1. ADE’s 25 th anniversary Economic Governance: Key to Development ? Introduction Bruxelles – Bibliothèque Solvay – 5 October 2015

2. Source: ADE 2 What is economic governance ? Concept belonging to the firm theory, extended to the field of public affairs at the end of the 1980s Governance and Development, World Bank (1992) : “ the manner in which power is exercised in the management of a country's economic and social resources for development ” Four dimensions :  Public finance management  Accountability  Legal and regulatory framework  Transparency and information We will mainly focus on the Public Finance Management (PFM) dimension

3. Source: ADE 3 Evaluating economic governance Governance is the stickyard by which donors assess the quality of institutions and policies in the countries which benefit of their aid. Therefore the need for measure instruments. World Bank - World Economic Indicators  Indicator of government efficiency World Bank – Country Policy Institutional Assessments  CPIA 13 : quality of budget and financial management Multi-donors  Public Expenditure and Financial Accountability (PEFA) Performance Measurement Framework

4. Source: ADE 4 Why do donors care about the quality of PFM in beneficiary countries ? A good quality PFM is assumed to ensure :  Fiscal discipline  Allocation of resources that reflects the priorities of the growth and poverty reduction strategy  Close correspondance of the executed budget with the voted budget  Close follow-up of budget execution  Strict implementation of the procedures governing public expenditure  Equitable and transparent taxation  Accountability of the government to citizens  … and accordingly effectiveness of aid Is also ensures the accountability of donor agencies to their constituents

5. Source: ADE 5 Which actions by donors ? There is evidence of an increasing volume of aid aimed at improving economic governance World Bank :  Diagnosis of public finance management systems  Institutional Development Grants  Financing of programmes including PFM reform actions European union (Budget support programmes) :  PEFA diagnosis  Technical assistance to the formulation of PFM reform programmes  Costs of PFM reforms taken into account in the budget of budget support programmes  PFM performance indicators linked to the variable tranche of the budget support programmes  Policy dialogue on PFM  Technical assistance to the implementation of PFM reform actions

6. Source: ADE 6 Does donor aid contributes to improving economic governance ? Econometric researches suggest that :  PFM quality is closely related to socio-economic factors : GDP per head, GDP growth rate, etc.  … but there is however no mechanical determination of PFM by structural socio-economic factors  Aid targeted on PFM and budget support have a positive although modest contribution to the improvement of PFM quality  Aid to PFM improvement contributes to progress (i) on the upstream phases of the budget cycle ; (ii) on the introduction of new procedures ; (iii) on processes involving a limited number of central actors Evaluations suggest that development aid contribues to improvements of the PFM quality but with uneven results and without avoiding cases of failure The most significant progresses are achieved in countries where donor aid meets a strong political commitment of governments to reform their PFM system

7. Source: ADE 7 Which results of an improved economic governance ? Improvement of the PFM quality as well as more specifically the implementation of a medium term expenditure framework deliver positive results on fiscal discipline, the budget credibility and on the correspondance between the allocation of resources and the priorities of the development strategy But a positive contribution of PFM improvement to the efficiency of public expenditure has not been demonstrated either by econometric analysis nor by evaluations

8. Source: ADE 8 Questions for the debate On the basis of experience, does supporting development through the institutions in charge of economic governance remain an appropriate choice or even a previleged entry point to development aid ? Do other forms of aid, targeting private actors rather than state actors, or reinstating the driving role of donors through the recourse to basket funds or even to classical projects, emerge as possible alternatives? In this respect, is the strengthening of economic governance institutions - when it takes place - mainly a response to donors’ requests or is it really the driving force of a development project owned by the population? If it is a necessary but not sufficient condition, which additional efforts are needed? Have they been sufficiently taken into account ?