Key Messages

1. Most governments perform consistently well at accounting for revenue, maintaining internal controls, and limiting expenditure from contingency reserves—strong performance on these aspects of PFM is standard.
2. Governments struggle most at maintaining a basic level of performance in evaluating public service delivery performance, monitoring holdings in nonfinancial assets, and ensuring the consistency of budgets with previous years’ estimates. No country has yet achieved the highest attainable PEFA score for its management of public assets.
3. Of the seven PEFA pillars of PFM performance, countries perform best at “Policy-Based Fiscal Strategy and Budgeting” and weakest on “External Scrutiny and Audit” and “Management of Assets and Liabilities.” Most countries have significant opportunities to improve public investment and asset management. Furthermore, weaknesses in external scrutiny and audit need urgent attention because existing practices in many countries could undermine accountability in a post-COVID world.
4. Countries struggle in accounting and preparing financial reports. As many as 64 countries (80%) do not submit financial reports for external audit within three months of the end of the fiscal year. Only one country achieved the highest attainable PEFA score for the completeness, timeliness, and consistency of its annual financial reports.
5. There are widespread weaknesses in capital budget investments—63 countries (80%) do not include projections of the total life-cycle cost for major investments or a year-by-year breakdown of costs in their budget documents.
6. There is prevalent use of non-competitive procurement methods, which has implications for the quality and efficiency of government expenditure. Nearly 63% of countries (or 50 countries) awarded contracts (valuing more than 40% of the total value of contracts) through non-competitive procurement methods.

Global Trends

The following analysis follows the methodology outlined in Appendix B to compare PEFA scores across countries and over time. The analysis draws from both the PEFA 2011 and PEFA 2016 frameworks, with each chart explicitly denoting the framework used. Except for the analysis of the repeated PEFA assessments, the latest PEFA assessment in each country is used for comparative purposes. For example, if a country had multiple assessments under the PEFA 2011 framework, only its latest assessment will be used to minimize the potential bias that could occur if some countries had more assessments than others.

Repeat PEFA Assessments

The following section provides an in-depth analysis of the PEFA 2016 Framework and illustrates global and regional differences in performance across the 7 pillars.

The pillar on Budget Reliability includes three indicators: aggregate expenditure outturn (PI–1), expenditure composition outturn (PI–2), and revenue outturn (PI–3).

Georgia had the highest overall average score for budget reliability, followed closely by Costa Rica, the Dominican Republic, El Salvador, Morocco, Ukraine, and Uzbekistan.

In many cases, governments appear better able to adhere to the level of planned spending rather than the composition of planned spending. Of the 80 countries that applied the 2016 PEFA methodology at the national level, the majority (56%) were able to spend at planned aggregate levels with slight deviations (less than 10% variance). Only 20 countries (25%), most of which are fragile or small economies, reported expenditures that deviated from the planned budget by more than 15% for two of the last three fiscal years. Also, most governments were prudent about spending from contingency reserves, which is the best-performing aspect of PFM globally; governments in 73 countries (91%) charged less than 3% of their original budget on average to contingency votes.

In terms of expenditures, more than two-thirds of governments struggle to maintain the planned composition of their expenditure throughout the fiscal year, with significant (10% or more) variance in expenditure composition by both function and economic type. On the revenue side, authorities in 52 countries (66%) found it equally challenging to maintain a variance of less than 10% in the composition of revenues.

“In many cases, governments appear better able to adhere to the level of planned spending rather than the composition of planned spending.”

In times of fiscal uncertainty, such as the current COVID-19 pandemic, the timely publication of how public resources are generated, allocated, and used is even more critical to enhancing trust between governments and citizens. Yet, although many governments produce comprehensive information on central government revenue and expenditure operations, the statistics in this Global Report imply that incomplete financial reports and inadequate public access to fiscal information could be undermining budget transparency.

The pillar on Transparency of Public Finances includes six indicators: budget classification (PI–4), budget documentation (PI–5), central government operations outside financial reports (PI–6), transfers to subnational governments (PI–7), performance information for service delivery (PI–8), and public access to fiscal information (PI–9).

