Ethiopia Public Expenditure Review

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Report No ET Ethiopia Public Expenditure Review (In Two Volumes) Volume ll: Appendixes and Statistical Tables August 31, 2000 World Bank Country Office in Ethiopia Country Department 6 Africa Region Document of the World Bank

2 GOVERNMENT FISCAL YEAR July 8 - July 7 CURRENCY EQUIVALENTS Currency Unit: Ethiopian Birr (Br) Official Rate: US$1.00-Br (August 12, 2000) ACRONYMS AND ABBREVIATIONS ADB African development Bank MEFF Macroeconomic and Fiscal Framework ADF African Development Fund MTEF Medium-Term Expenditure Framework ARM Annual Review Meeting MEDAC Ministry of Economic Development and Cooperation BRDM Budget Reform Design Manual MoE Ministry of Education CDF Comprehensive Development Framework MoH Ministry of Health CIDA Canadian International Development Agency MoF Ministry of Finance CSA Central Statistical Authority NBE National Bank of Ethiopia CSR Civil Service Reform NFSP National Food Security Program DFID Department for Intemational Development NGO Non-Governmental Organization DPPC Disaster Preparedness and Prevention Commission O & M Operation and Maintenance EC European Commission OECD Organization for Economic Cooperation and Development EFY Ethiopian Fiscal Year PEM Public Expenditure Management ESRDF Ethiopian Social Rehabilitation and Development Fund PEP Public Expenditure Program EMCP Expenditure Management and Control Program PER Public Expenditure Review ESDP Education Sector Development PFP Policy Framework Paper EU European Union PIP Public Investment Program FIS Financial Information System PMO Prime Minister's Office FY Financial Year PIM Program Implementation Manual FSP Food Security Program PRSP Poverty Reduction Strategy Paper GDP Gross Domestic Product RFB Regional Finance Bureau GNP Gross National Product SDP Sector Development Program GoE Government of Ethiopia SIP Sector Investment Program HICES Household Income, Consumption and Expenditure Survey SNNPR Southern Nations, Nationalities and People's Region HIID Harvard Institute for International Development SPA Special Partnership with Africa IIIPC Highly Indebted Poor Countries TA Technical Assistance HSDP Health Sector Development Program TWG Technical Working Group IDA International Development Association UNDP United Nations Development Program IMF International Monetary Fund USAID United States Agency for International Development IPF Indicative Planning Figure WMS Welfare Monitoring Survey JRM Joint Review Mission WMU Welfare Monitoring Unit Vice President Country Director Sector Manager Task Team Leader Callisto Madavo Oey Astra Meesook Frederick Kilby Duvvuri Subbarao

3 Contents Appendix I... 1 RECOMMENDATIONS FROM PREVIOUS PERS... 1 STATUS OF RECOMMENDATIONS OF PREVIOUS PERS..., 9 Reconimendations... 9 Status Of Follow-Up Appendix EXPENDITURE MANAGEMENT AND CONTROL PROGRAM INTRODUCTION PIP And Medium Term Expenditure Planning Financial Calendar... i6 Accounts Project: Cost Centers And Budget Coding Aid Management Outlook And Constraints SELECTEDOCUMENTS Appendix MEDIUM TERM EXPENDITURE PLANNING IN SOUTH AFRICA Origins How It Works Gains From MTEF Critical Success Factors Appendix ETHIOPIA - FOOD AND FOODGRAIN PRODUCTION Appendix OUTPUT AND OUTCOME INDICATORS IN EHIOPIA Trends In Welfare Indicators From The WMSS WMS Indicators For Education WMS Indicators For Health WMS Indicators For Water Supply Outputs/Outcomes Indicators In Key Sectors Education Sector Key Performance Indicators Health Sector - Key Performance Indicators Roads Sector - Key Indicators Agriculture And Food Security Program Indicators Water Sector Appendix STATISTICAL APPENDIX TABLE Appendix Table 1 Fiscal trends, 1986/ /00 (in million birr) Appendix Table 2 Fiscal trends, 1986/ /00 as a percentage of GDP Appendix Table 3 Functional classification of general government expenditures (recurrent and capital), 1986/ / Appendix Table 4 Functional classification of general govermment recurrent expenditures, 1986/ / Appendix Table 5 Functional classification of general government capital expenditures, 1986/ / Appendix Table 6 Economic classification of general government expenditures, 1986/ / Appendix Table 7 Development in defense expenditure, 1986/ / Appendix Table 8 Real per capital expenditure, 1986/ /

4 Appendix Table 9 Budget transfers to regions / /00 million birr Appendix TablelO General govermnent revenue and external grants, 1986/ /00 1/ ( in million birr) Appendix Table 11 General government revenue and extemal grants, 1986/ /00 1/ as a percentage of total revenue and extemal grants Appendix Table 12 Functional classification of general govermment recurrent expenditures, 1993/ /00 (in million biff) Appendix Table 13 Functional classification of federal govemment recurrent expenditures, 1993/ /00 In million birr Appendix Table 14 Functional classification of regional government recurrent expenditures, 1993/ /00 (in million birr) Appendix Table 15 Functional classification of general govermnent capital expenditures, 1993/ /00 (in million birr) Appendix Table 16 Functional classification of federal govermment capital expenditures, 1993/ /00 (in million birr) Appendix Table 17 Functional classification of regional government capital expenditures, 1993/ /00 In nillionbirr Appendix Table 18 General governuent revenue and external grants, 1993/ /00 (in million birr) Appendix Table 19 General government revenue and external grants, 1993/ /00 as a percentage of total revenue and grants Appendix Table 20 Federal govermment revenue and external grants, 1993/ /00 (in million biff) Appendix Table 21 Federal government revenue and external grants, 1993/ /00 as percentage of total revenue and grants Appendix Table 22 Regional govermnents' revenue and external grants, 1993/ /00 (in million birr) Appendix Table 23 Regional govermnents' revenue and external grants, 1993/ /00 as a percentage of total revenue and grants Appendix Table 24 Ethiopia selected Macroeconomic Indicators... 62

5 RECOMMENDATIONS FROM PREVIOUS PERS ApPendix 1 Ref. Recommendation Current Status Comment PUBLIC EXPENDITURE MANAGEMENT SYSTEM PERs 1997 and 1998 IMTEF, Budget and Accounts Reform] PER97 Prepare a three-year M1EF to set background for future budget The Macroeconomic and Fiscal Framework(MEFF) is an See discussion in p. ix planning and ensure consistency between SDPs and overall annual exercise through the PIP. Preparation of Public Chapter 3 and 3.43; 1.14 macroeconomic framework Investment Programs (PIP) has begun, and will lead to a full Appendix 2. PER98, Better co-ordination and synchronisation of the work on Public Expenditure Program. This provides a potential See discussion in 8, 1.34 MTEF/PIP and the Sector Development Programs; also of SDP mechanism for linking SDPs and overall macro framework Chapter 3 and activities with those of the Civil Service Reform Program. Appendix 2. PER98, Better budget preparation through adherence to a clearly defined Version 2 of Budget Reform Design Manual (BRDM) presents 18,11.34 budget calendar such a calendar and it is currently being tested. PER98, Better budget coding system New chart of accounts developed in BRDM and is in the It is still in the 18 process of revision. process of revision. Budget policy paper incorporating this principle has been presented to PMO for approval. Financial regulations require all aid funds to be reflected in the Consolidated Fund; for Channel 3 funds this is being done ex post. PER98, Move towards public accounts that include debt, consolidated CSR reform focuses on improving existing system. PER Ensure tansparency in budgeting and accounting for extrabudgetary finds fund, sinking funds, etc. in addition to the general government Broadening coverage of accounts is envisaged as a follow-on I sector stage.

