ELEMENTS OF AN EFFECTIVE POVERTY-REDUCTION STRATEGY

Transcription

1 ELEMENTS OF AN EFFECTIVE POVERTY-REDUCTION STRATEGY Draft Background Brief for East Asia Forum on National Plans as Poverty Reduction Strategies Rosa Alonso i Terme (WB-EASPR), Elliott Harris (IMF-PDR), Erika Jorgensen (WB-OPCS), Eva Natali (WB-EASPR), Linda Van Gelder (WB-PREM) and Jan Walliser (WB-OPCS) 1

2 The main challenge in effectively mainstreaming the PRSP process is to ensure that the core principles that have led to improved plans, budgets, and policies are preserved and continue to be strengthened. If the challenge is met, countries in the region will produce and implement stronger government-owned plans that can be a sufficient basis for the alignment of donor support hence incorporating the best characteristics of both plans and PRSPs. Streamlined reporting procedures and alignment of donor cycles around country-specific timetables should also contribute to reducing the transaction costs of aid for recipient countries. In order for this result to be achieved, however, a minimum level of consensus among key stakeholders in the region is needed regarding the critical elements of a plan and process that can function as a credible povertyreduction strategy. 1 This brief aims to present the critical elements of such a plan and process as well as streamlined donor procedures to support it. The brief is focused around the four critical principles of: a) transparency and participation; b) poverty focus; c) results orientation; and d) donor alignment and harmonization. In each of these areas, the brief seeks to identify critical elements of each principle, illustrate them with good practices from the region and spell out a list of suggested critical markers to monitor progress. 1.A Transparency Wide information availability is important for bettering governance and can help improve the effectiveness of government policies, particularly in the context of weak institutions. Information, however, needs to be relevant, readable, timely and accessible in order to play this role. In this section, we outline four key areas where information ought to be available and we stress the importance of actively disseminating this information, along with illustrations of good practices. The section ends with a list of the critical actions governments can take to improve transparency. Increasing public understanding of policy-making processes Access to information on each country s constitution, law-making process and on the processes involved in elaborating national plans and budgets is particularly important. This information provides citizens and organizations with knowledge on how their government works and what the windows of opportunity for participating in that process are. This enhances accountability as well as overall ownership of government policies by society. Countries in our region have some good practices in this area. Cambodia, for example, has a website 2 where the constitution and the procedures on how to adopt and amend laws are posted while the website of the Ministry of Finance of Timor-Leste 3 includes a summary of the budget elaboration process. Both countries, moreover, have ongoing programs to increase the public understanding of their basic laws and other legal texts. Most PRSPs outline the consultation process followed in their elaboration, as does the draft national plan of Lao P.D.R. General information about the process to be followed in the elaboration of national plans, however, is often not available on government websites and the participation action plan for new national plans are often not specified and publicized in a timely 1 In this paper, poverty reduction strategy will be used as a generic term when referring to both PRSPs and poverty-focused national plans

3 fashion. Sharing information on government-donor coordination processes and their results is also a good practice. For example, Cambodia s donor coordination committee has a website 4 including minutes of meetings, technical working groups progress reports, the government s action plan on harmonization and alignment and the corresponding declaration by development partners. Ensuring Public Availability of Key Policy Documents Broad publicity of poverty reduction strategies is an important tool in the hands of Governments to communicate to their populations their goals, policy priorities, results achieved and challenges ahead. It is also a means to increasing demand and accountability for results. The Government of Vietnam, for example, has a comprehensive website on the CPRGS (its PRSP). 5 This website includes the strategy itself, progress reports, supporting legal documents, related activities with corresponding minutes, information on critical programs underpinning the strategy and a wide range of cross-links to resource materials. Similarly, Governments should make publicly available other key policy documents such as public investment programs, sector strategies and donor programs and projects. All these documents should be available to Parliament and to the public at large. Publicizing Readable, Timely Budgets Information on budgets is just as critical for good governance and the achievement of development results. As the OECD s Best practice on budget transparency document 6 points out, governments ought to aim to publish: a) a pre-budget statement; b) the executive s budget proposal; c) the budget; d) a mid-year review; e) a year-end report; and f) the audited final accounts and auditor report. This data, moreover, should aim to fulfill the standards laid out in the IMF s Fiscal Transparency Code. In particular, budget data should follow GFS economic and functional classifications and, when possible, program classifications should be pursued as a means to improve policy planning, monitoring and evaluation. Budget data should be timely and comprehensive and should include coverage of local Government, state-owned enterprises, state-owned banks, quasi-fiscal operations and contingent liabilities. For example, Timor-Leste publishes a budget document with outturns from the previous year, the current year budget, a three year forward budget estimate, a statement of policy intentions and an increasingly detailed breakdown of expenditures by province. Moreover, the budget is a combined sources budget, also including donor financing. For the past two years, Vietnam has published its audited final accounts, as does Timor-Leste. However, no country in the region yet publishes either a pre-budget statement or the executive s budget proposal. Compared to other regions, such as Latin America, East Asian countries still publish budgets that are insufficiently disaggregated, with problems in timeliness and comprehensiveness and budget execution reports are rarely published. Fiscal transparency, therefore, is an area where progress is needed. Ensuring availability of key poverty surveys, studies, and statistics Information on studies and surveys can improve the effectiveness of policy-making directly through the use of good information by policy-makers and, indirectly, through the demand for

