Lessons In Pro-Poor Public Spending Reform
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Transcript of Lessons In Pro-Poor Public Spending Reform
Lessons In Pro-Poor Public Spending Reform
The Poverty Action Fund in Uganda
Sudharshan Canagarajah, World Bank
Tim Williamson, Overseas Development Institute
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Key Questions
• What do we mean by pro-poor public spending?
• Are the right mechanisms being promoted to make public spending more pro-poor?
• Increasing spending on the poor and pro-poor growth - are they compatible?
PART 1 Pro-Poor Public
Spending in Context
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Policy Context
• Public Expenditure instrumental in achievement of Poverty Reduction Goals.– Developing Countries are encouraged to:
• Set clear poverty reduction goals and strategies to achieve them through PRSPs and SWAPs,
• reorient national budget allocations towards pro-poor expenditure priorities, and
• reform public expenditure management systems towards pro-poor service delivery.
• Focus is on public spending on the poor, is it the same as public spending on pro-poor growth?
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Policy Context (cont.)
• Upgrading Public Expenditure Management (PEM) Systems in developing Countries (HIPC Tracking Exercise)– Need to be able to track pro-poor expenditures
within national budgets as a whole.– Importance of strong PEM systems to do so.
• Virtual Poverty Funds (VPFs) a means of:– Tagging poverty reducing expenditures within the
budget, using existing budget classification system– Monitoring of the performance of specific
expenditures in terms of outputs and outcomes
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Policy Context (cont.)
• VPFs are being encouraged by IMF/World Bank as interim mechanisms, – whilst strong PEM systems are being built by
countries.
• Ugandan Poverty Action Fund the first example of a Virtual Poverty Fund – What has PAF Achieved?– Does it represent good practice?
PART 2
The Poverty Action Fund
and Pro-Poor Public Spending in Uganda
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Ugandan PEM Reforms in the ‘90s
• Long term macro stability & steady growth• Successful Reforms to budget systems
– MTEF, aggregate fiscal discipline, OOB
• Poverty Eradication Action Plan (1997)– Strong political commitment to poverty reduction
• Development of SWAPs – Education, Roads, Health in the late 90’s
• Decentralised governance and service delivery
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Why was the PAF Formed?
• No mechanism for reorienting budget towards PEAP in ‘97
• Concerns about fungibility– Where would HIPC debt relief be spent?– “Additionality” of donor budget support/HIPC to
sectors
• PAF created in 1998, as a means of:– Reorienting the budget towards PEAP priorities– Ensuring HIPC relief and donor budget support
allocated to and spent in full on the poor– Retain/attract donor budget support
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Key Features of the PAF
• Identification and special treatment of specific “pro-poor” programmes within the budget/MTEF – Primary Healthcare, Rural Roads, Agriculture
Extension, Primary Education, Water & Sanitation
• Matching of resources (HIPC, donor and GoU) to pro-poor programmes within the budget
• PAF resources shown as additional to GoU allocations to same programmes in 1997 (pre PAF)
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Key Features of the PAF
• 3/4 of PAF funds channelled to Local Government as earmarked “conditional grants”
• Protection of disbursements to PAF programmes from cuts
• Specific requirements for reporting on the disbursement of PAF funds and progress in implementation of PAF programmes
• 5% of PAF funds set aside for enhancing monitoring & accountability
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Evolution of PAF
• PAF was Expanded to Cover More of the Budget– Increase in size of PAF from 18% of the GoU
budget in 1998 to 35% in 2002 (large increase in on-budget HIPC and donor funding)
– More programmes included, and explicit “pro-poor” criteria developed for accessing PAF
– Commitment that PAF would not decline as a proportion of the MTEF
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Evolution of PAF
• Focus moved from protection of inputs towards actual performance– Focus moved towards the actual results being
achieved from expenditures.– Disbursements no longer guaranteed - linked
system of performance reporting
• Increase in institutional requirements– Formation of PAF Secretariat, with dedicated staff– Streamlining and mainstreaming of reporting and
accountability requirements
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The Impact of PAF?