6 Ref. Recomnmendation Current Status Comment PER 1999 [St rategic Expenditure Planningl ExecSum Operationalization of the PlP/MEFF exercise is extremely Against the background of uncertainty exacerbated by the See discussion in 14 important and should be the top priority for the FYO/0I budget conflict, GoE again failed to operationalise the MEFF/PIP by Chapter 3 and 98; 120 exercises. The Ministry of Economic Development and obtaining the approval of the Cabinet and issuing Indicative Appendix 2. Cooperation, in conjunction with the Ministry of Finance should Planning Figures in accordance with the financial regulations take the lead, and intensive coordination with the donors will be and budget calendar that have been developed. indispensable. The next round of the PIP should be started early - with a view to MoF and MEDAC do collaborate but information exchange is move quickly to a PEP - and involve all the players concerned. slow and ad-hoc. ExecSum It is now important to move swiftly to a full MTEF/PEP. In order 16 to operationalize the medium-term plarming of public expenditure, the government now needs to adopt and adhere to the proposed fiscal calendar. There also needs to be broad acceptance of the MTEF or PEP as a new way of budget planning. MoF and MEDAC need to collaborate systematically in preparing the MEFF. 120 In order to operationalize the medium-term planning of public - Financial calendar was not approved by the government expenditure, the proposed financial calendar needs to be adopted and it is still in a experimental stage. now, with the following corollaries: * Broad acceptance of the pivotal importance of the MEFF - Advance projection of federal subsidy for planning and its timely adoption (including discussion at cabinet exercise will be attempted by FYOO/0 1. However, it level), requires a change in the budgeting process which is * Systematic collaboration between MoF and MEDAC in beyond the provision of the financial regulations. preparing the MEFF and proposing indicative planning figures. [inter-ministerial working group] * Strengthened macroeconomic modeling capacity. * In preparing the MEFF, provide reliable advance projections of the federal subsidy to regions. * Expansion of the PIP into a full-fledged multi-year PEP by providing recurrent as well as capital outlays in the N_MEFF.

7 Ref Recommendation Current Status Comment ExecSum When the PIP is extended to the regions, sector planners should At the time of PER 1999, only Oromiya had been assessed for 16; 1120 be required from the outset to prepare consistent medium-term implementation of a regional PIP. Preparatory studies have plans for both recurrent and capital expenditure, and regional and now begun in other Regions also. zonal councils should be required to undertake joint reviews of recurrent and capital budgets for each sector. PER 1999 [Civil Service Reform (Expenditure Management and Control)] ExecSum Specific follow-up is required on the implementation of the Under way 14; financial calendar... to ensure the adoption of the calendar and Ti0 discipline in following it through the fiscal year. ExecSum Important that EMC Program accelerates the implementation of Under way 14; 102 the accounting and audit components. In particular the government needs to operationalize the financial reporting system on the use of donor funds under the SDPs for education and health. 89 It could be helpful to organize a briefing for donors on Civil Done in October 1999 Service Reform and Expenditure Management and Control in particular, and to keep the donors informed on a regular basis. 92 Financial Legal Framework: priority should be given to issue the remaining financial directives, in particular those on budget Work to produce the necessary directives is in progress. management including the budget calendar, procedures of budget control, procedures for submission of supplementary appropriation, and calendar for supplementary appropriation. AID AND AID MANAGEMENT PERs 1997 and 1998 PER97 Collaboration between Government and donors to simplify the Significant progress in the context of the SDPs but still a long UD.X-i2.. multiplicity of donor procedures. way to go. PER97 Urgent need for Ethiopia to receive substantial debt relief from Donors unwilling to move forward on debt relief while the 11.9; donors, including the Bank/Fund HIPC Debt Initiative. border conflict remains unresolved. PER98 128, 13.2

8 Ref. Recormnendation Current status Comment PER98, Budget calendar to discipline donors to provide timely No progress, but PER 2000 again reemphasizes the importance 1.15 information on aid (including in-kind aid) I of this issue. l PER 1999 Aid Management ExecSum MEDAC to maintain, with donor assistance, a reliable and MEDAC has again produced consolidated forecasts of aid 16; comprehensive database of ongoing and expected aid projects and disbursements as part of PIP preparation. Under the DSA 110; programs, which can be clearly mapped onto the SDPs that have project, it is planned to develop a systematic database along the been agreed as well as onto the PIP and successive annual lines suggested. budgets. ExecSum In addition the government and donors need to collaborate in The proposed financial calendar is at an experimental stage and A Steering 16; 121 making projections of aid flows available to the regions with external fund available to regions will be transmnitted to the Committee led by sufficient notice to take them into account for budget preparation regional goverunents as usual, after December, but earlier MEDAC has been (i.e. by end-december if the proposed financial calendar is to be than in the previous years, in order to give sufficient time to the established to work observed). regions for budget preparation. on this aspect. 121 Aid agencies and the government together should ensure that aid, Both the Governments and the donors see problems in the through whichever channel of disbursement, is allocated only to present arrangements of dialogue and consultation. As the priorities defined in the govemnment'strategic planning indicated in chapter 4, MEDAC has made some progress in documents (SDPs, etc). improving aid coordination, but many problems persist. The government is also concerned about the unilateral decision of These issues and donors, on occasions, to suspend aid. possible suggestions 121 The government should continue to encourage aid agencies to The Government is trying its best to convince donors to utilize to address the move towards unearmarked channel 1 support. The government channel 1. So far, IDA is the only donor that has started to use problems are further needs to address aid agencies' genuine concerns about channel 1. ADB is currently finalizing a process to shift to the discussed in accountability, reporting and dialogue. At the same time, aid channel 1. Several bilateral donors have shown interest in PER 2000 chapter 4. agencies should recognize that earmarking of funds has high costs in additional administration and delay. providing unearmarked channel 1 funding, but progress in working out the modalities has been halted by the border conflict.