4 good policies by the population at large. Cambodia, Timor-Leste and Vietnam all have information on the latest census and household surveys available on the websites of their national statistics offices. 7 Cambodia also has posted its statistical master plan for Macroeconomic data for all countries is available on the IMF and WB websites 8 and reports on progress toward achieving the MDGs can be found on the UNDP website. 9 However, they do not all make their PRS annual progress reports publicly available. Mongolia and Vietnam s PRSP websites are a good example of poverty sites with links to numerous diagnostic studies, progress reports, and relevant statistics. No country posts information on its debt profile and debt sustainability analyses. Elaborating and implementing an effective communications strategy Pro-active distribution of readable versions of information on plans and policies is also essential to its wide accessibility and, in particular, to reaching outside the capital city. In Timor-Leste and Vietnam, summary versions of their National Development Plan/CPRGS respectively were widely distributed while, in Cambodia, versions of the NPRS in English and Khmer were distributed to civil servants at central and local government levels as well as more widely through workshops. A high level of transparency and ensuring public knowledge about particularly important policy actions or programs is also a good practice, especially in the area of natural resource management. In Timor-Leste, a wide-ranging public information and consultation campaign was carried out on the government s petroleum law before its approval by Parliament, the government adhered to the Extractive Industries Transparency Initiative and it publishes quarterly reports on the management of its petroleum fund. Similarly, Lao P.D.R has committed to work toward a high level of transparency in the management of its revenues and, in particular, of the revenues from the NT2 hydro-electric project and all key project-related documents are publicly available on the web. Good internal communication channels (IFMIS and proper intra-governmental coordination) are critical to the proper distribution of information across government and other state agencies such as Parliament. For example, availability of information on the status of budget execution across the various parts of government is essential to sound public expenditure management. This availability is best facilitated through integrated financial management systems. Many countries in the region including Mongolia, Timor-Leste and Vietnam, are well on their way to implementing such systems. Ensuring knowledge about central government strategies, policies and budgets at the local level is also critical and requires initiative and proper coordination. For example, as of this year, the budget of Timor-Leste is being made available to local governments so they can monitor the implementation of capital projects envisaged for their province. Awareness by the population of local government budgets is also an excellent means to improve accountability. In Vietnam, for example, communes are required to post their budgets and final accounts on notice boards as a means to inform the population of the promised actions and funds available for the year as well as their actual execution. Similarly, in Timor-Leste, an ongoing initiative aims to publicize budgets through public readings in churches

5 Availability of information through the web is a good means to reach non-governmental organizations, part of the private sector, the media, the donor community and the educated citizenry at large. Since these are critical agents in the demand for accountability, posting information on government websites is of utmost importance. The existence of a government information center where the same documents available through the web can be publicly consulted is another important step in improving transparency. These centers should exist in all capital cities, but can also be extended to the local level. In Vietnam, all communes have cultural centers with telephones, libraries, books, newspapers and meeting rooms to provide information directly relevant to the poor and disseminate information about relevant government policies. Reaching far into the local level and the grass-roots also requires alternate communication strategies, such as active information campaigns through the media (TV, community radios). A suggested transparency checklist Not all the good practices mentioned above can be replicated everywhere, at least in the short run. However, it would be desirable that the most critical could be integrated into national plans and their implementation policies in all countries. Publication and availability of the following documents (1 through 7) through the web are suggested as critical milestones in the process of improving transparency in the plan/policy formulation and implementation process: Box 1. Transparency Checklist 1. Budget/Financial Management Law 2. Government budget published at start of fiscal year 3. Executed budget numbers published (3 months after year-end) 4. Final audited accounts and auditor s report (1 year after year-end) 5. Annual progress reports and progress to achieving MDGs reports 6. Poverty diagnostics (poverty assessments, HHSs, census, social data) 7. Key macro-economic data including debt profile/dsa 8. Distribution of central government budget to local governments and publication and posting of local government budgets 9. Government information centers stocking all of the above information 5

