things forward. There is still far too much emphasis on getting the money out the door (or on satisfying political rather than developmental objectives): budget support for the Central African Republic - I ask you! To suggest that donors should be seen to be giving it a go everywhere - 'we owe it to these countries' - seems too much in the Bob Geldof school of development policy.

[Sotiraq Guga]

I was several times in Brussels over the last months and in some way got involved in some internal and external discussions at EC (which are going on for a while now) with regard to the delivery mechanism of the EU assistance to "developing" and "accession" countries for the next round of EU budget cycle 2014-2021 (if I am not wrong for the latest figure). EC has commissioned some "assessments" on the related past experiences on the subject. 

There are different ideas under consideration by EC for the moment.  But there seem to be two “dominant recommendations”. First, EC assistance to “developing countries” for the next EU budget cycle should be delivered through “budgetary support” schemes (where DFID model in some part of the world seems to be applauded) and, second, for the EC assistance to the “accession countries”, in particular the Balkan countries, but at some point including also ENPI countries (external border of future EU with former Soviet countries as well as middle East and North Africa), priority will be given to “twining mechanisms”. On the latest there is an evaluation that EC has commissioned on the Balkans (Europartners Development is also involved) which is evaluating effectiveness of technical assistance versus twining in accession countries.  The report is expected to be out soon, there are some interesting findings.

On the other hand, the EU Delegations in the accession countries are already instructed by Brussels that as of IPA 2011 programming, any possibility of using “Twining” as a delivery mechanism should be given priority versus classical TA schemes. It seems like bad news for consultants. However the good news is that the certified national bodies eligible to apply for Twinning can, since a some years now, hire also independent consultants to implement their projects. I am personally involved in a Twining project in Kosovo implemented by Dutch and UK Governments, as part of a reasonably big team and I can hardly remember of any of the expert coming directly from Member States public institutions. All the team of over 15 consultants are free lancers. 

Overall, if the present thinking gets approved by the Parliament and so on, there is a rough estimation that the EC funded TA contracts around the world will be reduced by 70% for the next EU budget cycle. So, good luck looking with changes in your careers over the next coming years. There is already some lobby against it from some well placed TA companies putting pressure to EC through the Member States, to reconsider this position. Let`s see.     

[STONE]

PC is right, BS is there to get a voice/influence ( I think the donors call it dialogue and some, alas, use the term dialoging) so that the system is improved.  They know that project support doesn't improve systems.  They struggle a bit with the issue of fungibility but now seem to like BS.  Certainly it is a good way of getting money out the door to meet % of GNI targets.  What seems to be problematic is what should be done if there is not sufficient progress or the seriousness begins to decline?  One option is to cut BS in the future.  Ideally below the pre-announced amounts in the MTEF ((assuming that BS is set out in the MTEF (anyone know of examples where BS is programmed for three years ahead?) actually 4 if one is doing the MTEF properly).  So when in year t seriousness is perceived to have been lacking does one cut the next year's flow ( and mess up the MTEF) or does one reduce the next year 3 of the MTEF?  What is the intended effect?  Anger in Parliament with the Government for lack of seriousness (When is the next election?)  Will Reg be assured? 

[STONE]

Will Reg be satisfied by this..?

The UKaid Transparency Guarantee
The UK Government Aid Transparency Guarantee states that:

We will publish detailed information about all new DFID projects and programmes on our website, in a common standard with other donors.

Information published will be comprehensive, accessible, comparable, accurate and timely.

Information will be published in English and with summary information in major local languages, in a way that is accessible to citizens in the countries in which we work.

We will allow anyone to reuse our information, including to create new applications which make it easier to see where aid is being spent.

We will provide opportunities for those directly affected by our projects to provide feedback on the performance of projects.

We will also push for full transparency across the international aid system by:
 requiring, over time, any civil society organisation that is in direct receipt of DFID funds to adhere to similar standards of transparency and accountability, and pushing multilateral organisations to do the same. This means that UK taxpayers will be able to better see where their money is being spent.