9 Ref. Recommendation Current Status Comment 118 The procedures for progranmming IDA funds to the SDPs should A technical working group (TWG) which includes members Sector ministries and be reviewed: from Ministries of Finance, Education, Health and MEDAC, World Bank wiu have * to ensure that IDA funds are allocated well before the under the Chairmanship of the Prime Minister's Office, has to work together on commencement of the budget year; been established to identify and follow up on problem areas this. * to move towards a standard format for project information and to find a feasible solutions. for the government and donors, and In this regard, (TWG) has already, See para of this * to review the appropriate amount in the Special Account - created a mechanism which will allow regions to know PER. (the disbursement buffer). well in advance the IDA budget to be allocated for the coming budget year (i.e E.C. budget year) - Included in its agenda the issue of budget offset system and will discuss in depth alternate solutions. Accepted the principle that ongoing projects should be included in following budget year. Exec. Sum The following improvements to the budget offset system could be - Initial projection of aid flows has been made at the Ongoing projects 16 adopted: national level, but disaggregation by regions is still not should be included in * publish planning bodies' projections of aid flows, so that available. the following fiscal the offset is transparent - MEDAC has initiated a major improvement by offsetting year sub-programs. less than 100 percent of grants and credits. * adjust subsequent offset to take account of variance See discussion in between anticipated and actual aid flows chapter 4. * ceilings for Treasury funds and for aid should be clearly separated, and it should be clear that aid unutilized in a given budget year will normally remain available in subsequent years. _ FEDERAL-REGIONAL FISCAL RELATIONS PERs 1997 and 1998 PER Financial Regulations should specify borrowing powers of regional Has not been further addressed, beyond existing provisions of See World Bank's and lower levels of government. Federal and Regional Constitutions. Regionaliation. ~~~~~~~Study. PER Clarify responsibilities for setting local taxes, and mechanism for Has not been further addressed, beyond existing provisions of See World Bank's harmonizing taxes between tiers of government. Federal and Regional Constitutions. Regionalization Federal and ReIional Constitutions. Study.

10 Ref. Recormmendation Current Status Comment PER98, Further review of inter-govermnental grant regime A revised budget grant formula, taking into account the The revised formula 9 anomalies in the existing formula as well as accumulated is yet to be analyzed international experience is reported to have been approved. in the light of the findings of the World Bank's Regionalization Study and the budget offset system. PER98, Clarify and improve budget offset system MEDAC has effected a major improvement by offsetting less See chapter 4 of this 9, than 100 percent of external aid, 70 percent for loans and 30 PER percent for grants. Evaluation of ex-post disbursements has also been attempted on a pilot basis. PER98, Budget calendar to ensure timely notification of federal transfers. Still an issue; discussed but not resolved in the Budget Reform See PER Design Manual (BRDM). recommendations under Strategic Expenditure Management. ALLOCATION OF EXPENDITURE PERs 1997 and 1998 PER97, p.ii; Increase share of O&M expenditures Some signs of improvement, but needs analysis at sector level 11.7 (increased defense spending masks underlying trends). PER97, p.iii Budget share of education and health to increase as SDPs are Budget provisions for health and education have been implemented. increasing in recent years in absolute terms, but declining as a proportion of GDP. PER97 Review of implementation paths of SDPs in the light of PIP work includes some analysis of SDP feasibility, but no p.v; 11.23, expenditure implications. formal re-phasing yet. 1.33; PER

11 Ref. Recommendation Current Status Comment PER The government needs to make strategic choices about the sustainability of its expenditure programs [under any scenario] it will be necessary for the government to balance an ambitious SDP implementation schedule with non-sdp expenditures. 78 Backload the education and health SDPs and extend the implementation time-frame for the Roads SDP to seven years, to fit the projected fiscal envelope. PERs 1997 and 1998 REVENUE MOBILZATION PER98 Strengthen Customs Authority, including implementation of Under way. 19; 12.51; ASYCUDA. Revenue mobilization directly reviewed not - PER98 26; Improve tax administration by addressing judicial aspects etc Under way. not directly reviewed PERs. PER97, Increase cost recovery, and private sector role, in social sectors, Under consideration, including close reviews of other 2.31; especially at tertiary level countries' experiences. PER The govermment needs to strengthen the major domestic tax effort Under way. and maintain close cooperation with the donor community to secure an adequate flow of concessional external resources.

12 Ref. Recommendation Current Status Comment FUTURE PERS (a) PER 1999 Exec. Sum * Undertake future PERs much earlier in the fiscal year, in -PER 2000 schedule has been advanced to harmonize with the 18; 123 order to support the planning phase rather than the planning/budgeting cycle of the financial calendar. PER 2001 budgeting phase of the financial calendar. will attempt further improvement. * Important role for PERs in reconciling government and -This has been addressed in chapter (4) on aid management and donor estimates of aid flows integration of aid flows into the planning and budgeting process of this PER. * Help to extend the sector dialogue associated with the -This is being addressed in this PER. SDPs into a broader dialogue on overall public expenditures and enhancing the poverty impact of government and donor assistance. * Shift focus of next PER towards effectiveness and -A beginning has been made in this regard under chapter 5 of efficiency of government spending. this PER. o 4 For the next PER it is envisaged that the govenmment will also share in the drafting of background notes for the PER mission. Government officials have been more actively involved in the PER process (see chapter 6) although their involvement in the drafting could be fiurther enhanced.

13 STATUS OF RECOM:MENDATIONS OF PREVIOUS PERS 1 Recommendations I1. The 1997 PER focused on: (i) the fiscal sustainability of the Government's planned expenditures under the SDPs for health, education, and roads; (ii) the budgetary procedures and institutional arrangements for public expenditure management; (iii) the role of the state vis-a-vis the private sector in service delivery in agriculture, education, health and transport sectors; and (iv) the fiscal impact of the state-owned enterprises. * The PER welcomed the stabilization in recent fiscal trends and the continued reorientation of public expenditures to the priority social sectors. * The impact of the three SIPs on fiscal deficits and the required intersectoral expenditure allocation was estimated relatively small and manageable in FY97/98 and -- under favorable growth conditions -- also in FY98/99. However, for FY99/00 and onward, the expenditure implications of the planned SDPs were expected to become challenging for fiscal sustainability. The report explored alternative scenarios to expand the SP implementation paths from 5 years to 7 years to account for potential implementation capacity constraints and possible shortfall in the resource envelope. * The report suggested measures for strengthening the Government's effort to improve public expenditure management within a medium-term expenditure framework (MTEF). A three-year MTEF would become the framework for future budget planning and ensure consistency between SIPs and overall macroeconomic framework. In parallel with the MTEF, the Government would need to develop its own capacity and sector institutions to monitor planning and strategic expenditure management. * With regard to the evolving role of the state, the 1997 PER recommended to center the public sector focus on primary education, quality enhancement in education, and preventive health care. The PER also identified areas for broadening cost recovery in agriculture (irrigation), education (tertiary level), and health (user charges). In addition, the report recommended that regional governments hand over the responsibility for delivery of agricultural credit to appropriate institutions. * The PER recommended that the forthcoming Financial Regulations also clarify the borrowing powers of regional and lower levels of government, as well as the responsibilities for setting local taxes, the mechanism for harmonizing taxes between tiers of government. as presented in draft Volume 2 of PER

