Supporting Efficient Public Financial Management in Nepal

In the remote district of Jajarkot in Nepal, a disabled man named Bhim Bahadur Singh recently started receiving a monthly disability allowance. He had no knowledge that he was even entitled to this payment until a civil society organization came to his village and raised awareness about these rightful entitlements.

In another district, Palpa, it used to take weeks for government school teachers to receive their salary. Now, teachers receive their salary on the same day that the District Treasury Comptroller Office (DTCO) issues their cheques, due to the introduction of the Treasury Single Account (TSA).

Meanwhile, for communities in Baglung, the municipal budget no longer signifies lengthy, confusing and arbitrary numbers. They have come to realize that these numbers mean development, their own as well as that of the country.

Reforms in the way public funds are managed in Nepal have come about because of the concerted efforts led by the government and supported by development partners and civil society to promote better public financial management (PFM) in the country. It is a key element in the government’s efforts to strengthen governance, optimize outputs from public resources and ensure inclusive and broad-based development.

PFM Reforms in Nepal

Strengthening public financial management means ensuring performance, transparency and accountability in the use of public funds.

In Nepal, this includes ‘supply side’ initiatives to strengthen systems and processes as well as ‘demand side’ interventions to strengthen institutions of accountability and civil society to enhance their oversight of PFM processes.

Supply side initiatives include strengthening systems and processes like supporting the implementation of treasury single account (TSA) system, which is at the same time a cash management optimization system and an IT system that tracks down the spending process through payments; the strengthening of public sector accounting through progressive implementation of international standards; the modernization of external audit in the public sector through support of the Office of the Auditor General in Nepal (OAGN) and strengthening the PEFA Secretariat. Demand-led initiatives include supporting civil society organizations’ use of social accountability to make sure public spending responds to actual demands and that results are commensurate to commitments.

PFM reform has progressively become a top priority for development partners in Nepal. The establishment of a Multi Donor Trust Fund (MDTF) was an important step in harmonizing development partner support, with funding from DFID, Norway, Denmark, Switzerland, Australia DFAT, USAID, EU and administered by the World Bank.

Achieving Results

The main aim of strengthening PFM in Nepal is to improve resource management and increase awareness and oversight of government PFM processes by diverse constituencies. Over the past few years, Nepal has managed to achieve significant results -

•  Rolling out TSA - The Treasury Single Account (TSA) system is a unified structure of government bank accounts that gives a consolidated view of government cash resources. In Nepal, the TSA has been rolled out in all 75 districts a year ahead of the planned schedule, a process which takes several years in most countries. This means processing budget expenditures, which previously would take hours, even days, has now shortened to simply a few minutes.
  
  Alongside improved management of idle cash balances, this complete rollout has helped centralize payments at DTCOs. Out of 14000 bank accounts, about 13,717 have been closed through the TSA intervention which has saved around USD 2 million for the government. The TSA system was even able to withstand the 2015 earthquakes and damaged infrastructure was resurrected within a day after the earthquake.

•  PEFA Assessment - The Public expenditure and Financial Accountability (PEFA) framework is an internationally approved tool to measure performance in PFM using standard indicators. It provides the foundation for evidence-based measurement of countries’ PFM systems. In Nepal, the PEFA assessment has been carried out twice by the government with support from the World Bank. With the completion of the second PEFA assessment, which has shown progress in 61% of per4formance indicators from 2010 to 2015, the government has developed a new PFM reform action plan that adopts a holistic approach to PFM reforms encompassing both institutional and technical aspects. It has been approved by the National PEFA Steering Committee in March 2016.
•   Strengthening the OAG – The Office of the Auditor General is an independent, constitutional body which is mandated to carry out audit of all Government offices and organizations. Through the support of the PFM MDTF, the OAG is moving towards a risk-based auditing approach. Another unique initiative in this area is promoting citizen engagement in the performance audit where the OAG engages CSOs in the auditing process. The pilot has already been conducted in the field of health, social security entitlements and local governance in collaboration with the CSOs in four districts of Nepal.  
  
  While the auditors lead the process, the involvement of CSOs in the audit process can enhance the scope and quality of the audits. Being locals, they know the issues and can perform field surveys better. The CSOs can also be effective in follow-up and monitoring of audit observations and can raise awareness on impact of corruption or inefficiency in an organization.
•   Supporting Civil Society Organizations – The demand side initiatives include strengthening the use by civil society organizations of social accountability to improve PFM. The Program for Accountability in Nepal (PRAN), supported by the World Bank, aims at developing the capacity of civil society and government actors to promote social accountability. Through this initiative, CSOs have been trained on accountability tools, subsequently informing citizens about the budget process and what the budget brings to them as benefits, rights, and obligations. This process has allowed many citizens to claim their benefits in full.

The Way Forward

Though the achievements in the PFM reform process have been significant, there is still a long way to go. PFM is the necessary link between policy vision and actual realization. The policy vision of Nepal is to increase the provision of key services to citizens in sectors like health, education, agriculture, transportation or post-earthquake reconstruction and renew with recent performance in economic growth. This vision needs to be translated into appropriate budgeting and allocations; performance mechanisms and supervision and control systems.

The Government of Nepal, the World Bank, and development partners remain committed to supporting wider PFM reforms so that the people of Nepal can benefit fully and inclusively from greater economic and social progress and receive better public services.