Pressing other donors - bilateral, multilateral and non-traditional - to adhere to similar standards of transparency as set out in the International Aid Transparency Initiative (IATI) This will make it much easier for people to see all the aid from all donors, and get a full picture of the aid being spent in each country.

Using our influence to encourage developing countries which receive UK aid to become more transparent to their own citizens about their budgets and the aid they receive.

[STONE]

Back to the original question, but first things first.  What is Budgetary support?  Some board viewers might not know...

In 2008 the UK National Audit Office, the body that reports to the UK Parliament on the use of public money, did a review of the UK's budget support.

They explained budget support as...

"aid provided directly to a partner governments central exchequer in support of that governments programmes. It is accompanied by other inputs, in particular support to strengthen government systems and discussion over policies. Budget support is spent using the partner governments financial management systems. It aims to reduce poverty through helping to fund the poverty reduction strategy of the beneficiary country. DFID and many other donors and aid experts consider that budget support can help to strengthen developing country government capacity, increase donor harmonisation, expand service delivery and ultimately assist in poverty reduction. DFIDs use of budget support has increased from 268 million to 461 million over the past five years. It now represents nearly twenty per cent of DFIDs bilateral expenditure and is likely to increase further in future years provided circumstances in the recipient countries permit.

http://www.nao.org.uk/publications/0708/providing_budget_support_to_de.aspx, from today

Could someone sticky this or some other definition at the top.

[STONE]

Now call me old-fashioned, but isn't it the case that it is the role of the Supreme Audit Institution (SAI) (the UK NAO is an SAI) to provide Parliament and hence voters that the Government has used public money, approved by Parliament, well and wisely.  So what do UK voters ( who may or may not be tax payers, but are certainly public expenditure beneficiaries) get as assurance.?

Well in 2008 and since they might have read that: 

Budget support has:

often enabled partner governments to increase expenditure on priority areas;

resulted in partner governments providing more services, particularly in health and education;

helped increase the capacity of partner governments to plan and deliver services effectively and to develop better poverty-focused policies;

helped partner governments to strengthen their financial management systems and encouraged other donors to support such reforms;

facilitated donor alignment to, and support for, the developing nation’s own strategies;

and

reinforced existing economic stability and good economic management.

http://www.nao.org.uk/publications/0708/providing_budget_support_to_de.aspx

[STONE]

But then we read on to learn that

"...challenges remain:

service expansion has often been at the expense of service quality;

progress in strengthening financial management systems has been slower than expected;

and

DFID and other donors expect budget support to reduce the transaction costs of administering aid, but have found it difficult to quantify these costs."

Also

"Budget support can also improve domestic accountability by increasing the proportion of development expenditure reflected in government accounts and therefore increasing the potential for scrutiny by domestic stakeholders. In complementary projects to budget support, DFID also assists parliaments, civil society organisations and State Audit Institutions to improve domestic accountability. (As John Short observed) In many countries, however, these institutions are not yet fully effective."

[STONE]

It then goes on and addresses Martin Johnson's question...

"On assessing the risks of budget support (Part 5 of the big report)

"... there is scope for DFID to sharpen its estimates of the significance of weaknesses for potential inefficiencies or leakage, and to set out more clearly the extent to which UK and other funds are at risk.

DFID analyses country circumstances and systems well ... (b)ut it is weaker at documenting evidence of its overall assessment of the risks of budget support against the benefits or comparing the costs and benefits of budget support with other types of aid ... it will need to link more clearly its assessment of risks and benefits to the design of budget support programmes and the amount committed."

[STONE]

So what is to be done?  NAO recommends...


 "to help DFID improve its appraisal and management of budget support, and to judge better the value for money provided. (More detailed recommendations are at Appendix 2 of the big report).

DFID should always set out clearly its precise objectives for budget support programmes, specifying exactly what it expects to achieve and by when.

DFID should build on its current monitoring arrangements to make sure that for each budget support programme it can systematically assess progress against its objectives.
...

DFID should, together with its partners, further strengthen its risk assessments and analysis of developing country government systems. Specifically, it should make more explicit its judgement of the significance of system weaknesses for potential inefficiencies or leakage of aid in the recipient country (italics added see next bit for why). It should use more quantified estimates of these factors where possible. It should use this information to tailor appropriate safeguards to mitigate risks.

