madagascar per helping to link the budget to the prsp christos kostopoulos, ecspe dieudonne...
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Madagascar PER
Helping to link the Budget to the PRSP
Christos Kostopoulos, ECSPEDieudonne Randriamanampisoa, AFTP1
Madagascar PER: PRSP Budget
A. COUNTRY PROFILE
B. PRSP – Objectives, Implementation challenges, Recommendations
i. Macro
ii. Allocative
iii. Budget management
C. ACCOMPLISHMENTS (modest), LESSONS, AND NEXT STEPS
Madagascar PER: PRSP Budget A. Country Profile
Population of 17 million, 80 percent live in rural areas (2004); size of France and Belgium, Kenya, Thailand
Great underexploited potential for economic growth and development - including a rich natural resources, fisheries, tourism, textiles
Declining growth, due to poor policies
-20 -15 -10 -5 0 5
10
1966 1971 1976 1981 1986 1991 1996 2001 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4
GDP per capita (% growth) relative to SSA x So. Africa
–
Right scale
Left scale
Source: Live Database and IMF
Early 1990 reforms gradually pay off between 1997-2001; GDP gr. 4.6 avg. per.
Madagascar PER: PRSP Budget A. Country Profile
PRE-PRSP INDICATORS 2001
Poverty Indicators
Incidence of poverty (national) (%) 70
Rural (%)/ Urban (%) 77/44
Service Delivery Indicators
Roads on poor cond / sh of paved rds 80/11.6
Net primary school enrolments[1](%) 67
Repetition rate in rural primary school, 11th grade (%)
37
Pre-natal consultation, % 63
Infant mortality (out of 1000) 86
Immunization rate[2](%) 36
Electricity connections (% of households) 15
Water connections[3](% of households) 21
Source: EPM 1997, 1999, 2001.
Madagascar PER: PRSP Budget A. Country Profile
..as if that’s not enough..
2002: A political crisis in the first half of the year severely disrupted the economy
GDP contracted by 13 percent, inflation was 16 percent, drop in investment and collapse of revenues
Destruction of economic infrastructure (bridges, roads) and sharp rise in urban poverty
EPZs closed Poverty rose to 81% (simulation) ..respects ~10-political/reform cycle
2003: Economic recovery (9.8 percent of GDP growth –brought real incomes to 90% of pre crisis levels );
2004: Two cyclones, a sharp depreciation in the MGF and a collapse of vanilla prices
Madagascar PER: PRSP Budget A. Country Profile
Extended dialogue on PEM issues and excellent GOM-WB relationship
PEM-PFM Related activities2001 2002 2003 2004 2005
IPRSP Crisis BPs> PRSP PEM- AP>
PRSC1 PEM- AP2
AAP-1 CPAR CFAA
EUaudit
PER PER PERPrgBgt
Bud Cal
PER
PRSC2
02Bgt 03Bgt 04Bgt 05Bgt
PER 2003/04 was an opportunity for follow-up on previous PEM/PFM and stock-taking exercise; ask of service delivery
Madagascar PER: PRSP Budget B. PRSP Objectives and Implementation Challenges
PRSP Objectives: To promote rapid and sustainable development to reduce poverty by half in 10 years from 70% to 35%
PRSP Priorities Improving Governance Broad-based Growth (Transportation initially) Bringing Social and Material Security
(Education; Health; Security)
Madagascar PER: PRSP Budget B. PRSP Objectives and Implementation Challenges
PRSP Challenges
Implementation Challenge 1: Macro framework restrained Implementation Challenge 2: Expenditure composition not
fully aligned with PRSP priorities Implementation Challenge 3: Budget process (preparation and
execution) still poor and capacity is limited, despite efforts
Madagascar PER: PRSP Budget B. PRSP Objectives and Implementation Challenges
Implementation Challenge 1: Macro framework restrained PRSP was ambitious: 2004-2006 GDP gr 7.5%; Cap exp 10.2% GDP;
high deficit despite high debt: end 2001 101% Nominal GDP; But PRGF was more cautious: 2004-2006 GDP gr 6%; Cap Exp 8.7%
GDP Year 2003 turned out better than expected, and set GOM on a higher
expenditure path; although poor consensus on macro undermined MT planning
Need post 2006 framework.
