Nov 2020 Q3 a.
Public financial management is critical for the successful implementation of government policies and developmental goals. Public financial management is a linchpin that ties together available resources, delivery of services, and achievement of government policy objective. The need to assess the extent to which public financial management systems operate led to the development of Public Expenditure and Financial Accountability (PEFA) framework by coalition of seven international development partners. Since 2001, the PEFA framework has received recognition across the world.
Required:
i) Explain the purpose of the PEFA framework. (3 marks)
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The Public Expenditure and Financial Accountability (PEFA) framework provides a framework for assessing and reporting on the strengths and weaknesses of public financial management (PFM) using quantitative indicators to measure performance. PEFA is designed to provide a snapshot of PFM performance at specific points in time using a methodology that can be replicated in successive assessments, giving a summary of changes over time.
The PEFA framework is useful in the following ways:
- PEFA is a tool that helps governments achieve sustainable improvements in PFM practices by providing a means to measure and monitor performance against a set of indicators across the range of important public financial management institutions, systems, and processes.
- PEFA provides a framework for assessment of transparency and accountability in terms of access to information, reporting and audit, and dialogue on PFM policies and actions.
- Governments use PEFA to obtain a snapshot of their own PFM performance. PEFA offers a common basis for examining PFM performance across national and subnational governments.
- PEFA scores and reports allow all users, such as civil societies and international organisations, of the information to gain a quick overview of the strengths and weaknesses of a country’s PFM system.
1 mark for purpose of PEFA and 1 mark each for any 2 usefulness discussed. (1+1*2) = (3 marks)
ii) Explain the key pillars of an open and orderly public financial management system under the PEFA framework. (7 marks)
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Budget reliability
The government budget is realistic and implemented as intended. This is measured by comparing actual revenues and expenditures with the original budget.
Transparency of public finances
Information on public financial management is comprehensive, consistent, and accessible to users. This is achieved through comprehensive budget classification, transparency of all government revenue and expenditure including intergovernmental transfers, published information on service delivery performance and ready access to fiscal and budget documentation.
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.
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.