PRSP and Budget Links Emerging Evidence from Case

PRSP and Budget Links: Emerging Evidence from Case Studies Find materials at PSGO site http: //wwwwbweb. worldbank. org/premcom pass/know_learn/psgo. htm 1

PRSP and Budget Links: Emerging Evidence from Case Studies Jeni Klugman Rosa Alonso Oct. 12, 2004 2

Presentation Summary Overview and Motivation PRSPs and Budgets Lessons Learned 1. Aggregate 2. Data 3. Process 4. Allocations 5. Donors Conclusions Challenges Ahead 3

Overview: Motivation PRSP process and associated policy and program commitments have the potential to increase the pro-poor focus and accountability of policy-making and budgeting, through improved availability and use of information, and better incentives and processes. Indeed realizing this potential is central to expectations about PRS effectiveness as an instrument to promote pro-poor policy and programs. 4

Overview: The PRSP and Budget: Potential Linkages Identify Priorities Evaluation PRSP Process & Policy Commitments MTEF PEM Annual Budget 5

Budgets—A Key Disciplining Tool for PRSPs Budgets are a key implementation tool for PRSPs and provide discipline: Link to the fiscal envelope and discipline of costing Absorptive constraints Need to prioritize and sequence policies Rigorous application of technical criteria to judge trade-offs 6

PRSPs—A Strategic Framework for Budgets PRSP approach promotes: A focus on poverty reduction A needs-based reference for fiscal policy decisions Greater transparency of process and more participation of line agencies and CSOs Emphasis on results and indicators Donor commitment to align external finance with government priorities 7

Key Themes The case studies aim to assess: The contribution of the PRSP process to more accountable and pro-poor budgeting The degree of implementation of PRSPs via the budget Questions on PRSP implementation (JSA): Is the financing plan adequate and credible? Are fiscal choices—on expenditure and revenue side—consistent with strategic priorities and institutional capacity? Is public financial management adequate to ensure effective implementation? 8

Lessons Learned (1) Aggregate Financing--Potential PRSPs-budgets—tension between needs and resource availability Needs-based PRSP can provide: Strategic orientation and goals Impetus to improve tax collection Increased ability to leverage external finance to deliver agreed results Resource availability as determined by realistic macroeconomic projections and overall budget envelope provide the needed discipline for PRSP implementation 9

Lessons Learned (1) Aggregate--Limitations Significant gaps in funding in MTEFs (TZ, BF) Failure to tackle the revenue side and slower than expected growth means lower revenue out-turns Difficulty in prioritizing can put pressure on the aggregate 10

Lessons Learned (2) Data Production, Availability and Use Data production—Greater coverage and disaggregation of data: Improved coverage of donor financing in TZ Gender-disaggregated targets in education and health in BF with impact on budgets Dissemination—improved availability Use—improved poverty analysis. Overall weak feedback loops to policy-making: In TZ, use of poverty-data for elaboration of local transfers formula Improved results-orientation and M&E, e. g. of MTEFs, sector strategies and program budgets 11

Lessons Learned (2) Improved use of Data, Results-Orientation of Budgets and M&E Budget allocations increasingly informed by data, analysis and costing of priority programs Poverty diagnostics is a key building block Spending by level of service (primary, tertiary, etc. ) Regional composition of spending and poverty maps Benefit incidence analysis – average and marginal Program evaluations Use of quantitative and survey information 12

Lessons Learned (3) More Open Process Improved accountability—inside and outside government Enhanced dialogue within line ministries and b/n line ministries & Mo. F due to: WGs and PRS review processes Results-orientation of PRSP process and budget support But, much more efficient when finance and planning under one ministry! PRSP process can support decentralization--Local governments key to improve service delivery 13

Lessons Learned (3) Budget Process: Tanzania PRS working groups: Working groups in priority sectors and budget, macro and energy groups Participation from Mo. F, line ministries, donors and civil society Role--scrutinize links between PRS, sectoral strategies, MTEF and budgets Government leadership/ownership key! 14

Process: Tanzania Institutionalizing a Poverty-Focused Dialogue Contribution of working groups: Institutionalize participation in PRS implementation Supports dialogue within govt. and b/n government, donors and civil society Increase poverty focus of sector dialogues Increase results-orientation of policy dialogue Help set up and monitor SWAPs 15

Lessons Learned (3) Process: Cambodia—Building Linkages Achievements: Merging of PRSP and planning process Existing sector strategies (e. g. health and education) inform NPRS and sector expenditure frameworks Sectoral and structural measures subject to iterative consultations Some sectors show clear connection to budget PRSP process is enhancing connections b/n key Parliamentarians and CSOs 16

Limitations in Cambodia Many activities in matrix not costed Line agencies take incremental approach and focus mainly on investment projects Weak role/ownership of Parliament in development of PRSP and budgeting processes and priorities Institutional disconnect as MEF involved relatively late in NPRS development 17