DFID should improve its analysis of the prospects for using budget support by:

formalising appraisal of options which vary the proportion of budget support in a country programme;

formalising appraisal of options for using alternative forms of aid; and

bringing together the risks and benefits of each option to facilitate comparison.

http://www.nao.org.uk/publications/0708/providing_budget_support_to_de.aspx

[STONE]

Back to the italics...
"it should make more explicit its judgement of the significance of system weaknesses for potential inefficiencies or leakage of aid in the recipient country"

I have just put in bold the really key point.  Who's judgement?  I am aware of a very interesting story about how one donor makes risks judgements.  It is particularly interesting in the light of Sotiraq Guga's comment that with EU budget support growing, following DFID's exemplary (?) lead, then consultants might have less work to do.  The story suggests that consultants or TA might be being asked to do too much.  The story requires some work to make it suitable for wider consumption and might best be put under donor practices (or can we cross-post?).

Sorry for the spacious posting but I know I don't always read the attachments in posts.

[STONE]

j'admets que tous mes reponses a la question initiale present un point de vue britannique, est-ce qu'il ya d'autres experiences parmi nous? (desole pour les accents)

Ich gebe zu, dass alle meine Antworten auf die erste Frage war ein britischer Sicht, gibt's es noch andere Erfahrungen?

[petagny]

Stone has offered a useful definition of budget support.

Some of our PFM Board readers may be asking what the difference is between general budget support (GBS) and sector budget support (SBS) . As far as I am aware, there is no difference in terms of the manner of the resource transfer; the difference comes in the nature and level of the policy dialogue that accompanies the transfer.

This does not always seem to be well understood, even by recipients some of whom continue to operate as though SBS is an earmarked transfer and establish distinct organisational arrangements for managing it (thus defeating one of the advantages of budget support).

Some donors (e.g. EU and the Netherlands) are intending to move away from GBS and increasingly towards SBS. One suspects that one of the reasons is that they are banking on their constituents not fully understanding the similarities and differences, and hoping to create the illusion that they are being stricter on countries where there are doubts concerning progress on the political criteria (corruption, human rights and governance) usually associated with GBS: SBS is easier to 'sell' than GBS. To me giving SBS to a rotten government seems no different from giving GBS.

In fact, rather then being a different instrument, the 'SBS' title might be seen as more of an acknowledgement of the intractability of progress on the cross-cutting political criteria in some countries and a hope that a productive policy dialogue can at least be achieved at the sector level. I think Reg would understand this.

[Martin Johnson]

All very interesting stuff from my colleagues Stone and Petagny. Thank you. So let's follow up on a bit on GBS and SBS ....

GBS associated with DFID (in its latter form of PRBS - Poverty Reduction Budget Support) and SBS actually form a kind of 'pincer movement' in terms of instruments to influence poverty and governance outcomes. PRBS per se provides fungible resources to the Government budget. These resources by themselves may be directly translated into a net increase in pro-poor spending or they may be treated as a financing item subject to the constraint of a given pre-planned level of pro-poor spending (one hopes and assumes, at the very least, that PRBS is not followed by a net fall in pro-poor spending!). But this is not part of the pincer movement to which I am referring ....

.... a PRBS arrangement is closely linked with a Development Partnership Arrangement (DPA) which formalises a shared commitment (between DFID and the government concerned) to three broad objectives: reducing poverty (and achieving the MDGs); respecting of international human rights; and strengthening financial management and accountability. This then facilitates the preparation of a matrix of government commitments in each of these three areas. Whilst this is intended to nudge outputs and outcomes further with regard to poverty reduction (and other DPA objectives), this is still not part of the pincer movement to which I am referring ....

.... the signing of DPA's often takes place at the highest level (PM to PM). Preparatory discussions with the government with regard to the matrix of indicators will take place at mid to senior levels in the government (e.g. DFID advisers and key centre of government staff) and the finalisation of the matrix will typically be at senior levels (e.g. Head of a devolved DFID office or above and Secretary of Finance). Monitoring achievement against indicators provides further scope for interaction and often opens the door for further productive interaction in the form of technical advice and capacity building fo facilitate the achievement of indicators.

