Risk Management Framework for Budget Support Prepared for the OCT TAO Training Workshop 9-10 December 2013 European Commission - DG DEVCO Unit 03 Budget Support and Public Financial Management 1
1. Why do we need a RMF? Special Report on BS Management (ECA Dec 2010) Need to assess fiduciary and development risks at the outset and during implementation. Budget Support Communication (10/2011)Specific budget support risk profile covering five risk categories RMF tool in programming, design, and implementation Link with eligibility criteria and FV? Anticipating potential eligibility problems 4th High Level Meeting on Aid Effectiveness in Busan Risk Management Tools are widely used by donors (incl. MS) Management rather than avoidance of risks 2
2. What is risk management? (1) Risk is any event or issue that could occur and adversely impact the achievement of the Commission s political, strategic and operational objectives. Identification & Assessment Risk Response & Mitigation Risk management is a continuous, proactive and systematic process of assessing, mitigating, and monitoring risks. Monitoring & Reporting 3
2. What is risk management? (2) Risk assessment is an input into the BS programme cycle. It serves as an early warning system for important new risks. For OCTs it will also be used to assess eligibility. 4
3. How to assess risks? (1) Focus is on country systems and risks that may impede achieving the general objectives of budget support. One assessment per country/oct Based on existing assessments of eligibility criteria etc. Risk Questionnaire: Risk identification Risk register: Main risk management tool (risk identification, risk mitigating, risk monitoring) Country Risk Profile: Summary for decision-makers 5
Fundamental values 3. How to assess risks? (2) RISK MANAGEMENT FRAMEWORK Political Risks Macroeconomic Risks Developmental Risks PFM Corruption / Fraud Human Rights Macroeconomic Policies and Financial Sector Public Policy Comprehensiveness of the Budget Corruption & Fraud Democracy Debt Sustainability Government Effectiveness Controls in Revenue Collection & Budget Execution Rule of Law Vulnerability and Exogenous Shocks Procurement Insecurity and Conflict Not for OCTs External Audit 6
3. How to assess risks? (3) 7
3. How to assess risks? (4) 8
3. How to assess risks? (5) Country Risk Profile Highlighting key elements of the assessment based on the risk register Major risks and benefits Key mitigating measures Overall recommendation Average ratings on country and category level Risk levels and risk trends 9
4. How to address risks? (1) Mitigation Should be the most common response to risks Is a joint effort of partner country & donors Imply elaboration and implementation of clear and comprehensive action plan to address key risks (substantial / high risks) 10
4. How to address risks? (2) Mitigating Measures Further Analyses and Surveys: Public Expenditure Tracking Surveys, Public Expenditure Reviews, etc. Capacity Development Enhancing transparency, accountability and participation in the budget process (demand-side) Conditions for the disbursement of variable tranches Requirements and safeguards as specific conditions Adapt design features of the contract: duration, tranches, targeted aid, etc. 11
5. How to monitor risks? (1) Check that identified risks are adequately managed Assess the implementation progress of mitigating measures Identify any new risks or changes in circumstances Regular yearly up-date of risk questionnaire, risk register, and country risk profile 12
Country Macroeconomic Policies and Financial Sector Debt Sustainability Vulnerability and Exogenous Shocks Public Policy Government Effectiveness Comprehensiveness of the Budget Controls in Revenue Collection and Budget Execution Procurement External Audit Corruption and Fraud Average Risk Macroeconomic Risk Developmental Risk PFM Risk Corruption and Fraud Anguilla Falkan Islands Greenland Montserrat Nouvelle Calédonie Pitcairn Saint Helena, Ascension, Tristan da Cunha St Pierre et Miguelon Turks and Caicos Aruba Mayotte 13
Thank you. 14