Download 2 - John Roberts

«Pity the Finance Minister»
Comments on Peter Heller
John Roberts
ODI, 16 June 2005
1
Peter Heller argues:
• Scaled-up aid inflows may aggravate underlying
fiscal, budgetary and public expenditure management
problems:
– Dutch Disease
– unpredictability of receipts  FE/fiscal reserves and
monetary management policies. – upsetting macro-fiscal
stability/sustainability
– Expenditure prioritisation and planning - reducing
discretionary space
– Accountability
• Harmonisation & alignment per se don’t solve these
problems
2
Comments focus on:
• Aid or budget increase effects?
• Evidence:
– Macro: Dutch Disease
– Aid  Growth question
– Micro: incremental costs
• Resource use planning: Millennium
Project
3
Aid Problem or Budget Problem?
• Aid not sui generis: similar to natural
resource rent
• Issue is one of expanding budgets of
LICs
4
Scaling-up: Two Examples
• Uganda
– Huge increase in aid post-1986
– REER under controlRecent concern about liquidity growth;
use of sterilisation: worries about cost
– Budgetary practice & PE management saw pioneering
improvements: PAF, PEAP, M/LTEF, Output budgeting
– Low effectiveness of expenditure programmes (roads,
power) in early 1990s; 1998 education expansion initially
mis-budgeted
• Ethiopia
– Aid increases after both wars end (1990, 1995)
– Macro & fiscal control maintained
– Depreciating REER
5
Uganda: Effects of Scaling-Up 1985-2002
Percentages of GDP (log. scale)
1000.00
100.00
10.00
1.00
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Aid (% of GNI)
General government final consumption expenditure (% of GDP)
Services, etc., value added (% of GDP)
Real effective exchange rate index (1995 = 100)
6
2002
Ethiopia: Scale-Up 1985-2002
100.00
34.45
Percentages, index nos. (log scale)
33.94
10.00
1.00
14.42
10.77
14.93
9.13
34.82
14.85
8.47
36.59
17.34
37.32
38.04
30.79
18.65
12.58
18.49
11.88
9.33
28.34
15.47
11.59 11.83
10.14
30.81
17.43
35.06
33.36
43.70
42.70
43.45
44.70 47.65
22.66
19.62
12.47
10.24
34.46
37.10
18.81
15.44
11.84 12.66
11.74
17.28
16.81
14.27
11.39
8.37
9.44
9.16
21.75
19.35
10.71
1.08
1.00
0.94
0.90
0.86
0.86
0.84
1985 1986 19870.821988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
0.59
0.59
0.55
0.54
0.54 0.49
0.53
0.50
0.49
0.49
0.10
Aid (% of GNI)
Government consumption (% of GDP)
Services value added (% of GDP)
Real Exchange Rate
7
Macroeconomic Issues: 1. Dutch Disease
• Two symptoms:
– rising REER : less serious, reversible
– rising share of non-traded sectors in GDP:
more serious, structural
• Solutions:
– trade liberalisation
– labour market flexibility
– restrain public sector employment growth
8
Macroeconomic Issues: 2. Monetary
• Rise in liquidity may be normal
monetary deepening
• Effect on liquidity depends on leakages
into BOP
• Rise in domestic liquidity (Uganda):
import liberalisation counteracts;
preferable to sterilisation
9
Macroeconomic Issues : 3. Aid & Growth
• More aid → higher growth because of :
– Capacity building effect? or,
– Expenditure multiplier effect?
• Declining effect of aid on growth? Is the
growth function quadratic, logarithmic,
logistic?
10
Macroeconomic Issues:
4. Resource flow/re-entry
• Unpredictability of aid: serious threat to stability,
given path dependency of public expenditure
• => Reserves management and borrowing strategy
• Unpredictability: effect on growth (Guillaumont)
• Life after 2015:
– LTBF as well as MTBF
– At least cover recurrent costs
– Fiscal rules for fiscal sustainability (other than dual
budgeting)?
11
Microeconomic Issues:
Programme Costs and Effectiveness
• Accelerating activity  ? rising unit
costs
• => plan on basis of incremental costs
• The road to better - more efficient, more
accountable - PEM practice is long:
don’t lose the map!
12
Ghana Primary Education → Rising Unit Costs
Figure 4.? Ghana Primary Education: Scatter Diagram of Expenditure and
Enrolments 1989-2001
Expenditure (Cedis billion, 1990 prices)
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
0
0.5
1
1.5
2
2.5
3
Enrolments (million)
• Average cost/pupil: Cedis 19 000 – 33 000
• Incremental cost: Cedis 60 000
13
Postscript: Effect of Millennium Project
• Resource unconstrained planning
encouraged (Big Push inspired Needs
Assessments)
• Capacity constraints quickly
surmountable
• Horizon 2015 => Tsunami expenditure
profile
• Expenditure priorities set by MDGs
14
Yemen: Assessed Investment Needs, Annualised
Figure 1. Assessed Annual Requirements of Investment Expenditure
2006-2015
1000
900
YR billion (2005 prices)
800
700
600
500
400
300
200
100
0
2005
2006
Agriculture
2007
Fisheries
2008
2009
Education
2010
Health
2011
Roads
2012
Electricity
2013
Environment
2014
2015
Water
15
After Scaling-up: View from the Top
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Scaling-up: View from the Top
17