14 * The Ethiopian authorities emphasized the need for simplification of the multiplicity of donors procedures that are required for releasing the allocated project funds. 2. The 1998 PER examined -- in addition to the review of fiscal trends -- the level and sources of financing for public expenditures in Ethiopia, provided a more detailed analysis of budget management, and updated the fiscal sustainability analysis for key sectors where the Government is implementing SDPs. * With regard to process issues, the report welcomed the significant achievements made with regard to the closure of public accounts and formulation of a the legal framework for expenditure management and control. The PER concluded that (i) scope exists for improving the synchronization and coordination of the work on the MTEF/Public Investment Program and the various SDPs; (ii) adherence to the budget calendar and clarifications in the budget coding system would enhance the transparency and timeliness of budget preparation; and (iii) a review and clarification of the inter-governmental grant scheme and the budget-offset system would improve Federal-Regional fiscal relations. * Second, the report highlighted the immediate necessity of enhancing resource mobilization in the context of tariff liberalization, privatization and decentralization. The report identified a number of measures to help broaden the tax base and enhance collection efficiency and thus increase revenues, including: (i) speedy implementation of the computerized customs reporting and recording system (ASYCUDA); (ii) improvement in tax administration and launch of judicial reforms to address tax collection and streamline tax appeals; and (iii) introduction of tax payer identification numbers in preparation for the expansion of the sales tax into a VAT tax. * The analysis of fiscal sustainability of the public expenditure programs brought the two sides of the fiscal accounts (the level and structure of public revenue generation and expenditures) together and assessed the government's medium-term public expenditure programs. The report highlighted the importance of greater burden sharing of sector expenditures with the private sector, the critical role of tariff reform and export prices for fiscal revenue generation, and the opportunities provided by Ethiopia's participation in the HIPC Debt Initiative. Status Of Follow-Up 3. The Government recognizes the need for strengthening capacity in budget management in parallel with broadening the revenue base. In fact, within the context of the Civil Service Reform (CSR), good progress is under way in a number of areas that were highlighted in previous PERs. 4. Fiscal reforms aim at broadening the tax base, increasing the revenue-to-gdp ratio, improving equity and efficiency and strengthening tax administration. Some of the most important measures include: 10

15 * In FY97/98, a financial services tax was passed by Parliament; several taxes on coffee were unified; the institutional reforms of the Federal Inland Revenue Authority and Customs Office were initiated and the ASYCUDA system was introduced at the main customs station which is now being made operational. In addition to taxpayer identification numbers being introduced, penalties and interest charges were authorized as levy on late tax payments; and the tax fraud unit was expanded. * In FY98/99, as part of the December 1998 tariff reform, the Government identified offsetting sources of domestic revenue to compensate for revenue losses. The implementation of the agricultural income tax reforms and the expansion of the coverage of agricultural land taxes was partially undertaken; the tax net was widened to cover unincorporated firms; the new financial services tax was implemented; and. selected excise taxes and unifying sales and services taxes on most items were reversed. Preparatory work on a value-added tax was also initiated. 11

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17 Appendix 2 EXPEND1TURE MANAGEMENT AND CONTROL PROGRAM INTRODUCTION 1. The Expenditure Management and Control Program (EMCP) is a sub-program of the broad Civil Service Reform which originated with the formation of a special task force in Substantive work on EMCP began in EMCP's objectives are to: * Develop a comprehensive and complete legal framework for civil service financial administration. * Introduce a budgetary system which allows informed and rational annual and medium-term resource allocation reflecting government objectives/priorities. * Improve accountability to elected bodies. * Install proper arrangements for the acquisition, safeguard and control of cash, financial and physical assets. * Improve financial information systems. * Strengthen internal and external audit discipline. * Develop the accounting and audit profession. This annex describes the current status of core EMCP activities that are especially relevant to the public expenditure management themes of the PER EMCP is being supported with TA from a number of agencies, the most substantial support coming from the DSA (Decentralization Support Activity) which is funded by USAID and implemented by Harvard Institute for International Development (HIID). Reform working groups have been established in the Ministry of Finance and MEDAC, working alongside technical assistance. Starting from a detailed assessment of the current budget and planning processes, the intention is to introduce elemhents of reform sequentially, as each is developed, and to accompany changes to procedures with appropriate training and manuals. The budget reform work accomplished to date is embodied in a series of design manuals. The first one describes processes of capital and recurrent budgeting at Federal and Regional levels and makes recommendations for improvement. The second budget reform design manual was first compiled in 1999 with a revised edition (Version 2.1) in January It introduces changes in the structure of the budget in five areas: classification, expenditure codes, revenue codes, financial calendar and budget formats. Version 2.2 will be a similar manual but modified for use by Regions and Administrative Councils. Version 3 of the budget reform design manual will deal with organization and staffing of budget institutions and with the monitoring and review of budgets during implementation. Version 4 will deal with aid management, and Version 5 with unit costs, the preparation of work plans and budget implementation and review. 2 For sources and additional material see the list of documents at the end of this Appendix. Also refer to PER 1999 (including annexes) for a fuller description of the Civil Service Reform and EMCP. 13

18 PIP And Medium Term Expenditure Planning 3. The federal PIP is seen as the centerpiece for the eventual development of a comprehensive framework for medium-term expenditure planning. It is planned to move from the PIP (which only programs capital expenditures) to a PEP (Public Expenditure Program) which would program both recurrent and capital expenditures, and to extend the activity from federal to regional level. A legal framework has been established: federal financial regulations require the preparation of the PIP and stipulate that the capital budget may only include projects which have been incorporated in the PIP as approved by Council of Ministers and Parliament. Regions have adopted similar financial regulations, but none of them have yet embarked on PIP preparation. 4. The procedure for preparation of the federal PIP has two main stages: Preparation of the Macroeconomic and Fiscal Framework (MEFF), involving: - a forecast of GDP; - a forecast of aggregate national revenues and expenditures; - the allocation of aggregate expenditures between Federal and Regional governments; - for the Federal Government, the allocation of total expenditures between capital and recurrent; and - the allocation of total Federal capital expenditures among public bodies. (The allocations of capital investment targets to individual public bodies are referred to as Indicative Planning Figures - IPFs.). * Preparation of the PIP itself: public bodies are required to program and prioritize their capital expenditure to fit within their allocated IPF. 5. The PIP is supposed to be prepared in the first half of the fiscal year, providing the basis for preparation of the more detailed annual capital budget in the second half of the FY (see the later section on the Financial Calendar). At the federal level, the PIP has now been through two complete iterations (for EFY , and EFY ), but neither has resulted in a fully operational PIP. The first iteration experienced delays in developing an agreed MEFF; instead of being prepared in advance of the capital budget it ended up as a simultaneous exercise. IPFs were never formally approved, and preparation of the PIP itself was treated as a dry run, in which public bodies' submissions were never reconciled with the estimates of resource availability. The PIP itself, prepared in two volumes in both English and Amharic, was never submitted for cabinet or parliamentary approval, and did not circulate beyond MEDAC. 14

