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Review of Public Financial Management Reform WP/20/183 Review of the Public Financial Management Reform Strategy for Pacific Island Countries, 2010-2020 by Richard Allen, Majdeline El Rayess, Laura Doherty, and Priya Goel IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. © 2020 \ International Monetary Fund WP/20/183 IMF Working Paper Fiscal Affairs Department Review of the Public Financial Management Reform Strategy for Pacific Island Countries (2010-2020) Prepared by Richard Allen, Majdeline El Rayess, Laura Doherty, and Priya Goel Authorized for distribution by Manal Fouad September 2020 Disclaimer: This document was prepared before COVID-19 became a global pandemic and resulted in unprecedented economic strains. It, therefore, does not reflect the implications of these developments and related policy priorities. We direct you to the IMF Covid-19 page that includes staff recommendations with regard to the COVID-19 global outbreak. IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management. Abstract This paper reviews the Public Financial Management (PFM) reform stategy for 16 Pacific Island Countries (PICs) during the period 2010-2020. The strategy was endorsed by the finance and economic ministers of the region (FEMM) in 2010. The paper analyzes more than 30 PEFA assessments carried out across the region. The region shares the generally slow pace of PFM reform that is also a feature of most developing countries. Some PICs have improved their PFM performance significantly, while others have done less well. PFM reforms have suffered from the small size and low capacity of many PICs, poorly designed PFM roadmaps, variable political suppport for reform, and vulnerability to natural disasters. The paper recommends that in the next five years, there should be a more granular and targeted approch to PEFAs. PICs should focus on basic PFM reforms and (where capacities allow) more transparent public finances, as well as better management of climate change considerations, public infrastructure, gender inequalities, and state-owned enterprises. Perseverance by countries in implementing reforms and leadership by finance ministries are critical. PFTAC’s advice is highly regarded across the region, and it could consider alternative modalities of CD delivery and stronger coordination with other development partners. JEL Classification Numbers: E61, E65, H50, H61 Keywords: Pacific Islands Countries, public finance management (PFM) reform, PFTAC, PEFA Author’s E-Mail Address: [email protected], [email protected], [email protected], and [email protected] 3 CONTENTS Abstract ..................................................................................................................................... 2 I. INTRODUCTION ....................................................................................................................... 4 II. PFM REFORM ROADMAPS ..................................................................................................... 7 A. Introduction ...................................................................................................................... 7 B. Assessment ....................................................................................................................... 7 III. ANALYSIS OF PEFA REPORTS, 2009-2020 ......................................................................... 12 A. Introduction .................................................................................................................... 12 B. Methodology to Assess PEFA Scores ............................................................................ 14 C. Analysis of PEFA Results Across the Region ............................................................... 15 IV. CAPACITY DEVELOPMENT TO SUPPORT THE STRATEGY .................................................... 19 A. Introduction .................................................................................................................... 19 B. Evolution of PFTAC’s Support to PICs ......................................................................... 21 C. Trends in CD activities ................................................................................................... 22 D. Authorities’ Views on PFTAC’s Support ...................................................................... 23 E. Support by Other Development Partners ........................................................................ 24 V. CONCLUSIONS AND RECOMMENDATIONS ............................................................................ 25 BOXES Box 1. Overview of the Pacific Islands __________________________________________6 Box 2. PFM Roadmaps and Joint Policy Action Matrices (JPAMs) ____________________9 Box 3. PFM Reforms in the PFTAC Region in the Early 1990s ______________________20 Box 4. Survey of PICs - Summary of Results ____________________________________24 FIGURES Figure 1. Examples Country Roadmaps and the Budget Cycle ________________________8 Figure 2. Scoring Methodology of Converting Alphabetical Scoring into Numerical ______15 Figure 3. Comparison of PEFA Scores for PFTAC Region, 2009-2019 ________________15 Figure 4. PEFA Performance over Time for Fiji, PNG, Samoa and Timor-Leste _________18 Figure 5. Focus of PFTAC’s CD Activities in the Three Phases of Funding _____________20 Figure 6. Delivered CD Activities by Fiscal Topic for the Three Funding Phases ________23 TABLES Table 1. Periodicity of Road maps for the period 2011-2021__________________________7 Table 2. Comparison of Use of Roadmaps between Kiribati, PNG, and Samoa __________11 Table 3. Breakdown of the PEFA Assessments According to the Relevant Methodology __12 Table 4. Comparison of PEFA Scores under the 2011 and 2016 Frameworks (percent) ____13 Table 5. Comparison of PEFA scores between PICs, LIDCs and EMEs for the period ____14 Table 6. Evolution of PFTAC’s CD Activities during FY09-19 ______________________21 ANNEXES Annex 1. Detailed List of PEFA Assessments ____________________________________29 Annex 2. Summary of Revisions to the PEFA Framework, 2005 to 2016 _______________31 Annex 3. Survey for Member Countries on PFTAC PFM CD Activities _______________32 Annex 4. CD Support for Selected PICs by all Development Partners, FY 2018-20_______34 4 I. INTRODUCTION1 The Pacific Financial Technical Assistance Center (PFTAC) was established in 1993 to provide support to 16 Pacific Island Countries (PICs)2 on public financial management (PFM) among other topics. The PFM reform strategy for the region was set out in the Public Financial Management Roadmap for Forum Island Countries3 which was published in 2010 and endorsed at the meeting of the Forum Economic Ministers Meeting (FEMM) in the same year. This Roadmap focused on three broad objectives: (i) PICs should undertake Public Expenditure and Financial Accountability (PEFA) assessments every three years; (ii) practical, shared action plans should be derived from these PEFA assessments and used as the basis for delivering capacity development (CD); and (iii) this work would receive support from dedicated regional PEFA resources and development partners, coordinated by PFTAC. The Roadmap also provided for an expansion of PFTAC’s resources to support CD activities in PFM. The number of resident PFM advisors was increased from one to two in fiscal year (FY) 20134. PFTAC also employs advisors in the closely connected areas of macro-fiscal analysis, statistics, revenue administration, and supervision of the financial sector. In this report, we present the findings of a Review of PFTAC’s PFM reform strategy by the IMF’s Fiscal Affairs Department (FAD). The review5: • Assesses whether, ten years after the Roadmap was published, the strategy and policies it sets out have achieved their basic objectives and have resulted in an improvement in the PICs’ PFM performance. • Considers whether the tools and modalities included in the Roadmap were adapted to the needs and capacities of the PICs and were sufficiently focused on their strategic reform priorities. • Assesses the modalities and effectiveness of coordination between PFTAC and other development partners (DPs) working on PFM issues. • Considers the progress made toward achievement of the PFM reform objectives outlined in documents relating to Phase III (FY2009-FY2011), Phase IV (FY2012-FY2016), and Phase V (FY2017-FY2022) of the PFTAC program. 1 The authors are most grateful to colleagues in PFTAC, notably David Kloeden, Richard Neves, and Celeste Kubasta, for their extremely helpful contributions to this report; and to Manal Fouad, Sailendra Pattanayak and other colleagues of the IMF’s Fiscal Affairs Department, the Asia and Pacific Department, and the PEFA Secretariat for comments and suggestions. Qing Zhao provided excellent research assistance. 2 Member countries are the Cook Islands, the Federated States of Micronesia, Fiji, Kiribati, Republic of the Marshall Islands, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu. 3 A Public Financial Management Roadmap for Forum Island Countries,
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