6 1.B Participation Openness and broad participation in policy-making processes fosters country ownership, enhances the likelihood of sustainable implementation of national plans and leads to increased domestic accountability. This section will identify good principles in the area of participation in the development, implementation, monitoring and evaluation of national plans/poverty reduction strategies and present some good practices from the region. It will end by proposing some critical areas where participation can be of particular value. Broad participation in the elaboration of PRSs builds country ownership Broad consultation allows Governments to draw on the first-hand knowledge and experiences of the poor. When properly carried out, these consultations provide important qualitative information on the causes of poverty and the priorities of the poor. Similarly, participation of external stakeholders such as non-governmental organizations and research institutes in policymaking processes can significantly increase the pro-poor focus of public policies, strengthen accountability and enhance the alignment of external actors with Government policies. In order for participation to be effective, however, the process needs to be properly structured and transparently laid out. Transparency on the role of consultations helps ensure popular expectations are in line with Government intentions. One way of improving the transparency and effectiveness of consultations is through the formulation of a participatory action plan. This plan could spell out the stakeholders to be consulted, the objective of consultations, the process to be followed in aggregating consultation results and the mechanism to report back to those consulted on the final output. For the elaboration of the NPRS, for example, Cambodia developed such a participatory action plan. A summary of consultation outcomes should also be drawn up. For example, in Mongolia, the Poverty Research Group in the MoF summarized the issues raised in the consultations by sectors and provided them to sector ministries as inputs to the development of their sector strategies and the PRSP. The national plan document should also detail the above-mentioned aspects of the participatory process. Timor-Leste s National Development Plan includes a well-developed section detailing the process followed for its elaboration. All Poverty reduction strategies, to a greater or lesser extent, describe the consultation process underlining their elaboration. They do not always, however, detail what the outputs and outcomes of popular consultations were and how they were combined with diagnostics and governmental processes in the final document. Greater clarity in the form of a participatory action plan and the description of the key aspects of the process in the final document are areas where further progress in national planning processes would be desirable. The carrying out of diagnostics and the identification of policy priorities are two critical areas where participation is desirable. The elaboration of participatory poverty assessments, including at the province level in Vietnam, and of a participatory living standards assessment survey in Mongolia, for example, were critical in bringing in the perspectives of the poor on the causes of poverty and emphasizing some of its more intangible dimensions, such as vulnerability. In all countries in the region, PRSP participatory processes involved consultations on priority-setting, but the methodology followed in consultations, their result and how that result was incorporated into the national plans was often not clear. A good practice in this area consists in carrying out priority ranking exercises, as it provides clear guidance on the priorities of those consulted. 6

7 Participation across government agencies in PRS elaboration builds broad government ownership Broad participation of line ministries and local Government is critical to the elaboration of national plans that build on previous policy expertise and enjoy strong ownership by implementation agencies. In particular, line ministries should be thoroughly involved in the elaboration of national plans. This involvement is best ensured through the leadership of the plan elaboration process by an inter-ministerial unit. In Cambodia and Vietnam, for example, the coordination of the PRSP elaboration process by an inter-ministerial working group strengthened the role of line ministries in the process and facilitated coherence with sector strategies. This is an area, however, where much remains to be done, both at the level of coordination among units within line ministries as well as between central and line ministries. In decentralized countries, it is also critical to involve local Government as was done in Vietnam. Depending on the degree of decentralization, it may even be useful to develop poverty reduction strategies at the regional level as was done in Indonesia. In that case, care needs to be taken to ensure proper consistency between national and sub-national objectives and policy interventions. In Vietnam, consistency of principles is sought by a process through which the donor community is assisting provincial governments in incorporating PRS principles into their mainstream planning processes. Parliamentary involvement in PRS elaboration enhances consistency with implementation policies Ownership by Parliament of the strategic priorities expressed in a national plan is important to ensure proper monitoring as well as consistency with resource allocation through the budget process. The role of Parliaments in national planning processes in East Asia, however, has often been weak and it could usefully be strengthened. A good practice in Mongolia was the organization by the Ministry of Finance of a round-table discussion with Cabinet and members of Parliament on policy priorities. Ideally, it would be desirable for representatives from Parliamentary committees to be involved in the respective sectoral working groups in order to ensure a synergy between their views and those of other stakeholders consulted. At least, national plans/poverty reduction strategies should be approved by Parliaments, as was the case for the Poverty reduction strategies of Mongolia and Lao. Finally, it is also desirable to involve development partners in a process with clear Government leadership, as was the case in Vietnam s CPRGS and its new national plan (SEDP, ). Participation in PRS implementation can improve the effectiveness and accountability of public policies The continuation of participation in the plan implementation phase is critical to the consistency between plans and policies. Broad Government participation in the budgetary process is of particular importance. At least, budget processes should provide room for strong participation from within Government and enough time and space for Parliamentary discussion. In particular, budget processes ought to allow enough time for line ministries to prepare budget submissions for their respective sectors once provided with aggregate envelopes by the Ministry of Finance. In Timor-Leste, for instance, the budget calendar was brought forward to increase the time allowed for line ministries to prepare their submissions to the MoF and to ensure adequate time for Parliamentary discussions. Over the past few years, in Vietnam, the National Assembly has played an increasingly important role in the budget process, with the result of increasing the Government s focus on such issues as HIV-AIDS. 7

