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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

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PRSP and Budget Links:Emerging Evidence from Case Studies

Jeni KlugmanRosa Alonso

Oct. 12, 2004

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Presentation Summary

Overview and MotivationPRSPs and BudgetsLessons Learned1. Aggregate2. Data 3. Process4. Allocations5. Donors

ConclusionsChallenges Ahead

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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.

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Overview:The PRSP and Budget: Potential Linkages

IdentifyPriorities

AnnualBudget

MTEF

Evaluation

PRSP Process &

PolicyCommitments

PEM

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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 costingAbsorptive constraintsNeed to prioritize and sequence policiesRigorous application of technical criteria to judge trade-offs

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PRSPs—A Strategic Framework for Budgets

PRSP approach promotes:A focus on poverty reduction A needs-based reference for fiscal policy decisionsGreater transparency of process and more participation of line agencies and CSOsEmphasis on results and indicatorsDonor commitment to align external finance with government priorities

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Key Themes

The case studies aim to assess:The contribution of the PRSP process to more accountable and pro-poor budgetingThe 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?

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PRSPs-budgets—tension between needs and resource availabilityNeeds-based PRSP can provide:

Strategic orientation and goalsImpetus to improve tax collectionIncreased 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 Financing--Potential

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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-turnsDifficulty in prioritizing can put pressure on the aggregate

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Lessons Learned (2)Data Production, Availability and Use

Data production—Greater coverage and disaggregation of data:

Improved coverage of donor financing in TZGender-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

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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 blockSpending by level of service (primary, tertiary, etc.)Regional composition of spending and poverty mapsBenefit incidence analysis – average and marginal Program evaluations Use of quantitative and survey information

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Lessons Learned (3)More Open Process

Improved accountability—inside and outside governmentEnhanced dialogue within line ministries and b/n line ministries & MoF due to:

WGs and PRS review processesResults-orientation of PRSP process and budget supportBut, much more efficient when finance and planning under one ministry!

PRSP process can support decentralization--Local governments key to improve service delivery

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Lessons Learned (3)Budget Process: Tanzania

PRS working groups:Working groups in priority sectors and budget, macro and energy groupsParticipation from MoF, line ministries, donors and civil societyRole--scrutinize links between PRS, sectoral strategies, MTEF and budgets Government leadership/ownership key!

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Process: TanzaniaInstitutionalizing a Poverty-

Focused Dialogue

Contribution of working groups:Institutionalize participation in PRS implementationSupports dialogue within govt. and b/n government, donors and civil societyIncrease poverty focus of sector dialogues Increase results-orientation of policy dialogueHelp set up and monitor SWAPs

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Lessons Learned (3)Process: Cambodia—Building Linkages

Achievements: Merging of PRSP and planning processExisting sector strategies (e.g. health and education) inform NPRS and sector expenditure frameworksSectoral and structural measures subject to iterative consultationsSome sectors show clear connection to budgetPRSP process is enhancing connections b/n key Parliamentarians and CSOs

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Limitations in Cambodia

Many activities in matrix not costed Line agencies take incremental approach and focus mainly on investment projectsWeak role/ownership of Parliament in development of PRSP and budgeting processes and prioritiesInstitutional disconnect as MEF involved relatively late in NPRS development

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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 spendingEspecially 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

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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 BFIn some sectors/countries improved intra-sectoral resource allocation (especially primary education)—e.g. BF, Cambodia

Allocations-Findings from Case Studies

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Allocations: Findings

Real Expenditure Increases

-100000

0

100000

200000

300000

400000

500000

600000

FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06

Discretionary Expenditure Priority Sector (broad)

Tanzania: Priority/Discretionary Spending

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Allocations: Findings

7029

3091

612 636

2846

237 0

14724

5130

1742 1864

6205

709 465

0

2000

4000

6000

8000

10000

12000

14000

16000

Educatio

n

Health

Wate

r

Agric. R

&E

Roads

Judic

iary

HIV

/AID

S

T.S

h. (a

t consta

nt F

Y03 p

rices)

FY99

FY03

Priority Real Spending Per Capita

Tanzania: Sectoral Spending

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Allocations: Findings

Burkina-Faso: Real Priority ExpenditureFigure 1. Real expenditure in priority sectors

0

50000

100000

150000

200000

250000

1998 1999 2000 2001 2002

CF

A M

ill

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

CF

A

Total expenditure Per capita

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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 2002New pro-poor regional transfer norms in Tanzania and for health sector in Cambodia

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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 servicesDefinition of “priority” often problematicNumber of priority areas expanded in new PRSPs for both Burkina and Tanzania (now up to 70 percent of non-debt expenditure in TZ)

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Donors and External Assistance--Potential

The move to budget support that has accompanied the PRSP process has greatly increased incentives for:

Sound public expenditure managementCosting and budgeting for sector strategiesSolid accountability mechanisms (internal and external)

Focus on accountability

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Donors and External Assistance—Achievements and Limitations

Increase in budget support:From 1.8 to 3.2 of GDP in TanzaniaFrom 2.9 to 4 percent of GDP in BF

Progress in:Integrating foreign aid into the budgetMedium-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

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Donors and External Assistance--Limitations

0

100

200

Q1 Q2 Q3 Q4 Q1 Q2

FY02 FY03

Tsh

s. b

illio

n

Actual

Committed

Tanzania: Predictability of Budget Support

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Donors and External Assistance--Limitations

Figure 27. Budget Support: Quarterly Disbursements

0%10%20%30%40%50%60%70%80%

1 2 3 4

Quarter

% D

isb

urs

em

en

t

1999 2000 2001 2002 Average 96-02

Burkina-Faso: Variability of Budget Support

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Overall Conclusions

Aggregate—Increased focus on available resources and scope to increase mobilizationData—Improved production, dissemination and use of dataAllocations—Enhanced pro-poor focus of budget allocationsProcess—Greater openness, results-orientation, accountability of budget processDonors—Improved donor coordination and alignment with country priorities

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Challenges Ahead--Dataand Results-Orientation of Budgets

Improve:Comprehensiveness--coverage of budget dataDisaggregation--budget classificationsSkills in the statistics and PFM areasTimeliness, availability and readability of budget informationFeedback loops from poverty analysis to budgetingMonitoring of program budgets and other results-oriented policy-making tools to encourage evidence-based budgeting

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Challenges Ahead--Process

Foster the involvement of line ministries, Parliaments and CSOs in budget processBetter align the PRSP and budget timetables

PRSP monitoring data could usefully inform inter- and intra-sectoral allocations and mid-term adjustmentsPRSP Progress Reports should be timed to inform the budget cycle

Integrate the MTEF, PIP and annual budgetIntegrate MTEF with sector budget and planning cyclesIntegrate responsibility for MTEF with MoF unit preparing annual budget

Improve budget execution so that planning becomes serious process

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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 shortfallsSticking 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 workParticipatory processes for PRS elaboration, including Parliaments!

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Challenges Ahead--Donors

Need for improvedPredictability of commitments—more long-term forecastsReliability of disbursements—smaller gaps b/n commitments and disbursements Variability of aid flows--across and within yearsTimeliness--better synchronization with government budget cycles

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PRPS Budget Links

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