Governance Assessments and Budget Support Necessary Conditions for Development Effectiveness
Setting the scene
What do we mean by “governance”? • Greek, kubernao, “to steer” • World Bank: exercise of political authority and use of institutional resources to manage society’s problems and affairs • Wikepedia: decisions that define expectations, grant power and verify performance • European Commission: the rules, processes and behaviour that affect the way in which powers are exercised … particularly as regards openness, participation, accountability, effectiveness and coherence.
Or define by activities supported • World Bank: public sector management and rule of law • UNDP: elections, human rights, justice, public sector reform, decentralization, e governance, parliamentary development
Governance IS important for development • Many development experts believe governance weaknesses are the main cause of poor development performance – Paul Collier: One of four main reasons why the Bottom Billion remain in poverty – Knack and Keefer, 1996: highly significant partial correlation between institutional quality and 25 year average economic growth rates across countries – Acemoglu, Johnson and Robinson, 2001: institutional quality strong causal effect on per capita incomes
Our focus today: goverance and budget support 1. Ownership is vital for development effectiveness 2. Budget support helps to build ownership 3. Good governance is a necessary condition for effective budget support 4. Nationally owned governance assessments provide the basis for effective budget implementation
1. Ownership
Paris Declaration on Development Effectiveness: Principles • Ownership: Partner countries exercise effective • • • •
leadership over their development policies and strategies, and coordinate development actions Alignment: Donors base their overall support on partner countries’ national development strategies, institutions and procedures Harmonization: Donors’ actions are more harmonized, transparent and collectively effective Management for results: Managing resources and improving decision-making for results and long-term sustainability Mutual accountability: Donors and partners, at all levels, are accountable for development results
Importance of Ownership • Ownership means: – National commitment to national development plans – Plans such as PRSPs fully mainstreamed into the national policy process – Donors prepared to base support on the nationally owned plans
• Ownership, alignment and harmonization linked:
Governments set the agenda
Alignment with government’s agenda
OWNERSHIP
Reliance on government’s systems
ALIGNMENT
Simplification of procedures
HARMONISATION Common arrangements
Sharing of information
Mainstreaming Mainstreaming means: • Widespread consultation in the preparation of national development plan or PRSP • PRSP or national plan converted into MTEF • PRSP and MTEF approved by the president, cabinet and parliament as part of normal policy process • MTEF a multi-year statement of results to be achieved and funding allocated to those results, with the available resources • MTEF is the basis for the annual budget • Institutions have the capacity to implement the policies programs
Country
PRSP costed
PRSP linked to budget
PRSP linked to MTEF
Cabinet Cabinet review approve PRSP progress in the priorities implementation of the PRSP
Special unit set up to Unit location manage preparation /implementation of the PRSP
Benin
Y
Y
Y
Y
Y
Y
Burkina Faso
Y
Y
Y
N
N
N
Cameroon
N
Y
N
N
N
N
Cape Verde
Y
N
N
N
Y
Y
National planning
N
N
N
N
N
Y
Econ. plann
Chad
N
Y
Y
Y
Y
N
DRC
N
N
N
N
N
N
Ethiopia
Y
Y
Y
N
N
Y
Finance
Gambia
Y
Y
Y
Y
Finance
Ghana
Y
Y
Y
N
Y
Y
Econ. Planning
Guinea
Y
Y
Y
Y
Y
N
Guinea-B
N
N
N
N
N
Y
Social Solidarity
Kenya
Y
Y
Y
Y
N
Y
Office President
Lesotho
N
N
N
Y
N
Y
Devlp. Planning
Madagascar
Y
Y
N
N
N
Y
Prime Minister
Malawi
Y
N
N
N
N
Y
Finance, Econ Plan
Mali
Y
Y
Y
N
N
Y
Finance
Mauritania
Y
Y
Y
N
Y
Y
Mozambique
N
N
Y
Y
Y
Y
Niger
N
N
Y
N
N
N
Rwanda
N
Y
N
Y
N
Y
Sao Tome
N
N
N
N
N
N
Sierra Leone
Y
Y
Y
Y
N
Y
Tanzania
Y
Y
Y
Y
N
Y
Uganda
Y
Y
Y
Y
Y
Y
Zambia
Y
Y
Y
Y
N
Y
CAR
Min. of state
National Planning
Finance
Senegal Development
Finance
Leadership and mainstreaming • Presidents and cabinets pay attention to implementation of policy as well as its formulation: often don’t • Need to set up policy management capacity in cabinet office • Policy management included monitoring implementation and evaluating impact • President and cabinet prepared to adjust following monitoring
2. Budget support
Defining budget support • Sometimes called development policy lending or grants • Funding disbursed to government budget on basis of agreement to achieve certain policy results, before or after results achieved • Government manages funds and organizes the achievement of the results • Can be sectoral or national (PRSCs, balance of payments support) policy results • Contrast with project lending or grants where funds are earmarked for particular uses and expenditure requires pre-approval by donor(s) before funds disbursed
