1 joint donor staff training activity tanzania, 17 - 19 june 2002 partnership for poverty reduction...

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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 modulePart 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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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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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 implementationand channelled through governments’ own financial management and accountability systems

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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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Budget as a key development tool and

governance issueWhy 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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Typically, reality is far from the ideal:

• Aggregate expenditure ceilings are unrealisticbecause 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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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 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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HIPC trackingPurpose 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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HIPC trackingInterim 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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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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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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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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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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Coverage of FRA tools:

• PEM in broadest sense, including revenue

• Audit capacity

• Procurement

• Public accountability - parliamentarians, CSOs

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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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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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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

1 joint donor staff training activity tanzania, 17 - 19 june 2002 partnership for poverty reduction...

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