At last ... this is one part of the two pronged approach to which I am referring.

What DFID has been good at doing over a number of years is developing, maintaining and nurturing mature and productive discussions with mid to senior level centre of government staff - the staff that advise policy-makers and decision takers and the staff who often have considerable influence over policy implementation. These are the kind of working relationships that develop and grow over time. They cannot be easily bought by just turning up with a big aid budget. It is this access and respect at the centre of government that provides DFID staff with an opportunity to influence centre of government decisions with regard to government policy, plans and budgets at sector level. It is the first part of a two-pronged approach which provides access and opportunities that would not necessarily come by itself quite so quickly or easily to the second prong of the approach - sector level interaction and the SBS associated with this.

So ... GBS and SBS may be mechanically the same as Petagny notes (deposit of pounds with central bank; conversion to local currency and transfer of same to consolidated fund), with different restrictions put on their use (fully fungible for the former; restricted fungibility with regard to the latter, depending on the nature of the agreed additionality). But they can and should be complementary in a well thought through and strategic approach to aid delivery.

[Reg]

'Allo!,

 I had that atseacliff in my cab the other day.  We was chatting about the state of the world and all that, as we do, and he's going on about how PFM reform is a good thing, as he does.  So I asked him "what's PFM then?" and he says "its 'Public Financial Management'" so I says "oh yes!"as you do, 'cos he's obviously an educated bloke and gets all over the place - lots of runs to airports, so I can tell, you know?  Now, I can't say I was immediately enlightened, but as he knows what he's talking about, well most of the time anyway...  I thinks 'mmm, perhaps I should get to know a bit more about it'.  So I ask him, "what's all that about then?".  He says, "sorry I'm getting out here, but check out the PFM Board on the internet".

Now, as you know, we cabbies (taxi drivers in London - you're a multinational lot aren't you?) are no slouches, and I have got one of them smart (sic) phones with internet access an' all that  and when I'm waiting for a fare I go online and broaden my mind.  We cabbies do that, some of my mates were on Mastermind. Anyway, where was I?  Oh yes, atseacliff... didn't know he was called that..., yeah so I had a look at this PFM Board site and had a look around and then found my name..........

So about the site, first.  Interesting stuff, but couldn't see what PFM is, I'll have another chat with 'At' when he's next in the cab.

Then about me...

As I see it I'm an 'international taxpayer'.  Fair enough.  I'm assured about the Rwanda school thing, but 'At' is right about those corrupt governments, but aren't  all governments a bit corrupt?, or is that me being opinionated?  My cabbie pen pal from Paris, let's call him Pierre-Charles, was telling me only the other day, (using that nice VOIP company we all know) that 60 per cent of his lot thought their Government was corrupt in 2006.

'At' was right about his 'previous paragraph', not placated at all, but I do look forward to being more so about aid dependency... PFM Board forthcoming, I guess.

Petagny is certainly right: not happy about potholes, show me a cabbie who is, and the kids did like their teaching assistants, but when I was a lad we just had the teacher an it never did me any harm.  And, yeah, sure I do have as much right as any civil society 'cos it seems to me I'm paying too, you know, doing my bit. Happy to do that: that DFID Minister what's-his-name? yeah, Mitchell, he was in my cab only the other day and he said it was in my best interests to give money to poor people in other countries.  He went on a bit, said he was rehearsing a speech... you know the one he did at Oxfam

http://www.dfid.gov.uk/Media-Room/News-Stories/2010/Mitchell-Full-transparency-and-new-independent-watchdog-will-give-UK-taxpayers-value-for-money-in-aid/

Best bit was when he says to the likes of me...

“To the British taxpayer I say this: our aim is to spend every penny of every pound of your money wisely and well. We want to squeeze every last ounce of value from it. We owe you that.

Fair enough.

“And I promise you as well that in future, when it comes to international development, we will want to see hard evidence of the impact your money makes. Not just dense and impenetrable budget lines but clear evidence of real effect.”