Macroeconomic Frameworks PRSP and PRGF
4th Rev PRGF (Jul 03) PRSP Jul 03 5th Rev PRGF Dec 04
Average Average Average Average
2000-2001 2002 2003 2004-2006 2003 2004-2006 2003 2004-2006
GDP gr. 5.4 -12.7 6.0 6.0 6.0 7.5 9.8 6.3
CPI eop 6.7 13.5 7.0 5.0 8.0 5.1 -0.8 8.3
I/GDP 16.8 14.3 7.5 20.4 17.5 22.4 17.9 24.6
Rev + Grants 14.7 10.2 14.9 15.0 15.0 14.9 15.4 18.9
Revenue 10.9 8.0 10.6 12.0 10.6 12.0 10.3 12.4
Expenditures 16.8 15.7 18.2 18.5 18.2 20.1 19.5 22.5
Capital exp 7.0 4.8 7.3 8.7 7.3 10.2 7.8 11.4
Deficit -2.1 -5.5 -3.3 -3.5 -3.3 -5.3 -4.2 -3.6
Madagascar PER: PRSP Budget B. PRSP Objectives and Implementation Challenges
Implementation Challenge 1: Macro framework restrained (cont)
Recommendations Raise revenues Improve revenue forecasting Prepare annual budget framework papers to link resource
availability to PRSP objectives Prepare a post-2006 macro framework
Implementation Challenge 2: Expenditure composition not fully aligned with PRSP priorities
Percent of non interest expenditures Percent of GDP (data note)Pre-PRSP
2001 2003 2004Pre-PRSP
2001 2003 2004
Total 100 100 100 15.6 17.3 20.1
Governance 43.9 44.6 42.1 6.8 7.7 8.5 General Administration 37.9 35.5 32.8 5.9 6.1 6.6 o/w budget, fin. admin 25.1 26.0 24.5 3.9 4.5 4.9 Defense 2.4 3.9 4.1 0.4 0.7 0.8 Public security 3.5 5.2 5.2 0.5 0.7 1.0
Growth 28.2 25.3 26.4 4.4 4.4 5.3 Energy 1.7 1.5 1.3 0.3 0.3 0.3 Agriculture 5.8 4.9 5.2 0.9 0.8 1.0 Environment 2.5 2.4 2.3 0.4 0.4 0.5 Transport & Communication 13.3 11.2 12.9 2.1 1.9 2.6 o/w Transport 13.0 10.8 12.6 2.0 1.9 2.5 Others (incl Industry) 4.9 5.3 4.8 0.8 0.9 1.0
Social 27.9 30.1 31.5 4.4 5.2 6.3 Education 12.5 15.2 18.4 2.0 2.6 3.7 o/w Primary Education 2.3 6.4 6.1 0.4 1.1 1.2 Health 9.0 8.4 7.4 1.4 1.5 1.5 o/w Primary Health care 2.8 2.9 3.4 0.4 0.5 0.7 Others 6.5 6.5 5.7 1.0 1.1 1.1
..changes relative to GDP are modest
Despite efforts to prioritize within the envelope…
Budget Allocations
Implementation Challenge 2: Expenditure composition not fully aligned with PRSP priorities
Madagascar PER: PRSP Budget B. PRSP Objectives and Implementation Challenges
Implementation Challenge 2: Sectoral expenditure composition not aligned with PRSP priorities (cont)
Allocations not aligned with Business Plans/PRSP Marginal changes made in composition in favor of priorities (government, transport,
education) BUT.. ..impact on GDP ratios is minimal Excessive allocations to administration; Health sector allocation is still far behind the need; Agricultural sector is neglected; Not enough to Justice and environment sectors; High Degree of Centralization
Recommendations: (i) further prioritize (!!??), but this not easy except for some MOF expenditures (ii) increase envelope by raising revenues and receiving more external assistance (iii) look at sectoral policy issues that can affect intra-sectoral expenditures
(education, transport, environment)
Madagascar PER: PRSP Budget B. PRSP Objectives and Implementation Challenges
Implementation Challenge 3: Budget process still poor and capacity is limited, despite efforts
Recent achievements Prepared Public Finance Priority action plan (2004/05) and established
coordination committee in the Ministry of Finance to coordinate, monitor and evaluate reform agenda
Introduction of program budgets for 2005 Implementation of the recommendation of an audit on the treasury Putting in place of an integrated financial management system is
ongoing Preparation of the new procurement code Establishment of the General Inspectorate for Finances (IGF) Introduction of a results matrix for all ministries and departments
Madagascar PER: PRSP Budget B. PRSP Objectives and Implementation Challenges
Implementation Challenge 3: Budget process still poor and capacity is limited, despite efforts (cont.)
