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Governance Assessments and Budget Support

Governance Assessments and Budget Support. Necessary Conditions for Development Effectiveness. Setting the scene. What do we mean by “governance”?. Greek, kubernao , “to steer”

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Governance Assessments and Budget Support

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  1. Governance Assessments and Budget Support Necessary Conditions for Development Effectiveness

  2. Setting the scene

  3. What do we mean by “governance”? • Greek, kubernao, “to steer” • World Bank: exercise of political authority and use of institutional resources to manage society’s problems and affairs • Wikepedia: decisions that define expectations, grant power and verify performance • European Commission: the rules, processes and behaviour that affect the way in which powers are exercised … particularly as regards openness, participation, accountability, effectiveness and coherence.

  4. Or define by activities supported • World Bank: public sector management and rule of law • UNDP: elections, human rights, justice, public sector reform, decentralization, e governance, parliamentary development

  5. Governance IS important for development • Many development experts believe governance weaknesses are the main cause of poor development performance • Paul Collier: One of four main reasons why the Bottom Billion remain in poverty • Knack and Keefer, 1996: highly significant partial correlation between institutional quality and 25 year average economic growth rates across countries • Acemoglu, Johnson and Robinson, 2001: institutional quality strong causal effect on per capita incomes

  6. Our focus today: goverance and budget support • Ownership is vital for development effectiveness • Budget support helps to build ownership • Good governance is a necessary condition for effective budget support • Nationally owned governance assessments provide the basis for effective budget implementation

  7. 1. Ownership

  8. Paris Declaration on Development Effectiveness: Principles • Ownership: Partner countries exercise effective leadership over their development policies and strategies, and coordinate development actions • Alignment: Donors base their overall support on partner countries’ national development strategies, institutions and procedures • Harmonization: Donors’ actions are more harmonized, transparent and collectively effective • Management for results: Managing resources and improving decision-making for results and long-term sustainability • Mutual accountability: Donors and partners, at all levels, are accountable for development results

  9. Importance of Ownership • Ownership means: • National commitment to national development plans • Plans such as PRSPs fully mainstreamed into the national policy process • Donors prepared to base support on the nationally owned plans • Ownership, alignment and harmonization linked:

  10. OWNERSHIP Governments set the agenda Alignment with government’s agenda Reliance on government’s systems ALIGNMENT Simplification of procedures HARMONISATION Common arrangements Sharing of information

  11. Mainstreaming Mainstreaming means: • Widespread consultation in the preparation of national development plan or PRSP • PRSP or national plan converted into MTEF • PRSP and MTEF approved by the president, cabinet and parliament as part of normal policy process • MTEF a multi-year statement of results to be achieved and funding allocated to those results, with the available resources • MTEF is the basis for the annual budget • Institutions have the capacity to implement the policies programs

  12. Leadership and mainstreaming • Presidents and cabinets pay attention to implementation of policy as well as its formulation: often don’t • Need to set up policy management capacity in cabinet office • Policy management included monitoring implementation and evaluating impact • President and cabinet prepared to adjust following monitoring

  13. 2. Budget support

  14. Defining budget support • Sometimes called development policy lending or grants • Funding disbursed to government budget on basis of agreement to achieve certain policy results, before or after results achieved • Government manages funds and organizes the achievement of the results • Can be sectoral or national (PRSCs, balance of payments support) policy results • Contrast with project lending or grants where funds are earmarked for particular uses and expenditure requires pre-approval by donor(s) before funds disbursed

  15. Donors and budget support • OECD/DAC: one third total flows will be budget support “in near future” • EC objective: 50% by 2010 • Strong supporters: UK, Sweden, Netherlands, Denmark, Norway, Finland, Germany, EC and World Bank • In 2004 30-40 % in Tanzania, Uganda, Zambia, Malawi, Ethiopia, Mozambique, Kenya

  16. World Bank and budget support

  17. 3. Governance and budget support

  18. EC conditions for budget support • National policy and strategy • Stability oriented macroeconomic framework • Program to improve public financial management

  19. Donors less enthusiastic about budget support • Need to link their support to particular activities • Don’t trust government systems • In particular public financial management: allocation, expenditure, and accounting • Procurement weakest of all

  20. Problems with budget support are governance problems • Donor harmonization vs ownership • Weak public financial management capacity • Corruption

  21. Donor harmonization vs ownership • Effort to harmonize donors often leaves out government • Donor staff spend most time interacting with each other rather than government (recent studies of implementation of Paris Declaration) • Budget support works best if government leads harmonization • Eg Mozambique and Uganda

  22. Weak public financial management capacity • Three components of PFM: preparing the budget; executing the budget; accounting for the uses of funds • Preparation improving: consultative plus more true MTEFs • Weakest very often budget execution • Also “real” accountability: sanctions against those responsible for misspending • All budget support accompanied by PFM reform and capacity building

  23. Procurement a particularly serious problem • Studies of alignment objective of Paris Declaration show this to be the weakest link • Main reason for some donors not favoring budget support • Many continue to favor donor supervision of large procurement requiring international competitive bidding • Problem not usually the procurement systems but their implementation

  24. Corruption • In dollar value terms, public procurement the main source of corruption • Many African countries at bottom of all the corruption rankings • Anti-corruption agencies have succeeded in Asia: Hong Kong 12th in TI ranking, ahead of UK, Germany, US, Norway and Ireland • African country well up TI ranking all have good PFM and strong anti-corruption agencies • Ownership again: has to be high level political commitment to fight corruption leading to adequate resources • Hong Kong anti corruption authority has 900 highly trained investigators; no African country close

  25. 4. Nationally owned governance assessments and monitoring

  26. The story so far…. • Budget support enhances ownership • Ownership improves development effectiveness • Governance problems weaken effectiveness of budget support • So, governance problems have to be addressed along with budget support • Therefore we need to assess governance problems as budget support programs are put together • And monitor progress in achieving good governance objectives

  27. Governance reform needs ownership too • Government should build own capacity to assess governance issues (OGC objective) • Governance reforms should be part of national plans and PRSPs (almost all do) • Government should monitor and report progress with governance reforms (few do) • Civil society should be involved in monitoring (some are, but independently) • Monitoring should be part of the policy process (rare)

  28. Importance of national ownership of governance assessments • Governance assessments now popular with donors • But for whom? • OECD: out of 37 donor supported assessment tools, only four involve joint assessment • National ownership of assessment will lead to ownership of reform

  29. Returning to the opening argument • Ownership is vital for development effectiveness • Budget support does help to build ownership • Good governance is a necessary condition for budget support • Governance assessments can provide the basis for effective budget implementation

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