CABRI 2005 COUNTRY PRESENTATION

1. CABRI 2005 COUNTRY PRESENTATION Managing Aid Flows:The case of Ethiopia By Ethiopian Participants Maputo 30Nov.-2 Dec.,2005

2. 1. INTRODUCTION multilateral and bilateral agencies have continued to support Ethiopia’s development through Official Development Assistance (ODA). International Financial institutions have been responsible for the largest share of aid to the country, followed by bilateral donors, the European Union, and the UN agencies, in that order. In comparison with other developing country’s Ethiopia is, by far, receiving much lower per capita aid (USD 13).

3. CONTD. • It is maintained that the uncoordinated and un harmonized donor-by-donor and project-by-project approach that for a ling time characterized the mode of external assistance in the country has created a burden on the government’s capacity to meaningfully receive and manage aid. • At the same time, the government has recognized the need for capacity strengthening in a number of areas to ensure that external assistance is better solicited, accommodated, managed, reported, monitored, and its effect/impact maximized in the interest of poverty reduction and without incurring undue transaction costs. • Donor harmonization, therefore, serves as a guide for the acquisition and utilization of external funds. • Ethiopia has lunched a comprehensive harmonization agenda for which donors’ support is expected. Agenda covers direct budget support project levels and sector wide approaches. Focused of priority areas are: Procurement, Monitoring & Evaluation, Financial Reporting & Disbursement and Other Areas.

4. 2. AID POLICY The fundamental of aid management in Ethiopia include: • Country ownership is cardinal; The enhancement of partnership through dialogue, coordination. harmonization, alignment, and information sharing is crucial; • The focus of external assistance towards poverty reduction is fundamental; • Capacity building as an integral part of external assistance is necessary; • Direct budget support is the preferred mode of external assistance; • Partnership with non-state action is essential; • Predictability of donor flows and multi-year financial commitments is important for government aid management.

5. Contd. Guided by these principles the following are Ethiopia’s aid policies that shall guide the country’s relations with donor countries and multilateral agencies. • Aid Acquisition • Planning,Budgeting and Financial Management • Reporting and Monitoring • Financial oversight and Accountability • Technical Assistance • Dialogue and coordination Frame work

6. 3. Basic Objectives of Harmonization • Promote of harmonization at coordination, implementation and management and all levels or from strategic planning through implementation and beyond. • Deliver of development assistance according to the objectives, goals and priorities as outlined in the SDPRSP. • Encourage discussion and reviews on an array of different donor conditionally, donor reporting requirement, and reviews for rationalization with the aim of reducing transaction and administrative costs for the Ethiopian government, • Promote delegated cooperation at country level where it is possible legally and administratively. • Promote transparency in sharing information and understanding of commonalities in policies, procedures and practices.

7. 4. GOE Priority areas for harmonization . Procurement . Monitoring & Evaluation . Financial Reporting and Disbursement . Other ( i. e . Delegated cooperation, MOU between GOE and DBS donors and country analytical work). • To achieve the above objectives, the agenda for harmonization has been initiated on the basis of the following to ensure that donors can align their support with GOE’s plans and programs of development.

8. Cont. • SDPRSP is analytically sound, strategically prepared, result oriented and operationally focused. Therefore, it has won donor community credibility and acceptance to enhance volume of per capital aid, • Upgrade of procedures, practices and systems of the GOE to par with world standards to ensure that donors funds are safe and spent for purposes they are given. • Donor commitment and support for capacity building is vital important for smooth transition from donor driven practices, procedures and policies to country driven policies and practices. • Political commitment for harmonization has been sustained for full exploration and exploitation of the potential benefits of harmonization. • GOE leadership and ownership have been established to take appropriate and systematically generated actions f. GOE financial calendar is comprehensive, so that donors can extend their support with high degree of predictability and consistency. g. Monitoring and Evaluation Systems for SDPRSP have been established with indicators after through discussions with the donor community and stakeholders.

9. 5. Achievements of Harmonization • Among the countries that have endeavored into harmonization initiatives, Ethiopia has been leading in many ways. It is a pilot country of SPA. • Also it is pilot of IMF Donor Budget support with the PRSP process and a Country Environmental Analysis pilot. It is a country that harmonization has been fully anchored with new development architecture (A High Level Government- Donor Forum) in aid development process with an ambitious agenda of harmonization prepared by Joint Government – DAG Task Force on Harmonization. • Further, political commitment for harmonization is overwhelming. Because of the above, Ethiopia demonstrates promising results so that others can be encouraged and persuaded.

