Strengthening Institutions

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Strengthening Institutions

David Nguyen-Thanh

GIZ, Sector Program Public Finance,

Division Good Governance and Human Rights

Presentation held at the Annual Meeting of the Practitioners Network of European Development Cooperation

Luxembourg, April 20, 2012

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I. Institutions, Ownership and the role of Aid

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Why care about institutions?

Institutions: different concepts Narrow: public organisation (e.g. ministry of

education) Broad: rules, norms (North, Williamson)

Institutions are believed to play an important role in promoting development outcomes

Plausible assumption helpful to use impact chain to assess role of

institutions in specific contexts

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Example: Complex Theory of Change for Resource Governance Strengthened regulatory

& policy environment

Timely and regular information on revenue flows

EITI compliance achieved

EITI reconciliation reports produced

EITI activities managed and coordinated

Greater public awareness

Publication and disemination of EITI reports

Reduced corruption

Recovery of financial discrepancies

Government, companies and civil society engage in EITI process

New policies and regulations

Strengthened stakeholder capacity to engage in EITI process, eg by trainings

Identification of financial discrepancies

EITI Validation reports produced

Increased FDI

better natural resource governance

Sustainable growth

Reduced poverty

More inclusive and better informed debate & dialogue

Risks + Activities

Risks + Activities

Risks + Activities Risks +

ActivitiesRisks +

Activities

Risks + Activities

AssumptionEx.: Reports are understood by broad public Assumption

Assumption

Assumption

Assumption

AssumptionEx.: Trainings

reach relevant actors

Assumption

Risks + Activities

Risks + Activities

AssumptionEx.: New laws are effectively implemented and adhered to

… so far so good!

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…where does aid come in?

If there is sufficient ownership, then countries may ‚build‘ institutions and eventually achieve desired outcomes …

… so the dev‘t challenge of strengthening institutions boils down to a financing problem. Really?

Evidence suggests that lack of ownership may be the problem

Why? Political economy: vested interests, neo-patrimonial

state collective action problems – Booth (2011)

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Can development partners contribute to ownership?

Booth (2011): third party (e.g. development partners) may be best fit to unlock ‚bad equilbria‘ (not conducive to long-term interest) which involved stakeholders may not overcome due to lack of trust, awareness or mechnisms of cooperation

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…which suggest for the role of development partners:

Identify the nature of problems incl. collective action problem (political-economy analysis; capacity assessments)

Stand ready to engage as honest broker (multi-stakeholder

dialogue) initiate trust-building activities, and suggest ways of establishing forms of cooperation

that will be mutually beneficial in the long-term

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II. Busan and the Building Block ‚Effective Institutions‘

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Busan and the Building Block ‚Effective Institutions‘

A new consensus on supporting and strengthening institutions and policies to ensure they are effective in delivering or enabling the delivery of public services was endorsed.

Effective public institutions are pivotal and indispensable for development in Partner Countries.

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What is meant by effective institutions?

Effective Institutions: Enable effectively the delivery of public services. Catalyze the leveraging of financial and other

resources for sustainable development. Capitalize on the opportunities created by the

changing global landscape. Improve accountability and fight corruption through

effective internal and external oversight. Are based on solutions specifically tailored to the

country context and local processes.

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Busan: A new approach to supporting and strengthening institutions and policies

1. A focus on factors that make reforms and capacity development happen: e.g. PFM, political economy, dom resource mobilization, parliaments

2. Partner-led joint assessments of country institutions

3. Country-based partner-led evidence-gathering on institutional performance and capacity development to inform decision making, accountability, transparency and accessibility.

4. Systematic regional and global knowledge-sharing, including south-south, international and regional organizations to facilitate learning

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III. Strengthening institutions and the GIZ approach: the case of

Ghana

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The GIZ approach to Capacity Development

„Strengthening partners – developing potential“ Political and social frameworks are essential for

effective and sustainable reforms Any country must be able to organize complex

processes on their own to help itself in the long run

Therefore the GIZ: Supports people to obtain expertise Advises governmental agencies to make their

management/production structures more efficient Advises governments to anchor goals and change

processes in laws and implement them

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Ghana: Process Landscape Financial Governance