• Observed Achievements……………..– Huge increase in service delivery in Health, Education,
Roads, Water and Agriculture Sectors
– Concurrently a reduction in poverty (consumption) from 44% in 1997 to 35% in 2000
…..……. cannot be attributed to PAF alone • Importance other initiatives:
– Fiscal Discipline
– MTEF, Output Oriented Budgeting
– PEAP, SWAPs
– Decentralisation
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Increased Spending on the Poor • Huge increase in
PAF – from US$100m in
1998 to $400 million 2004/5 in real terms
• Mobilisation of Donor Funds– Donor budget
support from $20m in 1998/9 to $130m in 2001/2 to $350 in 2004/5
0
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1997/8 (Pre PAF)
1998/9 1999/00 2000/01 2001/2 2002/3
Other (Land Reform, Adult Literacy, Restocking etc)
Accountability
Rural Roads
Agriculture Extension
Safe Water & Sanitation
PHC
Universal Primary Education
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Shifting Budget Allocations
• Reorientation of budget allocations between sectors towards pro-poor service delivery– 18% to 36% of a rapidly expanding GoU budget
• Reorientation of allocations within sectors towards expenditures on the poor– PAF Criteria ensure expenditures/services
targeted towards the poor– Increase from 47% to 66% of sector budgets going
to PAF programmes
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Is PAF Spending Pro-Poor?
• Have the right spending options in PAF been taken?– Was the rationale for public intervention identified?– Do actions address market failures & equity?– Were strategies chosen on their efficiency and
effectiveness?
• Questions not asked/answered systematically – Sector policies and plans all based on public financed
provision of services– Inappropriate strategies in the productive sector - no
rationale for public service provision??
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Is the National Budget Biased?
• Allocations within PAF biased towards social services– Health and Education make up over 80% of PAF,
roads and agriculture 11%
– Wage-intensive (PAF wage 32% of budget, relative to 21% of national GoU Budget)
• Skewed MTEF allocations towards direct service provision to the poor– donor driven sector allocations
– limited growth for Non-PAF Sector allocations
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A High Risk Strategy?
• Questionable Sustainability of Expenditures– Budget deficit 12% of GDP (excl grants)– Economic growth driven by government expenditure,
not private investment
• High Donor Dependency– Donor funds 50% of public expenditure– Crowding out of private sector growth– 15% appreciation of real exchange rate between
1997& 2002, – High commercial interest rates (20%+)
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Spending on the Poor Vs Pro-Poor Growth?
• Imbalance between types of expenditures– Directly Poverty Reducing Expenditures - provide
goods (services) to the poor themselves.– Indirectly Poverty Reducing Expenditures - increase
the demand of goods and services from the poor.
• Long term commitments, short term funding – Returns from investments in education take long – Increasingly donor budget support funding
committed on short term annual basis.– Returns from other investment such as roads are
quick, and lower recurrent implications
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Improving Budget Efficiency
• Successful protection of disbursements– Disbursements protected to good-performing
programmes– Programmes able to achieve planned outputs
• Initiatives to improve Budget Efficiency– Requirements for results based workplans– Linking of budgets to results– Reporting on outputs and expenditures– Monitoring activities by central & local government
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Parallel Mechanisms
• Non PAF sectors suffer large in-year budget cuts– Worsened by persistent over-spending by powerful public
administration votes– Under-performance in the achievement of non-PAF
outcomes and outputs with indirect impact on the poor (e.g. rural electrification, justice law and order)
– Inflexibility in budget management.
