From Blurred Lines: Lesotho Formulates Pragmatic PFM Reform Action Plan Using PEFA Assessment Results

KINGDOM OF LESOTHO

PEFA STORY: Sharing Knowledge—Improving Public Financial Management

By Mr. Tsolo Maoeng, M&E and Quality Assurance, and PFMR Coordinator a.i, Public Financial Management Reforms Secretariat of the Government of the Kingdom of Lesotho

Context

With support from its Development Partners (The World Bank, The European Union, The African Development Bank), the Government of Lesotho (GoL) has been implementing Public Financial Management (PFM) reforms. In 2013, the GoL developed and launched a comprehensive five-year PFM Reform Strategic Action Plan (PFMRAP) covering the period from 2013 to 2018 to ensure a focused and properly guided reform process. This action plan is part of the Government’s strategic development initiatives enshrined in the National Strategic Development Plan (NSDP I) covering the period from 2012/13 to 2016/17 and the need for demonstrable macro-fiscal improvements.

GoL recognises the need to revitalise the PFM reform agenda and enhance PFM outputs, in the quickest manner possible, as a basis for enhanced economic growth, strengthening fiscal consolidation, and effective service delivery. In response to the 2016 PEFA, together with other similar PFM diagnostics tools, GoL is committed to moving to a renewed phase of PFM reforms that will in the medium term also lead to improved scores against the PEFA assessment framework. In preparation for this new phase, GoL and the development partners are working together through the Public-Sector Improvement and Reform Steering Committee (IRSC) on creating a pragmatic PFM reform program. The PFM Reform Action Plan is the main outcome of this process. The International Monetary Fund – Fiscal Affairs Department (IMF-FAD) has reviewed the current PFM program progress using baseline data from the 2016 PEFA assessment and Internal Mid-Term reviews assessments, and recommended key areas of focus that the GoL can address in the short, medium and long-term. Based on this, the GoL is finalising a next phase action plan that will set a firm foundation for reform continuity and sustainability to ensure that the reforms become a permanent feature of public policy making in Lesotho. 

“Steadying the PFM system is indeed a challenging but not daunting task, and the secret lies in avoiding complex solutions to simple challenges; basics first!” 

Process

In 2016, GoL commissioned a PEFA assessment to provide a comprehensive “Public Financial Management Performance Report” of the central government PFM systems. The assessment was aimed at: 

• Providing an updated quantitative and qualitative analysis of the overall performance of the PFM systems of the Kingdom of Lesotho as well as a baseline context that will permit the measurement of changes in performance over time;
• Undertaking a detailed comparison with the results of the PEFA assessment carried out in 2012 on the various main dimensions of PFM, linking the results and PEFA standard indicators related to public financial management reform processes. 

The Ministry of Finance (MoF) led the assessment as the primary counterpart and coordinating body through the office of the Principal Secretary of Finance. To coordinate and undertake the assessment, the Ministry of Finance established a task force of key stakeholder departmental heads that deal with budgeting, tax policy and administration, treasury, internal control and audit, external audit, and public procurement. The task force led consultations with stakeholder Ministries/Departments, including representatives of oversight agencies (Public Accounts Committee, Office of the Auditor General). 

Results

The 2016 Lesotho PEFA assessments has revealed that the overall progress in the improvement of the PFM is both slow and mixed. While the PEFA 2016 scores could be lower than those of 2012 in some areas, important progress has been noted and this provides a useful platform for fundamental improvements in the medium term. The Treasury Regulations (2014), Amended Procurement regulations 2018, Audit Act (2016), and a new Planning and Budgeting tool (Central Budget Management System – CBMS) are in place and operational. The drafts of the following outputs have been confirmed: i) Draft Public Procurement Policy and Bill, (ii) draft Budget Regulations; iii) Audit Regulations; iv) revised Procurement Manual, and standard bidding documents; v) Budget Manual and Guidelines; vi) Internal Audit Manual and Guidelines; vii) Public Sector Investment Manual and Guidelines; viii) Procurement Tribunal Rules and Operational Tools; and ix) Parliamentary Public Accounts Committee Rules of Business.  The other important ongoing developments are preparatory work to upgrade the Integrated Financial Management Information System (IFMIS), the introduction of the Public Expenditure Review (PER) in the budget calendar and the Wage Bill Management System.

For the GoL, the PEFA assessment serves to inform policy decision on whether the current reform project design remains relevant to addressing flaws within the core PFM system areas. To; (i) take stock of progress made since the last PEFA assessment in 2012; (ii) identify key reform challenges and risks and; (iv) establish experiences or lessons learnt in order to determine any instances of slippages and make any necessary adjustments in light of recent developments or emerging circumstances so that the desired outcomes of the reform can be realized. 

The end of assessment dialogue with all stakeholders across government and civil society brought to fore some of the most interesting views and possible intervention strategies the government can adopt besides the traditional or otherwise academic solutions to PFM challenges. Out of these discussions, a solid outline of primary PFM project design flaws were identified, short to medium term solutions to PEFA findings proposed, and those used as basis for reviewing the project work plans for the subsequent years of the remaining project life. 

The GoL staff require intense familiarization with the PEFA methodology and practice to ensure full comprehension with the underlying reasons for embarking on reforms. Without this, sustainability of the process is surely compromised. The 2016 PEFA assessment was largely driven by the existing Public Financial Management Reform Secretariat – a temporary establishment to coordinate implementation of reforms for the duration of the current PFM Action Plan (2012-2018). This implies that beyond the life of the PFMR Secretariat, capacity to oversee implementation of measures to address PFM system shortfalls including the PEFA findings will be a challenge. 

“In the end, the paradox of real change in the reform implementation seems to always revolve around the continuum of the need to make improvements, on the one hand, and the actual commitment and will for a definitive action in actually making those improvements, on the other hand”- Moepi Sematlane.  

Lessons learned

The current design of the PFMRAP was largely based on the Public Expenditure and Financial Accountability (PEFA) assessment of 2012, which set the ultimate benchmark for PFM systems without recognizing the fact that PEFA establishes the highest benchmark of an ideal PFM system which in certain instances requires advanced reforms to achieve the highest score. This resulted into the reform benchmark more oriented towards achieving ‘A’ scores of PEFA assessment performance indicators than having the design oriented towards steady, but sustainable improvements―on what was more realistic and befitting to the country context, as a guide and benchmark at the apex of the reform. Through undertaking the 2016 PEFA assessment as a basis for development of the next phase action plan, a valuable lesson noted is to ensure using the PEFA as a basis for reform program design, with a concise disaggregation of targets or planned achievements, but restricted within pragmatic country context. 

For more information, please go to: http://www.finance.gov.ls/projects.php?id=public_financial_management_reforms