According to data from the 80 countries that applied the 2016 PEFA methodology at the national level, most governments globally (59 or 74%) perform well at providing comprehensive information in their annual budget documentation but there is scope to improve the coverage of and public access to fiscal information. For example, the magnitude of revenue and expenditure not captured in central government financial reports was significant for several countries. Also, more than half (58%) of the 80 countries incurred significant expenditures (10% of total spending or more) outside of central government financial reports. Finally, few governments communicated adequate budget information to the public—54 countries (68%) provide very limited public access to fiscal information.

There was widespread underperformance in governments’ evaluation of the appropriateness, efficiency, and effectiveness of public service delivery. Only four (5%) of 80 countries (Colombia, Ethiopia, Georgia, and Uganda) conducted these evaluations for most (75% or more) ministries over the three fiscal years covered by their respective assessments. Performance evaluation for service delivery is among the top three weakest-performing areas of PFM (consistency of budgets with previous year estimates is the lowest-performing area).

Most governments produce comprehensive budget documentation, but there is significant scope to improve the coverage of and public access to fiscal information.

During times of fiscal stress, such as the current COVID-19 pandemic, governments typically face increased pressure to disburse funds rapidly, which increases the importance of assessing risk management for investments to ensure value for money.

The pillar on the Management of Assets and Liabilities was introduced in the 2016 PEFA methodology and includes four indicators: fiscal risk reporting (PI–10), public investment management (PI–11), public asset management (PI–12), and debt management (PI–13). This is one of the weakest performing PFM pillars in most countries.

Globally, public asset management, particularly governments’ monitoring of their nonfinancial assets, is among the top three weakest-performing areas of PFM. Of the 80 countries that applied the 2016 PEFA methodology at the national level, no country, as of 2021, has yet achieved the highest attainable PEFA score for their monitoring of nonfinancial assets. This means that none of the 80 governments assessed consistently maintain a register of their holdings of fixed assets or publish annual reports on the usage and age of these assets. Also, there were widespread weaknesses in capital budget investments: governments in 63 countries (80%) do not include estimates of the total life-cycle cost of major investments and the year-by-year breakdown of costs in their budget documents.

Countries significantly underperform at public investment management and fiscal risk reporting. However, countries performed better at managing domestic and foreign debt and guarantees, especially in terms of their recording, reporting, approval, and strategic planning processes. The good performance of debt management indicates robust processes. However, this trend is paradoxical in the context of significantly weak public investment management and heightened risk to debt sustainability in many countries.

“There were widespread weaknesses in capital budget investments: authorities in 63 countries (80%) do not include estimates of the total life-cycle cost of major investments and the year-by-year breakdown of costs in their budget documents.”

During periods of economic stress, such as the COVID-19 pandemic, formulating fiscal strategies, plans, and forecasts is challenged by fiscal uncertainties, and revisions may have to occur on a much shorter time horizon.

The pillar on Policy-Based Fiscal Strategy and Budgeting includes five indicators: macroeconomic and fiscal forecasting (PI–14), fiscal strategy (PI–15), medium-term perspective in expenditure budgeting (PI–16), budget preparation process (PI–17), and legislative scrutiny of budgets (PI–18). This is one of the best-performing PFM pillars in most countries, indicating that relatively more robust processes are in place for budget preparation.

Globally, the timeliness of the budget approval process continues to be one of the best-performing aspects of PFM. In 53 countries (66%), the legislature approved the annual budget before the start of the year in at least two of three fiscal years. Conversely, consistency of budgets with previous year estimates is among the top three weakest-performing areas of PFM. Governments in only six countries (8%) were able to adequately explain all or most changes to expenditure estimates in medium-term budgets. The best-performing countries on this dimension of PFM include the Cook Islands, Ethiopia, the Philippines, and Rwanda. The dimension performs poorly even though the majority of governments (54 or 68%) adhere to clear rules for in-year budget adjustments in most instances. A contributing factor could be the extensive misalignment of budget estimates with strategic plans in most (75% or more in value) expenditure policy proposals prepared by the governments of as many as 68 countries (85%).

“Globally, the timeliness of the budget approval process continues to be one of the best performing aspects of PFM.”

