Achieving the MDGs: RBA Training Workshop Module 8: Developing the MDG-based poverty reduction strategy 9-12 May 2005

2 MDG-based poverty reduction strategy Typical PRS today MDG-based PRS YEAR MDG target YEAR ? MDG target

3 Agenda 1. Develop an MDG financing strategy 2. Create an MDG-consistent medium-term expenditure framework (MTEF) 3. Set up mechanism for periodic review of development outcomes

4 Elements of an MDG financing strategy Household contributions Government MDG expenditures Debt service payments MDG Financing Gap (closed through ODA including debt relief) MDG Financing Needs Domestic resource mobilization

5 What do we mean by macrostability? 1. Contain inflation (domestic credit expansion) through coordinated fiscal and monetary policies – avoid “printing money” Wage ceilings Expenditure caps on national budgets 2. Avoid real exchange rate appreciation (Dutch disease)  A macroeconomic framework is needed to understand and manage these issues

6 Sequence of preparing an MDG financing strategy 1. Estimate financing needs 2. Prepare MDG-consistent macroframework 3. Project government resource mobilization 4. Estimate household contributions 5. Identify MDG financing gap (debt relief & development assistance) 6. Identify strategy for maintaining macrostability

7 Prepare an MDG-consistent macroeconomic framework  Purpose: –Estimate key economic variables (GDP growth, exchange rate, national saving, private sector investment, current account balance, etc.) –Project government revenues to map out MDG financing strategy –Support policy formulation »Monetary and fiscal stabilization »Pro-poor tax systems »Promotion of private sector investment –Check MDG needs assessment  Sequence: 1.Map out public expenditures (MDG needs assessment) 2.Develop macroframework in support of scaled up public investments  Available tools: –WB/IMF models (e.g. Revised Minimum Standard Model) –Government models

8 Identify Government expenditures for the MDGs  Sequence for projecting government MDG expenditures 1.Estimate current expenditures on MDG 2.Project public expenditures using macroframework 3.Identify non-priority expenditures that can be reprogrammed towards MDGs 4.Identify scope for increasing government revenues in manner consistent with achieving MDGs 5.Assess needed debt relief  Government MDG expenditures may rise by up to 4 percentage points of GDP through to 2015

9 Identify household expenditures for the MDGs  A note on user fees –Evidence is strong that direct and indirect user fees for primary education and essential healthcare are a barrier to access for the poor –Ending user fees often requires increased aid to make up for the government revenue shortfall –C.f. Education for all Initiative and Commission on Macroeconomics and Health  Household contributions for the MDGs –Important: aggregate household contributions across all sectors –Policy coherence: Incentive effects of well designed user fees must be compatible with policy objectives (i.e. no health and primary education fees) –Affordability: Estimate household contributions on basis of ability to pay

10 External finance for the MDGs  ODA requirements –Estimated as the residual needed to close MDG financing gap  Is Dutch Disease a barrier to scaling up? –Most MDG investments focus on supply side constraints thus minimizing consumption boom and exchange rate appreciation –Consensus among economists: macroeconomic stability can be maintained through good monetary policies if aid is »Predictable »Provided as grants »Matched by adequate debt relief

11 Frequently raised questions  What is the position of the IMF/WB and bilateral donors on macroeconomic stability?  But what about existing IMF standby agreements?  What is the IMF doing now? What is the role of the UN system?  Don’t countries need to plan on the basis of firm financial commitments?

12 Agenda 1. Develop an MDG financing strategy 2. Create an MDG-consistent medium-term expenditure framework (MTEF) 3. Set up mechanism for periodic review of development outcomes

13 Overview Medium-Term Expenditure Framework (MTEF)  What is an MTEF? –“The MTEF consists of a top-down resource envelope, a bottom-up estimation of the current and medium-term costs of existing policy and, ultimately, the matching of these costs with available resources…in the context of the annual budget process.”  Why is the MTEF important? –Critical link between strategies and budgets –Expresses the medium-term poverty reduction strategy as expenditures  Current use of MTEFs: –PRSPs and most poverty reduction strategies are disconnected from MTEFs and therefore do not guide budget making –Often PRSPs and MTEFs are developed by different ministries

14 How to prepare an MDG-consistent MTEF 1. Ensure full coordination between ministries of finance and planning 2. Translate MDG expenditures obtained from needs assessment into the expenditure framework used by the country 3. Obtain government revenue forecasts from macroeconomic framework and MDG financing strategy 4. Ensure that medium-term expenditures and revenues match 5. Revise macroeconomic framework as necessary to identify economic stabilization policies in support of MTEF

15 Agenda 1. Develop an MDG financing strategy 2. Create an MDG-consistent medium-term expenditure framework (MTEF) 3. Set up mechanism for periodic review of development outcomes

16 Periodic review of development outcomes  Objectives: –Track progress towards the MDGs –Assess effectiveness of intervention strategies –If necessary, prepare mid-course adjustments to the MDG- based poverty reduction strategy  Process: Data collectionOutcome evaluation Mid-term Course Corrections Set up systems for monitoring and data collection Evaluate outcomes against targets in PRS Identify changes required to return to MDG trajectory