Case Study Benin: Macroeconomic Advisory Services on Poverty Reduction

Transcription

1 Economic Development and Employment Economic Policy Advice in the Context of the Aid Effectiveness Agenda Case Study Benin: Macroeconomic Advisory Services on Poverty Reduction The national development strategy Poverty Reduction Strategy (Document de Stratégie de Réduction de la Pauvreté): Growth Strategy for Poverty Reduction (Stratégie de Croissance pour la Réduction de la Pauvreté (SCRP) II: , SCRP III: in preparation) Key themes Acceleration of economic growth Infrastructure development Strengthening human capital Promoting good governance Balanced and sustainable development GTZ Approach Regarding the national development strategy, the GTZ Macroeconomic Advisory Services on Poverty Reduction project, which is implemented on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), supports the processes of strategy formulation, implementation and monitoring and evaluation with the aim of enabling the Government of Benin to implement the poverty reduction strategy (PRS) more efficiently and to achieve its goal of poverty reduction. The project's primary function is to deliver policy advice to the Ministry of Economy and Finance (MEF) and to the Ministry of Planning and Development (MPDEAP) at the macro level. It strengthens both ministries' capacities to efficiently coordinate the national development strategy processes and to support the sectoral ministries in fulfilling the tasks associated with it. In the context of strategy formulation, this involves, among other things, advising on the introduction and application of instruments that provide the analytical basis for implementing the national development and poverty reduction policy. Support for PRS implementation focuses primarily on the reform of public financial management (e.g. macroeconomic and medium-term financial planning). Advisory services in the context of the PRS also entail impact monitoring as well as the establishment of a coherent national monitoring system. Advisory services regarding the principles of the Paris Declaration Ownership With support of the GTZ project the MEF has enhanced its capacities for macroeconomic planning (public revenue estimates, planning regarding the short- and medium-term allocation of sectoral resources). The econometric model applied was adjusted and updated in accordance with Benin's economic structure. As a result, viable scenarios for economic development can now be drawn up to serve as a basis for decision-making, for example in the context of developing the macroeconomic framework and thus medium-term financial planning and budgeting. The development of different scenarios supports a more informed allocation of resources that are available in the short and medium term. The model can be used to depict the changes in individual macroeconomic indicators (e.g. employment, inflation, growth) and their impact on macroeconomic aggregates, such as government revenues. The basic assumptions necessary for the development of important economic variables were updated and directly applied in the formulation of macroeconomic target figures, in the preparation of the 2008 national budget and in medium-term financial planning. The fact that the MEF independently carried out the development of the macroeconomic framework for 2009 and 2010 can be considered a success of the advisory project. Work is currently being completed on establishing the link between the macro-level model and micro-level data from households in Benin to gauge the impacts of policy decisions on various socioeconomic population groups. Moreover, the relevant Directorate-General for the Economy is also applying the model to analyse the impacts of the global financial crisis.

2 In addition, the GTZ project supports the strengthening of capacities for PRS monitoring by delivering direct processoriented advice to the Observatoire du Changement Social (Social Change Observatory, OCS), the government institution responsible for poverty monitoring. These advisory services enabled the OCS to self-reliantly and professionally chair a basket fund arrangement and administer it from 2006 onwards by applying Beninese procedures. Finally, the GTZ project assists the unit responsible for monitoring the financial and economic programme in the MEF in defining the content and managing the follow-up of the joint PRS missions. This includes promoting the participation of line ministries and incorporating cross-cutting themes and communication issues (e.g. creating websites). Alignment In 2008 the Government of Benin compiled a comprehensive action plan to improve Benin's public financial management in order to be able to guarantee transparent and efficient allocation of resources (including external donor funds). The MEF took advantage of the advisory services provided by the GTZ project on developing the action plan, on incorporating important structures outside of the MEF (Audit Bench, parliament) and on designing and conducting the dialogue between the government and the donors involved. The PRS is being implemented by translating the Beninese sectoral strategies into medium- and short-term financial expenditure frameworks. In this process considerable weaknesses in nearly all of the involved ministries became evident, which significantly hamper the implementation of the strategy. The GTZ project supported an analysis of these processes for medium-term financial planning, the results of which are being used by the Directorate-General for the Budget (Direction Générale du Budget) in order to assist line ministries in issues of budgetary planning. Since 2009 GTZ support is also provided to the Ministry of Agriculture and the Ministry for Decentralisation with regard to mediumterm (results-based) expenditure frameworks. The institutional deficits of the Beninese government concerning the implementation of poverty-reduction measures are the result of a lack of or inadequate sectoral strategies and insufficient programme planning and budgeting, among