8 Broader stakeholder participation in the budget preparation process can improve its quality and accountability. In Mongolia, for example, the Poverty Research Unit of the Ministry of Finance and Economy prepared a study which assessed the role of citizen participation in the budget process in planning, discussing, approving and reporting and proposed suggestions to improve the openness and participatory nature of the process. Similarly, in Timor-Leste, a citizen s guide to the budget was prepared and published. Participation in the elaboration of key plan implementation policies and programs can also enhance policy quality and coherence. In Cambodia, for example, Government elicits the views of the private sector through regular Government-Private Sector forums and a Steering Committee for Private Sector Development is in charge of proposing specific measures to improve the investment climate, trade facilitation and private sector development. A similar process is under way in Timor-Leste through Government-business forums. In Lao P.D.R., the Government s strategic vision for the agriculture and forestry sector is based on a bottom-up participatory planning process and the development of the NT2 hydro-power project was also accompanied by thorough local, national and international-level consultations. In Vietnam, the education for all national action plan also underwent extensive consultations including civil society organizations and research institutes. Finally, it is a good practice to carry out popular consultations on major legal initiatives. For example, Timor-Leste carried out extensive consultations on its petroleum law while Vietnam engaged in a similar process regarding its land law. Ideally, all major legal initiatives would include a period for public dissemination and consultation before a bill is submitted to Parliament. The existence of a legal framework regulating when and how the population is to be consulted in the legislative process is also desirable. Participatory Monitoring and Evaluation Enhance Accountability Line ministries and local governments should play an important role in monitoring implementation progress. In addition to supplying administrative data, they should provide inputs into annual progress reports and participate in the elaboration of any other poverty monitoring and evaluation reports. Parliament and civil society should also be involved in the monitoring and evaluation process. It is part of the role of the legislative to monitor the implementation of national plans and associated policies. This is a role that needs to be significantly strengthened across the region. It would be particularly useful for Parliaments to discuss and approve annual progress reports, possibly by including APRs as part of the background paper for the annual budget bill. This would foster the executive s incentives to spell out the links between plans, budgets and results as well as ensure the review of those links by Parliament. It is also desirable for poverty monitoring systems to include an avenue for input from the grassroots and, more broadly, from civil society. In Mongolia, for instance, civil society participation was included in the Policy Councils and Sub- Councils, as part of the structure for monitoring and evaluating PRSP implementation. It is also desirable for the development community to be consulted in the elaboration of annual progress reports. For example, Cambodia s NPRS Advisory Group which includes representation from both development partners and civil society provides inputs into annual progress reports and the Government of Vietnam made a number of important changes to its annual progress reports as a result of comments from development partners and civil society. 8

9 A suggested participation checklist Not all the good practices mentioned above can be replicated everywhere, at least in the short run. However, it would be desirable that the most critical could be integrated into national plans and their implementation policies in all countries. Box 2. Participation Checklist 1. Existence of a participation action plan for national plans 2. PRS consultation includes line ministries, local Government, civil society and donors 3. PRS is discussed and approved by Parliament 4. Budget process starts at least 9 months before the start of fiscal year and allows at least 1 month for Parliamentary discussion 5. Sector strategies and major policy and legal initiatives undergo consultation inside and outside government 6. Government-private sector dialogue process on investment climate in place 7. PRS monitoring system (including annual progress reports) allow for input from civil society and development partners and is discussed and approved by Parliament 9

