Governance Assessments and Budget Support

1
Governance Assessments and Budget Support

• Necessary Conditions for Development Effectiveness

2
Setting the scene
3
What do we mean by governance?

• Greek, kubernao, to steer
• World Bank exercise of political authority and
  use of institutional resources to manage
  societys 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.

4
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

5
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

6
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

7
1. Ownership
8
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

9
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

10
(No Transcript)
11
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

12

Country PRSP costed PRSP linked to budget PRSP linked to MTEF Cabinet approve PRSP priorities Cabinet review progress in the implementation of the PRSP Special unit set up to manage preparation /implementation of the PRSP Unit location
Benin Y Y Y Y Y Y Min. of state
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
CAR 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 National Planning
Niger N N Y N N N
Rwanda N Y N Y N Y Finance
Sao Tome N N N N N N
Senegal
Sierra Leone Y Y Y Y N Y Development
Tanzania Y Y Y Y N Y
Uganda Y Y Y Y Y Y
Zambia Y Y Y Y N Y Finance
13
Leadership and mainstreaming

• Presidents and cabinets pay attention to
  implementation of policy as well as its
  formulation often dont
• 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

14
2. Budget support
15
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

16
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

17
World Bank and budget support
18
(No Transcript)
19
3. Governance and budget support
20
EC conditions for budget support

• National policy and strategy
• Stability oriented macroeconomic framework
• Program to improve public financial management

21
Donors less enthusiastic about budget support

• Need to link their support to particular
  activities
• Dont trust government systems
• In particular public financial management
  allocation, expenditure, and accounting
• Procurement weakest of all

22
Problems with budget support are governance
problems

• Donor harmonization vs ownership
• Weak public financial management capacity
• Corruption

23
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

24
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

25
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

26
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

27
4. Nationally owned governance assessments and
monitoring
28
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

29
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)

30
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

31
Returning to the opening argument

• Ownership is vital for development effectiveness
• Budget support does help to build ownership
• Good governance is a necessary condition for
  budget support
• Governance assessments can provide the basis for
  effective budget implementation