other factors. Advising the PRS unit in the MEF led to the introduction of a procedure for aligning the sectoral strategies with the PRS and for better operationalisation of these strategies. This procedure has already been successfully introduced in various policy fields, such as the civil service, decentralisation, environmental protection and HIV/AIDS, and is now being self-reliantly applied by the MEF in other sectors. Harmonisation The project advises both the German Embassy and the Federal Ministry for Economic Cooperation and Development (BMZ) on issues concerning economic development, poverty reduction, public financial management and implementation of the Paris Declaration in Benin. This involves supplying information on macroeconomic topics, in particular regarding public finances and currently the global financial crisis, as well as on issues relating to the Beninese budget. These advisory services also involve writing statements on documents and supporting the preparation of heads of mission meetings. In addition, the GTZ project coordinates the participation of German technical cooperation in the annual joint partner-donor PRS review (joint mission). This involves advising on sectoral reviews, on the role of lead donors in sectoral working groups and in formulating donor positions, especially on macroeconomic stability and public finances. Moreover, it provides assistance regarding the inclusion of crosscutting issues and the documentation of the joint results of the PRS review. Managing for development results Participatory Local Impact Monitoring (SILP) in primary education, which is being funded, inter alia, through financial contributions of German technical cooperation to a basket fund, is now being implemented in seven of the country's 12 departments. Implementation of the PRS in primary education applies a citizen control approach and incorporates all the actors involved. At the institutional level, mediator structures and local actors in primary education, such as parent-teacher associations and non-governmental organisations (NGOs), are involved in participatory monitoring of the PRS in order to ensure planning and realisation of the budget and material allocation in the corresponding PRS measures. The monitoring results are being used as a basis for formulating action plans whose implementation is assessed within the framework of SILP. The results of SILP are also included in the national primary education strategy, which has led to the revision of funding mechanisms for school canteens, among other improvements. National steering capacities in primary education have also improved. On account of these positive results the Government of Benin has decided to apply SILP to the public health sector as well. Advisory services provided as part of the GTZ project focus on the OCS when it comes to improving evidencebased policy-making. The OCS is now not only in a position to identify the need for capacity development for poverty and social impact analysis (PSIA) processes and to plan the design of the studies. It has also taken on the role of a national coordinator to institutionalise and carry out PSIA and thereby underpin decisions on reforms with analytically sound impact analyses. The OCS is currently applying the PSIA instrument to conduct a differentiated appraisal of the consequences of introducing a local development tax. At the same time, key actors (representatives from ministries, civil society, the parliament, journalists, national NGOs, research institutes) were qualified as part of the PSIA initiative to assess the policy impacts of reform processes. The setting up of a mixed steering group promotes the use of PSIA results for policy decision-making. The PSIA results on the introduction of the local authority development tax are, for example, to be incorporated into the law that will introduce the tax in order to prevent the exacerbation of the precarious situation of disadvantaged population groups.

3 Mutual accountability The project provided advisory services on drawing up an action plan to improve public financial management and the establishment of the corresponding steering and monitoring structures (Comité technique mixte, Unité de Gestion des Reformes). Support for the implementation of the action plan is provided by assisting in the development of the macroeconomic framework and results-based medium-term expenditure frameworks. In late 2009 the GTZ project was involved in supporting a public expenditure review in Benin. GTZ experiences and lessons learnt Continuity and proximity in working relations with the partner (the project office is located in the ministry) and flexible planning make it significantly easier to deliver targeted (i.e. well aligned) support for the implementation of partner programmes. Both factors have a positive impact on information flow and help create a basis of trust. Due to its privileged position, the GTZ project acts as an interface between the donors in the technical working group on macroeconomic issues and budget support, and the government s unit responsible for monitoring the MEF's economic and financial programme, which coordinates the implementation of the PRS, the Paris Declaration, budget support and the plan of operations on improving public finances, among other aspects. Planning flexibility allows the delivery of timely and demand-driven support to the partner. Contributing to the basket fund and the associated coordination within the basket fund steering committee have significantly simplified and improved harmonisation with the Danish International Development Agency (DANIDA) and Swiss Cooperation. The commitment of the steering committee also promotes mutual accountability between the involved donors and Beninese structures. Imprint Published by: Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH Dag-Hammarskjöld-Weg Eschborn T F E manfred.horr@gtz.de I Responsible Manfred Horr, Joana Henseler Acknowledgements: Special thanks go to Dr. Silke Woltermann and Helen Haile for their assistance.

