ANNEX. Title/Number RWANDA - Sector Budget Support Programme (SBSP) for Decentralised Agriculture - Addendum N 1; FED/2009/21572

Transcription

1 Identification ANNEX Title/Number RWANDA - Sector Budget Support Programme (SBSP) for Decentralised Agriculture - Addendum N 1; FED/2009/21572 Total cost Aid method / Method of implementation EDF contribution: EUR 20,000,000 increasing the budget of the Financing Agreement to EUR 40,000,000 Sector Policy Support Programme: Sector Budget Support (centralised management) DAC-code 311 Sector Agriculture Rationale and country context The present contract rider increases the sector budget support of EUR 20,000,000 by another EUR 20, 000,000 to reach a total commitment of EUR 40,000,000. It extends the implementing period of the program, so that 3 additional financial years are covered. The wording of the general and specific objectives is slightly amended but the essence of the program remains. The SBSP for Decentralised Agriculture has been showing good results since the beginning of its implementation. The rider addresses recommendations drawn by the Court of Auditors Audit of the Effectiveness of the European Commission s Support to Food Security in Sub- Saharan Africa and an increased attention is given to reduce malnutrition. Country context and rationale for SPSP Economic and social situation and poverty analysis Rwanda is still ranked 64 out of 84 countries in the 2010 Global Hunger Index and in a food deficit situation. The child malnutrition indicator lags significantly behind the 2015 target of 14.5%. Population density in Rwanda is projected to reach 500 per sq km by 2020 and a total population of 13.3 million with increasing pressure on natural resources. Population growth still outpaces the rate of poverty reduction. National development policy Rwanda s Vision 2020 document describes the basic development objectives of the country over the long term. It is the key socio-economic policy document on which all national and sectoral policies and strategies and the allocation of resources between sectors is based. Agriculture is seen as a major engine of growth and its modernization is one of the Vision s 6 pillars. Rwanda's Economic Development and Poverty Strategy (EDPRS) 1 is the country s medium-term ( ) economic development plan, providing the framework to change the structure of the economy. Agriculture is explicitly recognized as being one of the four priority sectors of the economy that will both stimulate economic expansion and make the greatest contribution to poverty reduction. Sector context: policies and challenges Sector policy The Strategic Plan for the Transformation of Agriculture (SPAT-2, ), is based on 4 programmes: 1) Intensification and development of sustainable production systems, 2) Support for the professionalization of producers, 3) Promotion of commodity chains and agribusiness development and 4) institutional development. It has enabled a sector-wide approach around a central policy document, was elaborated by an extensive grassroots consultation process and is aligned with the country's decentralization policy. An assessment by the Food and Agriculture Organisation's (FAO) Investment Centre (2010) found SPAT-2 1 Rwanda's Economic Development and Poverty Strategy is constructed around 3 flagship programs: (i) Sustainable Growth for Jobs and Exports, (ii) Vision 2020 Umurenge (integrated rural development program to eradicate extreme poverty and release the productive capacities of the poor), and (iii) Good Governance. The agricultural sector can contribute to the fulfillment of the objectives of all these programs. 1

