Governance Assessments and Budget Support

Necessary Conditions for Development Effectiveness

Setting the scene

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.

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

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

Our focus today: goverance and budget support

1. Ownership is vital for development effectiveness

2. Budget support helps to build ownership3. Good governance is a necessary condition for

effective budget support 4. Nationally owned governance assessments

provide the basis for effective budget implementation

1. Ownership

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

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:

Simplification of procedures

Alignment with government’s

agenda

Common arrangements

Sharing of information

Reliance on government’s systems

Governments set the agenda

OWNERSHIP

ALIGNMENT

HARMONISATION

MainstreamingMainstreaming 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

Country PRSP costed

PRSP linked to budget

PRSP linked to MTEF

Cabinet approve PRSP priorities

Cabinet review progress in the implementation of the PRSP

Special unit set up to manage preparation /implementation of the PRSP

Unit location

Benin Y Y Y Y Y Y Min. of state

Burkina Faso Y Y Y N N N

Cameroon N Y N N N N

Cape Verde Y N N N Y Y National planning

CAR N N N N N Y Econ. plann

Chad N Y Y Y Y N

DRC N N N N N N

Ethiopia Y Y Y N N Y Finance

Gambia Y Y Y Y Finance

Ghana Y Y Y N Y Y Econ. Planning

Guinea Y Y Y Y Y N

Guinea-B N N N N N Y Social Solidarity

Kenya Y Y Y Y N Y Office President

Lesotho N N N Y N Y Devlp. Planning

Madagascar Y Y N N N Y Prime Minister

Malawi Y N N N N Y Finance, Econ Plan

Mali Y Y Y N N Y Finance

Mauritania Y Y Y N Y Y

Mozambique N N Y Y Y Y National Planning

Niger N N Y N N N

Rwanda N Y N Y N Y Finance

Sao Tome N N N N N N

Senegal

Sierra Leone Y Y Y Y N Y Development

Tanzania Y Y Y Y N Y

Uganda Y Y Y Y Y Y

Zambia Y Y Y Y N Y Finance

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

2. Budget support

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

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

World Bank and budget supportFigure 1. Development Policy Lending Shares for IDA and IBRD Countries

38%

64%

37% 40%

32% 35% 28% 29%

47%

27% 30%

25% 19%

27% 26% 23% 24%

21%

33%

50%

33% 31% 30%

31% 26%

27% 40%

0%

10%

20%

30%

40%

50%

60%

70%

2001 2002 2003 2004 2005 2006 2007 2008 2009

IBRD DPL IDA DPL DPL % Total

Table 1. Policy-Based Lending Operations and Commitments, FY00-09

FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09

IDA Number of Operations 9 15 23 24 23 32 30 35 31 39 of which adjustment lending 9 15 23 24 23 23 1 0 0 0 Lending commitments (US$M) 682 1,826 2,443 1,831 1,698 2,301 2,425 2,645 2,672 3,028

IBRD Number of operations 14 15 21 21 18 23 21 22 16 34 of which adjustment lending 14 15 21 21 18 14 2 0 0 0 Lending commitments (US$M) 4,426 3,937 7,383 4,187 4,453 4,264 4,905 3,635 3,967 15,532

Total Number of operations 23 30 44 45 41 55 51 57 47 73 of which adjustment lending 23 30 44 45 41 37 3 0 0 0 Lending commitments (US$M) 5,108 5,763 9,826 6,018 6,151 6,565 7,330 6,280 6,639 18,560

Adjustment Lending Development Policy Lending

3. Governance and budget support

EC conditions for budget support

• National policy and strategy• Stability oriented macroeconomic framework• Program to improve public financial

management

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

Problems with budget support are governance problems

• Donor harmonization vs ownership• Weak public financial management capacity• Corruption

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

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

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

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

4. Nationally owned governance assessments and monitoring

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

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)

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

Returning to the opening argument

1. Ownership is vital for development effectiveness

2. Budget support does help to build ownership3. Good governance is a necessary condition for

budget support 4. Governance assessments can provide the

basis for effective budget implementation