Sector Programs Overview

1. Sector Programs: Update and IssuesOscar F. PicazoUSAID SOTA CourseWindsor Hotel, NairobiJune 12, 2002

2. Sector Programs Overview • Four key SWAp principles • Sector program & policy framework • Sector expenditure framework (budget) • Partnership based on transparency & gov’t leadership • Increasing use of gov’t systems to disburse • Key clarifications • Participation in “pooled” funds desirable but not required • SWAp is not necessarily HSR, e.g. Bangladesh • Are sub-sectoral SWAps & mini-SWAps “SWAps”? • SWAps as of 2001: 90 programs in all sectors • 85% in Africa, 9% in Asia • 25% in health, 28% in education, 13% in agriculture

3. Major SWAp Advocates • World Bank • New instrument - Adaptable Program Lending, 10 years • 10 HNP SWAps in Africa, 2 in South Asia; new SWAp requests from Nicaragua, Cambodia, PNG, and Nepal; operations in Bolivia, India, Indonesia have SWAp features • SWAp as “gold standard” in new AFR HD Strategy • Europeans, e.g., DfID, Dutch, NORAD, SDC, EU • Beyond SWAp: endorsement of macro budget support programs • UN Agencies support SWAp “in spirit” • Endorsed by UNDP, WHO, Unicef, UNFPA • But still struggling with institutional earmarking arrangements

4. Financing Modalities

5. Advantages “Unties” aid Financiers become “investment partners” Reduces transactions costs? Focuses on strengthening gov’t systems Improves financing transparency & predictability Focuses on performance rather than inputs Disadvantages OK if you can trust the gov’t + its systems, but what if you can’t? Fungibility of funds Requires harmonization of donor procedures Donors lose attribution (activities, outcomes, impact) Pooling of Funds

6. Countries’ “Teething” Problems • Conceptual confusion & “language barriers” • Recipient countries’ inadequate institutional capacity • Initial “kitchen sink” approach to sector programming • Initial mistaken notion that SWAp is a “silver bullet” to recurrent expenditure problem • Confusing the “direction” with the “detail” • It gets more challenging as the number of SWAp donors increase, bringing own “institutional” baggage • “Learning-by-doing” and “paving the road while getting there” approaches

7. Donors’ Bones of Contention • Some parties’ obsession with financing modality (basket funding) rather than policy framework and sector program • SWAp financial arrangements greatly diminish donor control and monitoring of how money is spent • Impossibility of attributing outcomes for each donor, especially those operating on legislative “earmarking” • Daunting challenge of harmonizing procedures, especially with a country perceived to have “loose” systems • Challenge of meeting needs of each donor’s “domestic constituencies” (e.g., USAID, CIDA)

8. Update: “One common sectorwide program, fully costed” • Clear attempts to cost SWAp programs, but in some cases only the development program is fully integrated • Some projects continue to be outside the program • Initial difficulties of reconciling SWAp program with macro budget program (MTEF) • MTEFs are increasingly being used in Ghana, Uganda, Tanzania and Mozambique • Can SWAp PoW be eventually the MTEF? • Confusion on the meaning of “sectorwide” • The place of the private sector • Are initial, “sub-sectoral” programs allowable?

9. Update: “Resources will be increasingly channeled through gov’t systems” • SPA pilot survey of 16 SWAps: • More than 80% of aid continues to be given in the form of projects within the SWAp program • Only 17% is given as pooled funds • Common disbursement through government system is being used (e.g., education) in some difficult environments • Mozambique, Tanzania, Uganda, Ghana • World Bank procedures constrain participation in ‘pooling’ • WB budget support limited to SAL and Secal • However, all WB projects are “government earmarks”

10. Update: “Openness, transparency, consultation, dialogue” • SWAp vulnerability to politics, e.g., Zambia 1997-99 • Interruption due to governance issues & change in priorities, e.g., Ethiopia, Pakistan • Ghana “out-of-SWAp” hospital funding fiasco, 1995-96 • MOUs, SOIs, & Codes of Conduct: • MOUs bet. Gov’t and donors signed in Uganda, Zambia, Ghana & Mozambique, but not in Ethiopia • Bangladesh conditionalities are in the Govt-WB credit agreement • Uganda Poverty Action Fund & education SWAp as models of transparency • Annual SWAp reviews have been generally disappointing

11. Update: SWAp and the Private Sector • Uganda health SWAp as “good practice” for NGO involvement • Tanzania, Uganda, Ghana & Bangladesh SWAps have specific strategies devoted to private sector role, but such activities continue to be weakly integrated • Donors continue to earmark funds for NGOs as “transitional arrangement”; mixed views on whether NGO financing should be harmonized under SWAp, & whether there should be an “NGO basket” • SWAp resources seen almost exclusively as public funds, continued government skepticism of civil society • Government NGO regulation, accreditation, & contracting still leave much to be desired in all low-income countries • Are NGOs at risk of dying without direct donor support?

