John RWANGOMBWA Secretary General and Secretary to the Treasury,

1. “Are capacities for aid coordination and management in recipient countries fit for up-scaling of aid?”- Perspectives from Rwanda John RWANGOMBWA Secretary General and Secretary to the Treasury, Ministry of Finance and Economic Planning, Government of Rwanda

2. Structure of Presentation • Thinking about “capacities”:Towards an analytical framework • Overview of Aid Flows to Rwanda • Progress and challenges in the coordination and management of aid • Government • Development Partners • Civil Society • The need for scaling up • Conclusions

3. What do we mean by “capacities” in this context? InstitutionalCapacities Policies, strategies andimplementing tools are inplace to ensure efficientcoordination andmanagement of aid. Human Capacities Skilled, trained personnelare in place to implementpolicies and strategies,and to maintain thegovernment-donorinterface. “Capacities” Structural / Economic Capacities Capacity of the recipient country’s economyto absorb additional aid with minimaldistortion (“dutch disease”) etc.

4. Whose capacities in recipient countries? • Recipient government • Capacity to own, manage and implement. • Donor agencies • Human & institutional capacity to deliver assistance in an effective manner. • Other key stakeholders (e.g. civil society, private sector) • Capacity to complement government; advocate for effective use of aid, and exert ownership over development processes.

5. 1,000 900 800 700 600 USD millions 500 400 300 Total Net ODA (2004 prices) 200 …of which 100 emergency aid and food aid 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Year Aid flows to Rwanda Civil war and Genocide Post-war recovery… …towards longer term growth and poverty reduction EDPRS (forthcoming) PRSP1 Data source: OECD-DAC

6. Aid flows to Rwanda • Composition of aid portfolio (FY2005): • Relatively small number of donors • 40% budget support • 60% projects, making limited use of GoR systems • Only 49% of aid reflected in GoR budget • Sectoral composition of aid: • Largest sector was health (12% of ODA) • Strong focus of aid on MDG sectors

7. Government capacities tocoordinate and manage aid

8. Institutional Capacities (I) • Evaluation of PRSP1 completed; second generation PRS currently being finalised • EDPRS will offer clear priorities with which aid needs to be aligned • Costing of EDPRS will give clear indication of resource gaps in the medium term • GoR Aid Policy (finalised July 2006) sets out clearly how aid should be provided and managed, with a view to ensuring fit with the EDPRS • Preferences in terms of aid modalities and use of GoR systems • Provides a framework for GoR negotiation and management of aid

9. Institutional Capacities (II) • Important PFM reforms ongoing: • New institutions created and strengthened (Auditor General, Ombudsman, National Tender Board, Accountant General). • Organic Budget Law provides for improved budgeting and execution. • Currently in process of preparing GoR consolidated accounts. • PFM Action Plan in place to strengthen institutions and systems. • Continued strengthening of sector planning and MTEFs • SWAp introduced in Education sector and soon to start in the health sector • Administrative reforms that led to greater decentralisation – performance contracts (Imihigo)

10. Institutional Capacities (III) • New and strengthened GoR-donor structures in place to manage and coordinate aid: • A dedicated External Finance Unit within the Ministry of Finance and Economic Planning. • Development Partners Coordination Group as a high-level forum for GoR-donor dialogue. • Budget Support Harmonisation Group provides a single forum for dialogue with Budget Support donors. • Sector-level working groups gradually assuming a greater role in the coordination of assistance at sector level.

11. Institutional Capacities (IV) • Some key challenges ahead: • Further improving sector-level planning and coordination. • Strengthening of planning and budgeting at the district level – Linking district development plans (DDPs) to EDPRS. • Strengthening monitoring and evaluation mechanisms. • Aligning donors to government systems

12. Human Capacities • Ongoing civil service reforms are providing institutions with stability and the human resources necessary to manage aid: • Improved salaries and conditions. • Introduction of performance contracts. • Skills remain in short supply, but capacity building initiatives are in place (Human Resource and Institutional Development Agency coordinates it): • The challenge now is to ensure that all TAs are aligned with GoR priorities, and executed in a manner that leads to a sustainable impact on skills within government. • Intensive training of professionals: • E.g. ongoing training of public accountants, procurement officers, planners and others

13. Economic / Structural Capacities • To what extent can Rwanda’s economy absorb additional aid? • No evidence of “Dutch disease” effects on exports through real exchange rate appreciation. • Efficient provision of aid plays an important role • Disbursements need to be predictable (cash plan). • Aid needs to be channelled in a way that strengthens absorptive capacity. • Sectoral allocations (overcrowding in social sectors) • Use national systems (procurement, reporting, etc… )

14. What about capacities onthe part of donors and other stakeholders?

15. In-country Donor Capacities • Donor cooperation offices in Rwanda are often small in terms of staffing: • Unable to engage fully in policy dialogue that becomes increasingly important with the move towards partnership-based modalities (e.g. budget support). • Many donor field offices are overly constrained by HQ-level regulations, despite the commitments made at international level (e.g. Paris Declaration on Aid Effectiveness): • Cannot always align to the maximum extent, or enter into partnerships with other donors to increase aid effectiveness. • Limitations on aid modalities. • Always seeking non objections from hdqtrs

16. Civil Society Capacity Issues • Grassroots efforts in the elaboration of the EDPRS mean that the strategy is “owned” by its beneficiaries, but: • Literacy and skills remain a challenge to civil society in its role in asserting greater ownership over development activities, and in advocating for an effective use of aid. • Relatively disorganised NGO sector reduces ability to implement their interventions effectively, though new umbrella organisations (e.g. NGO platform) promise to improve this. • The role of GoR and development partners in building and facilitating capacity at grassroots level remains important.

17. Why is scaling up of aid necessary in Rwanda?

18. Importance of Scaling Up (I) • Meeting the MDGs will require increased investment in social as well as productive sectors, e.g.; education, health, water and sanitation, agriculture, infrastructure etc.. • Significant investment in productive sectors needed to achieve sustainable growth, and reduce aid dependency in long term, e.g: • Rural roads are still poor, hindering access to markets. • Electricity is in short supply, and expensive ($0.22 per KwH – over three times the price of neighbouring countries). • The banking sector remains shallow, and savings rate is low: access to finance is crucial to private sector development. • Agricultural transformation is another key area that will ensure quick poverty reduction and sustained development • The EDPRS will address these constraints, but there is need additional external resources.

19. Conclusions • Rwanda has made significant progress in rebuilding its institutions in a way that prepares it for a much-needed scaling up and effective use of aid. • Remaining constraints on the GoR side should be examined alongside bottlenecks and challenges identified on the side of development partners: they too need to change the way they do business. • Use of country systems (budget execution, accounting, procurement) by donors is a pre-requisite to their continued strengthening. • Aid volume and effectiveness should be seen as interlinked: as transaction costs are reduced, the ability of a recipient government to manage a greater volume of resources is improved. • The capacity of an economy to absorb more aid will also depend on how aid is allocated to different sectors _ need to change the narrow definition of pro poor spending

20. I THANK YOU