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«Vera A. Wilhelm and Philipp Krause, Editors © 2008 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW ...»

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THE WORLD BANK

MINDING THE GAPS

MINDING THE GAPS

Integrating Poverty Reduction Strategies and

Budgets for Domestic Accountability

Vera A. Wilhelm and Philipp Krause, Editors

© 2008 The International Bank for Reconstruction and Development / The World Bank

1818 H Street NW

Washington DC 20433

Telephone: 202-473-1000

Internet: www.worldbank.org

E-mail: feedback@worldbank.org All rights reserved 1 2 3 4 11 10 09 08 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not neces- sarily reflect the views of the Executive Directors of The World Bank or the governments they represent.

The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judge- ment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries.

Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permis- sion to reproduce portions of the work promptly.

For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA;

telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com.

All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422;

e-mail: pubrights@worldbank.org.

ISBN: 978-0-8213-7205-0 eISBN: 978-0-8213-7206-7 DOI: 10.1596/978-0-8213-7205-0 Cover photo: Idiz/Shutterstock Cover design: Word Express Library of Congress Cataloging-in-Publication Data Minding the gaps: integrating poverty reduction strategies and budgets for domestic accountability / editors, Vera A. Wilhelm, Philipp Krause.

p. cm.

Includes bibliographical references and index.

ISBN 978-0-8213-7205-0 — ISBN 978-0-8213-7206-7 (electronic)

1. Poverty—Government policy—Developing countries. 2. Budget—Developing countries. 3. Eco- nomic assistance—Developing countries—Management. I. Wilhelm, Vera, 1960– II. Krause, Philipp,

1978. III. World Bank.

HC59.72.P6M49 2007 362.5'561091724—dc22 2007036780 Contents Acknowledgments ix Abbreviations xi

1. Executive Summary 1

–  –  –

TABLES

3.1 Participation in the Budget Process 21

4.1 Breaking the MTEF into its Constituent Parts 32

6.1 Targeting Reporting to Specific Decision-Making Processes 59

6.2 Integrating Performance Information into Budget Documents 60

13.1 Rwanda: Annual Budget Calendar 125 Acknowledgments This report was jointly directed by the World Bank (Vera A. Wilhelm) and Gesellschaft für Technische Zusammenarbeit—GTZ (Philipp Krause). It draws on a work program developed by Vera A. Wilhelm and was undertaken by a team further consisting of Paolo de Renzio and Tim Williamson (both with the Overseas Development Institute—ODI). Zoran Stavreski (formerly with the World Bank) worked on the report in its early stages and provided useful comments during the technical review process. The work was carried out under the guidance of Louise Cord (World Bank), Luca Barbone (World Bank), Danny Leipziger (World Bank), Jan Walliser (World Bank), Matthias Witt (GTZ), Albrecht Stockmayer (GTZ), and Jörg-Werner Haas (GTZ). Peer reviewers were Matthew Andrews (Kennedy School, Harvard University) and William Dorotinsky (World Bank). We are grateful for useful comments received from Gregor Binkert (World Bank), David Booth (ODI), Bianca Brétéché (GTZ), Siaka Coulibaly (World Bank), Wilfried Engelke (World Bank), Gord Evans (consultant), Kene Ezemenari (World Bank), Guenter Heidenhof (World Bank), Omer Karasapan (World Bank), Stefan Koeberle (World Bank), Kathie Krumm (World Bank), Florian Lang (GTZ), Greta Minxhozi (World Bank), Allister Moon (World Bank), Alia El Moubayed (World Bank), Paul Mpuga (World Bank), Antonio Nucifora (World Bank), Allen Schick (University of Maryland), Abdoulaye Seck (World Bank), Carlos Silva-Jauregui (World Bank), Agnes Soucat (World Bank), and Linda van Gelder (World Bank). We would also like to thank Rachel Weaving and Catherine Hull for their inspired editing, Jae Shin Yang for production assistance, and Stephen McGroarty from the World Bank’s Office of the Publisher.