In times of fiscal uncertainty, such as the current COVID-19 pandemic, the ability to monitor public expenditure is even more important than usual due to the risk that extraordinary expenditures will not be used for the intended purposes. Having strong commitment and spending controls helps to ensure that policy responses to crisis situations can be implemented effectively and efficiently.

The pillar on Predictability and Control in Budget Execution has eight indicators—the most of any pillar—and covers revenue administration (PI–19), accounting for revenue (PI–20), predictability of in-year resource allocation (PI–21), expenditure arrears (PI–22), payroll controls (PI–23), procurement (PI–24), internal controls on non-salary expenditure (PI–25), and internal audit (PI–26). This pillar, which is highly important to governments’ ability to deliver services effectively, remains a weak area, although some aspects perform significantly better than others.

Globally, countries perform relatively well at accounting for revenue. The designated revenue collection agencies in as many as 75 countries (94%) excelled at transferring most (75% or more) of the revenues they collected to the Treasury weekly. Also, information on revenue collections was broken down by revenue type and consolidated into a report by a central agency in 66 countries (83%).

A salient global trend is countries’ poor monitoring of arrears, both revenue and expenditure arrears. Only four of 80 countries (including Bhutan, Kyrgyz Republic, and Uzbekistan) managed to keep the stock of revenue arrears below 10% of the total revenue collection at the end of the last completed fiscal year covered by their respective PEFA assessments. Likewise, only three of 80 countries (including Mongolia and Uzbekistan) monitored the stock, age, and composition of expenditure arrears and kept it below 2% of total expenditure in at least two of three fiscal years covered by their respective PEFA assessments.

Public Procurement remains a major challenge. There is prevalent use of non-competitive methods, which has implications for the quality and efficiency of government expenditure. Nearly 63% of countries (or 50 countries) awarded contracts (valuing more than 40% of the total value of contracts) through non-competitive procurement methods.

Finally, most government entities are subject to internal audits in a majority (53%) of 79 countries. However, the overall effectiveness of internal audits is weak.

“A salient global trend is countries’ poor monitoring of arrears, both revenue and expenditure arrears.”

In times of fiscal uncertainty, robust accounting and reporting systems are even more important to ensure that there is full accountability over resources allocated to finance policy responses related to crisis management.

The PEFA framework measures the effectiveness of accounting and reporting systems through three key indicators: financial data integrity (PI–27), in-year budget reports (PI–28), and annual financial reports (PI–29).

Despite being a technical and process-based function with no major extraneous factors, countries struggle at accounting and preparing financial reports. The governments of as many as 64 countries (80%) did not submit financial reports for external audit within three months of the end of the fiscal year. Only one country achieved the highest attainable PEFA score for the completeness, timeliness, and consistency of its annual financial reports.

Still, 62 countries (78%) had robust processes to ensure the integrity of financial data. In these countries, access and changes to financial records were restricted and recorded with an audit trail.

“Only one country achieved the highest attainable PEFA score for the completeness, timeliness, and consistency of its annual financial reports.”

Effective external audit and legislative scrutiny are even more important in times of fiscal uncertainty, such as the current COVID-19 pandemic. They ensure that fiscal policy responses to crises are externally reviewed and scrutinized and require the government to respond to and effectively implement any recommendations for improvement. They also enable citizens to learn about policy.

The pillar on External Scrutiny and Audit has two indicators: external audit (PI–30) and legislative scrutiny of audit reports (PI–31). This pillar is one of the areas with the most significant improvement opportunities.

For external audit, of the 80 countries that applied the 2016 PEFA methodology at the national level, only one (Mongolia) achieved the highest attainable PEFA score for the strength of its external audit standards and practices. Most countries (69 or 87%) demonstrated only a basic level of performance or worse at external audit.

Regarding legislative scrutiny, a majority (51%) of governments (or 39 countries) performed well at submitting audit reports to the legislature within six months or less after receiving them from the Supreme Audit Institution. However, the legislature in 63 countries (89%) struggled to issue or systematically follow up on recommendations to be implemented by the executive. Kyrgyz Republic is one of only two countries that achieved the highest attainable PEFA score for the quality of its legislative scrutiny of audited financial reports.

“Most countries (69 or 87%) demonstrated only a basic level of performance or worse at external audit.”