Why this heat map?


Introduction

The development of this heat map report was undertaken by GIZ as part of AFROSAI’s contribution to the XXII International Congress of Supreme Audit Institutions (INCOSAI), which under Theme 1 proposes several approaches that would allow Supreme Audit Institutions (SAIs) to contribute to the achievement of Agenda 2030.

In April 2016, SAIs from across Africa gathered in Yaoundé to reflect on the relevance of the Sustainable Development Goals (SDGs) for their work. Their discussions emphasised that to remain relevant they needed to focus their work on improving public financial management (PFM) systems so that funds can be efficiently and effectively used to attain the SDGs.

In a position paper published ahead of INCOSAI XXII, AFROSAI emphasised that most African countries aim to achieve more transparency and efficiency through the promotion of good governance and accountability. AFROSAI suggests that SAIs can contribute to this outcome in the following ways:

  • Through advocacy for the improvement of PFM
  • By facilitating the widening of the audit scope to include the audit of performance information
  • By using audit results to identify common challenges to financial management and good governance.

To deliver on this, GIZ decided to develop a heat map that graphically presents data on the state of public finances in selected African countries. First published in a report in 2016, this information is now also available online to the wider interested public. Users can access the data base by selecting indicators and thereby create their own heat maps It is also possible to select several indicators (up to four) and compare results for up to six different countries. . These maps and infographics are meant to raise awareness among public sector auditors, public finance experts and other interested stakeholders, about the strength and weaknesses of public financial management in Africa. The heat map goes beyond looking at the performance of PFM-processes, and also assesses the broader political economy and governance context within which the PFM system operates, in line with the Good Financial Governance (GFG) approach promoted by the German government


Methodological approach

There is a wealth of data, studies, and assessments of public finances in the public domain. Many of them contain valuable information for SAIs and deserve to be adequately analysed. This includes the work undertaken by international organisations, think tanks, nongovernmental organisations (NGOs), and other initiatives. This heat map has been conceived to present and analyse data from trustworthy sources that can help SAIs improve the way public finances are managed. More than just data from a variety of sources, the heat map also looks at linkages between the different dimensions of GFG, offering a new perspective on the state of public finances in Africa.

The authors of the heat map have chosen to focus on a specific set of data that was deemed relevant for this purpose. As a first step, a thorough analysis of publicly available indicators and assessments in the field of public finance was conducted. The concept and the methodology for the heat map were subsequently developed in a participatory process involving specialised African partner networks of GIZ’s GFG in Africa program on tax, budget and audit (African Tax Administration Forum (ATAF), the Collaborative African Budget Reform Initiative (CABRI), AFROSAI, and AFROSAI-E). The partner networks shared their views, made suggestions, and offered support in the form of comments and data. These discussions confirmed that the examination of the PFM systems should not be limited to technical issues

Showing a broad picture, which includes the technical PFM dimension of GFG and the normative and political economy dimensions, allows for the detection of possible linkages and correlations. The approach firstly tries to establish if there is a correlation between PFM processes, budgetary outcomes, and the development progress of a country, as measured by the achievement of millennium development goals (MDGs), or in the future by the SDGs. Secondly, the approach seeks to identify to what extent these relationships are influenced by contextual factors such as governance, politics, and economy. To the knowledge of GIZ, there is no theoretical model that explains such relationships; and with the heat map approach, GIZ did not aim to create such a model. Rather, this report tries to recognise critical areas in PFM processes to: (i) develop assumptions about functional linkages between these and budgetary outcomes, (ii) identify consequences in terms of the achievement of development goals, and (iii) inspire further research to confirm or reject this approach.


PFM core processes and outcomes

It is widely accepted that budgets serve three essential outcomes: (i) guaranteeing fiscal sustainability, (ii) implementing policy priorities, and (iii) ensuring efficient service delivery. The country profiles assess the functionality of PFM systems with regard to these:

  • Fiscal sustainability focusses on the affordability of a country’s spending decisions, with revenues, expenditure, and debt performance being the most important fiscal indicators. It is a key outcome as it ensures that financial decisions do not preclude a country’s future capacity to fund its budget.
  • Implementation of policy priorities relates to whether policy priorities are being implemented effectively. It assesses how functional the system of planning, execution, and oversight is, and ensures that it serves as an instrument to translate political will into practical action. This requires budget credibility on the technical side, a functioning link between budget planning and execution, and effective audit and parliamentary institutions.
  • Efficiency in service delivery reaches out towards the results of PFM by checking if there are mechanisms in place to ensure that public expenditure is productive in delivering public services. Cash management, procurement, internal control systems, and internal audit are all key PFM indicators in ensuring this linkage between the PFM system and service delivery by line ministries, departments and agencies.

