Public Sector Budget Allocation to Agriculture and Efficiency of Resource Use: A Review of Status, Trends and Implications

Babatunde OmilolaAfrica-wide Coordinator

Regional Strategic Analysis and Knowledge Support System (ReSAKSS)

CAADP Donor and Partners Meeting, Addis Ababa, EthiopiaSeptember 6, 2009

Background

• Recent increase in attention and financial commitments for agriculture for development– WDR 2008, CAADP and Maputo Declaration, G-8

pledge in 2009

• These are positive developments in public sector budget allocation to agriculture, but now focus needs to shift from quantity to quality of spending

• This will require a review of recent spending levels and areas to identify challenges and opportunities for improvement

Outline

• Regional review of public expenditures: How is Africa performing compared to other regions?

• Overview of trends of agriculture spending in Africa– Spending levels: Progress towards the Maputo Declaration

CAADP 10% target– Spending intensity– Donor financing to agriculture

• Case studies of 3 African countries to highlight spending patterns, looking at:– Sources and composition of spending– Efficiency of resource use

• Summary and conclusions

1. Regional review of public expenditures:

How is Africa performing compared to other regions?

Public expenditures across world regions, 2000 international dollars, billions

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

SSA (13 countries) N. Africa (3 countries) LAC (16 countries) Asia (11 countries) Total (43 countries)

20

00

inte

rnat

ion

al d

olla

rs, b

illio

ns

1980 1990 2000 2005

Total spending increased by 6 percent from 1980-2005, the

majority of which was from Asia

Spending in SSA and N. Africa increased by 3.7 percent from 1980-

2005. In SSA alone, spending increased by 4.9 percent

Source: Calculated using data from International Monetary Fund’s (IMF) Government Financial Statistics Yearbook

How have governments allocated their total spending?

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1980 1990 2000 2005 1980 1990 2000 2005 1980 1990 2000 2005

Shar

e o

f to

tal s

pen

din

g, %

OtherDefense Social Security T&C Health Education Agriculture

SSA Asia LAC

The share of spending on agriculture in SSA increased since 2000 but remains at the 1980 level

and below 10%.

Since 1980, the share of spending on health, education and agriculture in SSA has increased slightly while spending on defense has declined.

Sources: Calculated using data from International Monetary Fund's Government Finance Statistics

Agriculture expenditures across regions

0

50

100

150

200

250

1980 1990 2000 2005

20

00

inte

rnat

ion

al d

olla

rs, b

illio

ns

Agriculture expenditures by region, 2000 international dollars (billions)

North Africa SSA LAC ASIA TOTAL

0

2

4

6

8

10

12

14

16

1980 1990 2000 2005A

gric

ult

ure

exp

end

itu

re s

har

e o

f ag

ricu

ltu

re

GD

P, %

Agriculture expenditures by region as share of agriculture GDP

North Africa SSA LAC ASIA

The level of agricultural spending is much higher in Asia than in N. Africa,

SSA and LAC

Yet as a share of agriculture GDP, expenditures on agriculture are highest

in N. Africa – but still lowest in SSA.

Sources: Calculated using data from International Monetary Fund's Government Finance Statistics

2. Agriculture spending in Africa

Country Progress towards the Maputo Declaration target

Level of spending: Are countries making progress towards the Maputo Declaration target?

• The African continent as a whole has not met the 10% target (current spending at 6-8 percent)

• But, this varies by country

0

5

10

15

20

25

Gu

ine

a B

issa

u*

**

Gab

on

**

*

DR

C**

Co

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'Ivo

ire

Mo

rocc

o*

*

Cen

tral

Afr

ican

…

Mau

riti

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Leso

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and

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Cam

ero

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Bo

tsw

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Bu

run

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Ken

ya*

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Swaz

ilan

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Uga

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*Su

dan

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Nam

ibia

**

Tan

zan

ia**

Mau

rita

nia

***

Be

nin

***

*

Tun

isia

**

Nig

eria

Zim

bab

we*

*

Zam

bia

*

Togo

Mad

agas

car*

*

Gam

bia

***

Mo

zam

biq

ue*

*C

had

***

Gh

ana*

**

*

Mal

i

Mal

awi

Eth

iop

ia*

*

Sen

egal

Gu

inea

***

Nig

er*

Bu

rkin

a Fa

so*

%

Agricultural Expenditures as a share of total (%), 2007

CURRENT, 2007 (Unless otherwise noted)

*=2006; **=2005; ***=2004; ****=2008 estimates

Sources: Various, compiled by ReSAKSS.

Only 8 countries have met the 10%

target

Have countries increased their spending in response to the 2003 Maputo Declaration?

• At the continental level, agricultural spending nearly doubled between 2000 and 2005

• In 2003, only 3.2% of countries allocated 10% or more of their budgets to agriculture– This increased to 33.3%

in 2006 before slightly falling to 25% in 2007

• 9 countries increased their allocations from less than 5% spending to 5-10% spending

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

2002 2003 2004 2005 2006 2007

% o

f re

po

rtin

g co

un

trie

s

Level of agricultural spending as a share of total spending, 2002-2007

Less than 5% 5%-10% More than 10%

Sources: Various, compiled by ReSAKSS.

