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Revision of Budget Support Guidance

AIDCO E1

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Outline

• WHY?

• WHAT?

• HOW?

• WHEN?

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WHY?

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Misconception

Budget support= we don’t care about the

money but the results

EuropeAidBreak away from the mechanistic approach

Measurement of Progress and performance should not boil down to this…

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Mechanistic approach? Is this Budget Support?

IMF report

“on track”

IMF report

“on track”

PEFA done and PFM

report

PEFA done and PFM

report

PRSPreview

and annual report

PRSPreview

and annual report

Ready for Disbursemen

tCalculations:

1,200,000 / 1,858,957 = 64.55% for a target of

64.50% > met

etc.

Calculations:

1,200,000 / 1,858,957 = 64.55% for a target of

64.50% > met

etc.

Significance of indicators

Dialogue contentPolicy deliverables

PFM reformsFiscal policies ?

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WHY?

• Context change after publication of current guidanceo “Explosion” of operations in al regionso Increased hostility from Member States and other stakeholders

• Experience in implementation of operations

• Feedback from Delegations

• Control authorities: “more structured and formalised”

• Light revision in July 2009 after internal audit recommendations

• Change in scope of revision

• Approval by AIDCO’s management in November 2009

• Draft expected in April/May 2010 for discussion

• Obvious linkages and close coordination with PPCM revision exercise

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WHAT?

EuropeAidMain axis of revision

1. Increased ex ante rigor in eligibility assesment for BS

2. Blending of GBS and SBS to define a single Budget

support delivery mechanism

3. Development of a risk management framework

4. Development of a structured PFM and national

sectoral policy framework

5. Enhanced guidance on emerging issues (operations in

non traditional sectors, Political conditionality etc)

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HOW?

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Ex ante analysis

• Contextual analysis essential – obvious link with future “umbrella document” work of PPCM guidelines

• How is aid treated by government? Spent? absorbed?

• Budget execution?• Are policy responses to the government

appropriate? Are they reflected in annual action plans and visible in the budget?

• Prioritization and sequencing issues• Dialogue content and arrangements prior to

identification/formulation process…• Decentralization?

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Verification of eligibility criteria

Initial situation

(strengths/

weaknesses) at

national or sectoral

level +

macroeconomic

policy + public

finance

BASELINE

Policy or action

plans (key

deliverables,

reforms, indicators,

costs, political will,

institutional

obstacles)

MEDIUM-TERM

OBJECTIVES

IDENTIFICATION / FORMULATIONRelevance and credibility of the policies?

Y1

Y2

Y3

IMPLEMENTATION

Progress evidenced in n-1?

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But how?

Area Conditions Verification source

National or sectoral policy and strategy

Satisfactory progress on implementation of the national or sectoral policy and strategy as specified by [give details of information to be provided by the country in the disbursement request]

Specify verification source

Macroeconomic stability

Satisfactory progress in maintaining a policy of macroeconomic stability as evidenced by [give details of information to be provided by the country in the disbursement request: e.g. "continued implementation of an IMF-backed macroeconomic programme"]. If the review of the IMF programme is delayed, temporarily suspended or (invalid), the Commission may still decide to disburse the budget support if it considers that the macroeconomic stability policy is still being implemented or that it does not jeopardise the sectoral objectives after consultations at an appropriate level with the partner country and the IMF.

Specify verification source

Public finance management

Satisfactory progress on implementation of the programme to improve and reform public finance management as indicated, inter alia, by […give details of information to be provided by the country in the disbursement request: e.g. "the joint annual review of public finance management reform or public finance reform programmes scheduled for the (date/month) each year and the agreed implementation measures" or the "conclusions of planned analyses of public finance management"]

Specify verification source

?

?

?

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PFM: implementation of the Action Plan

Baseline/Initial diagnosis

Progress over timeMedium

term objectiveYear 1 Year 2 Year 3

CoA established, long delays in audits (5 years)

Amending Audit Act to define deadlines for government and CoA; Capacity building

Reducing audit delays (3 years)

Reducing audit delays (1year)

Timely published and audited accounts (in line with Constitution or relevant Laws)

Budget calendar does not exist (approval in 2-3 months after beginning of the financial)

Amending Public Finance Act to include calendar

Issuing budget circular to all MDAs

Issuing budget circular to all MDAs allowing time for completion

Clear annual budget calendar established and respected

... ... ... ... ...

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9e – Macro: the IMF, yes, but not only…

The right information?

• Programme with the IMF (PRGF, SBA or others) or Art. IV consultations?

• Access to documentation (budget, outturns)?

• Access on time? Timely submission? Accuracy?

• Participation in IMF reviews, debriefing with IMF staff or no interaction at all?

• Dialogue on macro is part of BS reviews/MoU or not?

• Other sources: Central Bank, Statistical Office, regional organisations, press, EIU, rating agencies, think-tanks, private sector?

The right policies?

• Level of spending (in real terms or % of GDP)?

• Structure of spending?• State-owned enterprises?• Tax net widening or measures for

tax collection?• Financing: loans or bonds?

IFI/bilateral or banks/ investors? domestic or international? local or foreign currency?

• Fiscal sustainability?• Risk of debt distress?• Exchange rate?• Growth and private sector

development?• Trade and balance of payments?• Inflation?

EuropeAidKnowing and managing Risks

Risks for BS operations?

Risks must be identified and mitigating measures/safeguards set out at the time of formulatino and prior to any payment.

Risks should be assessed prior to the choice of delivery method!!!!

PFM

Funds not used for intended

purposes or not properly

accounted for

No Value for Money aspects in

PFM Risks

Developmental Risks

Intended results of policies not achievedInstitutional Capacity

Performance Management

systemsBudget execution

Are the conditions in place for the success

of the particular policy we are supporting?

Political Risks

Political StabilityOpposition Status

Elections Calendar in relation to the BS

operationFreedom of the Press

Role of the ArmyEthnic Tensions

Separatism

EuropeAidBS as REALPOLITIK? – our position

Political issues

arising on human rights,

corruption, democracy, etc. (Art 9 Cotonou)

Discussions locally and at HQ level (EDF Committee)

- and if needed -Intensified dialogue / Formal consultations at Council level

(Art 8, 96, 97 + Annex VII of Cotonou)

Provisions for such consultation in DCI regulations and ALL financing

agrements

Consequences for projects?

Consequences for budget support?

Suspension of cooperation?

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But we are not consistent even within the EU!

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WHEN?

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Partly piecemeal approach

PFM areas should be presented to delegations in April

First draft guidelines for discussion mid April-May

Discussions May-June

Interservice consultation and approval June-July

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Q

BRAINSTORMING!!!!!

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• How to assess progress in policies?• How to move away from indicator

mania• How to stay realistic and give work

that CAN be done by delegations? Reality check for HQ!

• Capacity constraints?• EEAS and possible increased

compartmentalization of delegations• External dimension of internal policies

and dialogue?