4 Economic Development and Employment Economic Policy Advice in the Context of the Aid Effectiveness Agenda Burkina Faso: Advisory Services to the Ministry of Economy and Finance The national development strategy Burkina Faso was one of the first countries in sub-saharan Africa that already had a national poverty reduction strategy (PRS), the Cadre Stratégique de Lutte contre la Pauvreté (CSLP I), in The second national poverty reduction strategy (CSLP II) is currently in force in Burkina Faso. It is based on four pillars: Acceleration and more even distribution of economic growth Improved access to basic social services for the poor Improved employment and income opportunities for the poor Promotion of good governance These are operationalised as part of a programme of priority measures to implement the national poverty reduction strategy (PAP-CSLP). The strategy covers a three-year period, but is updated annually. The third-generation national development strategy, the Strategy for Accelerated Growth and Sustainable Development (Stratégie de la Croissance Accélérée et du Développement Durable), for the period , is currently in preparation. Advisory services regarding the principles of the Paris Declaration Strengthening ownership The GTZ advisory services to the Ministry of Economy and Finance project (Ministère de l Economie et des Finances, MEF), which is implemented on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), supports the MEF in strengthening ownership in two ways: Advice on macroeconomic issues Approaches adopted in regard to advising on macroeconomic issues relate to three time frames. The project provides short-term support in the compilation of economic analyses. To that end data on key economic parameters are collated, analysed and published on a quarterly basis. Undesirable macroeconomic developments can thus be identified quickly, countermeasures initiated and as a result macroeconomic stability improved. In the medium-term the MEF programme strengthens its partners' capacity for macroeconomic modelling and analysis. Partners in Burkina Faso are now able self-reliantly to make macroeconomic forecasts for the coming three years by applying the Instrument Automatisé de Prévision (IAP) model, to gauge the consequences of external shocks within that framework and to initiate corresponding adaptation measures on that basis. The IAP also enables medium-term forecasts for own government revenues to be made. This assists in medium-term financial planning. The project provides long-term support in the form of capacity-building so that partner institutions are able to analyse the influence various determinants (physical capital, human capital) have on economic growth. Advice on poverty reduction strategies Various approaches are adopted to support the process of shaping the national poverty reduction strategy. First, the project strengthens capacities within the MEF to survey the poverty status in Burkina Faso. Poverty mapping provides a graphic illustration of the spatial distribution of poverty and its possible causes. One area of focus in the project is the ex-ante analysis of the potential impacts of alternative policy measures on the income poverty of various socioeconomic groups. Partners in Burkina Faso are currently receiving support in applying two instruments to carry out ex-ante impact analyses. In the context of microsimulations,

5 microeconomic data are used to investigate the impacts of various policy measures (e.g. against the backdrop of the food crisis) on households. IAP-Micro, a microeconomic module that was incorporated into the IAP macroeconomic model, also permits impacts of macroeconomic shocks and corresponding adaptation reactions on the poverty situation of various categories of household to be simulated. Both instruments allow the poverty impacts of alternative policy measures to be compared, and the most effective and efficient interventions to be selected. Finally, with project support, partners in Burkina Faso were trained in the use of EIDO, a programme that provides help in drawing up complex (development) strategies. Alignment One important priority area of the MEF project is improving public fiscal administration. This will promote the efficiency, effectiveness and transparency of the use of public funds including budget support. The approaches adopted relate to three areas of intervention: Better financial planning One key challenge in Burkina Faso is appropriately translating the national poverty reduction strategy into the national budget. The main reason for this is that budget planning in Burkina Faso is currently still very much input-oriented. The Budget Act provides information on which funds are available to which administrative structures and for which types of expenditure they are to be used. It does not, however, answer the question of which activities are to be funded using that money and what goals are to be achieved thereby. The MEF project advises partners in Burkina Faso on introducing these medium-term and results-based financial plans (in the form of what are known as programme budgets). Support was thus provided for various studies to identify the various components and the procedure for introducing programme budgets. Furthermore, selected ministries (Ministry of Economy and Finance, Ministry of Health) are receiving advice in compiling their programme budgets. the MEF receives support in establishing a financial database and a statistical yearbook of public finances on that basis, and on drawing up and publishing the annual report on public finances. Finally, the programme supports the development of partner capacities for recording and analysing data on budget execution by sub-national authorities (especially municipalities) after the end of the budget year. Use of public funds On behalf of BMZ, the project advises partners in Burkina Faso in monitoring and analysing the use of public funds in individual sectors (basic education, health) from the central government down to the local level. The aim is thereby to systematically identify weak points in the flow of government expenditure in order to then derive suitable measures to ensure more efficient disbursement of funds. Against the backdrop of scarce public funds, these advisory services contribute directly to the more effective use of government resources. Managing for development results Advisory services to help enhance management for development results focus on three areas. Along with promoting ex-ante impact analyses and introducing results-based medium-term financial planning in the form of programme budgets, the emphasis here is on supporting partners in carrying out ex-post analyses to assess the results of selected measures being implemented within the framework of the PAP-CSLP. To that end, support was provided during the introduction of household surveys to gauge the results of, for example, the construction of a school, road maintenance work and the electrification of a rural community on the living conditions of those households. The MEF is thus able to identify the key factors helping ensure that positive results can emerge, to define undesirable side effects and to determine complementary elements that can further increase the results of specific measures. The approach aims to ensure that the results of the survey can be incorporated into a follow-up PAP-CSLP that will be better formulated, and that scarce government resources are thus used more efficiently. Budget analysis A systematic budget analysis can increase the transparency of the administration of public funds and can thus also directly increase the efficiency and effectiveness of government expenditure. The project advises central government on compiling the Tableau des Opérations Financières de l Etat (TOFE, Table of Government Financial Operations), which details budget execution on a monthly basis. Furthermore,

6 GTZ experiences and lessons learned By participating in central processes, for example compiling background material for the national development strategy, the project is able to introduce important considerations into the political debate on the national development strategy. These include for instance the importance of broadbased growth processes and the overall concept of a social and ecological market economy. The fact that the project has its offices in the Burkina Faso Ministry of Economy and Finance, and that the advisor's presence in the country is long term, are important factors for success. The change processes to be supported are complex, driven by very heterogeneous political interests, and therefore designed for long-term implementation. Short-term experts can take on specific sub-tasks withinthese processes. By contrast, strategic and in-process advisory services including policy management capacity development support required call for a high level of human continuity. In order for the project to fully unfold its potentials for action and results it is important that the advisor to the MEF cooperates closely with projects in the priority areas of German development cooperation in Burkina Faso. The MEF project therefore supports the German development cooperation system in the areas of macroeconomic monitoring, the national development strategy and the reform of public financial management. It also benefits from close cooperation by receiving systematic feedback. This feedback concerns how economic policy reforms are being implemented at sectoral, regional and local level, what challenges those institutions involved in implementation face, and which capacity development measures are required in that context. Not least, the project also obtains feedback on how the content, form and sequencing of reform measures may have to be adapted to the institutional realities in order to achieve the expected results Imprint Published by Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH Dag-Hammarskjöld-Weg Eschborn, Germany T F E manfred.horr@gtz.de I Responsible Manfred Horr, Joana Henseler Acknowledgements: Special thanks go to Dr. Hartmut Janus und Denise Wolter for their assistance.

