Download study progress report and preliminary findings Session 4

OECD DAC Joint Venture on PFM
Paris, 20 December 2007
“Aid on Budget” Study
Progress Report and Preliminary Findings
Stephen Lister
Overview of Presentation









Study objectives
Components and outputs
Key concepts and definitions
Literature review findings
Incentives (for donors and governments)
What is the baseline?
Potential gains and what helps them
Outline recommendations
Next steps and follow up
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
2
Study Objectives

Commissioned by CABRI (Collaborative Africa Budget
Reform Initiative) and SPA

Principal funding from DFID and JICA

Objectives:
to produce outputs which will better equip governments
in Sub-Saharan Africa to lead country-level processes to
ensure external development assistance (aid) flows are
properly reflected in national budget documents, ex ante
(budget presented to legislature) and ex post (out-turn
accounts).
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
3
Study Components and Outputs


Inception Report
Country Reports:



Literature Review





5 broad brush (Group A): Burkina Faso, Ethiopia,
Kenya, South Africa, Tanzania
5 in more depth (Group B): Ghana, Mali, Mozambique,
Rwanda, Uganda
to document good practice
review policies and guidelines of main aid agencies
light review of more countries (Bangladesh, Vietnam,
Bolivia, Nicaragua, Botswana, Senegal)
Synthesis Report
Good Practice Note
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
4
Concept and Definitions (1)
“on budget” is about budget process, not just budget
documents. Hence:
Term
Definition
on plan
Programme and project aid spending integrated into spending agencies’
strategic planning and supporting documentation for policy intentions
behind the budget submissions.
on budget
External financing, including programme and project financing, and its
intended use reported in the budget documentation.
on parliament
External financing included in the revenue and appropriations approved by
parliament.
on treasury
External financing disbursed into the main revenue funds of government
and managed through government’s systems.
on accounting
External financing recorded and accounted for in government’s accounting
system, in line with government’s classification system.
on audit
External financing audited by government's auditing system.
on report
External financing included in ex post reports.
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
5
Concept and Definitions (2)
Be careful to note:

Budget support is always on budget, but other aid
modalities can and should also be on budget.
(Different degrees of earmarking.)

Identifying sources of public funds, vs. identifying uses
of public funds.

Different aid-disbursement channels:




Channel 1: funds disbursed via Ministry of Finance
Channel 2: funds disbursed to government, but via sector
ministry or special project unit.
Channel 3: funds managed by donor, and government receives
services or assets in kind.
Multiple budgets (and budget-holders) in decentralised
systems.
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
6
Reasons for Capturing Aid

Reasons for capturing aid





comprehensiveness
transparency
accountability
strengthening government systems
Whether capturing aid at any of these points will
have the desired effects depends on:



quality of the information: completeness, credibility
(predictability), disaggregation and detail, etc.
timeliness and accessibility: who has the information,
and at what stage in the relevant process
the quality of the information and processes relating to
non-aid resources.
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
7
Key Points from Literature Review

Strong overlap between agendas for better public finance
management and for better aid effectiveness (cf. PEFA).

Paris Declaration is key pressure to bring more aid on
budget. However:


Different donors interpret objectives differently. Contrast between
“reflecting aid in budget documents” and “integrating aid in
budget processes”.

Different interpretations of targets diminish the credibility of Paris
Declaration monitoring survey.
Pattern of case study findings may be complex, because of:



Many dimensions of “on budget”.
Different interpretations by different donors.
Variety of country contexts.
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
8
Donor perspectives and incentives

Likelihood of putting aid on budget depends on:




But also depends on donor characteristics:





Form of aid (grant, loan, TA, other aid in-kind)
Modality (budget support, project aid)
Aid partner (central/local government, NGO)
“reflectors” vs. “integrators”
Importance of “visibility”
Attitude to quality of public finance management
Flexibility
Other factors:



HQ vs. in-country perspective
General vs. sector perspective
Career incentives of staff
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
9
Government perspectives and incentives

Often conflicting interests and incentives on
the government side, e.g.:




Concerns may be about:



Finance vs. sector ministries
Centre vs. local government
Vested interests of project management units.
discretion over resources
reliability of disbursement through treasury
An example: perverse incentives (for
government and donors) when aid is included
in sector budget ceilings.
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
10
What is the baseline?
How much aid is on/off budget?