The study builds on background reports prepared in nine low-income countries in 2006. The reports were prepared by Artan Hoxha (Institute of Contemporary Studies, Albania), Sawadogo Malick (Burkina Faso), Veronique Hubert (Madagascar), Philipp Krause (Malawi), Verena Fritz and Florian Lang (Mali), Paolo de Renzio and Jose Sulemane (Mozambique), Vincent de Boer and Robert Cook (Rwanda), and Tim Williamson (Tanzania and Uganda). Topical briefs on the experience in four higher-income countries





ixx Acknowledgments

were written by Malcolm Holmes (Australia), Azul del Villar (Chile), Albert van Zyl (South Africa), and Sang Dae Choi (Republic of Korea).

In addition to funding from the World Bank and GTZ on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), the work program has been financed through grants from the Trust Fund for Environmentally and Socially Sustainable Development supported by Finland and Norway and the Belgian Partnership for Poverty Reduction, which are gratefully acknowledged.

For any questions, comments, or suggestions on this volume, please contact Vera A. Wilhelm (Vwilhelm@worldbank.org) or Philipp Krause (Philipp.

krause@gtz.de). For further information on poverty reduction strategies please visit http://www.worldbank.org/prsp. For further information on GTZ’s work on public finance and poverty reduction please see http://www.

gtz.de/en/themen/politische-reformen/oeffentliche-finanzen/886.htm.

Abbreviations AAP annual action plan APR annual progress report BdPES annual report on the social and economic plan (Mozambique) BP budget–programmes (budget for programs, Mali) BPR budget performance report CCM Chama cha Mapinduzi CCS Commitment Control System CDMT cadre de dépense à moyenne terme (medium-term expenditure framework) CFMP medium-term fiscal framework (Mozambique) CPIA country institutional and policy assessment CPO Comissão do Plano e Orçamento CSFP Comité de Suivi des Finances Publiques (budget monitoring committee, Madagascar) CSLP Cadre Stratégique pour la Lutte contre la Pauvreté (Poverty Reduction Strategy, Mali) CSO civil society organization ERC Expenditure Review Committee EU European Union FEs forward estimates GBS general budget support GDP gross domestic product GNI gross national income HIPC heavily indebted poor countries HIV/AIDS human immunodeficiency virus/acquired immune deficiency syndrome IDA International Development Association IEG Internal Evaluation Group (World Bank) IMF International Monetary Fund IPS Integrated Planning System (Albania)

–  –  –

PQG Programa Quinquenal do Governo (Five-year Plan, Mozambique) PRS Poverty Reduction Strategy PRSP Poverty Reduction Strategy Paper REO budget execution report (Mozambique) RPF Rwandan Patriotic Front SAA Stabilization and Accession Agreement (European Union) SBAS Strategic Budget Allocation System SISTAFE Sistema da Administraçåo Financeira do Estado (integrated financial management information system, Mozambique) SNLP Stratégie Nationale pour la Lutte contre la Pauvreté (National Strategy for Poverty Reduction, Mali) STA Secretariat Technique de l'Ajustement (Madagascar) SWAp sector-wide approach 1 Executive Summary Background, Objectives, and Methodology The Poverty Reduction Strategy (PRS) approach aims to enhance accountability by promoting the participation of domestic stakeholders in the formulation of clear and realistic development goals. Institutions for monitoring and evaluation, including annual progress reports, are designed to trigger learning and improved performance.

Links between the PRS and budget, whether at the formulation, execution, or reporting stage, have been considered integral to the successful implementation of the PRS for some time. These links are also increasingly recognized as vital for enhanced domestic accountability.

This study offers practical insights for donors and national governments on how to strengthen the links between PRSs and national budgets, with a view to improving domestic accountability. It aims to answer two

principal questions:

• What challenges have arisen in countries where efforts have been made to integrate the PRS with the budget?