10. Within a Short Period of time, Major Achievements have been made in following areas: • Government- Donor Forum to deal with improved aid coordination & management, alignment and harmonization • Institutionalization of the harmonization process by designing and establishing joint Government – DAG Task Force on Harmonization. • Harmonization program has covered crucial areas in SDPRSP. They are direct budget support, project-level operations, sector wide operations, capacity building, analytic work and training. • Establishment of a framework (JBAR) with agreed conditions and indicators with donors to facilitate harmonized direct budget. • Upgrading of Monitoring and Evaluation systems are on the track. • SDPRSP had been strengthened by a policy matrix which is crucial important to harmonizing efforts towards direct budget support and sector wide assistance. • Finance & Budget calendar has been prepared. (The calendar for budget support aligned with the national budget year annual review process of the SDPRSP will support the process and progress of the harmonization agenda).

11. CONTD. • Upgrading of Monitoring and Evaluation systems are on the track. • SDPRP had been strengthened by a policy matrix which is crucial important to harmonizing efforts towards direct budget support and sector wide assistance. • Finance & Budget calendar has been prepared. (The calendar for budget support aligned with the national budget year annual review process of the SDPRP will support the process and progress of the harmonization agenda).

12. Donor Keenness and Participation With in an agreed framework, World Bank, African Development Bank, European Union, Sweden, and Canada have expressed their willingness to provide direct budget support Norway, Ireland and Netherlands are considering offering budget support. Many bilateral donors will use Poverty Reduction Support Credit (PRSC-11) process of IMF to harmonize their assistance.

13. Sector Wide Approaches (SWAPs) With in this popular modality of aid delivery, health, education, and transport partners have been discussing some arrangement such as pooling resources for technical assistance in the health sector and comprehensive harmonization in the transport sector where significant progress has already been made. Belgium, Ireland, Sweden, United Kingdom and Netherlands have decided to harmonize support of the Teacher Development Component of the education program with polling of funds relying on GOE laws, regulations and procedures.

14. Ethiopia’ Procurement Assessment Report (March 2003) This report has been prepared to provide an analysis of the country’s public sector procurement, including the legislative framework, organizational practices and to indicate areas needed for improvement to the world standards or international level. Since substantial delays occur in procurement due to cumbersome procedures and practices of the donor community, recommendation of this report are coordinated with donors such as the EU, UK and Sweden who are also engaged in procurement reform initiatives with the government. This document will provide strong support for the harmonization agenda in the area of procurement.

15. Fiduciary Assessment Critical to the provision of harmonized budget support in an annual basis is the ability of DBS partners to verify systematic improvement in the public sector fiduciary framework. As diagnostic tools, CFAA, CPAR, HIPC AAP, and PER have been prepared with huge costs. GOE and Donors have emphasized to find some mechanism under Intergovernmental Governance Review- IGR/IFA- Integrated Fiduciary Assessment for a “light” review of stocktaking of the quality of the public sector fiduciary framework – provided that implementation of EMAP program will be monitored under the PSCAP Program – on an annual basis as part of the DBS/PRSC cycle.

16. Joint Budget & Aid Review. (JBAR). A key element linking the Government’s own fiscal processes to dialogue with partner providing direct budget support is the Joint Budget and Aid Review which replaces PER etc. Under this and Medium Term Fiscal Framework (MTFF), GOE has exchanged ideas about transition from project/program to Direct Budget Support (DBS) with donors who are either providing or intending to provide direct budget support. Since the GOE’s vision for DBS has been shared by the Donor community, it has encouraged those who cannot provide significant DBS support to support sectors via sector programmatic support, or earmarked budget support instruments, in preference to project aid.

17. National Capacity Building Program • The capacity of the country to withstand increasing amounts of foreign assistance and transition possesses and to steer the development process, • Ethiopia needs strong capacity for planning, management, monitoring and evaluation. This topic has been a subject of lengthy discussions among donors and between donors and the GOR. • If donors are to use GOE’s systems, procedures and practices, country’s capacity for absorption has to be developed and upgraded before an attempt is made for harmonization. Ethiopia’s Civil Service Reform Program (CSRP) has been launched for this purpose. Donors including CIDA, DFID, EC, France, Germany (GTZ), Ireland, Italy, Netherlands, SIDA and UNDP have Committed to find single design solution that reinforces the Ethiopian Government Capacity Building Program as an integral part leading to harmonization. Capacity development in public procurement, Financial Management, Health and Education sectors will be supported by collaborative efforts of donors.

18. Poverty Reduction Support Credit (PRSP –II) • Increasing number of Donors want to harmonize their policies and practices around PRSP-11 ADB, CIDA, Ireland, SIDA, EU, UNDP and the World Bank participated in discussion with the GOE in May 2004. • It has been agreed that the Government’s SDPRSP policy matrix is the framework for PRSC assistance. • However, given the size of this matrix, it has been generally agreed that donor could indicate which specific actions and indicators were particular interest to their respective agencies, and on this basis, a shorter matrix could be created that would the basis for DBS dialogue across the budget support donors and the World Bank in the future. It has been further agreed that current round of upgrading for the DBS matrix would be completed soon.