2 costing to be in line with international standards. The drafting process of SPAT-2 and its predecessor benefitted from economic modelling of the agricultural sector. Model simulations found that growth based on staple crop development has the greatest poverty reducing effect. SPAT-2 has allocated accordingly over 50% of its resources to Programme N 1 (intensification of sustainable production). The process of sectorself-evaluation of SPAT-2 will take place during FY 2011/12. SPAT-3 will give continuity to the sector priorities set for SPAT-2 with additional emphasis on gender- and climate change- mainstreaming, food security and nutrition, the fusion of agricultural research and extension, proximity services, value-chain development and agribusiness. The initiatives to strengthen PFM- and technical capacities in Districts, the creation of provincial agencies and the involvement of Districts in the Project Cycle Management of centrally-funded or -procured agricultural support programs have all the ingredients to consolidate the decentralization of the agricultural sector. The strengthening of its accountability systems, the clarification of sector-specific roles at sub-national level and performance incentives will be key factors and are addressed by the SPSP. Credibility and ownership of the current sector strategy are evidenced inter alia by: The sector strategy fits into the the government's development policy and planning system, is aligned with the national priorities, informed by periodical reviews and strengthened by the national Imihigo (performance contract) system. The sector's compliance with the Comprehensive Africa Agriculture Development Programme (CAADP) 10%-funding-target for the agricultural sector in Rwanda The level of budget execution close to 90% The steady increase of the sector budget since 2006, the additional funds added during budget revisions and the funding prospects as defined in the MTEF (FY 2012/13 and 2013/14) The creation of provincial agencies with the mandate to support the sector's decentralization process and local absorption and implementation capacities Sector budget and MTEF The sector budget for FY 2011/12 (RWF 67,621,050,663; approximately EUR 77,000,000) exceeds slightly the budget for FY 2010/11 (RWF 66,990,526,423; approximately EUR 76,000,000) whereas the MTEF budgets for 2012/13 (RWF 74,713,204,098; approximately EUR 85,000,000) and 2013/14 (RWF 86,239,030,972; approximately 98,000,000) equal significant increases. Around RWF 33,000,000,000 (approximately EUR 37,000,000) were allocated in FY 2010/11 to public institutions other than MINAGRI for interventions in the agriculture sector. The CAADP-target of 10% of the total Rwandan budget allocated to agriculture was exceeded in the budget revision of 2010/11 and the 10.2% is likely to be exceeded again in FY 2011/2012. MINAGRI's budget execution rate in was >95% for all programs and sub-sectors. During FY , the share allocated to districts was substantially increased as a result of the budget revision and reached RWF 4.1 billion. The local absorptive capacity of allocated resources is expected to increase as the government is striving to strengthen local PFM- and technical capacity. MINAGRI's budgeting for the zonal branches of the Rwanda Agriculture Board and non-fiscal involvement of Districts in program implementation does also support the sector policy implementation capacities at decentralised levels. Whereas the size (and MTEF trend) of the overall sector budget as well as the budget process and the budget-policy-link can be currently qualified as satisfactory, the absorption capacities for fiscal decentralization and the corresponding transfer volumes are yet to fully evolve. Sector and donor coordination According to the Division of Labour Agreement of 2010, development partners supporting the agricultural sector include WB, USAID, DFID, CIDA, JICA, IFAD, EU and the UN Agencies FAO and WFP. Since the signature of the agriculture SWAp MoU (2008) donor coordination has progressively been strengthened. The objectives of the SWAp group include (i) an improved aid coordination and harmonization in the agricultural sector, (ii) the preparation and follow of the JSRs, (iii) support to MINAGRI s budgeting, planning, expenditure tracking and M&E capacities and (iv) to provide an appropriate forum for budget support donors to meet their fiduciary oversight requirements. The principal sector-forum for regular dialogue, consultation and M&E is the ASWG. The food security and nutrition working group has been put in place to refine MINAGRI s contribution to the National Multi-sectoral strategy to Eliminate Malnutrition. At cross-sector 2

3 level, a well-established and effective aid coordination and management system operated by MINECOFIN s External Finance Unit is in place, including a Development Assistance Database and an annual Donor Performance Assessment Framework. Institutional setting and capacity issues A 2008 Institutional Capacity Assessment of MINAGRI identified the following non-systemic capacity issues (issues within the sphere of MINAGRI): (i) need to enhance the technical skills of agriculture staff in the districts in terms of project management, organizational, planning skills, coordination and reporting skills, (ii) the clarification of the roles and responsibilities of agriculture staff in the district and agreement with the district authorities on the implementation modalities of agricultural projects and programs, and (iii) the preparation of an extension service manual to be used at the lower levels of district extension workers. In the meantime, MINAGRI has received funding from Development Partners for the Strategic Capacity Building Initiative (SCBI) which is meant to fill strategic capacity gaps and address the risks mentioned in chapter 3.3. A 2011 Stage-2 PFM Risk Assessment on MINAGRI found inter alia (i) that budget execution in MINAGRI and the districts follows MINECOFIN procedures and is tightly controlled by those procedures and the Integrated Financial Management (IFMS) system and (ii) a clear understanding of the MINECOFIN financial management policy by the Districts Performance monitoring systems The annual national leadership dialogue and signature of performance ("Imihigo") contracts has been integrated within the EDPRS institutional framework. The key tool to monitor the agricultural sector's performance however, the SPAT-logical framework, is not explicitly referred to or reflected in the District Imihigo reporting guidelines. The sector s performance targets and actual realisations are discussed on an annual basis during the JSRs, which judge the sector performance during the previous FY and are organized around 3 objectives of analysis: (i) The Budget, (ii) Common Performance Assessment Framework (CPAF)/EDPRS Policy Actions, and (iii) Implementation Challenges. Macroeconomic policy In 2010, GDP growth reached 7.5% compared to 6.1% in In the year up to December 2010, inflation was virtually zero (0.2%), compared to 5.7% in the preceding year. Higher export performance has contributed to a narrowing of the external current account deficit (excluding grants) to 17.3% of GDP in 2010, from 18.6% in 2009, while international reserves remain at comfortable levels. Rwanda successfully completed the 2nd review of the Policy Support Instrument (June 2011). The macroeconomic framework agreed under the PSI, includes a withdrawal of the fiscal stimulus to reduce debt accumulation and allow room for private sector growth, and a tightening of monetary policy to combat inflationary pressures. 3

