Country FM Diagnostics (MOVING UP)

Financial management diagnostic assessments is an integral part of the knowledge base of a country portfolio.

• In the public sector, it is necessary to ensure accountability and efficiency in the management of public resources—which are critical to the achievement of public policy objectives, including poverty reduction. Sound public financial management (PFM), which includes procurement, expenditure management, and financial management, is vital to countries’ development efforts, including achievement of the Millennium Development Goals (MDGs). In addition, sound PFM systems are fundamental to the appropriate use and effectiveness of donor assistance since aid is increasingly provided through modalities that rely on well-functioning systems for budget development, execution and control—it is an essential underpinning to improving governance and fighting corruption.
   
• In the private sector, it is an essential underpinning for investment and growth. Good corporate financial reporting standards and practices are essential for the functioning of a market economy.

The Bank acquires the necessary knowledge of the country’s institutional framework through diagnostic assessments done by the Bank or other donors, similar reports by competent country institutions, and experience with portfolio implementation. This knowledge helps identify risks to Bank-supported programs and to the use of Bank funds. It also helps determine the extent to which the Bank may make use of country institutions or needs to require alternative project-specific institutional arrangements. Finally, it provides a basis for support of country efforts to improve the performance of their public financial management (PFM) systems.

Public Sector FM Diagnostic Tools

The Country Financial Accountability Assessment (CFAA) is a key financial management diagnostic tool designed to enhance the Bank's knowledge of financial accountability arrangements in a country. Information obtained from the CFAA, taken together with that obtained from other Bank diagnostic products and other sources supports the preparation of an integrated fiduciary assessment.Therefore CFAAs are also often prepared jointly with the Bank's Public Expenditure Reviews (PERs) as well as Country Procurement Assessment Reports (CPARs). Also, the Public Expenditure and Financial Accountability (PEFA) Secretariat has issued a Public Financial Management Performance Measurement Framework (PEFA Framework) in 2005. This is a new PFM tool that covers the wide spectrum of PFM. FM staff work in close collaboration with the Public Sector & Governance and Procurement sectors of the Bank, and with other development partners in country to undertake this analytic work. As part of the general support program for the improvement of public sector accounting and auditing, the World Bank, with the cooperation of member governments, is conducting assesments on Public Sector Accounting and Auditing - A Comparison to International Standards in member countries. This is a relatively new initiative that has been launched by the South Asia Regional FM unit.

The Bank also draws on PFM diagnostic products of other donors—for example, the IMF's Fiscal Transparency ROSC and IMF's Central Bank Safeguards Assessment, HIPC Assessments, Financial Management and Governance reviews by the African and Asian Development Banks, and Audits by the European Commission. In addition, many borrower countries have institutions and processes that provide valuable insights on PFM performance. These include published government accounts, reports by supreme audit institutions, proceedings of parliamentary oversight bodies and work done by research bodies.

Private Sector FM Diagnostic Tool

The Report on Observance of Standards and Codes Accounting and Auditing (ROSC-A&A) review evaluates a country's accounting and auditing standards and practices in the private sector, using international standards and practices as benchmarks. It also analyzes the strengths and weaknesses of the country's institutional framework that underpins the accounting and auditing practices. The ROSC-A&A is coordinated with Financial Sector Assessment Program reviews and ROSC reviews on Corporate Governance and on Insolvency and Creditor Rights. Published audit reports and the work of market and financial institution regulators also provides valuable insights on the private sector performance. FM staff also carry out or facilitate less formal but nevertheless structured reviews of other dimensions of the private sector—for example, reviews of the performance of public and private sector auditors to assist the Bank in determining the acceptability of auditors of Bank-financed operations.

Inter-agency cooperation on country analytic work

Additionally, with respect to country assessments, the Country Analytic Work (CAW) Joint Website has been developed among several development partners, including the World Bank, to facilitate coordination and cooperation among countries and donors. Through an active exchange of information, all partners stay up to date on development challenges and successes in a particular country or region with the benefit of common thematic activities and diverse opinions.  The CAW website provides a document library, contact points, access to a range of diagnostic products, procedures and examples of best practices.

For further information contact Sanjay Vani, Svani@worldbank.org, tel. +1-202-458-4885.