Title: Lessons Learned on Prioritization, Operationalisation and Costing: PRSPs and MDGs
1Lessons Learned on Prioritization,
Operationalisation and CostingPRSPs and MDGs
- Raj Nallari, World Bank Institute, PREM
- Antoine Heuty, UNDP New York
- Vientiane, October 20th, 2004
2Outline
- I/ Rationale for costing and Prioritization
- II/Approaches to Costing
- III/ The PRSP Experience
- IV/ Costing the MDGs
-
3I/ Rationale for costing and Prioritization
4Rationale for cost estimates
- Strategic choice for achieving sustainable
development may be helpful in answering two kinds
of questions - A normative question Should an end be pursued ?
- The feasibility of achieving sustainable, given a
sufficient application of resources and adequate
policy and institutional reform , is not
generally in doubt. - However , the discussion implicitly supposes
that the commitment to achieving the objectives
is not unconditional. - An implicit rationale In the MDGs context,
convincing developing countries and donors that
the goals can be achieved without undue sacrifice
of other objectives. - An operational question How should an end best
be pursued? - Budgetary Planning needs, gaps, stickiness
(irreversibilities, cost of planning). - What is the most cost efficient approach to
achieving the development objectives?
5Objectives of NGPES Costing
- To estimate the needed financial resources to
implement the planned interventions of NGPES - To inform and guide budget preparation and the
difficult tradeoffs involved in squaring
resources with country needs - To present the difficult choices at future donors
conferences and seek policy and financing options
to relax these constraints
6Why costing prioritization matters?
- Lack of prioritization wish list
- Wish lists are not credible, not likely to be
implemented, and are likely to disappoint
domestic stakeholders - Wish lists are also less likely to attract
external financing in the form of budget support - Uncosted programs will not receive adequate or
predictable budgetary allocations, overall or
appropriate capital/ recurrent mix. And if no
costing, prioritization is impossible. - Prioritization depends on
- Comprehensive analysis of policy options
- Good costing
- Knowledge of aggregate resource envelope
- Feedback from participatory processes
-
7Questions to ask
- Is the allocation of expenditures consistent with
the strategic priorities and development
objectives, institutional capacities and
efficiency, and realistic cost estimates ? - This partly depends on the status of public
expenditure management - Quality of budget data for key programs
- Comprehensiveness of budget data, i.e., extent to
which all programs (including externally financed
projects) are included in an integrated budgetary
framework - Extent of progress toward a medium term
perspective to improve the capacity to undertake
pro-poor budget allocations over time.
8II/Approaches to Costing
9Approaches and Limits to Costings
10Which approach for costing NGPES?
- Costing of NGPES should be done on short and
medium term but consistent with Laos PDR long
term development vision - This approach needs to balance the focus on
ambitious development goals and the constraints
imposed by the macroeconomic framework - OBJECTIVE An iterative approach reconciling
bottom-up approaches based on sector or program
analysis and top-down (also called macro)
models based on econometric estimation of growth
and resource envelope
11What does prioritization mean?
- Prioritization is needed in both the choices of
policy measures and budget allocations consistent
with the achievement of NGPES goals. - Prioritization implies
- Analyzing all available policy options in order
to achieve NGPES goals - Limitingand sequencingthe set of policy
measures to those which can most likely be
achieved, given human resource and political
constraints, over the time horizon of the
strategy. -
- Prioritization leads to
- Identifying resource gap and assessing of
potential adaptation of macroeconomic framework
(foreign assistance, tax reform, borrowing) - Recognizing budget constraints, understanding of
costs and a willingness to reallocate budgets
from lower priority to higher priority sectors
and sub-sectors.
12Prioritization in practice
- Compare resource needs with resource availability
to identify resource gap - Assess budget constraints based on the aggregate
resource envelope, including both domestic and
external funds - Information from donors by sector
- Scope for increasing resource mobilization (ODA,
taxation, borrowing) - Base case should be that considered most likely
- Alternative scenarios needed in cases of higher
or lower than expected growth, external flows,
etc.
13Tools to assist in prioritization
- Need to begin with identifying the market failure
or distributional objective being addressed - Technical tools
- Cost effectiveness analysis
- Multi criteria analysis
- Social cost benefit analysis
- Each requires information on costs
14Reallocations and making budgetary tradeoffs
- This has inter and intra-sectoral dimensions
- Comprehensive examination of spending needed
not only poverty reducing expenditures - BUT non-discretionary spending (eg interest
payments pensions) limits scope for reallocation - Direct vs. indirect (short vs. long term) poverty
impact needs to be considered - targeted nutrition vs. tertiary schooling
- Growth versus redistribution
- roads to market or social assistance
- Under-investment in infrastructure risks future
growth -- e.g. Azerbaijan, lt2GDP - Capital vs. O M vs. salary. Within sectors,
somewhat easier than between sectors.
15III/ The PRSP Experience
16PRSP-Sector Programs-Budget
- Budget as a key development tool and
- governance issue
- Why is budget process important?
