Presentation Transcript

1. Strategic Financial PlanningPlanification financière stratégique

   Alan Hall Chair of the EUWI Finance Working Group Presented by Madigu Godfrey Strathmore University
2. 1. Background Finance is a scarce resource Good Governance is essential to reduce risk and attract finance. Sound institutions and competent staff necessary to make effective use of finance. Information critical for good decision-making and design. Sound project preparation essential for investment: support is needed for both ‘soft’ and ‘hard’ interventions.
3. 2. Background Realism: The 3 T’s There are only three sources of finance: Taxes, Tariffs, Transfers Government budgets are finite depending on taxes, tariffs and transfers. Utilities only have income from tariffs or budget allocations (tax). ODA transfers are from tax paid by workers in donor countries - very limited and have to be used strategically. Loans have to be paid back from taxes or tariffs. Taxes and tariffs take many forms and are collected in many ways.
4. 3. Background Governments face stark choices Renege on commitments. Access more ODA (aid has increased, but it is limited and unpredictable). Raise more tax (and/or divert it from other uses). Increase tariffs for water services. Attract private investment (and thus raise tariffs).
5. 4. Background The myth of low tariffs “low tariffs help the poor who cannot afford to pay and are unwilling to pay”. Low tariffs commit the poor to pay more for a worse service, whilst wealthier urban dwellers are subsidised. It results in a lack of finance for maintaining assets and improving services and keeps the sector backward. The least worst solution for extending services is to increase the pot of finance through higher tariffs.
6. 5. Background Strategic Financial Planning Analyses needs and gaps before trying to access funds and decide on the sources. Provides Facts – essential to convince the Ministry of Finance. Provides a reality check - demonstrate there is no magic bullet. Country SFP studies supported by OECD and bilateral donors in Armenia, Georgia, Moldova, Kyrgyz Republic. Lesotho case study supported by EUWI-FWG.
7. 6. Lesotho Case study on SFP Develop and maintain a strategic financial plan for water supply and sanitation services Build capacity through a “learning-by-doing” process Inform the ‘Sector Wide Approach’ for water through policy dialogue among government departments and with other stakeholders Bring information and data from water and sanitation services (urban/ rural/ bulk water) together in one consistent format and establish a baseline
8. 7. Lesotho Elements of the study Intensive data collection and analysis Take account of economic policies, plans and government aspirations Financing needs analysed according to four scenarios: Business as usual High Growth with Urban and Industrial Focus High Growth with Rural Development Focus Low Growth Structured methodology used to analyse information based on the OECD ‘Feasible’ methodology Household affordability a key input to get realistic figures
9. 8. Lesotho Planning Methodology Macro-economic forecast Prices Production/ Income Public Revenues Change Demand Supply Existing Facilities and Situation Targets Level year Rules governing: Public transfers User charges Private sector finance Sources of Finance: User Charges Public budgets Private fin. Inst. Donors and IFIs Expenditure forecast Investment expenditure O&M expenditure Project available finance for Investment expenditure Recurring expenditure Capacity Building etc Change Targets “Rules” Finance Sources Financing Gap
10. 9. Lesotho Results: Total Funding Needs Includes O&M Costs
11. 10. Lesotho
12. 11. Lesotho Water Sector Funding Sources Scenario 3
13. 12. Outcomes SFP Outcomes Formed the basis of engagement with Finance Ministry. Objective discussion of tariff policy. Analytical approach showed stark trade-off between reality and policy credibility – in a transparent way. Results used to identify priorities and embedded into the budget and Medium Term Expenditure Framework. Provided a platform for aid effectiveness and dialogue with donors. Facilitated improvements in the M&E systems and cooperation between the Bureau of Statistics and water sector Institutions.
14. 13. Lessons Constraints Data collection and analysis problematic. Institutional anchorage of the SFP process and planning tools – changes in staffing make this fragile. A ‘project approach’ is good for initial development of planning tools and capacity building but not for the long term. Follow-up support is necessary to ensure sustainability of the achievements.
15. 14. Lessons Lessons Provides a structured and comprehensive approach – replaces the usual ad hoc approach SFP structured according to the sub-sector sub-divisions used in the budgeting process Flexible tool that allows for re-design/additions and updating according to the developments in the sector Must be ‘owned’ by the country. There is no ‘one size fits all’. Provides transparency therefore good for negotiations.
16. 15. Observations Overcoming Financing Obstacles SFP provides reality check – and helps set realistic aims. Help Governments allocate scarce public budgets more strategically for public goods and facilitate private investment. SFP part of wider support on financing for water. E.g. for project preparation (trust funds not presently used for water), for blending of finance from multiple sources, For helping countries understand finance and how to access finance from different sources.
17. 16. Observations Strategy issues Whole project costs must be factored in (less 40% are for infrastructure/construction). Subsidies are needed but have to be designed and targeted. Need suite of sources and mechanisms that match purpose. Utilities operating as a business up to a point – but different approach needed to serve the poor – may need to have different agency for the latter.
18. 16. Observations Distractions! Worldwide Economic crisis - access to finance. Investment without revenues - excessive national debt. Right to water (and sanitation) consequences - legal costs, withdrawal of financing? Loss of public support with lack of solutions for the poor.
19. 17. Thoughts Further thoughts... Sources of finance -social entrepreneurs? Is the problem finance or management? Can water be recycled? What are the issues? Purification, fertiliser systems In general, government may not solve the water issues- government solutions may not be sustainable! – Why did the Marshal Plan work for Europe?
20. Thank you EUWI FWG reports: Strategic Financial Planning for water supply and sanitation in Africa (English and French) A Primer for Practitioners and Students in Developing Countries available from: www.euwi.net/wg/finance www.gwpforum.org