19 6. A review of 'lessons learned' was also prepared after the first cycle. 3 Along with various technical recommendations, the key observation was that the PIP exercise requires high level ownership and support if it is to become an effective part of the financial planning cycle. However, the second cycle - preparation of the EFY version - also failed to move beyond being a shadow exercise. Against the background of the increased impact of the border conflict on public finances, and a resulting increase in uncertainty, the MEFF once again remained a technical exercise that was never finalized or taken to the Council of Ministers for approval of the IPFs. As a result, inconsistencies in public spending plans which have been highlighted by the technical work, have still not been addressed. (Most notably the first PIP exercise had demonstrated that proposed expenditures on the Road Sector Development Program are not consistent with the Government's own forecasts of resource availability.) 7. The EMCP's latest review and planning document 4 reiterates what is needed to make the MEFF/PIP an effective exercise: * There is also need for review of the PIP by the higher levels of Government to be formalized and to ensure that an approved PIP forms the basis of the capital budget. Until public bodies see that the PIP is accorded to a level of importance commensurate with the capital budget, they are unlikely to take the exercise seriously (p33). There is need to start preparation of the MEFF for EFY before the end of EFY 1992 to ensure that it can be approved and the IPFs are issued to Federal public bodies by the end of September 2000 (Meskerem 1993) (p 3 1). Forecasts as input into the Macroeconomic and Fiscal Framework for will start in May 2000 to enable the MEFF to be completed and approved in accordance with the Financial Calendar (p27). * For the PIP process to really become established, however, it will require formal recognition at the senior-most levels of government of the importance the PIP as a planning and programming tool for improving economic and financial management. The MEFF and the investment programs prepared by the public bodies in accordance with the Indicative Planning Figures that are provided to them require review and approval by senior policy bodies if federal public bodies are to take the exercise seriously (p 3 3 ). 8. The PIP thus far only covers federal projects. However, calculating the funds available for federal capital expenditure requires projections of federal recurrent spending and of the federal transfer to the Regions. Preparation of PIPs at Regional level would require the federal Government to give the Regions forward projections of their expenditure ceilings and anticipated Federal subsidy. A review of the scope for PIP preparation at Regional level has been completed for Oromiya, and similar reviews for a number of other regions are under way. 3 MEDAC: Lessons Learned from Preparation of the Public Investment Program, November Civil Service Reform Program: Expenditure Management and Control Component - Performance for FYl991/ 1998/99 and Planned Activities FY1992 ( ), Ministry of Finance, September

20 Financial Calendar 9. The aim of the financial calendar is to link the cycles of expenditure planning and budgeting and to clarify the responsibilities for each stage (see Tables 1 and 2 below 5 ). The first half of each FY is for strategic expenditure planning; so that the detailed budgeting in the second half can reflect strategic expenditure priorities. Better coordination of recurrent and capital budgets will be promoted by the introduction of a joint budget call and a common deadline for the two budgets. Better integration of recurrent and capital budgets will also be facilitated by the approach to cost centers and common budget codes described in the next section. Table 1: The Financial Calendar CYCLE/PART/STAGE ETHIOPIAN CALENDAR EUROPEAN CALENDAR PLANNING CYCLE/PART/STAGE 1. Multi-Year planning Hamle 1 - Nehase 15 July 8 - August Multi-Year programming Meskerem 14 - Tahisas 29 September 25 - January 8 3. Annual Fiscal Plan Pagume I - Tahisas 29 September 6 - January 8 A. Executive Preparation BUDGETING CYCLEIPART/STAGE 1. Budget Preparation Meskerem 20 - Megabit 6 October I - March Preparation of the Formula for Regional Subsidy Meskerem 20 - Hidar 5 October I -November Notification of the Estimate of Subsidies Tahisas 30 - Tir 7 January 9 - January Budget Call Tahisas 30 - Tir 29 January 9 - Febniary 7 5 Budget Request Tir 30 - Megabit 22 February 8 - March Preparation of the Recommended Budget Megabit 23 - Genbot 29 April I - June 6 7. Approval of the Recommended Budget Genbot 30 - Sene 13 June 7 - June 20 B. Legislative Adoption 8. Approval of the Formula for Regional Subsidy Hidar 6 - Tahisas 5 November 16- December 15 9 Approval of Part 4 of the Recommended Budget Sene 14 - Sene 30 June 21 - July Appropriation of the Approved Budget Sene 14 - Sene 30 June 21 - July 7 C. Executive Implementation 11. Notification of the Proclaimed Budget Hanle I - Hamle 8 July 8 - July Operation of the Proclaimed Budget Hamle I - Nehase 9 July 8 - August 15 Hamle 9 - Hamle 30 July 16 - August Implementation of the Proclaimed Budget (next FY) (next FY) D. Executive Audit/ Monitoring 5 Both drawn from Version 2.2 of the Budget Reform Design Manual. 16

21 Table 2: The Financial Calendar And Institutional Responsibilities CYCLE/PART/STAGE RESPONSIBLE INSTlTUTIONS PLANNING CYCLE/PART/STAGE 1. Multi-Year Planning MEDAC 2. Multi-Year Programming MEDAC and public bodies 3. Annual Fiscal Plan MoF A. Executive Preparation BUDGETING CYCLE/PART/STAGE 1. Budget Preparation Public bodies 2. Preparation of the formula for Regional Subsidy MEDAC 3. Notification of the Estimate of Subsidy MEDAC 4. Budget Call MoF, MEDAC 5. Budget Request Public Bodies 6. Preparation of the Recommended Budget MoF, MEDAC 7. Approval of the Recommended Budget PMO, Council of Ministers B. Legislative Adoption 8. Approval of the Formula for the Regional Subsidy Federation Council 9. Approval of Part 4 of the Recommended Budget Parliament 10. Appropriation of the Approved Budget Parliament C. Executive Implementation 11. Notification of the Proclaimed Budget MoF, MEDAC 12. Operation of the Proclaimed Budget MoF, MEDAC, public bodies 13. Implementation of the Proclaimed Budget Public bodies D. Executive Audit/Monitoring (done under the Civil Service Reform Audit Project) 10. The planning and programming stages focus on three documents: the MEFF which should set overall expenditure targets and provide IPFs for preparation of the federal budget, the PIP which sets out a three year federal capital expenditure program in detail, and the annual fiscal plan. The fiscal plan should update the first year's projections of the MEFF, set definite ceilings for Federal recurrent and capital expenditure and also establish the amounts of subsidy to be provided to the regions and administrative councils. 11. Timeliness of the Fiscal Plan is vital if regions are to base their budget preparation on accurate estimates of resources available. The coordination of MEFF and Fiscal Plan is an area of concern: logically both should be prepared by the same team; the division of responsibilities between MoF and MEDAC should not be as sharp as Table 2 seems to imply. 12. As indicated in the review of the PIP, the government has not yet succeeded in adhering to the discipline of the financial calendar. 17

