Joint Donor Staff Training Activity Tanzania, 17 - 19 June 2002

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Joint Donor Staff Training ActivityTanzania, 17
- 19 June 2002
Partnership for Poverty Reduction Module 4 -
Links between PRSP, Sector Programmes and
Budgets Ken Robson
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Links between PRSP, Sector Programmes and Budgets

• Scope of the module
• Part 1
• new approaches reflecting the changing
  development agenda
• budget as a key development tool and governance
  issue
• fiduciary risk assessment - when is budget
  support appropriate?
• Part 2
• Ghana case study

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Links between PRSP, Sector Programmes and Budgets

• New aid approaches
• In low income, high aid dependent countries, the
  PRS is influencing how donors operate
• their increased engagement in the policy dialogue
  and moving upstream
• increased emphasis on partnering and ownership
• adoption of new lending and grant instruments
  such as Direct Budget Support (DBS)

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Links between PRSP, Sector Programmes and Budgets
Direct Budget Support (DBS), defined
as Provision of development funds directly to
recipient governments to be spent as part of
their budget. Provided in support of PRSP
implementation and channelled through
governments own financial management and
accountability systems
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Links between PRSP, Sector Programmes and Budgets

• Direct budget support - potential benefits
• facilitates a more programmatic approach
• encourages strategic dialogue and stronger
  partnerships
• strengthens in-country accountability
• avoids the pitfalls of project aid
• Requires comprehensive ex-ante assessment of
  fiduciary risk which requires partnerships
• within donor community
• between donor community and government

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Links between PRSP, Sector Programmes and Budgets

• Budget as a key development tool and
• governance issue
• Why is budget process important?
• In formulation phase - determines overall
  resource envelope
• - apportions
  funds to priority policy areas
• In execution phase - releases funds to the
  service delivery agencies, predictably
• In reporting phase - accounts for how the
  funds have been used

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Links between PRSP, Sector Programmes and Budgets

• Typically, reality is far from the ideal
• Aggregate expenditure ceilings are unrealistic
• because revenue forecasts are over ambitious
• Sectoral allocations have little correlation
  with policy priorities
• Spending levels within agencies are not linked
  explicitly to intended policy outputs
• Funds release is not predictable
• Expenditure reporting is late, inaccurate and
  incomplete
• So what hope is there for PRSP implementation?

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Links between PRSP, Sector Programmes and Budgets

• Medium Term Expenditure Frameworks (MTEF)
• Features include
• realistic assessment of resource envelope based
  on medium term macroeconomic projections
• medium term expenditure estimates for individual
  spending agencies based on clearly defined sector
  policies
• elements of activity and output budgeting
• Attempts to match available resources with the
  cost of policies

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Links between PRSP, Sector Programmes and Budgets

• Links between PRSP and budget need strengthening
• Ensure consistency of objectives, outputs and
  outcomes
• Make explicit the sectoral (and geographical)
  aggregate budget allocations, in line with PRSP
• Track expenditures, start to monitor impact
• Initiate Policy Review Hearings
• Start to report on performance, to all
  stakeholders

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Links between PRSP, Sector Programmes and Budgets

• HIPC tracking
• Purpose is to assess whether funds intended to
  achieve poverty reduction outputs have been
  deployed as planned
• Easy to say but difficult to achieve
• deficiency in coding structures
• expenditure reporting is weak
• demands of data management

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Links between PRSP, Sector Programmes and Budgets

• HIPC tracking
• Interim solutions
• tagging of expenditures in the coding system
• separate release of funds and bank accounts
• expenditure tracking studies and beneficiary
  impact assessments
• Long term solution - IFMIS, but proceed with
  caution

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Links between PRSP, Sector Programmes and Budgets

• Decentralisation - why important?
• Local government has a major role to play in PRS
  implementation, but
• individual countries are at different stages with
  implementation, which adds to the complexities
  around
• capacity constraints
• access to budgets/revenue
• roles and behaviour of sector ministries and
  central management agencies (Finance, Planning,
  Local Govt)

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Links between PRSP, Sector Programmes and Budgets

• Fiduciary risk assessment - when is budget
  support appropriate?
• What is fiduciary risk?
• From the donors perspective, it is the
  possibility that development aid expenditure
• will not be used for the intended purpose
• will not be accounted for accurately and on a
  timely basis
• fails to represent value for money

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Links between PRSP, Sector Programmes and Budgets

• Why is FRA important for donors?
• Helps discharge domestic parliamentary
  accountability obligation
• Provides a mechanism to move towards DBS
• Provides the basis for a jointly agreed
  programme of PEM reform with recipient Government

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Links between PRSP, Sector Programmes and Budgets

• How to complete FRA?
• Range of tools in use
• World Bank - PER, CFAA, CPAR, HIPC assessment
  and action plan
• IMF - Report on Standards and Codes (Fiscal
  Transparency), Red Cover reports of Fiscal
  Affairs Department
• DFID - Fiduciary risk assessment
• Others?

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Links between PRSP, Sector Programmes and Budgets

• Coverage of FRA tools
• PEM in broadest sense, including revenue
• Audit capacity
• Procurement
• Public accountability - parliamentarians, CSOs

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Links between PRSP, Sector Programmes and Budgets

• Results of FRAs reveal major weaknesses
• However, they
• provide a comprehensive assessment of the nature
  and scale of the risks
• enable fiduciary risk to be balanced against
  development benefit
• indicate ways to mitigate or manage the risks
• provide a benchmark against which to monitor
  progress

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Links between PRSP, Sector Programmes and Budgets
If fiduciary risk is assessed as manageable -
move to DBS with parallel TA to support PEM
reforms, if required If fiduciary risk is too
high - agree the processes and steps to mitigate
the risks over time, with TA support
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Links between PRSP, Sector Programmes and Budgets

• Continuing challenges
• Ensuring that budgets are aligned with PRSP
  objectives and targets - process becomes
  iterative and routine
• Performance , especially impact, is measured and
  reported
• Budget presentations become comprehensible
• Ministries of Finance are transformed