10 Section 2.A. Poverty Focus What sectors and cross-sectoral policy interventions are most effective at achieving poverty reduction is seldom clear. Benefit incidence analysis provides robust results on the poverty focus of some sub-sectors such as primary education, basic health or rural roads. On the other hand, the indirect poverty impact especially in the long run-- of other interventions, such as those focused on improving infrastructure and strengthening institutions can be significant, but are more difficult to assess and vary from country to country. Therefore, the identification of the most appropriate poverty-reducing interventions in each country should build on the objective evidence produced through cross-country and country-specific diagnostics and on the subjective input of the population provided through consultative processes. Moreover, reducing poverty in its many dimensions requires policy interventions across many sectors. Indonesia s PRSP (the SNPK) defines poverty as the failure to provide basic rights access to adequate food, health, education, employment, housing, clean water, land, natural resource sand the environment, security from acts or threats of violence, as well as the right to participation in social-political life which the national development plan must address. An effective national development plan must thus bring together sector interventions in a coherent manner that enhances their overall poverty impact. Diagnostics, participation and supportive institutions help ensure public policies effectively focus on the poor In particular, poverty reduction strategies should be built on the basis of solid diagnostics. In particular, a poverty assessment should be carried out in time to feed into the plan. The poverty assessment would help ascertain the country s poverty profile, provide a diagnosis on the determinants of growth and poverty, and provide guidance on policy priorities for poverty reduction. A participatory poverty assessment should be carried out simultaneously in order to provide qualitative information on the views and preferences of the poor and complement the quantitative information included in the poverty assessment. This was the case in Mongolia in Poverty maps can also provide invaluable information on the geographical distribution of poverty and hence analytical support to the design of geographically-targeted antipoverty programs or formulas for regional transfers. Poverty maps, however, are quite dataintensive and rely on census data, which is typically only available every ten years. There are also alternative methods for geographical targeting. In Lao PDR, for instance, household, village, and district level indicators of basic minimum needs were used to identify the poorest 47 districts, which became the focus of the country s PRSP (the NGPES) and its new national plan (the NSEDP ). Although national plans do, by their nature, have a broad coverage, it is important that they also identify priority areas of intervention and that these areas be poverty-focused. International experience shows that the institutional set-up and the nature of policy-making processes are an important determinant of whether existing diagnostics and identified priorities are used for policy-making purposes. In China, for example, close ties between Government and research institutes contributes to generating feedback loops between diagnostics and policy-making. Government initiative and commitment to use diagnostics are critical and joint work between Government, donors and research institutes/civil society can be particularly fruitful. In Vietnam, the poverty diagnostics of the Government-led Poverty Working Group (which includes representatives of Government, donors and civil society) has elaborated high-quality research which reflects the joint views of its members and has had significant influence on the country s PRSP (the CPRGS) and national plans. The carrying out of Public Expenditure Reviews jointly 10

11 between Government and donors also enhances Government ownership and increases the chances that its diagnostics will be incorporated into policy-making. The 2005 Vietnam Public Expenditure Review-Integrated Fiduciary Assessment is a very good example of diagnostic work carried out jointly by the Government and the World Bank, with donor support. It has led to 117 concrete recommendations, with disagreements between Government and the World Bank on only four of them and with several of these recommendations already being followed up as part of the PRSC process. Poverty-Focused sector strategies and policies should also build on diagnostics and consultations. Poverty assessments provide information on the benefits of poverty-reduction policies. They do not, however, estimate costs and, hence, do not provide the full picture of the trade-offs among policy interventions given limited resources. The costs need to get estimated through the elaboration of sector strategies and policies and the budget process. The elaboration of fullfledged, poverty-focused sector strategies, therefore, is a critical linchpin between national plans and budgets and provides the needed guidance to implementing agencies, including at the local level. In-depth poverty diagnostics and a robust analytical framework can facilitate this effort. Moreover, formulating a sector-specific medium-term expenditure framework can be a useful underpinning for a sector strategy. Vietnam and Cambodia have examples of well-developed primary education strategies with coordinated donor support. The development of such policies outside the social sectors is more difficult, but nonetheless important. Cambodia plans to work on the development of such a strategy for the agriculture and water resources sector as a tool to implement its rurally-focused national plan. Once broad objectives and priorities have been identified, they need to be specified in policy terms by sectors, sub-sectors and/or programs and their consequences need to be spelled out for operational purposes. It is the identification of these pro-poor goals and priorities and the consistent application of policies to implement them that end up delivering results. For example, the Government of Vietnam set the elimination of illiteracy as one of its primary objectives and made large investments in literacy campaigns, placed a primary school in every community and, for most of the period from 1945 to 2000, provided primary education completely free of charge. As a result, illiteracy decreased from 95 to 10 percent. Focusing on preventive and primary health is also a good strategy for reaching the poor. In Timor-Leste, since independence in 2002, the Government has focused on the provision of free preventive and primary health care, particularly in rural areas, ensuring that health care benefits reach the poor. A rurally-focused strategy delivered strong results in Indonesia where, from the late 1960s to the mid-1980s, growth was strongly pro-poor in part because of productivity-enhancing agricultural technology available due to public investment. Governments should also identify appropriate indicators for sector strategies and other planning documents to measure intermediate progress, so as to be able to assess the effectiveness of budgetary inputs and policy interventions in delivering the desired outputs and outcomes. For example, although each ministry in Timor Leste prepares an Annual Action Plan to inform budget preparation, these plans provide little of the information on the quality and quantity of services needed for monitoring progress. While the issues and the overall objectives in a given sector may be clear (for example, in the education sector, improving literacy or female school enrolment rates), it is often difficult to define the right mix of sectoral interventions for bringing about the desired improvements in outcomes. Moreover, some policy interventions in specific sectors are obviously pro-poor, but it is often difficult to demonstrate as clearly the poverty reduction focus of an overall sector strategy, particularly as the impact of policies in one sector may be influenced by policies in other 11

