PRSP and Budget Links: Emerging Evidence from Case Studies

PRSP and Budget Links:Emerging Evidence from Case Studies Find materials at PSGO site http://www-wbweb.worldbank.org/prem/premcompass/know_learn/psgo.htm

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

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

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.

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

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

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

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?

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

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

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—improvedpoverty 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

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

Lessons Learned (3)More Open Process • Improved accountability—inside and outside government • Enhanced dialogue within line ministries and b/n line ministries & MoF 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--Localgovernments key to improve service delivery

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

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

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

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

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

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

Real Expenditure Increases 600000 500000 400000 300000 200000 100000 0 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 -100000 Discretionary Expenditure Priority Sector (broad) Allocations: Findings Tanzania: Priority/Discretionary Spending

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

Allocations: Findings Burkina-Faso: Real Priority Expenditure

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

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 ofpriority areas expanded in new PRSPs for both Burkina and Tanzania (now up to 70 percent of non-debt expenditure in TZ)

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

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 slow down budget execution

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

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

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, results-orientation, accountability of budget process • Donors—Improved donor coordination and alignment with country priorities

Challenges Ahead--Dataand 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 results-oriented policy-making tools to encourage evidence-based budgeting

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 MoF unit preparing annual budget • Improve budget execution so that planning becomes serious process

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!

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

PRPS Budget Links Comments? Questions?

PRSP and Budget Links: Emerging Evidence from Case Studies