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 1.Ownership is vital for development effectiveness 2.Budget support helps to build ownership 3.Good governance is a necessary condition for effective budget support 4.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. 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

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. CountryPRSP 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 YYYYYY Min. of state Burkina Faso YYYNNN Cameroon NYNNNN Cape Verde YNNNYY National planning CAR NNNNNY Econ. plann Chad NYYYYN DRC NNNNNN Ethiopia YYYNNY Finance Gambia YYYY Finance Ghana YYYNYY Econ. Planning Guinea YYYYYN Guinea-B NNNNNY Social Solidarity Kenya YYYYNY Office President Lesotho NNNYNY Devlp. Planning Madagascar YYNNNY Prime Minister Malawi YNNNNY Finance, Econ Plan Mali YYYNNY Finance Mauritania YYYNYY Mozambique NNYYYY National Planning Niger NNYNNN Rwanda NYNYNY Finance Sao Tome NNNNNN Senegal Sierra Leone YYYYNY Development Tanzania YYYYNY Uganda YYYYYY Zambia YYYYNY Finance

13. 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

14. 2. Budget support

15. 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

16. 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

17. World Bank and budget support

19. 3. Governance and budget support

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

21. 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

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

23. 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

24. 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

25. 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

26. 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 12 th 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

27. 4. Nationally owned governance assessments and monitoring

28. 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

29. 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)

30. 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

31. Returning to the opening argument 1.Ownership is vital for development effectiveness 2.Budget support does help to build ownership 3.Good governance is a necessary condition for budget support 4.Governance assessments can provide the basis for effective budget implementation