- In formulation phase - determines resource
envelope - - allocates 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
17Short-term measures to improve public financial
management
- In selected Ministries that are ready to move
ahead - adoption of an integrated Financial Management
System, or - improved manual procedures for recording
spending, and/or - Public Expenditure Tracking Surveys
- Improved budget classification systems
- Several PRSPs have proposed revising the budget
classification system in order to allow more
meaningful targeting and monitoring of public
expenditure - Strengthening Treasury operations to ensure more
timely release of funds and better reporting of
expenditure - Publication of quarterly or semi-annual budget
execution reports - Placing programming and execution of
foreign-financed capital expenditure on budget - ensuring full recording of externally financed
project expenditures in the governments accounts - Strengthening control institutions such as
Comptroller General
18MTEF
19Preliminary lessons from MTEF experience
- The importance of initial PEM conditions. The
MTEF is a complement to not a substitute for --
basic budgetary management reform - Budget comprehensiveness including donors
funds, and other off-budget spending, - Classification integrate capital and recurrent
budgets functional classifications, - Budget execution. Timely reporting (publication)
- Timely audit (and publication) underpinned by
sanctions against misappropriations of resources.
- 2. Sequencing and phasing of the MTEF reform
- Phased vertically (macro, sector, service
delivery) - Piloted horizontally (across sectors)
- Timing and elements tailored to capacity
20A good country case
- Consensus on priorities built through the
participatory process, built on ongoing programs.
Lower priority activities dropped/scaled down - ComprehensiveCritical to the success of the PRSP
is the need to implement only the PRSP - PRSP-budget link is central Budget preparation
scrutiny by MOF to ensure that line agency budget
submissions are consistent with the PRSP - Transition phase for donor activities
- Existing projects grand fathered
- All new projects must fit within PRSP priorities
- Annual review vehicles, envisaged as countrys
central policy review process - PER expenditures impacts
- PRSP review (annual progress report) complemented
by a comprehensive review every three years
21- Need for patience and perseverance
- Prioritisation and costing will likely need
continuing improvement in the context of
implementation and monitoring of the first PRSP - Prioritization and costing will only be possible
if the PRSP is linked to the budget process - MTEF can be valuable
- The MTEF should not be a parallel exercise, but
integrated with existing budget processes - the institutional arrangements for the MTEF
PRSP should be consistent in both exercises, and
recognize the central role of Ministry of Finance - Phasing-in of MTEF, by sector and functions,
needed
22IV/ Costing the MDGs
23Global estimates
- Zedillo Report The cost of achieving the 2015
goals would probably be on the order of an extra
50 billion a year. - The Banks initial estimates of the cost (to
donors) of achieving Goal 1 range between US 54
billion and 62 billion a year. Its estimates
of the cost of achieving the goal depend on ad
hoc assumptions concerning, poverty elasticities
of income, capital-output ratios, national
savings rates, and absorption constraints. - The Bank estimates the total cost of achieving
the other goals (by adding existing sectoral
estimates, as does the Zedillo commission) as
ranging between US 35 and 76 billion per
year.
24MDG needs assessment at the country level
- UNDP country offices have participated in a pilot
project which has attempted to estimate the cost
of attaining the MDGs in six countries. The
reports focused on six MDG targets income
poverty, primary education, child mortality,
maternal health, HIV/AIDS and water. - The Millennium Project is also preparing a number
of country case studies to map out the major
policies and investments required to achieve the
MDGs in the countries concerned. - The World Bank approach gives priority to the
Poverty Reduction Strategy (PRS) previously
defined by each country, and asks how, giving
priority to the objectives and strategy of the
PRS, the MDGs can best be achieved. PRSPs often
prominently feature macroeconomic policy
objectives that are not directly referred to
among the MDGs.
25NEPAL MDG COSTING
- Projection of resource requirement
- Relevant population forecast (e.g. 6 to 10 year
old in he education sector) - Identification of required inputs and norms based
on National plan (NGPES in the case of Laos) - Calculation of per unit norms of different
activities - Projection of resource availability
- Revenue Projection based on revenue/GDP ratio
- Projection of internal borrowing and foreign
assistance - Resource availability at the sub-sectoral level
is done independently from domestic and external
sources - Different growth scenarios are taken into
consideration - Projection of resource gap
- Resource gap resource requirement - Resource
availability - Resource gap is presented at two levels
- Resource gap from internal resource availability
(revenue borrowing) - Total resource gap includes foreign assistance
26The Philippines
- MDG financing study combines
- Expenditures to attain income poverty goal (MDG1)
- Sectoral MDGs
- Alternative scenarios are considered
- MDGs are fully integrated in National Plan
(Medium term Philippines development Plan
MTPDP) - Sensitivity analysis and resource requirements
calculated for alternative growth and population
scenarios - Resource availability calculated under two
alternative assumptions - Projected MTPDP budget
- Historical sector and sub-sector budget averages
- Based on alternative population and growth rate
scenarios, the study looks at the likelihood to
achieve the poverty target.
27Millennium Project MDG Based Poverty reduction
Strategies (PRS)
- Pilot countries Cambodia, Ethiopia, Kenya,
Ghana, Dominican Republic, Yemen, Tajikistan - First,
- Set tailored targets for 2015 and beyond (MDGR)
- Express them in intermediate targets and
actionable propositions for the short- and
medium-term (NGPES) - Estimate the cost of the intermediate targets so
they can drive the macro-economic and sectoral
policy frameworks as well as the national budget.
- Steps 2 and 3 are more technical in nature, while
step 1 must be driven by a process of political
economy.
28The limits of existing MDG Needs Assessments
Models
- Costing the MDGs is undermined by five main
weaknesses - The impossibility to define the optimal policy
framework ex ante (what is a good policy, a good
institution?) - Fixed absorptive capacity constraints
- The limits of the unit cost approach
- The interconnectedness between the goals
- Unpredictable future shocks
29Making sense of MDG Costing
- Domestic vs. external funding
- Financing vs. costing
- Short- and medium-term vs. long-term costing
- Ownership vs. donorship