BRIDGING THE GAP: FROM POLICIES TO BUDGETS

1. BRIDGING THE GAP: FROM POLICIES TO BUDGETS COLLABORATIVE AFRICA BUDGET REFORM INITIATIVE THIRD ANNUAL BUDGET REFORM SEMINAR ADDIS ABABA 28 – 30 NOVEMBER 2006

2. MINISTRY OF FINANCE SIERRA LEONE PRESENTATION DESIGNING PROGRAMMES TO ACHIEVE POLICY OBJECTIVES Mr. MATTHEW DINGIE AG. DIRECTOR OF BUDGET

3. Contents • The budget process in Sierra Leone • Evolution of budgeting systems (line-item, and programme approaches) • Elements of programme design • Relating programmes to policy objectives • Challenges faced in Sierra Leone • Lessons learnt and the way forward

4. Budget Process in Sierra Leone • Implementation of MTEF in planning and execution of the national budget. • The Government Budgeting and Accountability Act 2005 • Budget support contributes about 43 percent to the budget. Start of fiscal year Discussions with IMF / Donor Partners Budget Framework Paper Budget Call Circular Bilateral Budget Discussions Sector Policy Hearings Presentation of Budget to Parliament Approval by Parliament JAN JUN AUG SEPT OCT DEC

5. Line-Item Budgeting • Line-item budgeting represented the earliest attempts at institutionalising a budget process and bringing some kind of order to government’s expenditures. • Control is expressed in written budgets through "line items", which are simply statements or "lines" in an appropriation bill which simply define how much money can be spent for certain "items“. • Members of Parliament in most countries have indicated a certain comfort with this approach in the past because it is restrictive in terms of defining expenditures and setting limits. • However, while line-item budgeting provided the essential ingredients of order and control it does not address issues of performance, quality and accountability.

6. Programme Budgeting • Designing a budget architecture that groups expenditures and sources of funds into functional activity categories. • A function is simply a group of related activities for which a governmental unit is responsible. The classification structure used in each government unit is a product of fiscal, organizational, and political considerations. • MDAs in particular should synchronize their organization structures, budget classifications, and accounting systems. • Ministry of Health in Sierra Leone has 5 major programmes along functional lines. One of those programmes, the Primary Health Care Services, is then broken down into smaller units, such as Maternal and Child Health/EPI, Malaria Prevention and Control etc.

7. What is a involved in programme design? In an ideal situation, a Programme should have the following features: • Measurable objective(s) i.e. should be capable of being evaluated over time • Time frame for the achievement of objective(s) • Standard set of activities to be carried out or executed • Adequate resources (Human; Capital; Data etc) • Flexibility • Subsets/Divisions/Functions to carryout core activities to ensure specialization

8. Relating programmes to policy objectives • Firstly, there must be in place a National Strategy Paper owned by government. • Secondly, the Ministry of Finance will analyse this paper further by sector and identify the objectives which are to be met under each sector. • Thirdly, a sector wide strategy which caters for the short and medium term will then be developed and assigned to specific MDAs to be undertaken. • Each MDA under a particular sector will develop programmes that will help carry out its assigned strategy to meet the overall objective of that sector. • Costing of programmes will be carried out by the MDAs and submissions made to the Ministry of Finance.

9. How a programme approach assists in budget negotiations? • Firstly, the programmes would have to be ranked by order of priority as spelt out in the National Strategy Paper. • This could be measured by the return expected to be earned from the implementation of each of such programmes in meeting the overall objective of government. • Secondly, we need to identify programmes which are independent and those that are dependent. • Independent divisible programmes could be financed in whole or in part whilst those that are dependent have to be fully funded. • Hence in the allocation of resources to programmes, those programmes which are dependent and of high priority have to be funded first before funding independent divisible programmes that are also of high priority and in that order.