22 Accounts Project: Cost Centers And Budget Coding 13. The Civil Service Reform strategy of budget reform is to move from an emphasis on control using line item budgets to an emphasis on management using cost center budgets. Cost centers are defined in terms of responsibilities, and may exist at different levels of aggregation. Cost center budgeting will require public bodies to map their budget to organizational sub-units (sub-agencies) and activities (programs, sub-programs, projects). Cost centers should thus allow public bodies to know the total cost of an activity and make budgeting decisions accordingly. 14. This approach is intended to address several weaknesses of the existing budget structure: * The division between the recurrent and capital budgets will be bridged by providing total costs for sub-agencies and projects. By using standard budget categories and by standardizing the codes for these categories in both the recurrent and capital budgets, the two budgets can be linked. * Allocation of expenditures to recurrent or capital budgets would be rationalized: at present some expenditures are placed in the 'wrong' budget for the type of expenditure, in order to simulate a cost center; under the reformed system this would no longer be necessary. * Cost center budgeting will also address expenditure composition - the balance between capital, non-wage recurrent and wage recurrent expenditures. Cost center budgeting will require that all three types of expenditure are budgeted together, even if they are placed in different budgets. This will also promote the development and application of budget norms that can promote better expenditure composition. * Mapping the budget to cost centers will also encourage public bodies to reassess their organization. Alignment of budgets and responsibilities should promote more decentralized and accountable expenditure management. 15. The reforms to the budget structure are intended to complement the more strategic approach to expenditure planning reflected in the PIP/MEFF and the proposed financial calendar. Annual budgets are to be linked to rolling three-year expenditure plans, and the reform also aim to improve the links between capital and recurrent budgets. The current status of the reform is reflected in Version 2.1 of the Budget Reform Design Manual, which incorporates changes based on workshops and discussion of the earlier version at both federal and regional levels; it also addresses revenue, which was not originally included. A detailed revision of the Chart of Accounts is spelt out. Government has agreed to implement the budget reform at the federal level for the preparation of the EFY 1993 budget, with pilots in the Ministry of Education, the Ministry of Health and the Ethiopian Roads Authority. 18

23 Aid Management 16. Aid management is to be the focus of the fourth version of the Budget Reform Design Manual. However, activities already under way involve aid management reform in a number of respects: * Legislation has set stringent standards for the incorporation of aid in the budget. * An interim accounting system for tracking donor funds in channel 1 has been introduced. * The new chart of accounts incorporates improved budget coding to strengthen the ability to track funds from different donor sources. * In connection with PIP work, consolidated projections of aid disbursements are now being prepared, and it is planned to develop a comprehensive database on aid. Outlook And Constraints 17. Full implementation of the reforms will take many years. Institutional development of this type is inherently long-term, and constraints experienced by EMCP have included shortages of manpower (with staff having to divide their time between operational duties and developmental work and training), delays in posting of TA, and the addition of unanticipated tasks (notably the interim reporting system for the Sector Development Programs). For some elements of EMCP donor support is still not confirmed. Cascading the reforms from federal to regional level is also a time-consuming process. One practical problem is that translation of materials into the regional working languages (Amharic, Oromifa and Tigrinya) is essential for involvement and training of staff at zonal level and below, but has been found to take a year or more for major documents. 19

24 SELECTED DOCUMENTS Budget Reform Design Manual, Version 1.0, Budget Processes and Preparation, 15 January FDRE: Public Investment Program FY's , draft, October 1998 (2 Volumes). Assessment if the Applicability of the Federal PIP Format to the Oromia Regional State, PIP Design Team, MEDAC, August Description of the Ethiopian Government Accounting System: Accounting Cycles and Processes, draft, prepared by the Civil Service Reform Accounts Design Team from the Ministry of Finance, 28 September MEDAC: Lessons Learned from Preparation of the Public Investment Progran, November A guideline for the low of Credit and Development Assistance, Accounting, Recording and Report Submission Procedure, MoF, January [translated from Amharic by Michael Translation Office]. MEDAC: Briefing Materials: Workshops for Federal Public Bodies on the Preparation of the Public Investment Program, August Civil Service Reform Program: Expenditure Management and Control Component - Performance for FY1991/1998/99 and Planned Activities FY1992 ( ), Ministry of Finance, September Forecast of External Funding for EFY , MEDAC, December 23, Macroeconomic and Fiscal Framework for (draft for discussion), Development Finance and Budget Department, MEDAC, December 9, 1999 (updated December 29, 1999). Budget Reform Design Manual, Version 2.1, Chart of Accounts, Budget Preparation and Presentation for the Federal Government, January 24,

25 Appendix 3 MEDIUM TERM EXPENDITURE PLANNING IN SOUTH AFRICA 6 Origins 1. The post-apartheid government inherited a set of fragmented, non-transparent budgeting structures from the previous regime, as well as weak information systems, institutional complexity and low capacity at all sub-national levels. Not surprisingly, budgeting in the period 1994 to 1997 was marred by unrealistic plans, unclear political mandates, conflicting priorities, poor planning and management and an unstable process. There were significant variations between planned and actual spending, considerable inter-governmental tension and delivery disruption. 2. A first, unsuccessful, attempt to establish a medium-term framework involved a separate spreadsheet model that was operated from the Treasury in isolation from the real budget process and departments. It was technical, complex and included sectoral analysis and the identification of cost drivers. Although it was approved by the Cabinet, it never gained a real foothold in the process and was ineffective in improving budgeting decisions. 3. A comprehensive multi-tier medium-term budgeting system was inaugurated in November 1997 with the publication of a medium-term budget policy statement which set out the policy framework and medium-term fiscal framework for the February budget. In February 1998 the national and provincial budgets for the 1998/99 spending year were published with forward spending plans for the two outer years, 1999/2000 and 2000/ Although the forward plans were, at first, quite crude, the MTEF initiated a system of rolling three year budgets backed by a single consolidated national and provincial budget process. This process, part and parcel of the MTEF, provides the bridge between the technical preparation of budgets and the need to reflect national political priorities in national and provincial expenditure plans. This process also provides the tools to manage the intergovernmental tensions and trade-offs inherent in any system of fiscal federalism. How It Works 5. The medium-term expenditure framework is the result of the annual MTEF process that starts with the indicative allocations for the upcoming fiscal year, based on projections of spending in the previous year's MTEF. Expenditure ceilings over the medium-term are set at appropriate levels within a medium-term framework of projected revenue, expenditure and borrowing agreed by the national cabinet. During the drafting process these ceilings change on the basis of negotiations between the center and line agencies, new priorities, extra or less money available because of adjustments to the medium-term framework or functional shifts between spending agencies. Provincial and national departments assign resources within their expenditure ceilings in line with policy priorities and submit a three year forward 6 The assistance of Alta Folscher of Idasa, Cape Town in preparing this appendix is gratefully acknowledged. 21

26 spending plans to their treasuries. Medium term expenditure committees, one for national and the other for the provinces, evaluate whether departments' spending plans are economical, efficient, equitable and effective and compile expenditure proposals for the national and provincial cabinets respectively, consistent with available resources. 6. A set of sectoral review teams operates at the heart of the process to identify main budget trends for a particular sector, identify policy options contributing to rising spending pressures and the possibility of expenditure reductions and prepare recommendations for improved expenditure management, possible reallocation and policy changes. The MTEF Review Teams bring together national and provincial treasury and line department officials. The team reports are a key input into the decision-making process at all levels. 7. The MTEF operates against a backdrop of commitment to transparency and public accountability, output-driven program budgeting and political prioritization. Gains From MTEF 8. The MTEF does not as yet deliver all that it promised. Centralized out-of-cycle bargaining of public sector wages and unfunded policy mandates cause problems; planning, implementation and control capacity, especially at the provincial level, is often lacking; and weak information on the outputs and outcomes of spending remains a problem. Frequent media reports of service delivery failures in provinces are still present and parliament and other stakeholders still play a very limited and ineffective role in the budget process. 9. However, the following gains can already be attributed to the integration of medium-term economic and policy planning processes with budgeting and budget management through the MTEF. a Stable environment: The MTEF promotes macro stability and predictability of funding, policy; and increasingly of delivery. * Improved political involvement: The MTEF process integrates decisions across spheres and arms of governments, across sectors, across the government functions of policy making and budgeting and between elected office bearers and public officials. It improved Cupertino and consensus within government * Improved policy and planning environment: The MTEF process promotes contestability of policy and spending; policy co-ordination; and linking policy, spending and delivery. As departments are required to frame their policy proposals within their three-year allocations, the MTEF introduced resource-based planning and therefore a better understanding of priorities and costs. The MTEF provides a context for assessing proposals. * Greater transparency: The MTEF produces more reliable and more timely information, more frequently. It provides a forward view of government's plans and therefore presents an opportunity for parliament and civil society to analyze and discuss the expenditure 22