Outstanding issues Preparation
A weak macro and fiscal framework Restricted role of cabinet (in preparation and in accountability) Marginal involvement of line ministries in budget preparation process Line ministry capacity in preparation is weak
Need well elaborated strategies (objectives, institutional arrangements, costing - funding availability)
Available programmable envelope limited-inadequate non salary expenditures (e.g. education, transport and environment)
Execution - Disbursement of funds: Many processing steps to make payments (11 from commitment to execution) Limited time for budget execution: between April to October Weak cash management in place Procurement problems related to investment budget (accounting/accountability) A flawed system of financial monitoring (execution data of donor funded investment,
budget reporting system of line ministries, accounts of treasury; reliability of expenditure data)
Madagascar PER: PRSP Budget B. PRSP Objectives and Implementation ChallengesImplementation Challenge 3: Budget process still poor and capacity is limited,
despite efforts (cont.)Outstanding issues (cont)
Execution-Management A highly centralized public administration (only 3-4 percent of the national
budget is managed by the communes) Ineffective management and organizational structure (e.g. education,
transport and environment)
Recommendations
Tremendous training needs in the area of program budgeting, procurement and integrated financial management system
Developing a budget framework paper to strengthen macroeconomic framework preparation and make planning more transparent
Enhancing the role of Cabinet and strengthen participation of line ministries at different stages of budget preparation process
Introducing a coherent results-based management framework (linking business plans and program budgets to PRSP, regular implementation reports)
Madagascar PER: PRSP BudgetSummary of linkages b/w Budget and PRSP
Presidential commitment to PRSP (end 02 for 03B) Including PRSP Business Plans (end 02 for 03B)
Strengthening of revenues / fiscal framework (03B-05B) Continuous re-prioritization (03B-05B) Orientation/linking of Budget Reform towards implementing policies and
getting results (03B-05B) via single government-owned PEM/PFM Action Plan
New budget calendar (05B) Early macro framework with IMF/BFP More time for budget prep at line ministry level, coordinate with
annual PRSP review (June) Strengthen Cabinet in prioritization and reform monitoring Later submission to Parliament
Introduction of Program Budgeting (05B) to link Budget to PRSP Introduction of a results matrix (05B)
Madagascar PER: PRSP BudgetSummary of linkages b/w Budget and PRSP
Generic Budget Cycle with some
Madagascar “PRSP-Budget Preparation” Reforms in Red
Macroeconomic Framework
Sector ReviewMinistries define their
objectives, results indicators, activities and costs for three
year period based on policies and priorities
CeilingsMinistry ceilings developed based
on bottom up requirements
CabinetDebates ceilings
based on government
priorities
Three Year EstimatesMinistries finalise
estimates based on approved ceilings for
three year period
National AssemblyApproves first year
estimates, two forward years
indicative
Managing and Reporting on results
Ministries use information on results to improve
management and report progress
Review of progress by
central ministries to
feed into setting of ceilings for
next year
Information on results is used in planning the next budget cycle
Budget CalendarBudget Framework Paper
PRSP Annual Review
Results Matrix
Business Plans
PRSP
Program Budgets
Madagascar PER: PRSP BudgetD. Modest accomplishments, Lessons and
Next steps Accomplishments (PER: GOM and WB)
Raised awareness on resource issues Raised awareness on progress on reforms Reinforced links between PRSP and budget Gave ammunition to reformers
Lessons Reforms take time Capacity building is critical Reform management is key to maintaining reform
pace Next steps
PRSP remains MT policy document and expenditure roadmap
PER fed into 2005 PEM/PRM action plan GOM to lead PER in 2005 Implementation of recommendations
Madagascar PER Team
Guenter Heidenhof and Christos Kostopoulos (Task Team Leaders), Odile Keller, Emile Louis Rene Finateu, D. Randriamanampisoa, Sylke von Thadden, Gervais Rakotoarimanana, Sylvain Rambeloson (Public expenditure management); Jacob H. Bregman, Maria Eugenia Bonilla-Chacin, Patrick Ramanantoanina (Education); Willem van Eeghen, Janet Dooley, Anna van der Wouden (Country Management Unit); Susanne Holste, Noroarisoa Rabefaniraka (Transport); Kirk Hamilton, Martien Van Nieuwkoop, Bienvenu Rajaonson, Jean-Christophe Carret (Environment); Robert Keyfitz, Luc Razafimandimby, Adam Schwartzman, Aurelien Kruse, Benu Bidani (Macroeconomic); Laza Razafiarison (Macro/Public Finance); Madeleine Chungkong, Mavo Ranaivoarivelo, Lanto Ramanankasina (overall support); Sanjay Pradhan, Brendan Horton and Stefano Paternostro are the peer reviewers. Helga Mueller was Sector Manager. Hafez Ghanem was the Country Director through mid 2004, and James Bond supported the PER as Country Director afterwards.