Session II: Country perspectives on development finance Peter Wolff German Development Institute

1. Session II: Country perspectives on development finance Peter Wolff German Development Institute 3 July 2006

2. Second generation poverty reduction strategies as basis for scaling-up towards the MDGs 2. Strengths and weaknesses of the emerging development support framework

3. Orientation towards meeting the MDGs 2005 World Summit outcome: “…to adopt, by 2006, and implement comprehensive national development strategies to achieve the internationally agreed development goals, including the Millennium Development Goals.” Second generation poverty reduction strategies (1)

4. From a social sector bias towards a multi-sectoral approach Strategy papers recognize the multi-sectoral links to outcomes, but identification, prioritization and sequencing of complementary intervention packages remains weak. From social sector bias to a wider infrastructure bias? Second generation poverty reduction strategies (2)

5. Conceptual weakness I: Search for sources of growth and analysis of binding constraints for higher private investment Focus on improving the business climate is valuable, but different country circumstances require analysis of binding constraints to – as well as potential drivers of – growth. Second generation poverty reduction strategies (3)

6. Conceptual weakness II: Insufficient link between PRS and budget Allocation of public expenditures is based on incremental changes to the structure of previous budgets and on arbitrary spending decisions, not on proven links between spending and outcomes. Second generation poverty reduction strategies (4)

7. Conceptual weakness III: Insufficient concepts for long-term capacity development Human resource crisis in health: Health spending based on disease control, rather than on improving health systems. Second generation poverty reduction strategies (5)

8. General budget support as preferred mode of delivery is gaining in importance... ...however, due to perceived ineffectiveness of central governments as well as sustainability considerations, donors are searching for alternative funding channels. The emerging development support framework (1)

9. Joint assistance strategies provide a coherent framework for external support... ...however, only a core group of donors is actively engaging in joint processes. Administrations are still overwhelmed by co-existence of various modes of delivery and disjointed processes. The emerging development support framework (2)

10. IMF plays a more cooperative role in determining the fiscal space for development expenditures... ...however, the growth effects of public spending are still not sufficiently analyzed. The emerging development support framework (3)

11. Accountability mechanisms in the PRS-processes are improving….. …however, there is still higher demand for accountability from donors rather than arising in national political systems. The emerging development support framework (4)