The broad objectives of PFM are to achieve overall fiscal discipline, allocation of resources to priority needs, and efficient and effective allocation of public services, according to OECD. While donors may use different definitions of PFM, most definitions focus on a country’s budget cycle, the process used to manage public resources. The budget cycle centers around four main phases: (1) budget formulation, (2) budget execution, (3) accounting and reporting, and (4) external oversight (see fig. 1). OECD states that PFM includes all components of a country’s budget cycle. A budget cycle starts with the budget formulation process, in which the government, often with legislative oversight, plans for the use of the coming year’s resources in accordance with policy priorities. After the government approves the budget and the new fiscal year begins, programming agencies and the ministry of finance, or appropriate entity, are responsible for executing the budget. They use the resources allocated to them for items such as salaries for public servants, operating costs for their offices, and goods and services delivered to their beneficiaries. The ministry of finance, or equivalent, manages the flow of funds and monitors and makes in-year adjustments to help ensure compliance with the budget and PFM rules. Throughout the fiscal year, each programming agency is to account for and record its expenditures. The ministry of finance centrally consolidates these accounts. At the end of the fiscal year, the ministry of finance, or equivalent, issues an accounting report that demonstrates how the budget was implemented. External or independent entities, such as a country’s supreme audit institution, may review this report. The audit institution reviews the government’s revenue collection and spending and issues its own statement on the execution of the budget and the strength of the PFM systems. In many countries, the institution presents this audit report to an appropriate government entity for further scrutiny and action. PFM processes involve a number of governmental entities. While the ministry of finance is generally the focus of a country’s PFM system, PFM extends to all public ministries that are charged with delivering services or have spending authority. Civil society, donors, and oversight institutions, such as a country’s supreme audit institution, also help to ensure the proper management of public funds through external scrutiny and review. Broad PFM assessments conducted by international organizations report improvements in countries’ PFM systems, as well as continued weaknesses. Several international organizations, including the Public Expenditure and Financial Accountability (PEFA) program, World Bank, International Budget Partnership, and Transparency International, have developed assessment tools to assess broad aspects of PFM systems.These assessments have highlighted varying levels of progress in improving PFM systems around the world, and the last two have identified relatively low levels of transparency in many countries’ budgets and high levels of corruption, respectively. More specifically: PEFA: A 2010 monitoring report on the PEFA program, released by the PEFA Secretariat, found that while PFM systems were improving overall, progress varied among elements of countries’ systems. The PEFA secretariat’s analysis, based on a comparison of 33 repeat PEFA assessments from 2005 through 2010, showed that more countries had a higher number of improved versus worsened scores, indicating a broad trend of PFM improvement across the countries surveyed. According to the analysis, country actions taken to strengthen PFM features in the earlier stages of the budget cycle, such as planning, are more likely to improve or maintain a high score than actions taken later in the budget cycle, such as control and oversight of actual spending. World Bank: According to our analysis of the World Bank’s quality of budgetary and financial management indicator scores from 2005 through 2010, slightly more than one-third of the countries assessed showed improvements in the quality of their PFM systems, while one- quarter of the countries showed a worsening in the quality of their PFM systems. International Budget Partnership: In its 2010 open budget survey of 94 countries, the International Budget Partnership concluded that the state of budget transparency was poor. Only about 21 percent of the countries surveyed had open budgets while 44 percent of countries provided limited to no budget information. Nonetheless, the survey found the trend toward open budgets was favorable based on substantial improvements in budget transparency, especially among countries that had provided little information in the past. Some of these governments achieved improvements by simply making budget documents available on their websites. Transparency International: The organization’s Corruption Perceptions Index showed that nearly three quarters of the 178 countries in the index scored below 5, on a scale of 10 (very clean) to 0 (highly corrupt), indicating what it categorizes as a serious corruption problem. For further information on each organization’s assessment tools and selected results, including the percentile rankings of our six case study countries in selected PFM diagnostic tools, see appendix II. Donors and recipient governments have increased their attention to strengthening PFM systems, recognizing that strong and effective PFM systems underpin fiscal