Improving Public Financial Mangament to

implement GSGDA

Steering processes

HOM/HOC meetingSteering Committee on GIFMIS and GRA

Reform

MDBS Core Group Steering Committee on Audits of

Selected Flows

Automatisation of

GRA

Support processes

GIFMIS

GRA Reform Implementation

Committee

Macroeconomic Forecast

Training

REVENUEDomesticTax

Rev. Divestiture

of Public AssetsGrants and

LoansTax Policy Non-Tax

RevenueCustoms

EXPENDITURE

Public Procurement

Budget Monitoring

Budget Implementation

MTEF Budget Planning

Budget Regulations

DOMESTIC ACCOUNTABILITYParliamentary

Debate of BudgetPublic

Debate on BudgetEITIParlamentary

Oversight (Audits) External Audition

Improving Public Financial Mangament to

implement GSGDA

PFM Sector Working Group

MDBS Core Group

German Embassy

KfW

GIZ

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GHEITI, GIMPA, Parl.

Centre

Public Accounts

Committee

MOFEP, different Divisions

Ghana Revenue Authority

Tax Policy Unit

MOFEP

Good Financial Governance Programme

Tax Policy Tax Administration Parliament EITI & Oil and

Gas

I. Revenue Pillar II. Budget Pillar III. Domestic Accountability Pillar

Budget planning & execution

Donor Coordination

Ghana: GIZ support (GFG Programme)

PFM Sector Working Group

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Ghana: GIZ/SECO support to tax administration reform (1/2)

Challenge: Low tax ratio due to out-dated / inefficient tax

administration procedures

Objective: Ghana Revenue Authority (GRA) is established and

the integration of the former Internal Revenue Service and the former Value Added Tax Service into a domestic tax department is successful- Increased transparency- Responsiveness of public administration- Effective service delivery

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Ghana: GIZ/SECO support to tax administration reform (2/2)

Approach: GRA support embedded in comprehensive support

programme => good financial governance Technical support (short/long-term experts) Long-term commitment and presence on the ground Sound mix of technical expertise, change

management and facilitation of multi-stakeholder dialogue

Close cooperation with other partners, e.g. IMF, Crown Agents

Delegated cooperation with Switzerland (SECO)

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Relieved burden on citizens and enterprises

Development of HR and IT strategy

Segmentation of taxpayers

Run human resources management campaigns

Technical and financial support to GRA

Sensitization of GRA staff

Information about ongoing and status of reform process

Transparency of taxpayer obligations and liabilities

increase to B

Improve of customer service delivery

Run revenue integration and modernisation

campaigns

Improvement in Doing Business Paying Taxes

Technical and financial input from partners

Adoption of LTU evaluation report

Assistance to Oil and Gas Taxation Issues

More transparent and efficient taxation

More efficient revenue management

GRA Impact ChainIncreased self-financing

capability and economic growth

Reduced dependence on external funding

LTO contributes 60% of total tax revenue

Develop an effective Infrastructure

Facilitate interactive media programmes

Organization of workshop to sensitize civil society

impacts

Outcomes/outputs

inputs

processes, activities

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Ghana: Preliminary results

Increase in domestic revenue Enhanced efficiency of tax collection (e.g. Large

Taxpayer Office)

Source: MoF, IMF

2009 2010 2011

Tax revenues in million GH¢

4,625 5,951 8,706

Tax/GDP ratio 12.6% 13.3% 15.3% / 15.9%

LTO share 51,7% (2008)

52% 58,7%

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Lessons Learnt

Long-term commitment of German government to support country-led efforts towards good financial governance

…Builds trust and enhances understanding of reform needs / bottlenecks and politically feasible approaches

Support centres around comprehensive financial governance programme (avoid silo solutions, exploit linkages)

Reform progress and results are not primarily determined by funding; but: certain degree of funds for TA/TC necessary

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Conclusion (1/2)

GIZ/SECO support in Ghana suggests that it is possible to support country ownership of strenghtening institutions

Support most likely to be meaningful if directed towards capacity development efforts of partner country (use window of opportunity)

While quick wins are possible: reforms take time Much more to be understood about political

economy of reform design / implementation („capacity assessments“)

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Conclusion (2/2)

Strenghtening institutions: two dimensions: Contents-wise: support to key institutions, such as

PFM, procurement, revenue administration, anti-corruption agencies etc

Mode-of-delivery: TA/TC support to help stakeholders overcome obstacles (lack of trust, experience to engage in forward-looking processes)

Þ support necessarily is political in nature and not technocratic

Þ requires re-thinking of some donor support practices

Busan focus on institutions excellent opportunity!

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Thank you very much!

contact: [email protected]

mailto:[email protected]

Strengthening Institutions

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