19. Non-financial Monitoring & Evaluation System The purpose of the Monitoring & Evaluation is to track progress and assess outcomes. So it the foundation for enhancing aid flows to the country. An effective M & E system should be comprehensive and cover all aspects. Data and information should be reliable and relevant. By taking into consideration the above and donor concern that their information systems and needs should be coordinated as full as possible until such time that donors will be able to rely more extensively on government reporting and monitoring system, GOE has taken the lead with broad based participation by civil society and private sector stakeholders to collect data and information having the following objectives:

20. Cont. • Develop the SDPRP policy matrix • Strengthen institutional capacity and participatory monitoring • Develop a medium term research agenda • Improve survey and administrative data availability and quality • Improve in statistical systems • Dissemination of good practices The GOE has developed an action plan to improve data and information base with identified immediate and long term requirements for strengthening the system. Under the coordination of the Welfare Monitoring Unit (WMU) of MOFED, GOE has completed a number of steps to strengthen the R& M system to replace Donors procedures and practices regarding M & E. Monitoring and Evaluation Workshop held in May 2004 was participated by all stakeholders including the civil society and PRSP-11 mission enriched the MOFED Evaluation Action plan by presenting on international experience on Monitoring and Evaluation. Another

21. Annual Progress Report of SDPRP (APR) The object of the Annual Progress Report (ARP) is to provide domestic and international stakeholders with a summary report on implementation of the SDPRSP including key result and challenges. Release of budget support is contingent on this annual report. It has become a key element in the revised fiscal calendar.

22. 6. What was the impact of harmonization and alignment Impact of harmonization is identifying and measuring the achievement of the national economy. So the impact of harmonization can be measured by using general indicators like per capita income, GDP growth, employment/unemployment, inflation, income distribution, level of national savings. Balance of payment, fiscal instance or analyzing variables which directly influence the behavior of these indicators. Through harmonized and aligned framework, total available resources (including foreign assistance as a supplementary for domestic resources) will be spent: • productive employment • Agriculture Led Industrializations & Food Security • Access to Basic Social Services • Good Governance & strong democratic system. • Sustained economic growth • Gender and Development • HIV/AIDS and Development • Indicators of the above can be used to analyze and assess the impact of harmonization and alignment.

23. 7. What were the Lessons Learned from Harmonization and Alignment Harmonization is an attempt that takes place after building consensuses and agreed upon principals to generate specific results to enhance aid effectiveness by reducing costs of transaction and administrative burden on the government of Ethiopia to ensure ownership and leadership of development efforts of which the GOE is responsible for its citizen. In fact, this is a process in which lessons can be learned and disseminate. The GOE has learned its lessons emanating from four areas which have been vial important to initiate, plan and finally for implementation of the agenda of harmonization and alignment.

24. CONTD. a. Political will and commitment b. Institutional Building c.Wider Participation and consultation . d. Data Base Management System ·

25. 8. Fiscaal Decentralizationand its Impact on Aid Management • A block grant is allocated to regional states. The block grant includes local sources and foreign assistance and loan. • ·Regional states in turn allocate in a block grant to local governments. • ·Foreign assistance and loan is negotiated by the Federal Government. The Ministry of Finance and Economic development is responsible for negotiations, signing agreements and debt repayments. • · Therefore foreign aid is managed centrally by the Federal Government. However Regional states are obliged to submit reports. • Offset system is applied for additional donor funds for Regional states. However for specific purpose grants offset system is not applicable.

26. 9. Different Disbursement Channels of the Ethiopian Government Channeel 1: Funding through the consolidated fund and GOE’s formula based budget disbursement. Management is the responsibility of each level of government. Executed through MoFED, Regional BoFED and LocalWoredas. Channel 2: Funding direct to sector public bodies to use and account for donor funds. Channel 3: Donors finance projects directly (sometimes but not necessarily recorded in the governments development budget)

27. 10. Implications/Challenges for Harmonization and Alignment for the Future? • Since mid of 2002, the GOE had invested considerable effort in making an environment conductive for harmonization in an effort to lower costs of transaction and reduce the burden on the administrative structure. In seeking to improve the quality and flexibility of aid, several donors now deliver aid as direct budget support rather than project or sector investment finance. The challenges include: a.      Conditionality b.      Externally driven judgment c.      Patience to see results d.      Staff awareness e.      Decline donor assistance f.        Additional requirements g.      Capacity constraint

28. THANK YOU