12. Update: SWAp and Procurement • Procurement of TA • Existing donor procurement rules generally not responsive to “low-value, high volume” transactions required in the social sectors • Good examples of pooled TA funds in Bangladesh health; Ethiopia health; Pakistan SAP; and Zambia SWAps • Issue of international competitive procurement of TA • Some success in standardizing local consultant rates and per diems • Procurement of commodities • Too many parallel procurements continue • Scarcity of good models of donor ‘funds-pooling’ for drugs • Contentious issue of ‘drug procurement agent’ (e.g., Tanzania, Zambia, Kenya): seen as “donor imposition”

13. Update: SWAp and Transactions Costs • Assumption: SWAp reduces transactions costs to government and donors (streamlined meetings, harmonized procedures) • But developing SWAp is process- & time-intensive • Supervision costs for donors larger than normal projects: World Bank Zambia SWAp (50% higher), Mozambique education (100% higher) • Donor staffing implications have been larger than expected: DfID, NORAD • Conclusion: Transactions costs increase with SWAp until the new arrangements replace the old, but indications from Mozambique, Uganda and Tanzania show falling transactions costs

14. SWAp and Global Health Initiatives • Risk that targeted measures (AIDS, TB, malaria, etc.) will side-step the process of building national capacity, creating local demand, and informing rather than driving national priorities • Risk that Global Initiatives are viewed as relief rather than development support, with serious implications on sustainability • Risk that Global Initiatives are not “additional” resources and displace existing resource commitments from donors • Challenge of coordinating expanding number of private sector partners, which pose risk of undermining rather than strengthening the role of government in sector stewardship • Potential tensions between Global Initiatives & other forms of development assistance at the country level

15. From Sectorwide to Cross-Sectoral Approaches: Impelling Factors • Aid fungibility within & across sectors • Cross-cutting nature of problems & needed interventions • Civil service reforms & the HR crisis • Decentralization & local participation • AIDS epidemic & multisectoral approaches • Public expenditure management revolution that led to Medium Term Expenditure Frameworks (MTEFs) • Re-emergence of “poverty reduction” as a global goal • Era of debt relief, HIPC, PRSPs, and CDFs

16. OECD Assessment of Donors’Involvement in Poverty Reduction

17. Debt Relief Programs • Highly Indebted Poor Countries (HIPC) Initiative - 41 countries, mostly in Africa • Financial impact of HIPC • Reduces stock of external debt • Reduces debt servicing relative to gov’t revenue • Large magnitude of debt servicing relative to public spending on health and education • Uses of debt relief

18. African Commitments to Increase Coverageof Essential Interventions Under HIPC • To increase coverage of essential health interventions • Raise child immunization rates (12 countries) • Address HIV/AIDS (9 countries) • Address malaria (3 countries) • Address reproductive health (5 countries) • To deal with specific health systems issues • Address health personnel issues (7 countries) • Address drug procurement and availability (6 countries) • Increase public spending on health (5 countries) • Reallocate spending to essential services and/or rural areas (5 countries)

19. Human Resource Crisis in Health • Extremely poor population: health worker ratios • Too many workers leaving for other jobs and for abroad • Countries not training enough workers; not training the right kind • Unintended consequences of SAPs, civil service reforms, liberalization of health services, and AIDS epidemic • Program management cadre being “decimated” • Poor working environment and dire employee prospects • Few established mechanisms for contracting and other flexible labor arrangements • Little donor interest in providing “recurrent costs” despite huge in-service training investments • Current “unfashionability” of user fees that at least provided a modicum of health-worker incentives

20. Health Expenditures: NHA Findings • Are health financing standards outdated? • WHO: 5% of GNP should be devoted to health • BHA: US$12 per capita required for basic health • Larger than expected private health expenditures • Smaller than expected government health expenditures, in the midst of “expanding” health mandates • Smaller than expected NGO expenditures: are data valid? • Wide variability in countries’ donor “reliance”; donors still wedded to “political considerations” rather than health needs • Risk pools and prepayments remain minor sources of financing • Per capita health spending weakly related to health outcomes

21. Constraints to USAID Participationin Sectorwide and Cross-Sectoral Approaches • Unnecessarily high priority given to short-term outcomes; under-appreciation of necessity of “systems” change • Too much focus on project management leading to the disappearing art of policy dialogue • Low ‘comfort level’ with economics and health systems jargon • Mistaken notion that SWAp, MTEF and PRSP are ‘fait accompli’ • Different loci of strategic responsibility (PHN officers) and technical knowledge (CA’s, projects) • USAID comparative advantage is on technical aspects of service delivery, rather than on systems, organizational and financial policy directions that SWAps require • ‘Narrowly focused’ Congressional earmarks; prohibition of funds commingling

22. Opportunities for USAID Participation in Sectorwide and Cross-Sectoral Programs • USAID remains the largest bilateral PHN funder globally; need to translate ‘size’ into ‘influence’ • USAID has good tracking systems, e.g., DHS, increasing use of NHA, extensive work on PHN indicators • USAID good practices can be ‘redeployed’ for other uses: NGO contracting, civil society initiatives, disbursement systems • Institutional experience with policy-based programs • Other USAID instruments, e.g., Limited Scope Grant Agreement that provides resources directly to government agencies • USAID resources: mission economists, procurement officers, PHR Plus, POLICY, MEASURE, USAID/Global, etc. • Woody Allen: “All it takes to succeed is to show up.”