Donors and budget support • OECD/DAC: one third total flows will be budget support “in near future” • EC objective: 50% by 2010 • Strong supporters: UK, Sweden, Netherlands, Denmark, Norway, Finland, Germany, EC and World Bank • In 2004 30-40 % in Tanzania, Uganda, Zambia, Malawi, Ethiopia, Mozambique, Kenya
World Bank and budget support Figure 1. Development Policy Lending Shares for IDA and IBRD Countries 70%
64% IBRD DPL
60%
IDA DPL
40% 30%
DPL % Total
50%
50% 38%
40%
37% 33% 27%
30%
47%
32% 27% 31% 30%
33% 25%
35%
31% 26%
28% 26%
29%
24%
23%
19%
20%
40%
27%
21%
10% 0% 2001
2002
2003
2004
2005
2006
2007
2008
2009
Table 1. Policy-Based Lending Operations and Commitments, FY00-09 FY00
FY01
FY02
FY03
FY04
FY05
Adjustment Lending
FY06
FY07
FY08
FY09
Development Policy Lending
IDA Number of Operations of which adjustment lending Lending commitments (US$M)
9 9 682
15 15 1,826
23 23 2,443
24 24 1,831
23 23 1,698
32 23 2,301
30 1 2,425
35 0 2,645
31 0 2,672
39 0 3,028
IBRD Number of operations of which adjustment lending Lending commitments (US$M)
14 14 4,426
15 15 3,937
21 21 7,383
21 21 4,187
18 18 4,453
23 14 4,264
21 2 4,905
22 0 3,635
16 0 3,967
34 0 15,532
Total Number of operations of which adjustment lending Lending commitments (US$M)
23 23 5,108
30 30 5,763
44 44 9,826
45 45 6,018
41 41 6,151
55 37 6,565
51 3 7,330
57 0 6,280
47 0 6,639
73 0 18,560
3. Governance and budget support
EC conditions for budget support • National policy and strategy • Stability oriented macroeconomic framework • Program to improve public financial management
Donors less enthusiastic about budget support • Need to link their support to particular activities • Don’t trust government systems • In particular public financial management: allocation, expenditure, and accounting • Procurement weakest of all
Problems with budget support are governance problems • Donor harmonization vs ownership • Weak public financial management capacity • Corruption
Donor harmonization vs ownership • Effort to harmonize donors often leaves out government – Donor staff spend most time interacting with each other rather than government (recent studies of implementation of Paris Declaration)
• Budget support works best if government leads harmonization – Eg Mozambique and Uganda
Weak public financial management capacity • Three components of PFM: preparing the budget; executing the budget; accounting for the uses of funds • Preparation improving: consultative plus more true MTEFs • Weakest very often budget execution • Also “real” accountability: sanctions against those responsible for misspending • All budget support accompanied by PFM reform and capacity building
Procurement a particularly serious problem • Studies of alignment objective of Paris Declaration show this to be the weakest link • Main reason for some donors not favoring budget support • Many continue to favor donor supervision of large procurement requiring international competitive bidding • Problem not usually the procurement systems but their implementation
Corruption • In dollar value terms, public procurement the main source of corruption • Many African countries at bottom of all the corruption rankings • Anti-corruption agencies have succeeded in Asia: Hong Kong 12th in TI ranking, ahead of UK, Germany, US, Norway and Ireland • African country well up TI ranking all have good PFM and strong anti-corruption agencies • Ownership again: has to be high level political commitment to fight corruption leading to adequate resources • Hong Kong anti corruption authority has 900 highly trained investigators; no African country close
4. Nationally owned governance assessments and monitoring
The story so far…. • Budget support enhances ownership • Ownership improves development effectiveness • Governance problems weaken effectiveness of budget support • So, governance problems have to be addressed along with budget support • Therefore we need to assess governance problems as budget support programs are put together • And monitor progress in achieving good governance objectives
Governance reform needs ownership too • Government should build own capacity to assess governance issues (OGC objective) • Governance reforms should be part of national plans and PRSPs (almost all do) • Government should monitor and report progress with governance reforms (few do) • Civil society should be involved in monitoring (some are, but independently) • Monitoring should be part of the policy process (rare)
Importance of national ownership of governance assessments • Governance assessments now popular with donors • But for whom? • OECD: out of 37 donor supported assessment tools, only four involve joint assessment • National ownership of assessment will lead to ownership of reform
Returning to the opening argument 1. Ownership is vital for development effectiveness 2. Budget support does help to build ownership 3. Good governance is a necessary condition for budget support 4. Governance assessments can provide the basis for effective budget implementation