27 projections and to ensure that alternative views are fully taken into account in framing the subsequent MTEF. The medium-term policy statement, published three months before the national budget, facilitates informed public debate on the forthcoming budget during the drafting process. Critical Success Factors 10. The following factors contributed to these successes: * Political commitment and strong principal agents: The MTEF was implemented with the backing of the full cabinet. The political leadership came from the Minister of Finance, backed by a strong central agency, the Department of Finance. * Simplicity: The MTEF runs on a simple framework of integrated three year spending plans. Changes are made to annual baselines on a rolling basis. The published MTEF consists of a single page per department added to the existing budget formats detailing spending over three years per program and per economic classification of spending. The macro-economic assumptions (GDP and inflation) and fiscal targets (deficit as a percent of budget and GDP, revenue as a percent of GDP and expenditure as a percent of GDP) are also published linked to the framework. * Comprehensive implementation: The MTEF was not piloted in one or two departments, or in a province, but implemented comprehensively. This enables the integrated assessment of spending plans and integrated resource-based policy development. * Making it matter: The MTEF did not run parallel to an existing budget process, but was made the only budget process. If spending agencies wanted to access budget allocations, they had to engage with the MTEF process and they had to produce three year spending plans. Secondly, the treasury sticks to the allocations provided for in the MTEF. This forces spending agencies to take their own MTEF planning seriously. Simply put, if it is not in the MTEF, it will not happen. Conversely, the national and provincial treasuries delivered predictable funding. Putting this simply, if it is in the MTEF, it will happen. Thirdly, the central agencies kept strict expenditure discipline, forcing spending agencies to make their own trade-offs. Finally, the robust financial management legislation supports and depends on the MTEF. Individual accounting officers are to be held accountable for monies allocated to them in accordance with the MTEF, for example. Similarly other public sector management systems, such as the human resource system and the civil service regulations, use the MTEF as a framework for planning and control. * Demonstrating quick wins: Apart from the operational enforcement of MTEF discipline, acceptance of the system was enhanced by a rapid turnaround in provincial finances. The ability of the executive to spread the pain of lower than expected economic 23

28 growth in the period over the medium-term rather than absorb it in one year with severe spending disruptions, also engendered support for the system. * Good budget support and new systems: The MTEF was implemented in an environment characterized by poor information and weak capacity at all levels. The central treasury provided budget support in a focused program on provincial level, building capacity. Simultaneously considerable effort was also expended to establish new management information systems. As these are coming on line the effectiveness of the budget system is enhanced. A living process: At the time of its implementation the MTEF was far from perfect. It operated on poor information; low planning, implementation and control capacity and weak intergovernmental coordination of policy planning. The second year saw the addition of sectoral review teams to improve policy coordination, the third year saw the addition of financial management legislation etc. The treasury has not hesitated to change the process if required. Future plans include extensive personnel management reforms in line with the MTEF, clearer linkages of service delivery information and financial data, better investment planning and a more comprehensive assessment of wider public sector fiscal activities. Most importantly, it is to be doubted if these developments would have come about without the MTEF and accompanying medium-term budget process demanding them. 11. In conclusion, the South Africa's Medium Term Expenditure Framework enables the co-existence of a sound budget framework and medium-term decentralized planning. It promotes fiscal discipline while balancing priorities and competition for funds. It encourages management capacity and forward planning within a regulated framework. 24

29 Appendix 4 ETHIOPIA - FooD AND FOODGRAIN PRODUCTION Year Food aid Foodgrain production Food aid as proportion ('000 metric tons) ('000 metric tons) of production (%) ,272 4, , , ,096 6, , , , , , , , , , , Total 9, ,

30

31 Appendix 5 OuTPUT AND OUTcoME INDICATORS EHIoPiA 1. The Ethiopian Welfare Monitoring System (WMS) covers a number of important elements of welfare. The WMS was established in 1996, at the same time as the Ethiopian Social Rehabilitation and Development Fund (ESRDF). At the heart of the system is the Welfare Monitoring Unit (WMU) in MEDAC, responsible for coordinating the overall implementation of the program and for preparing reports to inform policy makers on the state of poverty in the country. The other key institution is the Central Statistical Authority (CSA) which is implementing a prograrn of annual household surveys. The WMU oversees data collection done by the CSA at the household level and also takes up some data analysis and data dissemination. 2. One of the more active elements of the WMS has been the CSA's household survey data collection program. Between , the CSA has conducted one household income and expenditure survey (HICES) for 1995/96 and three annual welfare monitoring surveys (WMS1, WMS2, WMS3) (a second income and expenditure survey with a WMS4 is currently under way). The WMSs have covered 12,000 to 15,000 households and data can be disaggregated by regions and groups of 7 zones. 3. The first national workshop on welfare monitoring, which was organized by the WMU and CSA in October 29-30, 1999, demonstrated that many of the building blocks for the national welfare monitoring system at the household level are now in place and that the system is capable of producing interesting and useful results. However, the end use of the information gathered remains weak and the system still falls short of serving its true purpose as a tool for monitoring the welfare impact of different public policies and actions and in informing policy decisions. Trends In Welfare Indicators From The WMSS 4. The three Welfare Monitoring Surveys make it possible to look at trends over time in some key welfare indicators (literacy, enrollment and drop-out rates; malnutrition, health status, access to health services; access to safe water coverage). The following are the key findings: * The literacy rate has been improving slowly (to around 70 percent in urban areas and almost 20 percent in rural areas), but female literacy rate stagnated or dropped in both rural and urban areas. * Primary school enrollment increased substantially, both for boys and girls, but drop-out rates increased as well in both rural and urban areas. * Longer-term malnutrition (stunting) declined, especially in urban areas, but short-term malnutrition increased. 7 Two research projects carried out by Addis Ababa University collected panel data on smaller samples of households, and two participatory poverty studies were carried out in 1997 and 1999 with support from the World Bank. 27

