Findings and Recommendations

 Findings

The overall quality of the diagnostic exercises evaluated is satisfactory. A satisfactory report is one that responds to the stated objectives, provides an in-depth understanding of the strengths and weaknesses of a client country’s PFM systems, includes sufficient empirical data to substantiate the analysis, results in a prioritized action plan, provides a clear assessment of the financial management or procurement risks in the country, and, in the case of CPARs, additionally serves as a source of guidance for staff on procurement-related matters in planning and preparing World Bank assistance. (Management contends that CFAAs are not expected to guide financial management arrangements at the project level.) About 71 percent of the CFAAs and 64 percent of CPARs evaluated were assessed to be of satisfactory quality, although in about one-third of the cases the assessment was qualified as "moderately satisfactory.” CFAAs and CPARs have shown steady improvement in quality following the issuance of the respective Guidelines.

Satisfactory client participation ensured that the analysis in CFAAs and CPARs was country-specific and realistic, but client leadership in the diagnoses was low. Only in about 20 percent of the CPARs and about 14 percent of the CFAAs did the government team undertake the diagnosis and take leadership in preparing the report as suggested by the CFAA guidelines, possibly forfeiting some commitment.

Donor collaboration on CFAAs and CPARs increased over the evaluation period, particularly in the Africa, East Asia and the Pacific, and Latin America and the Caribbean Regions. Collaboration with other donors has led to the preparation of, and support for, joint programs of action in some countries.

Better internal coordination among Bank units preparing CFAAs, CPARs, and other PFM related diagnostics such as Public Expenditure Reviews would have resulted in greater efficiency for the Bank and would have avoided instances of clients receiving multiple action plans for PFM reform (one for each diagnostic).

CFAAs, and to a lesser extent CPARs, have significantly furthered the Bank’s development objectives. CFAAs have been useful in garnering existing knowledge on financial management systems into a single report, thereby providing a comprehensive lens for analysis and remedies for identified weaknesses. CFAAs have also fostered the integration of financial management issues into assistance strategies and increased the availability of resources for financial management reform in several sample countries. In addition, CFAAs have contributed to varying degrees in fostering financial management reform in the sample 10 countries where field visits were undertaken. Overall, CFAAs have substantially achieved their development objectives in 5 of 10 countries, and moderately in two. In comparison, CPARs have had less success in achieving similar objectives when measured by the same indicators and have substantially achieved their objectives only in 2 of the 10 countries, and moderately in another 4.

However, CFAAs and CPARs have contributed in a limited fashion to the achievement of the Bank’s fiduciary objectives. Although the diagnostics have had a substantial influence on the overall volume of Bank assistance in subsequent CASs (financial management and procurement measures were the basis for triggers in several countries), the diagnostics have had limited influence on the choice of instruments and the selection of sectors for assistance. A review of more than 100 projects found these to incorporate only modest recognition of the financial management or procurement risks raised by the diagnostics and their implications. At the project level, CPARs have helped distinguish unacceptable practices in national competitive bidding in client countries.

 Recommendations

Management has already addressed some of the concerns enumerated above in announcing a "strengthened approach" to PFM diagnostic work (July 2005). The approach stresses the need for greater client leadership and country specificity in the analysis, stronger results orientation, integrated implementation, and enhanced collaboration with other donors. For the "strengthened approach" to be as effective as possible, Bank management should, in coordination with key donors and client country representatives, consider three sets of recommendations:

1. Gear CFAAs and CPARs more directly to the fiduciary goal. To accomplish this, management could:

• Agree on a common definition of "fiduciary risk" that would be applied consistently in all PFM diagnostic instruments
• Develop a comprehensive and integrated risk analytical framework that would include a standardized methodology for aggregating country-level PFM risks
• Guide staff on how the risk assessments in these diagnostics should influence the design of Bank assistance both at the project and program levels, and revise guidelines as needed.

2. Enhance the quality of the diagnostics. To realize this, management could:

• Issue revised guidelines jointly prepared by the three sector boards on undertaking integrated diagnostics
• Develop an integrated learning program for staff from all three networks on implementing the "strengthened approach."

3. Strengthen the impact of fiduciary work and associated outcomes. In order to achieve this, management could ensure that the Bank supports clients in preparing a single integrated, prioritized, costed, and monitorable set of actions within an agreed framework for PFM reform, even if the diagnosis is undertaken using multiple instruments.