DAVID FELLOWS & JOHN LEONARDO | Dev Policy Blog | Extracts
THE latest Papua New Guinea public expenditure and financial accountability (PEFA) assessment completed in August last year has been published.
The PEFA exercise gives rankings for about 30 criteria on a scale from A to D. In the 2015 assessment, A and B scores represented a very disappointing 17% per cent of all performance indicator scores.
Nine out of the ten scores under the two key headings of ‘Predictability & Control in Budget Execution’ and ‘Accounting, Recording and Reporting’ were D or D+.
In many cases financial regulations and improvements recommended by internal audit review were simply not observed, reflecting perhaps a mixture of poor oversight, inadequate training, lack of basic ability and blatant disregard for proper practice.
Since 1 January 2014, 24 PEFA assessments have been completed and published by the PEFA Secretariat. PNG’s overall score ranks 21 out of the 24 countries. Only Congo Republic, Antigua and Barbuda and Guinea-Bissau recorded lower overall scores.
PNG is also one of the poorest countries rated, but its overall performance is weaker than some even poorer, developing countries.
What is also disturbing is the suggestion that financial management in PNG has worsened.
Two earlier PEFA exercises have been carried out for PNG, in 2005 and 2009. While these have not been released, we know from the ADB’s country operations business plan 2015-2017 that, in 2009, 32% per cent of performance indicators scored an A or a B.
The fall from 32% to 18% suggests a major deterioration in public financial management in PNG.
The IMF team observed that PNG’s budget process is orderly and well understood, and that some progress has been made in embedding the medium-term dimension into fiscal planning. The aggregate credibility of the budget appears satisfactory, though only with some serious caveats.
Most of the 2015 report, however, contains a damning indictment of financial administration: control over budget execution is weak; there are high levels of variance between budget and expenditure; expenditure control is weak; project implementation is weak; budgets contain insufficient analytical detail; many bank reconciliations are not carried out in a timely manner and contain significant unresolved items; the coverage and classification of in-year data does not allow comparison with original approved budgets; many state-owned enterprises receive very poor audit reports; there is no overall PFM reform strategy; and much else besides.
In a recent article, we remarked on the failure of the PEFA methodology to come to terms with fundamental institutional weaknesses. The PNG assessment contains a short section on institutional factors, but it fails to establish the root causes of the perceived deficiencies.
The remedies proposed – including the use of a longer time span, creating a more structured approach and the formation of a Ministerial steering committee – are worthy but unequal to the task of addressing the long list of recommended priority improvements that end the report.
Readers of the report are left asking for an explanation of underlying reasons for this catalogue of critical deficiencies, the lack of progress made and the decline in standards in some areas. Clearly, financial management in PNG is in a parlous state.
PNG’s response
The PNG government has made no formal public response to the latest PEFA assessment but the recent Budget speech contains reforms concerning state-owned enterprises, government finance statistics and debt management that partially address material weaknesses identified in the latest assessment. There were no specific initiatives to promote increased accountability in financial management activities.
The government’s stated expectation in the 2016 Budget that the 2015 PEFA assessment “should provide confidence to development partners to gradually rely on government systems” appears optimistic to say the least.
Following the completion of the PEFA assessment, the IMF and the PNG government created a road map for public financial management reform. This has not been published, as far as we can tell.
It seems to have been designed to give effect to the extensive list of priority reforms identified in the 2015 PEFA assessment but the published fragments are lacking in explanation about how these improvements are to be achieved. It was not, as far as we are aware, created out of any form of extensive public or corporate consultation.
Conclusions
PFM reform is not an end in itself nor can it be achieved in isolation from the broader condition of a fragile state. Good PFM is, however, an essential component of policy development, service and project implementation, obtaining value-for-money, promoting economic development, fighting corruption and providing public accountability.
The failure to publish previous PEFA reports has denied both the taxpayers and the people of PNG of any real appreciation that the resources expended on public financial management enhancement activities have generally failed to produce material overall improvements in key financial management areas.
A stance must now be taken by international development agencies that all future work in relation to the reform of public financial management in PNG must be undertaken in a much more transparent manner. A good start would be to publish the road map.
There is an opportunity for progress with a Finance Minister, James Marape, who is committed to reform and a Finance Secretary, Dr Ken Ngangan, who is well-respected and capable. However, to be successful the effort must go beyond a small number of individuals.
We suggest that, given the relative failure of reform activity to date, there should be an open assessment of the public financial management reform challenges and their root causes, involving the full range of stakeholders.
This should result in an agreed set of objectives, reform processes, expected performance levels and timescales designed to deliver feasible and desirable improvements in administrative practice, governance and political relationships to achieve an acceptable minimum overall public financial management standard.
External agencies should require evidence of active support from the government of PNG as a condition of continued participation in the reforms.
Unlikely though the achievement of these proposals may seem, donors must now ask themselves what purposes further reform activities are expected to serve if they choose to ignore their lack of results.
The ADB country plan for PNG expected the proportion of As and Bs to rise from 32% in 2009 to 50% in 2015. Instead, it has fallen to 18%.
As we have said before, the PEFA methodology can no longer ignore the need to identify the root causes of poor public financial management in fragile states. PNG seems to offer a perfect case in point.
David Fellows and John Leonardo are Principals of PFM Connect. They have been engaged on projects in Africa, Asia and the Pacific funded by major development partners