7 Economic Development and Employment Economic Policy Advice in the Context of the Aid Effectiveness Agenda Case Study Malawi: Advisory Services to the Ministry of Economic Planning and Development and the Ministry of Finance The national development strategy Pro-poor growth and macroeconomic stability were introduced as the two key principles of the Government of Malawi's economic policy at the beginning of this decade. The most important national goals income generation through economic growth and infrastructure development as a means for reducing poverty are defined in the 2006 Malawi Growth and Development Strategy (MGDS), the second version of the national development strategy. The approach adopted in the MGDS is based on the following five pillars: Sustainable economic development Social security and disaster relief Social development Infrastructure Good governance Advisory services regarding the principles of the Paris Declaration Ownership The GTZ Advisory Services to the Ministry of Economic Planning and Development and the Ministry of Finance project, which is implemented on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), supports the Malawian side in strengthening ownership in three ways. Formulation and implementation of the MGDS With support from the GTZ project, the Ministry of Economic Planning and Development (MEPD) has drawn up a national development strategy that has gained a very high level of acceptance both among the population and within the donor community. Advisory services for economic policy are helping to ensure the MGDS becomes a resultsbased strategy. That includes strengthening capacities to prioritise short-, medium- and long-term development goals and also to identify the most important challenges and constraints that need to be overcome. The MEPD receives advice in analysing these factors and decision-makers in Malawi are being supported in self-reliantly planning the most important activities in the national development strategy. During the conceptual phase of the MGDS the GTZ project supported MEPD in involving the most important governmental and civil society actors in shaping the strategy's priority areas. As a first step, cooperation with the Ministry of Finance (MoF) was promoted in order to ensure that the strategy does not go beyond a realistic macroeconomic framework and that it is closely linked to the annual budget planning process. In addition, cooperation with sectoral ministries was supported in order to ensure coherency between the macro and sectoral level. National dialogue forums were established and as a result the most important issues addressed in the MGDS were discussed with the parliament, civil society and the private sector. Impact analysis and monitoring the MGDS The GTZ project supports the setting up of the national monitoring and evaluation system through the Joint Programme Support for Strengthening the National Monitoring and Evaluation Systems. The objective of the Joint Programme is to support the development of long-term capacities in public administration for monitoring and appraisal of the most important development strategies. Among other things, the Joint Programme produces the database on which the annual reports on the level of implementation of the poverty reduction strategy are based. This enables undesirable developments to be recognised at an early stage and pro-active policy-level countermeasures to be initiated.

8 Support provided during the Joint Programme II meant that the 2007/2008 MGDS Progress Report was compiled more efficiently and that it was of a much higher quality. The results were thus available to the MoF in good time so that they could be included in the 2009/2010 budget planning process. As a result, the budget was aligned with the goals of the poverty reduction strategy. Advice on developing sector-wide approaches The health, education and water sectors in Malawi are currently being supported through sector-wide approaches (SWAps). Previous experience has shown that the formulation of SWAps can take several years. To accelerate and simplify this process, government-wide guidelines on developing SWAps are currently being drawn up with support from the GTZ project. This process presupposes intensive cooperation between the MEPD, the Office of the President and Cabinet, and the MoF, which was initiated and organised as part of the advisory services being provided. In the medium-term the number of SWAp-supported sectors is to increase considerably. The Government of Malawi believes that as a result, implementation of the national development strategy will be significantly more efficient. Alignment Helping strengthen public financial management is one of the most important priority areas of the GTZ project, which focuses on two areas. Implementing the Public Financial and Economic Management Action Plan In Malawi all the planned reforms in public financial and economic management (PFEM) are summarised in the PFEM Action Plan. Through its technical advisory services the GTZ project contributed significantly to the conceptual design of the first PFEM Action Plan. In addition, the PFEM Secretariat received support in guaranteeing the implementation and development of the Action Plan. Setting up the PFEM Secretariat in the offices of the MoF was a key step in applying a systematic approach to the reform process and the efficient and results-based implementation of the underlying Action Plan. In the past this had been considerably hampered due to lack of coordination and undefined responsibilities. Continuously supporting the Secretariat's managerial and professional capacity development within its sphere of responsibility is an integral part of the ongoing advisory services. The Secretariat was supported in all phases of development