According to the pyramid shown in figure 1, a distinction can be made between:

  • the process level, which includes different PFM subsystems such as revenue management, budget planning and implementation, financial reporting, and internal and external oversight; and
  • the outcome level, which uses key indicators to assesses whether fiscal sustainability, policy implementation, and efficient service delivery are in place.

This distinction is illustrated by an example from fiscal sustainability: debt sustainability analysis is a process that reduces the risk of a debt crisis, while the primary balance is an outcome that indicates if fiscal policy is sustainable. One would expect some correlation between the process and the outcome level, however, sound development results can be observed without solid systems and conversely solid systems do not automatically lead to good results. Such occurrences do not necessarily reject the hypothesis that there is a relationship between process and outcome, i.e. debt sustainability analysis and primary balance. Indicators are assessed by humans, with grades depending on the availability of information, understanding context, the ability to convince others in ratings discussions, and so on. This complex set of factors contribute to a somewhat blurred picture. An attempt was made to counter these pitfalls by selecting, to the extent possible, indicators that rely on trusted data sources and measure function over form.

Research and analysis was drawn from existing indicators and assessments. The main data sources include the public expenditure and financial accountability (PEFA) assessment, the International Monetary Fund (IMF), ATAF, CABRI, the African Organisation of English-speaking Supreme Audit Institutions (AFROSAI-E), Global Integrity, and World Development Indicators. While indicators may vary in scope and nature, the diversity of sources creates a sufficiently broad picture. One of the objectives of this heat map is to highlight which sources and data are available, and to point out gaps therein that need to be addressed.

Relevant indicators were identified from these sources for each of the three PFM outcomes and corresponding processes. While this system sounds clear enough in theory, the attribution of existing PFM indicators to one of the core processes or outcomes is not always straightforward, and some indicators may speak to more than one of the fields. The choice reflects the best understanding of the conceptual linkages, but there may be different interpretations or groupings with similar merits.

Enabling environment

This section explores the broader context of the PFM setting. The enabling environment includes:

  • The economic context
  • Political economy
  • Corruption and anti-corruption
  • Governance

It can be assumed that each of these areas has some influence on the form and function of various sub-spheres of PFM: poverty and economic crises can erode a country’s ability to deliver services effectively, an adverse political economy can obstruct the effectiveness of audit institutions and parliaments, and corruption can undermine service delivery and paralyse administrations. The governance sphere, including aspects of transparency, political freedom, and the rule of law, is crucial for citizens to hold governments to account. This ensures that the budget serves as an instrument to execute the political will of a country’s population. Main sources of information include Global Integrity, the Bertelsmann Transformation Index (BTI), and various specialised NGOs such as Transparency International and Afrobarometer.

Developmental impact

The data base includes data on African countries’ state and pace of development. The achievement of the MDGs provides a relative measure of progress since 2000, with another subset of indicators added to illustrate the absolute level that has been reached. These indicators include the Human Development Index (HDI) and a sample of data on poverty, inequality, health, and education. This data is taken from World Development Indicators and the MDG Track.

Again, developmental successes and failures do not follow from the state of a PFM system or its environment in a mechanical way as there are many economic, social, and cultural factors not covered by the heat map. But inter-linkages between these levels can still be expected. The heat map is not about proving such connections in a scientific way. Rather, it is an invitation to think about them and an indication of where to look for them.

Colour coding

The indicator scores were translated into a colour code, where green, yellow, and red respectively signify a good, critical, and poor situation. The threshold values for indicators were defined on a case-by-case basis using international benchmarks, the Sub-Saharan Africa average, and expert opinions.

The indicators are not aggregated and stand apart from each other. Aggregation was avoided due to methodological difficulties associated with weighting the indicators. The heat map does not support a comparison or ranking of countries beyond the comparison of single indicators.

Text passages

The text passages in each country sheet refer to the respective indicators. Not all indicators are interpreted as focus is placed on critical aspects or areas. The explanations are not confined to the indicators, and include necessary background or additional information given conflicting indicator rankings or more recent developments since the initial assessment. Although the text passages are not uniform, they capture the essential information needed for a functional understanding of the indicators and PFM related situation in each country.

Ghana (PDF), Kenya (PDF) , Malawi (PDF), Mozambique (PDF), Senegal (PDF), Tanzania (PDF), Uganda (PDF)

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