• Not enough focus on Non-PAF areas– can only monitor budget efficiency of PAF– non-PAF sectors are not scrutinised as thoroughly– parallel reporting systems stretch capacity
PART 3:
Getting the Balance of Pro-Poor Spending Right
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Strong Foundation
• Political Preference for Poverty Reduction– political leadership must want to reduce poverty
• Clear, Balanced Poverty Reduction Goals– Most countries have done this within (I-)PRSPs
• Process for building of Political and Institutional Commitment to poverty reduction– Why? Need political and institutional ownership of
identified goals
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Process for Selecting Balanced Public Sector Strategies
• Systematic identification of strategies– Rationale for public sector: market failure or equity
• Balance between sectors in the Budget– trade-offs, sustainability & affordability of goals
• Aggregate expenditure decisions– size of public sector, deficit, financing, vs growth and
future revenues
• Ex-ante assessment of impact – overall mix of public expenditures & strategies – trade-offs, efficiency and effectivenes
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Expenditure Programmes must produce results
• There needs to be a systematic use of results– all public expenditures, policies, and process produce
outputs should contribute towards the achievement of poverty reduction outcomes.
• Public sector strategies and actions should be selected on the basis of:– Effectiveness - the extent to which a set of programme
outputs contribute towards the achievement of outcomes; and
– Efficiency - the quantity of inputs (including money) required to achieve a given outputs.
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Public Sector Policies which Promote Growth
IMF & World Bank (2002) on PRSPs: “the analysis of the likely sources of growth……and the
contribution of planned policies has often been limited”
• Growth always a PRSP goal, but often backed up by inadequate policies/investments.
• What public sector policies and actions to promote growth (beyond macroeconomic stability)?
• Developing countries need better policy advice.
PART 4:
Virtual Poverty Funds & Pro-poor PEM Reform
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Why Form a Virtual Poverty Fund?
• Countries where PEM systems are weak.• Possible candidates:
– Cannot identify PRSP priorities within budget classification system.
– Poor ability to track expenditures during budget implementation.
– Poor orientation of budget allocations towards PRSP priorities.
– High fiduciary risks associated with government budget system.
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Principles
• VPFs should be part of a long term strategy for Public Expenditure Management Reform– emphasis of development of budget wide systems
for PEM– VPFs should avoid the creation of parallel
mechanisms
• VPFs are temporary, interim mechanisms– tracking pro-poor inputs and expenditures only
whilst budget-wide systems are being built
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VPFs Supporting not Distorting PRSP Implementation
• Highlights/tags PRSP priory programmes in the exiting budget classification
• Programmes reflect an inclusive, balanced definition of pro-poor, reviewed regularly.
• Expenditure performance tracked within budget wide reporting and review systems
• Protection of disbursements against budget linked to a system of limiting overspending elsewhere in the budget
• Clear exit strategy
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Issues for wider PEM Reform
• Budget formulation supports balanced PRSP implementation– sustained achievement of poverty reduction goals
• Supportive Budget Wide PEM Systems– results oriented planning and budgeting– budget wide reporting, expenditure against budget and
outputs against targets– open budget wide reviews– comprehensive financial management reforms
• Consistent Donor Conditions – link to budget-wide PEM reforms, not just VPF.
PART 5:
Conclusions
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What is meant by pro-poor public spending?
• Public spending which aims to maximise benefits for the poor/achievement of poverty reduction goals:– in aggregate– over time
• Involves public policy and expenditure decisions at different levels:– Aggregate spending, and financing– Spending between sectors and at LG level– Spending within sectors, and sector policies
• Sustainability of expenditure choices (timing)
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Are the right mechanisms being promoted?
• Importance of political and institutional commitment– only can be done if there is political preference
• Importance of translating poverty reduction goals into balanced public sector startegies– Need more systematic-mechanisms for making effective
spending choices
• Budget-wide mechanisms to improve budget efficiency and accountability
• VPFs, such as PAF are interim mechanisms only, and not the solution
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Compatibility of Spending on the Poor and Pro-poor growth?
• Acknowledge there can be trade off between spending decisions and growth in the budget process.
• Need more emphasis on improving the efficiency and effectiveness of spending on the poor
• Support countries develop effective policies to promote growth
http://www-wbweb.worldbank.org/prem/premcompass/know_learn/psgo.htm