Yeah, that's what I said to 'At' - "show me the clear evidence that there's a real effect of this budget support".  Not so happy about the 'in the future (...), we will want to' bit, why didn't we want that before? Anyway the  guarantee STONE put up is a bit more of an assurance.  I'll be looking out for that accessible information - will there be an "app" for that?  Can't say I'm assured by STONE's stuff about MTEF's.  Is that something to do with PFM?

Oh well, got to go, some fare wants to go to Bangui to assess their budget support.  I told him it's more than 6 miles from Charing Cross, so we've settled for Heathrow - good hub that Heathrow, except when its snowing.

Cheers, "Reg"

PS "Reg" is an atavar, me Mum calls me Reginald.

PPS  So what's so formidable about Jim Mirlees? I had him in the cab the other day, seemed like a good bloke, couldn't tell me why we have all them taxes in the first place, though.

[Reg]

'Allo, it's me again,

You're not a chatty lot are you?  Still it's Saturday night and I guess you're doing other things.  (It's a bit slack just now  for me, all the punters are in the pub.)

Anyway, I was chatting with Pierre-Charles, my taxi "chauffeur" mate from France, an' he was saying that he'd read my bit on the pfmboard and had done a bit of searching 'imself trying to find something like our Mitchell's guarantee on aid well spent.  He's found some useful stuff on a site about the Agence Francaise de Developpement (or somesuch; me "O" level french only goes so far...) (Pierre-Charles' did better with 'is BAC, I guess - I hear the kids have got those here now...).  Anyway he says he'll "share" it with me in more detail, later.  But the best bit is, and what is relevant for this bit of the site, is that they have a thing which deals with corruption and what to do about it, when you're an aid agency.

Pierrot (yeah it's only his mum what calls him Pierre-Charles), he says this AFD lot do this thing called a citizen-dialogue.  Something about talking to people about this aid thing and its effects.  He sent me the link...

http://www.afd.fr/jahia/Jahia/home/AFD/redevabilite-dialogues/dialogue-citoyen

Anyway one of their things is a debate with people like me and they had one "on should one help corrupt states?".  Well I thought "well, that's right up the PFMBoard's street!", so I thought I'd let you know, share it, like, as you people seem to say.  So Pierrot sends it to me.  It's in French.  Pierrot said he'd only mess up a translation, 'cos of his poor BAC.  He says the main bit is quite interesting, but the conclusion is short, if a little daft.  Anyway, I put it through me google translator (wish we'd had smart phones an' google when i was doing me "O" level: I'd be in the back of the cab then, wouldn't I?) an' it comes up wiv this.

Conclusion: Faire vivre son système de valeurs
Ainsi, la lutte contre la corruption amène nécessairement une réflexion sur l’éthique et la transparence. Toute organisation, nationale ou internationale, gouvernementale ou émanant de la société civile doit faire vivre son système de valeurs en comparant sans cesse la situation réelle aux valeurs qu’elle affiche.
http://www.afd.fr/jahia/webdav/site/afd/shared/L_AFD/L_AFD_s_engage/documents/CR_Forum_debat_13_avril_2010_Etats_corrompus.pdf  (Page 6)


GT that an' you get
Conclusion: To support its value system
Thus, the fight against corruption leads necessarily [to] a reflection on ethics and transparency. Any organization, national or international, governmental or from civil society needs to support its value system constantly comparing the actual situation to the values it displays.


(I did the square brackets - got English "O" level too..)

Not sure that did full value on "faire vivre": ( seems more cheaper than really useful) reckon it's about more like "apply" or "realise" or "express" than just "to support".  I wonder if your mate Franck B can 'elp 'ere?

Anyway, I thought it was interestin'  I'll have a chat wiv me mates Carlo-Pietro and Karl-Peter and see if they can help with how their lot deal with the problem.  I'd ask  تشارلز  بيتر only he's gone on holiday 'cos he says the traffic's terrible and he only gets one way rides to the square.

Must dash, there's a punter...

Tata,

Reg.

