Linking Public Expenditure work with Bank instruments: PRSPs and JSAs

1. Linking Public Expenditure work with Bank instruments:PRSPs and JSAs Jeni Klugman Public Expenditure Analysis & Management Seminar May 24, 2001

2. Guidelines For PRSPs and JSAs PRSPs should be: • Country-driven • Results-oriented • Comprehensive in scope • Partnership-oriented • Long term in perspective • Participatory JSAs reflect the main principles underlying the PRSP

3. What a JSA Is • Document produced by World Bank and IMF staff, which accompanies a PRSP to the Boards of Executive Directors of the Bank/Fund • An overall assessment as to whether or not the strategy presented in the PRSP constitutes a sound basis for concessional assistance from the Fund and the Bank

4. What a JSA Is Not • A positive JSA does not signify agreement with all analysis, targets, or public actions set forth in the PRSP or that the PRSP represents the best possible strategy for the country • Rather, that the PRSP is a credible framework • Also, not a direct determinant of the amount or mode of IFI assistance -- though a key document for design of the CAS, etc

5. How a JSA Is Produced • Lead responsibility among Bank and Fund staff is divided along primary institutional competencies • with consideration that there are areas of overlapping competence, and important linkages among areas • Staffs need to reach a common overall assessment • Within the Bank, the JSA should be informed by views across sectors (not just PREM): review and discussion of the PRSP itself should already have included the whole country team, so that drafters of the JSA are able to reflect cross sectoral views • Good practice to circulate draft to government as early as possible

6. What a JSA Evaluates The JSA evaluates key questions in the four core elements of a PRSP: 1. Description of the country’s participatory process 2. Poverty diagnostics 3. Targets, indicators, and monitoring systems 4. Priority public actions

7. Key questions in assessing PRSPsrelevant to PEM (i) Is the financing plan adequate & credible? (ii) Are fiscal choices (expenditure and revenue policies) consistent with strategic priorities and institutional capacity? (iii) Is public financial management adequate to ensure effective implementation?

8. An adequate and credible financing plan Note, this should include domestic borrowing and projected aid (and other external) flows • Realism of external financing projections and implications for long-term debt sustainability. • Contingency plans for expenditures in the event of a shortfall in revenues or financing. • Domestic revenue measures designed in light of likely distributional impacts • Extent to which external development partners have begun—or indicated their intention to align and coordinate their own strategies with the PRSP.

9. fiscal choices (1): core questions • Are fiscal choices consistent with the poverty reduction and growth objectives of the PRSP? • Is the allocation of expenditures consistent with the strategic priorities, institutional capacities and efficiency, and realistic cost estimates? • Have domestic revenue measures been designed in light of likely distributional impacts? • Is fiscal management capacity adequate to effectively implement the proposed expenditure program?

10. fiscal choices (2): bullets • Quality of cost estimates for key programs. • Comprehensiveness of budget data, i.e., extent to which all programs (including externally financed projects) are included in an integrated budgetary framework. • Disaggregation of expenditure programs by sector and key programs for poverty reduction and by recurrent and investment expenditures. • Status of a Medium Term Expenditure Framework to improve the capacity to undertake pro-poor budget allocations over time.

11. Fiscal allocations consistent with poverty reduction priorities Both quantitative and qualitative data is needed: • Actual budget out-turns, not only the plan • Information from donors by sector • (Potential) user views about services

12. governance and public sector management (1) – core questions • To what extent are improvements in governance and public sector management being pursued in areas that are important for poverty reduction? • How adequate are proposed improvements in laws and in institutions at the central and local levels with regard to ensuring accountability for use of fiscal resources and better service delivery?

13. governance and public sector management (2): bullets • Measures to address systemic problems in budget formulation & execution; financial management and procurement systems; monitoring of public spending, as well as short-term measures to ensure accountability for the use of HIPC debt relief. • Plans for improvements in governance arrangements and service delivery, including the role of local communities and local government. • Steps to be taken to improve transparency and ensure accountability of public institutions and services re the needs and priorities of the poor. • Efforts to address critical problems inhibiting civil service performance and any issues of corruption in the public service.

14. Budget process as well as content is important A two-pronged, longer term and short term strategy to strengthen processes: 1. Long term elements • A comprehensive approach based on MTEF • Predictability -- realistic revenue forecasts to avoid arrears and credit rationing • Financial Management Information System (GFMIS) 2. Short term: expenditure monitoring • focusing on poverty-related expenditures, • plan versus actual outturns • tracking devices

15. MTEFs & PRSPs: potential synergies recognised in several (I)PRSPs Specifically, the MTEF process can • ensure that sector policies and associated budgets have a clear poverty reduction focus and are designed within a realistic macroeconomic resource framework. • explicitly address poverty reduction goals and help identify the measures necessary to improve the targeting of budget expenditures • link to the poverty reduction guidelines for agriculture, health, education, public works, and labor and social protection. Subsequent preparation of the MTEF and PRSP documents will be undertaken concurrently, thereby ensuring consistency between the government’s poverty reduction strategy and its expenditure plans.

16. Short-term measures to improve public financial management • In selected Ministries: • adoption of an integrated Financial Management System, or • improved manual procedures for recording spending, and/or • Public Expenditure Tracking Surveys • Strengthening control institutions such as Comptroller General • Improved budget classification systems • IPRSP proposes revising the budget classification system in order to allow more meaningful targeting and monitoring of public expenditure • Strengthening Treasury operations to ensure more timely release of funds and better reporting of expenditure • Publication of quarterly or semi-annual budget execution reports • Placing programming and execution of foreign-financed capital expenditure on budget • ensuring full recording of externally financed project expenditures in the government’s accounts

17. Sub-national tracking • Closer monitoring of conditional and block grants • Audit sampling of some sub-national governments • Developing a model local financial management systems in selected municipalities