Lessons Learned (4) Allocations: Overall Achievements Allocations to pro-poor spending have been increasing in countries with PRSPs, as percent of GDP and of total spending Especially true in countries that are more advanced in the PRSP process, have better budgeting processes, and more donor support “Poverty-reduction” spending increased by an average of 1. 5 points of GDP across 20 countries from 2000 to 2004 18

Allocations-Findings from Case Studies Rising share of current expenditures goes to priority sectors in Cambodia (share for health, education, and agriculture/rural development rose from 25% in 2000 to 36% in 2004) Priority expenditures (relatively) protected from budget cuts in TZ and BF In some sectors/countries improved intra -sectoral resource allocation (especially primary education)—e. g. BF, Cambodia 19

Allocations: Findings Tanzania: Priority/Discretionary Spending Real Expenditure Increases 600000 500000 400000 300000 200000 100000 0 -100000 FY 99 FY 00 FY 01 FY 02 Discretionary Expenditure FY 03 FY 04 FY 05 FY 06 Priority Sector (broad) 20

Allocations: Findings Tanzania: Sectoral Spending Priority Real Spending Per Capita 21

Allocations: Findings Burkina-Faso: Real Priority Expenditure 22

Allocations: Findings Improved geographical resource allocation, impetus to decentralization: Allocations to municipalities in Bolivia grew from 9 to 13 percent of the budget between 1999 and 2002 New pro-poor regional transfer norms in Tanzania and for health sector in Cambodia 23

Lessons Learned (4) Allocations: Caveats Uneven increases across sectors—in education much greater than in health (EFA) And within sectors—(e. g. curative vs. primary health and agriculture vs. rural roads in BF, within agriculture in Cambodia) And across expenditure categories—only small increases in goods and services Definition of “priority” often problematic Number of priority areas expanded in new PRSPs for both Burkina and Tanzania (now up to 70 percent of non-debt expenditure in TZ) 24

Donors and External Assistance --Potential The move to budget support that has accompanied the PRSP process has greatly increased incentives for: Sound public expenditure management Costing and budgeting for sector strategies Solid accountability mechanisms (internal and external) Focus on accountability 25

Donors and External Assistance— Achievements and Limitations Increase in budget support: From 1. 8 to 3. 2 of GDP in Tanzania From 2. 9 to 4 percent of GDP in BF Progress in: Integrating foreign aid into the budget Medium-term aid commitments (in TZ, BF) Donor coordination around SWAps in priority sectors BUT No real increase in aid b/n 1999 -2002 (TZ, BF) Need to meet international fiduciary requirements (esp. procurement regulations) can significantly 26 slow down budget execution

Donors and External Assistance-Limitations Tanzania: Predictability of Budget Support 27

Donors and External Assistance--Limitations Burkina-Faso: Variability of Budget Support 28

Overall Conclusions Aggregate—Increased focus on available resources and scope to increase mobilization Data—Improved production, dissemination and use of data Allocations—Enhanced pro-poor focus of budget allocations Process—Greater openness, resultsorientation, accountability of budget process Donors—Improved donor coordination and alignment with country priorities 29

Challenges Ahead--Data and Results-Orientation of Budgets Improve: Comprehensiveness--coverage of budget data Disaggregation--budget classifications Skills in the statistics and PFM areas Timeliness, availability and readability of budget information Feedback loops from poverty analysis to budgeting Monitoring of program budgets and other resultsoriented policy-making tools to encourage evidencebased budgeting 30

Challenges Ahead--Process Foster the involvement of line ministries, Parliaments and CSOs in budget process Better align the PRSP and budget timetables PRSP monitoring data could usefully inform inter- and intra-sectoral allocations and mid-term adjustments PRSP Progress Reports should be timed to inform the budget cycle Integrate the MTEF, PIP and annual budget Integrate MTEF with sector budget and planning cycles Integrate responsibility for MTEF with Mo. F unit preparing annual budget Improve budget execution so that planning becomes serious process 31

Challenges Ahead--Allocations Protecting prioritization and greater specificity on what being a “priority expenditure” means, e. g. clarify degree of priority in budget allocation process and of protection during revenue shortfalls Sticking to good process-PRSP priorities should be respected and reviewed at PRS review time reflecting: Empirical evidence--results of NPRS M&E, PSIA, other analytical work Participatory processes for PRS elaboration, including Parliaments! 32

Challenges Ahead--Donors Need for improved Predictability of commitments—more longterm forecasts Reliability of disbursements—smaller gaps b/n commitments and disbursements Variability of aid flows--across and within years Timeliness--better synchronization with government budget cycles 33

PRPS Budget Links Comments? Questions? 34