[Martin Johnson]

Does that Reg know anything about PEFAs? After having got my 'o' level in economics (eventually), that DFID let me do some FRA work. Along the way recently, one of their partners asked a question that somehow came to me. It was ....'What does it mean if this report [FRA] will be more negative about fiduciary risk than the PEFA? Not sure what Reg would make of it (or that PC or that Atseacliffe bloke), but this is what I said:


First things first, the PEFA does not address fiduciary risk. It provides a snapshot of the performance of PFM systems at a given point in time.

If the question really means 'what if the FRA comes up with a different view of PFM performance than the PEFA does', then that is a different matter.

On the whole, the PEFA and the FRA should come up with a similar view of PFM performance given the relatively short period of time between each exercise. You will have observed from the FRA draft it is indeed the case that there is little or no difference between the assessment of performance in the PEFA and the initial draft of the FRA. It is of course possible for there to be some differences between assessment of PFM performance in the two documents for a variety of reasons.

Despite the short period of time, there may well have been reform progress (or even regression) in some areas compared that reported in the PEFA. Where there is sufficient evidence for this, it will be reported in the FRA and there may be a difference in performance compared with the PEFA as a result.

It is also entirely possible for new information to be available to the FRA team that had not previously been available to the PEFA team. Where this is the case, it may result in some slightly different interpretation of performance in particular areas which could imply some difference between the reports.

Moreover, guidelines for the FRA quite correctly require any gaps in information to be addressed. Sometimes there are some gaps. If it is possible for the FRA team to access data and information to address any such gaps, this could also imply some difference between the reports.

Will there be any major differences? Will there be lots of minor differences? In most cases the answer will be no in each case. The PEFA is a well-researched and largely well-evidenced report. It would be unusual, therefore, if the FRA interpretation of PFM performance does not turn out to be very close indeed to that of the PEFA. If there are any minor differences, they will be evidence based.

The overriding point, of course, is that the PEFA is a snapshot of PFM performance whereas the FRA presents a judgement on fiduciary risk based on evidence of performance. The PEFA provides a lot of the information on which fiduciary risk will be assessed (though not all information), but it is the FRA that assesses risk per se.

[Martin Johnson]

Blow me down with a feather, but didn't they then go and ask another question .... 'Which report has the highest standards of quality [PEFA or FRA?'

Maybe that Reg knows .... but this is what I said:

I think the question might be missing the point. These are not two independent and competing assessments of PFM performance or fiduciary risk. The PEFA deals primarily with PFM performance and goes through a robust quality assurance procedure. That is not to say that errors of fact or analysis do not ever sneak through the quality control process (which common sense would suggest, but which one can confirm if one speaks with PEFA Secretariat officials about this, as I recently had cause to do). But on the whole they do not. This is the reason why the FRA takes the PEFA analysis as its starting point and builds the FRA around its findings. As a result, the FRA benefits from the PEFA quality control process and incorporates those benefits in the FRA. As noted above, it is entirely possible for there to be some relatively small differences in analysis of performance between the two reports, mainly where there is additional information available to the FRA report. Once the FRA is complete, it too goes through a dedicated quality control process at DFID, similar in many ways to the PEFA quality control process.

[Martin Johnson]

And then didn't they go and ask a third question ........ 'What would be the policy implications of a high risk assessment?'

Well, in the absence of Reg, I had to answer this myself as well ...


"The whole point of the FRA is to identify risk and then to manage risk. If there are relatively high risk areas, the important point is to be confident that you have a government partner that is serious and that is prepared to work with you to prioritise the management of risk in such areas. If this is the case, then there is likely to be medium to long term investment requirements from all parties to lower the level of risk in a sustainable manner that is consistent with the natural development of government PFM systems. In some cases, there may also be reason to introduce temporary and short-term risk management measures that do not necessarily contribute to a strengthening of government systems per se but that do provide some short-term assurance that risk is being managed. This is all explained clearly in guidance presented in the DFID How To Note.