10. Sierra Leone experience • The PRSP is the national strategic goal of the government within the medium to long term. The SL-PRSP has three pillars, viz: • Promoting security, peace and good governance • Promoting pro-poor sustainable growth for food security and job creation • Promoting human development • In order to ensure effective implementation of the PRSP, each MDA has been allocated under a particular pillar of the PRSP.

11. Sierra Leone Strategic Plans • MDAs prepare strategic plans that have activities and programmes which when implemented will meet the objective under that particular pillar of the PRSP. • The strategic plans form the basis of designing programmes that will meet the policy objective of not only the Ministry or Sector but also the objective spelt out in the PRSP. • Hence, the strategic plans are a subset of the national PRSP with programmes being a subset of the strategic plans.

12. Sierra Leone strategic plans cont. • Strategic Plans are prepared by all MDAs, but at present the quality is variable, especially when it comes to integrating the strategic plans with the MDA budgets. • Whilst Education and Health Ministries take a programme approach to budgeting, most ministries still take a line item approach. • Strategic Plans cover both recurrent and development expenditure. Donor funded activities are costed and incorporated as part of the Development Budget of each MDA. Donor budgets are sometimes discounted at IMF meetings based on previous years disbursement patterns. • The funding coming from NGOs are not currently adequately captured in the budget and attempts are being made to incorporate, or at least record, revenue from these sources such that government funds can be most efficiently utilised.

13. Capital and recurrent expenditure • Around 65% of Sierra Leone’s expenditure is recurrent and 35% is capital spending. There are several challenges in managing this mix: • Different funding source for each type of revenue. Recurrent spending is over 70% funded by domestic resources whereas the capital budget is over 80% foreign funded. This means that accountability and management structures for the disbursement of funds are necessarily distinct; • Separation of the planning and monitoring institutions for the recurrent and capital budget; • Unpredictability of the recurrent component of certain capital budgets, weak donor coordination and unpredictability of donor funded capital expenditures; • Weak strategic plans of some Ministries Departments and Agencies (MDAs) that should incorporate all recurrent and donors funded capital expenditures, but sometimes fail to capture it all.

14. Local government perspective • The Local Government Act (2004) devolved many core functions to the newly elected Local Councils. This is being done in a phased way in order to allow the build up of human capital within the Local Councils. • The funding for a given MDA, for example school fees subsidy, is shown and monitored under the Local Councils line in the budget rather than under the MDA itself. • The Local government finance dept. within the Ministry of Finance is charged with the responsibility of overseeing the transfer of funds to Local Councils.

15. Sierra Leone Revenue Uncertainty • Like many developing countries with low cash reserves and high dependency on foreign funding (around 40% in Sierra Leone’s case) unpredictable resource flows cause considerable disruption to budget implementation. • In an effort to reduce this problem, the Ministry of Finance has designed a Fiscal Priority framework with help from the IMF. This framework seeks to do two things: first it divides income into two parts - reliable and non-reliable – and then secondly it divides expenditure into two parts - priority and non-priority. Priority expenditure must not be allowed to exceed reliable income, and tough choices have to be made here. • Income which is deemed reliable is matched against the priority expenditure and the income which is considered non-reliable is set against the non-priority expenditure. By this mechanism, the priority outlays of government are always funded, despite shortfalls in income. However, by the same token, non-priority outlays will unfortunately not be funded when shortfalls in income arise. • Thus whenever domestic or foreign revenue does not arrive as expected, we can at least ensure that the effect on priority government spending is minimised.

16. Lessons learned and way forward • Many MDAs still focus on line items in their budgets rather than activities spelt out in their strategic plans. • Even in the case where activities are to be implemented, it is difficult to trace which programmes are being implemented and how outcomes could be measured against objectives that were set. • Hence the challenge is one of capacity building, and how that could assist towards a move from strategic plans to programme design and the allocation of resources in the budget to programmes rather than activities or line items.

17. THANKS FOR YOUR ATTENTION