Available data:




Diagnostics becoming more rigorous (e.g. PEFA vs. HIPC Assessment
and Action Plans); Paris Declaration monitoring is the only quantified
cross-country survey (2005 data).
But problems in consistency mean that comparisons across countries
and over time are not reliable (Literature Review includes Paris
Declaration summary across countries and donors).
PEFA Indicators D2-D3 also show weak scores.
Conclusions:





Large volumes of aid are (still) off-budget.
Budget support is (by definition) on budget; thus off-budget proportion
of other modalities is often very high.
Large (but sometimes puzzling) differences in donor scores.
Lack of clear correlation between aid-on-budget and scores for quality
of public finance management.
For aid effectiveness, very important to look behind the percentages
and consider the quality of aid capture at different stages in the budget
process. (This is the focus of our case studies.)
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
11
Where are the potential gains?




Budget support is automatically on budget in all dimensions. It
makes sense for partner countries to create favourable
conditions for (general and sector) budget support.
However, budget support has limits, and project aid has been
growing. The bigger challenge, therefore, is to bring project
aid on budget.
Need to consider quality of capture: timeliness, accuracy, and
(above all) use of information about availability and
disbursement of aid.
Also need to prioritise:





Issues are more important in more aid-dependent countries.
More attention to sectors where substantial aid flows support public
services.
Which dimension is most important for a particular instrument?
Link to overall country strategy for reform of public finance management.
Recognise that technical solutions won’t work unless incentives are right.
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
12
What helps to bring aid on budget?

Main factors that deter donors (and other
stakeholders) from putting aid on budget:





Weak planning process (poor costing of national strategies
and government unwilling to prioritise).
Budget that lacks credibility – gap between budgeted
amounts and actual spending.
Slow and unreliable accounting for public expenditure.
Unsatisfactory procurement process (although aid can be
“on treasury” but not “on procurement”).
Key factors for progress in bringing aid on budget:




Strong government leadership (especially from Finance
Ministry).
Credible public finance management reform programme.
Effective dialogue between government and donors (at
general and sector levels).
Donor commitment to strengthening government systems.
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
13
Recommendations for governments (1)

Explicit aid effectiveness strategies should:



Link aid management strategy to strengthened public
finance management reform (effectiveness of all
resources).
Go beyond indication of preference for budget support
modality, to specify good donor practices and standard
government procedures for other modalities.
Include dialogue about the use and the additionality of
aid funds (to reduce donor demand for earmarking and
micro-management of donor funds).
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
14
Recommendations for governments (2)

Key PFM reforms include:



Strengthen transparent medium term expenditure planning (to bring
aid “on plan”).
Clear planning and budgeting calendar.
Better budget classification, including:






accurate identification of recurrent and capital expenditures (but moving
away from separate “recurrent” and “development” budgets);
“source” codes to allow tracking of donor funds if required.
Single Treasury Accounts (and strict control of government bank
accounts).
More timely reports and accounts.
Transparent and efficient mechanisms for funding sub-national
governments.
More transparent budget documents:


to show aid sources of budget finance, and aggregate uses of aid;
to facilitate more meaningful parliamentary review.
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
15
Recommendations for donors





Improve medium-term aid predictability.
Support strengthened approach to public finance
management.
Improve understanding of government public
finance management systems and factor this into
early stages of project/programme design.
Review agency-specific procedures and the
extent to which they use regular government
systems.
Provide aid flow information linked to
government FY, government planning and budget
calendar, and government budget classification.
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
16
Recommendations for joint action




Recognise importance of joint government-donor
action (at general and sector level).
Explicitly consider different dimensions of “on budget”
and monitor agency performance.
Incorporate “aid on budget” objectives in country-led
public finance management strategies.
Strengthen Paris Declaration monitoring




set standardised and less flexible definitions at
international level;
monitor proportion of project aid that is on budget;
continue country-level focus on use of government
systems.
Rationalise and cooperate on aid-related databases
(but a database is not a free-standing solution)
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
17
Next Steps and Follow-up

Draft Synthesis Report (main volume) and
Good Practice Note to be circulated shortly

Early 2008, feedback on drafts and
finalisation of Good Practice Note

CABRI plans to make Aid on Budget a
major part of its 2008 work programme.
Paris, 20 December 2007
"Aid on Budget" Study
Progress and Preliminary Findings
18