and macroeconomic stability, guide the allocation of public resources to national priorities, support the efficient delivery of services for poverty reduction and economic development, and make possible the transparency and scrutiny of public funds. In 2003, OECD’s Development Assistance Committee established a Working Party on Aid Effectiveness, which has played a critical role in establishing an initial international donor coordination framework and setting goals for donors and aid recipient countries to strengthen PFM. The working party has sponsored four global development forums since 2003. The second forum, held in Paris in 2005, resulted in the Paris Declaration on Aid Effectiveness which included broad commitments by recipient governments and donors to strengthen PFM systems and use those systems as appropriate. More than 100 countries and aid agencies, including the United States, endorsed the declaration. By signing the declaration, recipient governments made clear commitments to strengthen their systems to the maximum extent possible, and donor governments made clear commitments to use those systems wherever possible. These commitments were renewed and refined in the subsequent forum in Accra, Ghana, in 2008. The most recent forum was held in Bussan, South Korea, in 2011. (See table 1.) USAID and Treasury are the two main U.S. agencies providing PFM- related assistance. Combined, the two agencies have PFM-related projects in 70 countries in all regions of the world, as shown in figure 2. State also conducts some PFM-related activities, although it has not funded programs. See appendix III for details on State’s PFM activities. USAID provides PFM capacity-building activities through its development programs and is seeking to provide more of its assistance through recipient countries’ financial systems. Capacity-building activities to strengthen PFM systems are typically part of broader democracy and governance (DG) or economic growth (EG) programs. PFM activities that are included as components of DG programs typically address the areas of legislative function and processes, public sector executive function, local government decentralization, and anticorruption reforms. PFM activities included as components of EG programs typically address fiscal and monetary policy issues. USAID has identified DG and EG programs with PFM components in over 60 countries since 2007. However, according to a USAID official, USAID cannot determine the total funding for PFM activities because it does not collect data at a sufficiently detailed level to precisely identify PFM activities. Therefore, the official reported that USAID is unable to separate PFM assistance from other assistance in larger DG and EG development programs. In 2011, total funding for DG programs was $1.7 billion, and for EG programs, $4.2 billion.appendix IV. For illustrative examples of USAID PFM-related projects, see In addition to PFM capacity-building programs, USAID is seeking to increase the use of recipient country PFM systems to deliver assistance. As part of its implementation and procurement reforms under its institutional reform agenda, known as USAID Forward, USAID has announced an agency target of obligating 30 percent of its annual assistance through local systems, including both partner country PFM systems and local not-for-profit and for-profit organizations, by fiscal year 2015. Treasury’s OTA provides technical assistance through advisors who work in-country within the finance ministry, the central bank, or other government entities. OTA’s program consists of five core areas, as follows: Budget and Financial Accountability helps foreign governments reform and strengthen their PFM systems in order to promote control, accountability, and transparency over resources, and to improve a country’s overall financial condition. Banking and Financial Services promotes strong financial sectors in which institutions are well regulated, stable, and accessible; serve as efficient intermediaries between savers and investors; and are resistant to criminal activity. Government Debt Issuance and Management helps host countries implement sound public debt management practices and develop markets through which the government can finance itself. Economic Crimes helps counterpart governments build their capacity to prevent, detect, investigate, and prosecute complex financial crimes. Revenue Policy and Administration provides assistance to ministries of finance and other relevant organizations that strengthens their ability to serve the country and its people through the efficient and responsible collection of revenues. OTA provides both long-term resident and intermittent advisors. Long- term resident advisors provide advice and training to ministers of finance, central bank governors, and other government officials. Country engagement typically lasts between 2 and 10 years, according to an OTA official. Intermittent advisors provide highly specialized technical assistance in support of long-term projects, projects requiring several different specialties, and projects of short duration. According to an OTA official, they currently have about 70 advisors in roughly 50 countries. In 2011, OTA’s total funding was $44.5 million, with $25.5 million in direct OTA appropriations and $19 million in transfers from other agencies, including State, USAID, and the Millennium Challenge Corporation. For illustrative examples of OTA technical assistance projects, see appendix IV.