12 sectors. For example, Cambodia s national poverty reduction strategy emphasizes that progress in rural development requires improvements in health, education, agriculture, water, sanitation, as well as other sectors. Targeted programs can be an effective tool for reaching the poorest. Vietnam s national targeted programs have led to significant improvements in access to schools and water, as well as contributing to cutting infant mortality in half over the past ten years. These improvements are particularly impressive because they were achieved in the country s poorest and most remote areas. Another example of pro-poor targeting is the recent elimination of fuel subsidies in Indonesia and the re-allocation of the resulting savings to cash transfers targeted to the poor and to pro-poor expenditures in the social sectors. Similarly, in Mongolia, the originally untargeted child transfer program was re-defined, in terms of beneficiaries and in terms of implementation policies, so as to target the poor and ensure fiscal affordability. Budgets and actual expenditures are the litmus test of the poverty-focus of Government programs. If budgets reflect the planned implementation of pro-poor priorities and sector strategies, the result ought to be pro-poor expenditures. Hence, in a good policy environment, the budget is the reflection of overall country and government priorities and their key implementation tool. In some cases, countries find it useful to add specific expenditure rules to ensure the pro-poor nature of public expenditures. For example, in Timor-Leste, the Government commits to devoting over 30 percent of overall current expenditure on health and education, more than 45 percent of current education expenditure on primary education, less than 40 percent of health expenditure on hospitals and at least 4.4 percent of overall recurrent spending on agriculture. Similarly, in order to improve the pro-poor focus of its policies, the new Cambodian national plan (the NSDP ) includes a commitment to spend 60 percent of Government expenditures in rural areas (where 85 percent of the population and more than 90 percent of the poor live). In decentralized environments, it is important to ensure that inter-governmental fiscal relations take account of poverty differentials across regions. In Vietnam, for instance, equalization transfers from the central Government to the provinces are designed to improve the financial viability of poor provinces. These transfers are calculated for 3-5 year periods based on a formula which estimates the difference between the expenditure needs and revenue potential of each province, with adjustments to take account of geography and remoteness. Finally, Government revenues ought to be roughly sufficient to cover productive expenditure needs so as to avoid unsustainable increases in indebtedness or the monetization of fiscal deficits. The tax burden also ought to respect the basic principles of horizontal and vertical equity so as to avoid distortions and minimize income inequality. 12

13 Suggested poverty focus checklist The checklist below summarizes a few key elements that can enhance the poverty focus of PRS, sector strategies and budgets. The exact configuration of each element will depend on country circumstances. Box 3. Poverty Focus Checklist 1. Poverty assessment and participatory poverty assessment feed into the PRS 2. The PRS identifies clear pro-poor priories, based on PA, PPA and popular consultations 3. Government works with research institutes, civil society organizations and donor community to carry out diagnostics 4. Pro-poor sector strategies are supported by diagnostics and joint Governmentdonor-civil society working groups 5. Budget devotes sufficient resources to pro-poor plan priorities and clearly identifies, monitors and reports on them in budget documents 13

