In the past two decades, many countries have undertaken reforms of their public financial management (PFM) systems. It was expected that strengthened PFM systems would contribute to achieve the three key PFM outcomes (i) aggregate fiscal discipline, (ii) strategic allocation of resources, and (iii) efficient ser-vice delivery. Many of the reform initiatives focused at the central government (CG), but increasingly involved subnational governments (SNGs).
The shift towards SNGs happened in the context of transferring responsibilities and resources from the central to lower level of governments. Moreover, sub-national expenditure has been growing increasingly WorldBank (2013a). However, the majority of SNGs have not developed institutional capacities at the speed necessary to make them as effective in the provision of services that their citizens now demand (WorldBank, 2013b). It is the assumption that a greater focus on service delivery and, therefore, PFM in SNGs will lead to more effective service provision throughout the world and thereby contribute to achiev-ing the sustainable development goals (SDGs).
With the Public Expenditure and Financial Accountability (PEFA) program, a framework for assessing and reporting on the strengths and weaknesses of PFM was established in 2005 (World Bank, 2005). An upgraded PEFA framework was published in 2016 (PEFA, 2016a). The PEFA 2016 Framework provides an overview of the PFM system and evidence-based measurement against 31 performance indicators (PI). Supplementary guidance for subnational PEFA assessment (PEFA, 2016b) offer recommendations on how each of the PEFA dimensions and indicators can be applied or modified to better suit the character-istics of subnational governments.
In a recent analysis the PEFA Secretariat summarized that overall 244 PEFA assessments reports have been prepared at the subnational level, which have assessed 203 different SNGs (PEFA, 2018). Although the number of SNGs largely outnumber CGs, more PEFA assessments (352) were undertaken at CG level. Furthermore, the number of subnational PEFA assessment projects has only increased slowly in the past years and a large majority of the subnational PEFA assessment reports (57%) has been undertaken in Sub-Saharan Africa (ibid.).
Against the background of greater importance of SNGs and their role in service delivery as well as rela-tively moderate applications of the PEFA framework at SNG level, the PEFA Steering Committee (SC) decided to develop and assess options for future application of PEFA Assessments in SNGs. It is expected that a revised PEFA framework for SNGs will better reflect variation in intergovernmental fiscal arrange-ments across countries and subnational units within countries (PEFA, 2018) to increase the framework’s relevance and usefulness for SNGs.