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8. PEFA : Concept • PEFA is basically a measurement tool that is globally designed and accepted Indicators in PFM • It measures the performances of country’s PFM System • A mechanism for assessing the quality of aggregate financial activities of the country • Aims to Improve the Governance and Accountability : through achievement of Efficiency, Effectiveness, Transparency and Accountability and minimizing the fiduciary risk in PFM

9. PEFA : Concept • PEFA Program grew out of a realization that in many developing countries • PFM systems remain weak, even after many years of external assistance, and • were not improving sufficiently to support countries' own development objectives or expectations of donors. • Promotes a coordinated approach to the assessment of the quality of PFM performances • Helps to assess the condition of country public expenditure, procurement and financial accountability systems. • Assists developing practical sequence of actions for PFM reform and capacity building. • PEFA helps to improve country PFM system performance for strengthened economic growth and government service delivery.

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11. The Global PEFA Partners • PEFA as the Program was founded in December 2001 as a multi-donor partnership between: • The World Bank, • The European Commission, • The UK’s Department for International Development, • The Swiss State Secretariat for Economic Affairs, • The French Ministry of Foreign Affairs, • The Royal Norwegian Ministry of Foreign Affairs, and • The International Monetary Fund.

12. Status PEFA Phases • Since its introduction in 2005, the PEFA framework has been applied in over 160 countries (Covers 70 % of countries worldwide). • 285 PEFAAssessments have been conducted in more than 135 countries around the globe by April 2012. • 103 Sub-national assessment have been completed by April 2012. • Through PEFA Framework many countries have been able to reduce fiduciary risks and consolidate impact of financial reforms. • 4th Phase of PEFA Program (1012-17 ) has made PEFA a "Global Public Goods". • Phase I: Development (2001-2005) • Formulation of Strengthened Approach to supporting PFM Reform and • Development of PFM Performance Measurement Framework (PEFA Framework) • Phase II: Dissemination (2006-2008) • Roll-out of the PEFA Framework Globally • Focus on compliance with PEFA methodology • Phase III: Integration (2009-2011) • Monitoring changes in PFM system performances over time • Enhance dissemination, donor collaboration, and country ownership. • Phase IV: Global Public Goods (2012-2017) • Enhance Global relevance of the PEFA Framework • Outreach to all PEFA stakeholder groups • Build the PEFA knowledge platform

13. PFM Links to Development Goals MDGs, PRSP, Political Manifesto Other influencing factors Dev Goals Budget deficit, Sector allocations, Investment, Debt ratio, Tax burden etc ServiceDelivery Goals Fiscal discipline, Strategic allocation, Operational efficiency Budgetary Outcomes Fiscal/Exp Policy Goals PEFA Framework PFM system performance

15. NEPALPFM High-Level Performance Indicator Set (PEFA Indicators)

17. PEFA in Nepal: PEFA Assessment • Initiated reform through establishing the PFM bench mark after conducting Country Financial Accountability Assessment (CFAA) in 2002 (updated in 2005) • PEFA assessment started in August 2005 jointly by Government of Nepal and the World Bank • Publication of PEFA Report ( in February 2008) : An Assessment of the PFM Performance Measurement Framework (based on FY 2005/06)

18. PEFA and Nepal • PEFA Assessment was conducted in 2007-08 and Report published in 2008 with 31 performance indicators (of which 3 are Donors related) which are recognised globally, • Based on PFM strategy, Development Action Plan (DAP) has been formulated identifying 147 immediate and intermediate activities to be performed, • PEFA Steering Committee (14 Member Chaired by Finance Secretary) and Working Committee ( 11 Member Chaired by PEFA Coordinator) formed in 2009, • PEFA Secretariat established in 2009 which is led by a Coordinator with 7 professional staff, • PEFA Implementation Units (PIUs) formed both at Centre (16) and Local Level (54) till current date, • The Secretariat is accountable to the PEFA Steering Committee.

19. Nepal : Assessment of PFM The assessment of Nepal’s performance in PFM suggests the • Existence of a system that is well-designed but unevenly implemented. • Budget has become a credible policy tool, clearly linked to policies in some sectors, with solid control of aggregate outturns and • a reasonable control framework at the transaction level (notably for payroll). • Many gaps in : • the control framework • Significant implementation constraints, and • large fiscal activities remain outside the scope of the central budget. • Several weaknesses originate in the weak demand (from both Government and external stakeholders) for better budget information (financial and physical) and management.

20. Implementation Mechanism

21. PEFA Implementation Flow National Planning Commission (NPC) GoN/MoF Public Account Committee (PAC) Steering Committee • Other Agencies • OAG • PPMO • CIAA • NVC • Local PFM Donor Forum • ICAN • ASB • CSOs Line Ministries and Departments FCGO Working Committee PIUs Line Agencies and Paying Offices DPIUs DTCOs PEFA Secretariat

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23. Policy-Based Budgeting

24. Predictability and Control in Budget Execution

25. Predictability and Control in Budget Execution

26. Predictability and Control in Budget Execution

27. Comprehensiveness and transparency

28. Accounting, Recording, and Reporting.

29. Accounting, Recording, and Reporting.

30. External Scrutiny and Audit

31. PEFA: Problems and Challenges • Inadequate awareness of PEFA framework and processes • Weak capacity development of all concerned on PEFA/PFM • Political and bureaucratic commitment is not very encouraging to promote the PEFA Process. • Poor ownership and accountability towards PEFA by the sectors • Poor focus to implement PEFA / DAP (Development Action Plan-147) Report of Nepal • No attention on Sub-nation PFM issues and measurement by the PEFA-I • Poor Coordination (mismatch) of efforts both by the government and the development partners to enhance PEFA processes. • Weak knowledge and skills to measure the performances of the PEFA indicators • Ever increasing fiduciary risk both in center and at local level .

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