There is also some revised DFID FRA guidance that will soon be published that puts emphasis on country offices owning the FRA and proactively using its findings throughout the work of the relevant office. This ultimately means that DFID (and relevant partners) staff have to decide what it is they do in response to any aspects of high risk that drop out of the assessment. This has probably been one of the weaker areas in what is otherwise a robust FRA process and it is the reason why it is now referred to specifically in the revised guidance for FRAs. It is part of the process of DFID staff taking ownership of the risks identified in the FRA and determining how to respond to those risks. Whilst the FRA will make proposals for how part of the response should be handled (e.g. likely risk mitigation measures), ultimately it will be up to DFID (and partners) to determine how that response becomes integrated in DFID programmes, including arrangements for monitoring risk going forward."

Does that Reg ever use the Clapham Omibus by the way?

[harnett]

All very illuminating Mr Johnson. 

All the analysis is fair enough if there is a "serious" partner, but in our field of work we sometimes wonder how serious the partner is and whether such analysis is overtaken by realpolitique (or politricks as the Jamaicans call it).  We have both recently been in an African country where it seems apparent that the governement is not serious but this message is not formalised and BS continues despite corruption and a minimal pace of reform.

Methinks that the example of Pakistan would be very informative if you could share (or is it classified?).  My hunch would be that BS in Pakistan would be high risk, exacerbated by billions of US aid without conditionalities, rendering the DFID Support relatively smallscale and therefore providing little incentive for the government to "jump through DFID's hoops", but more a case of agreeing and nodding in the right places but little substantive change.  The question then becomes whether Pakistan is classed as "a government partner that is serious" - but then even if the conclusion is that it isn't - is it possible to say this and retire gracefully given the political/military considerations?. 

[John Short]

The PEFA Secretariat has produced a new guidance in relation to using PEFA for FRA.

Overview

Fiduciary assurance from a development partner lens is the process that involves assessing the fiduciary risk of financial support not being used for the proper intended purposes and that lead to the decision on degree of reliance on existing country systems to ensure achieving of development objectives of the financial support provided. For doing such assessment the development agencies have in place different methodologies aligned with the institutional consideration of fiduciary risk and identification of mitigation measures that may include identification of actions for strengthening such systems and institutions.
PEFA assessments have been used as input for the fiduciary work with variations in different aspects. As a matter of fact, PEFA Secretariat recently developed and launched Guidance on how to use PEFA for fiduciary assurance (“Guidance”) with the objective of utilizing the PEFA framework for fiduciary assurance.
 

Objective
The objective of this virtual knowledge event is to look at PEFA through a fiduciary lens, to explore how the “Guidance” works and to hear from development agencies on their experiences with fiduciary assurance mechanism with the intention of greater use of country PFM systems for routing development support.

There was an interesting webinar on this on 12 October 2023.

https://www.pefa.org/resources/pefa-fiduciary-guidance

The PEFA Fiduciary Guidance is not a methodology in itself, it aims to enhance the use of PEFA reports for fiduciary considerations on country systems. As it follows the standard PEFA methodology, its focus is on central government (CG), with deeper emphasis on the Budgetary Central Government (BCG). The guidance focuses on the elements of information in the PEFA report to consider in country systems from a fiduciary standpoint. It does not draw conclusions or prescribe mitigating measures in relation with the elements assessed.

The present document does not aim at substituting the fiduciary methodologies developed by the development agencies. Its intent is to help the fiduciary works by providing a guidance on how to use the PEFA reports as an input. It includes a correspondence table between fiduciary risk areas, and PEFA dimensions, and an analysis of the extent to which the PEFA dimensions can contribute to the fiduciary assessment. The use of PEFA for Fiduciary consideration has the advantage of being based on an established methodology used by development partners that could promote and support the donor harmonization agenda. As different institutions may have different risk appetites, they may conclude differently with the same information.

This guidance is based on the seven key fiduciary key areas of the PFM cycle:

(i) budgeting, (ii) flow of funds, (iii) internal controls, (iv) procurement, (v) accounting, (vi) financial reporting, and (vii) auditing. Each fiduciary area is broken down in critical PFM processes identified as fiduciary processes, which are linked to corresponding PEFA dimensions. Those fiduciary processes that are not covered by PEFA are not included in this guidance.

The guidance is prepared with focus on using the PEFA reports as source of information.