Agriculture Spending Intensity

• Measures government spending on agriculture relative to the size of that country's agriculture sector

• Calculated as the ratio of agriculture spending to agriculture GDP

• Under this measure, more countries fall into the category of low budget support to agriculture

0

20

40

60

80

%

Agricultural expenditures as a share of agricultural GDP, 2007

CURRENT, 2007 (Unless otherwise noted)

*=2006; **=2005; ***=2008 estimates

The range is considerable

(1 to 60%)

On aggregate , Africa spends between 5-7% of agricultural GDP on agriculture,

compared to 15% in Asia during its Green Revolution

Sources: Various, compiled by ReSAKSS.

Development Assistance for African agriculture

Since 1995, official development assistance (ODA) to agriculture in Africa has fallen and has been less than ODA to emergency relief and food aid

Sources: OECD statistical portal, accessed November, 2008.

Average agricultural aid to Africa, by country

• Agriculture has not been prominent on the donor agenda, perhaps not because of any conscious decisions but due to pressure to broaden the aid agenda• It is crucial for development agencies to also commit to the 10% budgetary allocation to agriculture Source: OECD statistical portal, accessed November, 2008.

0

1

2

3

4

5

6

7

8

Ave

rage

agr

icu

ltu

ral a

id a

s a

shar

e o

f to

tal

aid

, %

All countries spent less than 10% of aid

budgets on agriculture

3. Country case studies

Nigeria, Zambia and Malawi

Public spending for agriculture has been increasing in the case study

countries

0

2

4

6

8

10

12

14

16

18

20

2000 2001 2002 2003 2004 2005 2006 2007 2008

Agr

icu

ltu

re e

xpen

dit

ure

sh

are

in t

ota

l (%

)

Malawi Nigeria Zambia

Sources: Various, compiled by ReSAKSS.

And this funding increase has predominantly come from government sources

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

ZMK

' bill

ion

GRZ spending Donor Spending Total Public Spending

In Zambia, fiscal dependence on development partners in agricultural spending declined from 48% in 2000 to 18% in 2008

Sources of agriculture spending in Zambia (ZMK billion) 2000-2008

0

5000

10000

15000

20000

25000

2000 2001 2002 2003 2004 2005 2006 2007

Mal

awi K

wac

ha

(mill

ion

s)

Total agriculture spending Gov. of Malawi Ag Spending Donor Ag Spending

Likewise, in Malawi, the donor share of total government spending on agriculture declined from 41% in 2000 to 23%

in 2007, with a low of 12% in 2006.

Sources of agriculture spending in Malawi, 2000-2007

Composition of Agricultural SpendingGhana

(2000-2005)Malawi

(2000-2007)Nigeria

(2001-2005)Zambia

(2000-2008)Price support 20.2Inputs 43.5 39.7Food Security 50.5 22.0Livestock 2.7 3.3Fishery 3.2 1.1Crops, livestock and fishery (aggregated) 23.7Forestry 3.5 7.3 4.1Cocoa 62.2Research & Extension 10.6 13.0 21.7

Spending has been directed to different priority areas: Ghana has focused on one particular crop (cocoa),

while Nigeria, Malawi and Zambia have invested most heavily into input support.

Malawi’s input support programs fall under their nutrition

and food security component.

Investment gap ratio• Ratio of actual expenditures to budgeted expenditures• Public Expenditure and Financial Accountability (PEFA)

best practice standard is no more than 3% discrepancy between budgeted and actual (equal to a ratio of 97%)– If the ratio is <97%, it means that the government is

underutilizing approved funds– If the ratio is >100%, it means the government is

overspending

• Inefficient budget execution may negatively impact policy planning, design and implementation and make it difficult to attain goals and expected outcomes– Programs may have to change or end midstream if

promised funding does not materialize– Also erodes the credibility that approved projects will

actually be financed

Budget execution in case studies is poor, but improving

0

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005 2006 2007

Rat

io o

f ac

tual

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dge

ted

agr

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exp

end

itu

res

Nigeria Malawi PEFA target

• From 2000 to 2004/5, both countries’ budget execution was poor at a range of 48-85%

•This meant that up to 52% of budgeted resources for agriculture were not being spent

•In recent years, both countries have overspent the budgeted amount

What are the reasons for poor budget execution?

• In the countries studied, the gap between budgeted agriculture spending and actual has largely been driven by deviations in capital outlays, rather than recurrent spending

• Budgets are formed based on demands of constituencies, while implementation often is tracked by fiscally restrained Finance Ministries

• The trend of poor budget execution is not limited to agriculture, suggesting it is a general issue – not just an agricultural one

• The recent overspending in Malawi is largely due to overruns in the costs of the subsidy programs

Conclusions• Governments and donors are increasing the quantity of

agricultural spending: – In response to the 2003 Maputo Declaration– Donor spending has increased slightly, but not at the same

rate as government spending• While this is good for national independence, it calls for development

partners to step up to their commitments (“10 for 10”)

• Now there is a need to focus on the quality of agricultural spending:– The investment gap ratio is dwindling, but more focus is

needed to continue this trend, due to its importance for program effectiveness

– Spending by the case study countries has focused largely on inputs – fertilizer, seeds – at the cost of investments that may have more long-term impacts• Investments in agriculture R&D, irrigation and rural infrastructure have

larger, longer-lasting impacts on productivity

Thank you!