of the current PFEM Action Plan that came into force in June With support from the GTZ project, the PFEM Secretariat has also begun advising those institutions and organisational units affected by the reform measures when it comes to drawing up and implementing their PFEMspecific operational plans. The reform objectives include the timely submission of better quality reports by the court of audit, compliance with the budget calendar and the scheduled implementation of the government's five-year investment plan. Use of public funds Advice provided in the context of the PFEM Action Plan focused on the application of instruments for monitoring the use of public funds. Here, the MoF received support, among other things, in conducting public expenditure reviews in the education, health, agriculture and transport sectors in cooperation with the responsible ministries. The efficiency and effectiveness of public expenditure in these important sectors were thereby analysed, weak points identified and measures aimed at guaranteeing more effective use of public funds subsequently defined. Enhanced harmonisation Donor harmonisation is being enhanced by the project directly advising German partners. The project also participates in donor coordination bodies on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ) and the German Embassy. Advising the BMZ and the Embassy The GTZ project advises both the German Embassy in Malawi and the BMZ on issues regarding poverty reduction, sustainable economic growth, public financial management and the aid effectiveness agenda. This service involves preparing information on these issues and writing progress reports and statements for political dialogue within the donor community and with the Government of Malawi. Representing Germany in donor bodies The GTZ project represents German development cooperation, on behalf of the Embassy, in various thematic donor coordination bodies. These include the Group on Financial and Economic Management (GFEM), a forum that meets regularly under the chairmanship of the PFEM Secretariat. Its goal is to make sustainable improvements to the coordination of donor contributions for PFM reform. Within the framework of the GFEM GTZ's economic policy advice project represents an important link between the government and the donor community. Both sides benefit from direct and reliable access to information on current developments concerning the implementation of PFM reforms. This significantly increases the transparency and quality of the dialogue between the government and the donor community.

9 Managing for development results In this core area the advisory services provided through the GTZ project focus on improving evidence-based policymaking. The emphasis is on introducing and institutionalising poverty and social impact analysis (PSIA), an instrument for evaluating policy impacts. The systematic use of PSIA means that empirically sound basic information on impacts on poor population groups can be provided ex ante for economic and budget policy decisions, for example on tax increases, exchange rate changes, or reductions in educational expenditure or government promotional schemes. Positive effects can thereby be recognised and enhanced when such decisions are being planned and negative impacts can be avoided or mitigated by initiating accompanying measures. With support from the GTZ project a technical PSIA working group was set up in the offices of the MEPD. After a one-year development phase, the working group put forward a concept for institutionalising PSIA that was ready for decision and had been discussed and agreed on with the various ministries, universities and civil society organisations involved. In addition to this formal institutionalisation, support was provided during the implementation of two PSIA processes. The current study deals with the question of the socioeconomic impacts of establishing a free-trade zone in the South African Development Community (SADC). GTZ experiences and lessons learned The GTZ 'Advisory Services to the Ministry of Economic Planning and Development and the Ministry of Finance' project is one of the few donor contributions in Malawi that is providing ongoing support to both ministries. Against the backdrop of the increasing importance of the aid effectiveness agenda in general and programme-based approaches (PBAs) in particular, the complementary effects of the advisory services on PFM reform is of key importance. It should also be noted that, without the GTZ project, it would not have been possible to implement the first PFEM Action Plan ( ) and draw up the current version in the given quality and degree of efficiency. The realisation of the first PFEM Action Plan crucially influenced the positive appraisal of the reform progress and macroeconomic results by the donor community in recent years. Establishing the GTZ project within the institutional setting of the two key ministries also ensures that country ownership is maintained in regard to all supported activities. Technical, process and management capacity development is based on systemic requirements and as such is needs-based, demand-driven and generates sustainable results. The special relationship of trust with the various partner structures in both ministries is essentially due to the fact that country ownership by the Malawian side was acknowledged when work began on shaping the reform process, and has been further supported systematically through the advisory services delivered. Imprint Published by Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH Dag-Hammarskjöld-Weg Eschborn, Germany T F E manfred.horr@gtz.de I Responsible Manfred Horr, Joana Henseler Acknowledgements: Special thanks go to Dr. Florian Lang und Sook-Jung Dofel for their assistance.