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Lessons Learned on Prioritization, Operationalisation and Costing: PRSPs and MDGs

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Title: Lessons Learned on Prioritization, Operationalisation and Costing: PRSPs and MDGs


1
Lessons Learned on Prioritization,
Operationalisation and CostingPRSPs and MDGs
  • Raj Nallari, World Bank Institute, PREM
  • Antoine Heuty, UNDP New York
  • Vientiane, October 20th, 2004

2
Outline
  • I/ Rationale for costing and Prioritization
  • II/Approaches to Costing
  • III/ The PRSP Experience
  • IV/ Costing the MDGs

3
I/ Rationale for costing and Prioritization
4
Rationale 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?

5
Objectives 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

6
Why 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

7
Questions 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.

8
II/Approaches to Costing
9
Approaches and Limits to Costings
10
Which 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

11
What 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.

12
Prioritization 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.

13
Tools 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

14
Reallocations 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.

15
III/ The PRSP Experience
16
PRSP-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

17
Short-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

18
MTEF
19
Preliminary 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

20
A 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

22
IV/ Costing the MDGs
23
Global 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.

24
MDG 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.

25
NEPAL 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

26
The 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.

27
Millennium 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.

28
The 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

29
Making sense of MDG Costing
  • Domestic vs. external funding
  • Financing vs. costing
  • Short- and medium-term vs. long-term costing
  • Ownership vs. donorship
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