14 2.B Linking Plans, Sector Strategies and Budgets Identifying pro-poor policy interventions is only the first step toward elaborating and implementing strategies/plans with a clear focus on poverty reduction. Ensuring consistency between pro-poor plans and sector strategies, and implementation policies (such as PIPs, MTEFs, budgets and actual expenditures) is the next critical step to achieving the desired poverty alleviation results. In all countries in the region, there is an increased expectation of consistency of, and a greater scrutiny of the links between plans, sector strategies, policies and budgets. Despite the fact that this issue raises challenges at several levels, however, there is relatively little discussion of how/whether these links are to be institutionalized. Ensuring consistency between plans and implementation policies requires a good level of consensus between architects and implementers. Consensus is needed on objectives, policy priorities, and the most appropriate sequence of public interventions. Typically, this consensus is built by joint work during the policy formulation stage and good rules to enhance consistency and accountability for results in the policy implementation stage. Consistency between development plans and implementation policies, however, is not easily attained and, while it has increased over the past few years in most countries, important challenges remain. First, the officials responsible for formulating the development strategies are often different from those responsible for their implementation for example, when planning ministries lead planning processes and finance ministries lead the preparation of budgets. Problems can also arise when line ministries and local governments are only weakly involved in the development of national plans, but take the lead in their implementation. Also, the mechanisms for ensuring transparency and participation can be stronger at the planning stage than at the implementation stage. This was the case at the early stages of the PRSP process. Now, however, this gap is narrowing with the strengthening of monitoring mechanisms and the increased focus on results supported by the stepped up role of budget support in the region. Line ministries should be part of the secretariat in charge of leading the development planning process. In order to ensure ownership of the national plan by line ministries and coherence between national plans and sector strategies, line ministries need to be intimately involved in the plan development process. Similarly, ensuring effective coordination between the national and local levels of government at the planning stage is essential, in particular in decentralized environments. Moreover, the absence of clearly defined mechanisms for linking nationally-agreed poverty reduction objectives with bottom-up prioritization in decentralized countries can disrupt the link between strategies and implementation policies. It also raises questions of accountability, as it is difficult to hold central agencies responsible for implementation policies that are not under their purview. In those countries, the involvement of local government in the process of plan preparation is particularly important, as is the establishment of a system to ensure proper linkages between national and local level planning. PRSs and sector strategies should build on each other in order to maximize policy coherence When sector strategies already exist, the national plan should build on them while, in other cases, the plan should provide the guiding lines for sectoral strategies and policies. Even in cases when sector strategies already exist, a new national plan may provide new directions which the sector strategies can take on board to enhance their poverty focus. For example, Cambodia s recent NSDP commits the Government to spend 60 percent of all outlays in rural areas, which may lead to adjustments in the focus of pre-existing sector strategies. The consistency of objectives and 14

15 monitoring frameworks between national plans and sector strategies is particularly important. Although plans are typically less detailed than sector strategies, the objectives, targets and indicators in both monitoring frameworks should be entirely consistent and only vary by degree of detail. For example, Cambodia s NDSP commits to harmonizing all of its various monitoring frameworks in order to ensure coherence of policy interventions. Formal public investment programs must be made consistent with the objectives of national plans and sector strategies, and should be accompanied by estimations of recurrent costs so as to allow for proper medium-term budgeting. National plans and PIPs can also be an effective tool to mobilize and coordinate donor support. Cambodia s PIPs have been elaborated in a parallel manner with its national plan, and both planning instruments have been presented as the main government documents for the consultative group meeting in March Costing plans and prioritizing interventions is essential to macro-economic consistency Translating specific policy interventions into budgetary outlays is difficult but important. Most plans include an estimate of implementation costs, which is a good practice, and it encourages donors to pledge assistance for implementation. Additionally, some countries have engaged in processes to carry out more detailed costing of national plans, such as Lao PDR and Vietnam. These detailed costing exercises can be particularly useful in the absence of a medium-term budgeting framework as is the case in Lao PDR. The information from these exercises can be a useful input into the elaboration of the macro-economic framework as well as into decisions on tax and revenue policy, and into the establishment or revision of plan and sector strategy targets. Equally important, the capacities and resources of the implementing authorities should play a critical role in deciding on the sequencing and timing of public interventions, and budgetary outlays should be made consistent with these. Budget allocation discussions among line ministries should also attempt to achieve a consistent prioritization of policies and expenditures across sectors, within the overall budget envelope established by the finance ministry. The development of an MTBF provides a particularly rigorous tool for checking the consistency of the national plan and its objectives with the macro-economic framework. Developing an MTBF strengthens links between sector objectives and resource outlays, introducing fiscal discipline into sector strategies and results-orientation into budgets. Sufficiency of resources is critical to the achievement of plan objectives and consistency between resource availability and the ambition of objectives and targets is essential to sound planning and budgeting. In case of insufficiency of resources, countries may wish to increase their revenue effort, or attempt to mobilize additional external financing. Conversely, if a country decides to take its revenue envelope as given, targets established should be achievable with existing resources. The elaboration of a sector MTEF is a valuable complement to a sector strategy. It tightens the links between the strategy and the budget by estimating needed current and capital expenditures. These estimates can significantly contribute to more informed and effective budgeting and greater predictability of resources made available to line ministries. The elaboration of sector MTEFs, however, is a labor-intensive process which should be implemented in a progressive manner, especially in the context of low Government capacity. It is a good practice to start by elaborating sector strategies in priority sectors, learn from the experience, and gradually move on to other sectors. Even in Vietnam, where Government capacity is significant, sector MTEFs are being built gradually, beginning with pilot exercises in four priority sectors. 15