• What lessons have been generated by these experiences and what are the potential entry points for reforms to strengthen PRS-budget links?

To answer these questions, the study reviews a series of case studies that document the status of budget and PRS integration in a sample of nine low-income countries—Albania, Burkina Faso, Madagascar, Malawi, Mali, Mozambique, Rwanda, Tanzania, and Uganda—and the links among policies, budgets, and service delivery in four higher-income countries that are internationally considered to be successful reformers in public financial management—Australia, Chile, the Republic of Korea, and South Africa.

12 Executive Summary

Domestic Accountability in the PRS and Budget Processes The accountability relationship has three dimensions: ownership of the task; incentives to carry out the task effectively; and capacity to deliver results. While capacity issues in PRS implementation and public financial management reform have received a good deal of attention in previous reviews, and rightly so, this study focuses on issues related to ownership and incentives, because all three dimensions are required for successful development interventions.

Both the PRS and budget processes can enhance domestic ownership by fostering transparency and dialogue between the executive and stakeholders in the sectors, parliament, and civil society. Typically, however, patterns of ownership are asymmetrical. For instance, while the executive and parliament tend to be more involved in the formulation of the budget than in the PRS, civil society and the public often have less opportunity for meaningful engagement in the former than the latter. Thus, one of the principal challenges in promoting links between planning and budgeting processes rests on aligning ownership across various groups of stakeholders.

The PRS is intended to boost performance incentives by providing a results orientation to strategic planning and policy making. The low-income case study countries with second-generation PRSs (such as Burkina Faso, Rwanda, Tanzania, and Uganda) have placed significant emphasis on developing results-oriented strategies, influenced by the strong international focus on development results and achieving the Millennium Development Goals (MDGs). This has generated more attention to the use of performance indicators and targets, and to the improvement of information systems. Alignment of donor monitoring and reporting requirements around national PRS monitoring systems remains a challenge, however.

Institutional arrangements in the budget can facilitate performance incentives by enabling the scrutiny of resource allocation decisions, budget execution, and outcomes. According to heavily indebted poor countries (HIPC) and country institutional and policy assessment (CPIA) indicators, as well as a recent Global Monitoring Report developed under the Public Expenditure and Financial Accountability program, public financial management in low-income countries has improved in recent years. National governments require deeper support and capacity development if they are to accelerate these recent improvements, because poor budget formulation and the weak enforcement of rules continue to undermine incentives to execute the budget effectively in a number of low-income countries.

In sum, while both the PRS and budget offer scope for enhanced domestic accountability, fractures in planning and budgeting systems pose Executive Summary 3 obstacles for donors and national governments. The following challenges emerge from our case study countries: the prioritization of plans and coordination between planning and budgeting units; the creation of incentives to formulate realistic budgets and execute them as planned; the expansion of ownership of the PRS at the sector level; the development of a multiannual perspective in strategic resource allocation; and the integration of reporting mechanisms.

Linking PRSs and Budgets Since the instigation of the PRS approach, donors have encouraged the introduction of a number of technical instruments aimed at improving the integration of planning and budget processes. These include (i) the enforcement of pro-poor spending priorities; (ii) the introduction of medium-term expenditure frameworks (MTEFs); and (iii) results-oriented program budgeting. These reforms are at different stages in different countries, reflecting the level of development of public financial management systems. Early efforts in countries such as Madagascar, Malawi, and Mali have tended to focus on narrow technical solutions to the challenge of linking PRSs and budgets, while the objectives of forging ownership beyond a narrow group of technocrats and creating adequate institutional incentives for integration have often been neglected. Across countries, reforms that have taken account of the interests of a broad set of stakeholders have been able to generate the strong incentives for the behavioral changes that are needed for successful implementation.

Despite the difficulties that the majority of countries encountered while trying to effectively implement highly technical reforms, some of the low-income case study countries have achieved important successes.



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