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

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Lessons Learned on Costing, Prioritization and
Operationalisation PRSPs and MDGs

• Raj Nallari, World Bank Institute, PREM
• Antoine Heuty, UNDP New York
• Vientiane, October 20th, 2004

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Outline

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

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I/ Rationale for costing and Prioritization
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Rationale for cost estimates

• Strategic choice for achieving NGPES-MDG goals
  may be helpful in answering two kinds of
  questions
• Should an end be pursued ?
• The feasibility of achieving NGPES-MDG goals,
  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.
• 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?

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Objectives of NGPES Costing

• To estimate the needed financial resources to
  implement the planned interventions of NGPES.
• To inform budget preparation and lay out
  tradeoffs for policy-makers.
• To present alternative scenarios to Laos
  Government in order to identify policy and
  financing options to identify the appropriate
  strategy to reach NGPES-MDG goals

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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
• While costing is technical in nature,
  prioritization is a political process which needs
  to be owned and driven by government and
  decision-makers

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II/Approaches to Costing
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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
  resource requirements assessments based on sector
  or program analysis and resource availability
  based on econometric estimation of growth and
  resource envelope

(3) OPERATIONALIZATION
(1) COSTING - Resource requirement -
Resource availability
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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.

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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.

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III/ The PRSP Experience
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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

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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

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MTEF
STAGE CHARACTERISTICS
Development of Macroeconomic Framework Macroeconomic model that projects revenues and expenditure in medium term
Development of Sectoral Programs Agreement on sector objectives, outputs, and activities Review and development of programs and sub-programs Program cost estimation
Development of Strategic Expenditure Framework Analysis of inter- and intra-sectoral trade-offs Consensus-building on strategic resource allocation
Definition of Sector Resource Allocations Setting medium term sector budget ceilings
Preparation of Sectoral Budgets Medium term sectoral programs based on budget ceilings
Political Approval Presentation of budget estimates to cabinet and parliament for approval
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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

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• 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

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IV/ Costing the MDGs
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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.

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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.

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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

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Millennium Project MDG Based Poverty reduction
Strategies (PRS)

• Pilot countries Cambodia, Ethiopia, Kenya,
  Ghana, Dominican Republic, Yemen, Tajikistan
• Developing MDG-based Poverty Reduction Strategies
  requires to
• 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.
  

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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

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Making sense of MDG Costing

• Domestic vs. external funding
• Financing vs. costing
• Short- and medium-term vs. long-term costing
• Ownership vs. donorship