16 Consistency between planning and implementation also requires good intra-governmental coordination in the annual planning and budgeting process This coordination begins within ministries. Planning and finance units of line ministries do not always work jointly. Sometimes, planning units work on the development of sector strategies while the finance units devote themselves to the development and implementation of budgets, with little connection between the two processes. This can lead to important disconnects between sector strategies and budgets. Therefore, proper coordination mechanisms and joint work between both units, particularly in the context of the development of sector strategies, MTEFs and budgets is essential to consistency between policy objectives and budgetary outlays. This coordination between units is also important in finance ministries so as to strengthen links between plans and budgets and to enhance the results-orientation of the latter. In Timor-Leste, for example, the development of annual action plans by the planning unit of the ministry of finance in collaboration with line ministries informs the work of the budget unit. The Ministry of Finance, moreover, uses the results of annual action plans as a monitoring tool of the achievements of various sectors. Another example of good practice is Mongolia s fiscal reform package, which aims explicitly at strengthening the linkage between policy-making and budget allocations, by improving treasury management, budgeting, accounting and reporting, output-based management and auditing, with particular focus on pro-poor expenditures. Similarly, coordination between central (planning and finance) and line ministries should be strengthened. To address this weakness, the process for the development of an MTBF should be structured to be a joint one between central and line ministries. Similarly, to ensure proper links in the annual budget, the budget elaboration process ought to allow for enough time for line ministries to properly develop their budget submissions. It is also important for the ministry of finance to provide feedback to line ministries on the changes made to their budget submissions, as a perception by line ministries that their budget submissions are not taken seriously can significantly undermine their efforts to elaborate quality products. This interaction between central and line ministries can also be facilitated by the presence of sector experts in the Ministry of Finance. In Vietnam, for example, sector experts provide a critical communication channel between the Ministry of Finance and line ministries. These experts also allow the Ministry of Finance to critically examine the budget submissions of line ministries and monitor effectiveness and value for money of sectoral interventions. In cases of dual budgeting, the coordination between the ministries of planning and finance is critical to the consistency of the overall budget and, hence, to the ultimate effectiveness of government policies. To ensure this consistency, both budgeting exercises should take the same plan and sector strategy objectives as given, use the submissions from line ministries on both capital and current cost estimates to elaborate annual budgets, and work together throughout the budgeting process in the budget committee. Good coordination between central and local government is also critical, particularly in decentralized environments. In Vietnam, this cohesion is sought through the establishment of a common framework of objectives, expenditure norms and targets. Problems of cohesion, however, may also emerge because of absence of proper information flows across levels of government or weak capacity at the local level. To address these weaknesses, Timor Leste s national development plan makes explicit provisions for strengthening capacity of district administrations in finance and management and has recently developed a planning and financial management capacity-building program. Similar steps are being undertaken in Cambodia. Finally, the specific planned interventions must be prioritized, and their costs integrated into the budget at the appropriate level. The use of the medium-term budget framework (MTBF) can be an important link between the poverty reduction strategy and the budget process, and an effective 16

17 tool for ensuring the pro-poor focus of budgets and their consistency with the poverty reduction strategy. Moreover, the discipline of putting the strategies and plans into an MTEF that is aligned with the expected resource availability fosters greater clarity of objectives, more comprehensive coverage and transparency in the use of resources, and greater predictability in the funding of critical interventions over time. Most importantly, however, effective implementation depends critically on good public expenditure and overall financial management. Technical working groups are an excellent means of monitoring consistency between plans and implementation policies. Technical working groups should be led by the relevant line ministry. They should also include representatives from the planning and finance ministries, any other concerned ministries and implementing agencies at lower levels of government, development partners and civil society organizations. These groups can play an important role in the plan implementation process by monitoring consistency between plans, sector strategies, PIPs, MTEFs, budgets and expenditures. As broad pro-poor plans and strategies are translated into concrete programs and specific interventions, ensuring the consistency of interventions in different sectors is critical to achieving the intended impact in each area. Technical working groups on specific sectors and cross-sectoral issues can again play a useful coordinating role in this area by taking into account cross-sectoral dependencies and synergies. In Vietnam, the poverty group and its joint poverty and sector diagnostics help strengthen the links between plans and sector strategies. In Cambodia, TWGs are an important mechanism for communication among key stakeholders, building consensus on key policy interventions, and supporting the development of sector strategies. In particular, Cambodia s education sector strategy was developed with support from the education TWG and the NSDP states that the upcoming agriculture and water resources sector strategy will use the respective TWG as a critical forum for the policy dialogue underlying its development. In Timor-Leste, sector working groups have been created with the twin goals of monitoring sector performance and raising and coordinating donor aid to the sector. The role of sector working groups as a forum for consistently monitoring coherence between planning and implementation instruments, however, could usefully be strengthened across the region. They would also facilitate the increasing efforts governments are making to improve consistency between investment and current expenditures in the context of dual budgeting. These groups can also monitor results achieved in the sector and foster feedback loops into policymaking. 17