32 * The percentage of people reporting an illness over the last two months increased, with rural people more likely than urban people to report a health problem. * Distance to health centers (shorter in urban areas as expected) did not change much. * High cost and too great a distance are increasingly cited as reasons for not using health services, while poor quality is losing importance as a reason. * Childhood immunization coverage (much greater in urban areas) is improving. * Use of drinking water from protected sources increased, but the spread of public/private tap water stagnated. WMS Indicators For Education 5. Literacy Rate (percentage of total population aged 10 years and above) Country Female Male Urban Female Male Rural Female Male a. Primary gross school enrollment ratio Country Female Male Urban Female Male Rural Female Male b. Primary drop-out rates Country Urban Rural Reasons cited by drop-outs for withdrawing from school system include: * need to work: 21 percent at country level, 24.7 percent in rural areas and 5.2 percent in urban areas in * failed in exam: 35.3 percent at country level, 29.1 percent in rural areas, and 63.4 in urban areas in

33 c. Proximity to school (percentage distribution of household by distance in km. to the nearest school in 1998) 0-4kms 5-9kms 10-14kms Country 70.7 _ Urban Rural WMS Indicators For Health 6. Malnutrition (prevalence of malnutrition among children below 5 years of age) Type of Country Urban Rural Malnutrition Sex Weight-for-height Boys (Wasting) Girls Both Height-for-age Boys (Stunting) Girls Both Weight-for-age Boys (Under Weight) Girls Both a. Health status (percentage of population who had health problem during the last two months) Country Urban Rural b. Access to health services (percentage distribution of households by distance in kilometer to the nearest health service) kms. Country Urban Rural kms. Country Urban Rural

34 c. Reasons for not using the nearest health services (percentage distribution of households) ease Too Distant Poor Service u Country Urban Rural WMS Indicators For Water Supply 7. Source of drinking water (percentage distribution of household by source of drinking water) Country Urban Rural River, lake Protected well/spring Unprotected well/spring Public tap/bono l l _ I Own tap Others Outputs/Outcomes Indicators In Key Sectors 8. A relatively comprehensive system of output and outcome monitoring has been used in the three sector development programs currently under implementation: the health sector and the education sector development programs, which follow one approach to impact monitoring, and the roads sector development program, which follows a different approach. Education Sector Key Performance Indicators 9. The Program Action Plan for the Education Sector Development Program (ESDP) includes a set of indicators that aim to capture both financial inputs and outputs/outcomes (access, quality and equity) of the education system in Ethiopia. The indicators have performance targets for the year 2001/02 (the first year of implementation being 1996/97). There were no annual targets set but they are gradually being developed. The regions also have similar indicators included in the Regional Sector Programs and have 5 year targets for each. 30

35 Education Sector - Key Performance Indicators Proposed In 95/96 % 96/97 % 97/98 % 98/99 % 99/00 00/01 01/02 % Verificatio Source Budget and Expenditure 1 Education share oftotalbudget PAP 15.1/ RFB/MoF 2 Primary education share of total education budget PAP 63.2/ RFB/MoF A Public expenditure on pilmary % GDP Center 5 YP 4.6 B Introduce tertiary cost sharing Center 5 YP Access 3 Total number of prinmary schools PAP/EMIS EMIS/REB 4 Total primary (grade 1-8) enrohnents PAP/ EMIS/ C5YP EMIS/REB C GERPrimaryl-8 EMIS/C5YP EMIS D New schools owned by non GoE Center 5 YP 5 E Ratio of female teachers Center 5 YP Quality 5 Share of lower primary (1-4) teachers qualified PAP/ EMIS EMIS/ REB 6 Total number of upper primary (5-8) teachers PAP/ EMITS NYA EMIS/ REB 7 Number qualified upper primary teachers PAP EMS/REB 8 Totalnumberofsecondaryteachers PAP/EENMS EMS/REB 9 Number of qualified secondary teachers PAP/ EMIS EMIS/REB 10 Number core primary textbooks in schools PAP NYA EMIS/REB 11 Grade 8 exam pass rate PAP NOE 12 Grade 4 sample assessment of learning achievement PAP NOE F Student textbook ratio - primary EMICS C5YP 5:1 NYA 1:1 EMIS G Average PTR Center 5 YP 50:1 Efficiency 13 Primary school student: section ratio PAP/ EMIS EMIS/REB 14 Secondary school student: section ratio PAP/ EM[S EMIS/REB 15 Grade I dropout PAP/ EMITS EMIS/REB 16 Total prinary school dropout PAP/ EMIS EMIS/REB 17 Averagegrade4-8repetitionrate PAP EMIS/REB 18 Average grade 4-8 repetition rate for girls PAP EMIS/REB 19 Coefficient of primary school efficiency PAP/ C5YP/ EfMS 49.6/ EMJS/REB Equity 20 Gross primary enrolment rate in the two most under PAP/ C5YP/ EMIS 7.6/ EMIS/REB served areas 21 Share of girls in Iry school enrolment (Grades 1-8) PAP/ C5YP/ EMIS EMIS/REB

36 10. The broad trends of the sector performance indicators suggest: * Enrolment is increasing, but the share of girls' enrolment has remained unchanged; therefore the gender gap is not decreasing. * Total primary school drop-out is increasing. * Average Grade 4 repetition rate has not changed. * Coefficient of primary school efficiency is falling. * Gross primary enrolment in the two most underserved areas is static. 11. Data for other crucial indicators, such as the number of core primary textbooks in schools, the ratio of female teachers and Grade 8 exam pass rates (for boys and girls) are not generally available for all the regions. 12. The 1999 JRM Report indicates that in the last two years, while the overall actual education expenditure per capita has remained relatively stable (around 22 Birr) the actual recurrent expenditure per child has declined nationally from 181 Birr per child to 173 Birr per child (the trend is by and large mirrored across the Regions). The decline in recurrent spending is even more marked when the five year period ( ) is considered: In 1995, the spending was 244 Birr per child, while by 1999, it declined to 173 Birr per child (nominal figures).8 A parallel trend of low capital budget utilization appears to have taken place (but assessments by the JRM and the MoF differ on this matter): in 1997/98 the utilization rate was 56.5 percent for all regions, varying from 96 percent in Dire Dawa to 19 percent in Gambella; in 1998/99, the overall utilization seems to have declined to 49.2 percent (95 percent in Harar to 4 percent in Tigray). 13. A tentative conclusion concerning the link between expenditure and results in the education sector can be suggested. The reduction in the overall recurrent expenditure per child certainly had an impact on non-wage resources available for school materials, maintenance and other operating costs, and the decline in non-wage spending may be linked to the negative trends in a number of indicators. For example, the studies above indicate that school materials have an impact both on the retention of girls (and by extension of all students) and on the success rates in examinations, that is the overall 'quality of learning'. If there are fewer school materials available, then one would expect a decrease in quality of education, and this appears to be the case. Similarly, output indicators show an increasing trend in overall enrolment but with increased class sizes, increased numbers of pupils per teacher and greater repetition and drop out rates. 14. In looking at the detailed regional and federal plans, and the last JRM report, the following five ESDP indicators could be used in any reformed budget and expenditure monitoring system: 9 * Gross enrolment rate and gross girls enrolment rate; * Primary school drop out rate and primary school girls drop out rate; * Repetition rate and girls repetition rate; 8 ESDP/JRM 1999, Draft Report, Annex 5 Tables 5 & 6 9 These indicators should be taken as proposals. They need to be discussed and agreed by the Sector, an opportunity for this would be the Annual Review Meeting. 32