June 30, 2010Doug Hadden
Doug Hadden, VP Products
Is the journey to good governance paved with good intentions? Yearly snapshots of governance indicators are effective benchmarks. Causality? That seems to be more difficult to determine. How does a government effectively sequence reform to achieve improved governance indicators? How can we predict that a government will achieve improvements in the future? I think that Public Expenditure and Financial Accountability (PEFA) assessments are the best vehicle at hand. PEFA assessments characterize the Public Financial Management (PFM) environment in government. We’ve pointed out how the Government of Kosovo has improved results from the 2007 to the 2009 PEFA assessment. And these results are superior, on average, to other PEFA assessments.
How does this compare to with other countries in South Eastern Europe? Published PEFA assessments include:
- Albania 2006
- Kosovo 2007 and 2009
- Macedonia 2007
- Serbia 2007
Only Kosovo has published two PEFA reports. Kosovo is the only South Eastern European country to have published a recent PEFA report. So, there is a rather small sample size for comparison. Kosovo has shown good results, particularly in budget execution and budget transparency.
The landmark study by Paolo de Renzio, Taking Stock What do PEFA Assessments tell us about PFM systems across countries, for the Oversees Development Institute identified some patterns for improved PEFA assessments:
population size… results seem to indicate that larger country size is generally associated with better PFM system performance
higher level of income perform better in terms of the quality of their PFM systems
Yet, Kosovo has a lower population than all South Eastern European countries except Montenegro and has the lowest GDP per capita
The Kosovo PEFA results are remarkable. It takes time for country governance mechanism improvements to show in governance indicators. For example, World Bank indicators for Control of Corruption and Government Effectiveness are lower than the peer group.
My sense is that many of the elements in the PEFA assessment represent dependencies that result in improved governance outcomes. There is some anecdotal evidence to support this view:
- “I am particularly pleased with the commitment of the Kosovar authorities to further strengthening the sustainability of their policy framework.” IMF Managing Director Dominique Strauss-Kahn
- “Transparency of the Budget was improved with detailed supporting documentation” USAID
- “The greatest strength of the Kosovo PFM is its treasury system” 2007 PEFA Assessment
- “the internal control structure has been established in Kosovo. The basic legal framework is sound, with clear structures of accountability.” EU SIGMA
- “Other strengths are found in the areas of internal audit and control and external audit where the process is in place and capacity is being built up for effective implementation” 2009 PEFA Assessment