4 Public Financial Management (PFM) A 2 nd Public Expenditure and Financial Accountability assessment (PEFA), finalized in November 2010, demonstrated significant progress in nearly all PFM dimensions. Subsequently the government commissioned a mid-term review of the PFM reform strategy, which found that the latter's design "is both conceptually sound, and has served the PFM reform in Rwanda well". Out of the 4 pillars making up the PFM reform strategy, implementation of the envisaged reform of the two pillars related to (i) Economic and Budget Management and (ii) Financial Management and Reporting are highly satisfactory, while those related to Public Procurement and Budget Execution Oversight were lagging behind, with the latter being essentially caused by shortfalls in the Internal Audit component. It can be reasonably assumed that the implementation of the Fiscal Decentralization Strategy (2011) and recommendations of the recent District PFM Capacity Assessment 2 will significantly improve the fiscal decentralization in the agricultural sector. Eligibility for budget support As described in section 2.1, all the budget support eligibility criteria are met: Rwanda has (i) a well-defined sector policy, (ii) a stability oriented macroeconomic policy, and (iii) a credible and relevant programme to improve the management of public finances. Lessons learnt The government's Crop Intensification Program has shown dramatic results. Post-harvest losses however are yet a major barrier to capitalize on the program's success, but the National Post-Harvest Staple Crop Strategy (2011) will strengthen the harvesting, post-harvest handling, trade, storage, and marketing within staple crop value chains in Rwanda. In the food security domain, cross-sector coordination, information systems and micronutrient-rich household production systems need further strengthening. MINAGRI has become one of the front runners in the field of fiscal decentralisation, but the institutional and administrative framework requires further fine-tuning to a decentralised set-up and continuous capacity-building efforts and funding to strengthen PFM and non-pfm sector-specific capacities at district- and sector-level. Complementary actions The additional resources available through the 10 th EDF Mid-Term Review exercise will allow for a 3- pronged approach to address food production, access to food, and nutrition. Whereas production of food will be supported by the present program, access will be targeted by a new SBS programme for rural feeder roads (EUR 40 million). Rwanda is also soliciting funds to top up the MDG Contract to support nutrition-related interventions. The SBS for Agricultural Intensification, financed from the Food Facility supported with 2 tranches in March 2010 (EUR 7,800,000) and November 2010 (EUR 7,700,000) the government in its medium-term response to the food crisis to ensure the availability of fertilizers and support the sustainable distribution and use of fertilizer by smallholders. The 10 th EDF Sector Support to Social Protection is covering groups whose short-term needs are beyond the scope of SPAT-2. Description Objectives The general objective of this programme is to contribute to the objective of the agricultural sector strategy (Strategic Plan for Agricultural Transformation, SPAT) defined as follows: "Agricultural output and incomes increased rapidly under sustainable production systems and for all groups of farmers, and food security ensured for all the population, giving special attention to food security, environmental sustainability and service delivery enhancement. 2 A 2010 assessment of PFM Capacities in Districts by MINECOFIN s Fiscal Decentralization Unit found for most sectors a lack of specification of national sectoral policy. MINAGRI however is increasingly identifying to districts that part of the national sectoral policy which districts are to implement with central transfers. MINAGRI and MINECOFIN are providing mentoring, monitoring and oversight support to districts to ensure that they are better integrated, directed and supervised in respect of the physical and fiscal aspects of decentralised service delivery. 4

5 The Specific Objectives (SO) of this programme are: Support the enhancement of the institutions and capacities in the agriculture sector at the service delivery level (SO1). Support MINAGRI's efforts to assure the environmental sustainability of food production (SO2). Support the achievement of sector targets related to food security pillar I (food availability) and MINAGRI's contribution to the National Multi-sectoral Strategy to Eliminate Malnutrition (food security pillar III: food utilisation and nutritional requirements). Support MINAGRI's information systems for agricultural development and food security (SO4). Expected results and main activities The expected results of this programme are: R1: The decentralization process in the agricultural sector has been strengthened through: the clarification of functions and responsibilities for provinces and districts, clearer transfer framework, enhanced public financial management and stronger accountability systems. R2: The protection of cultivable land against soil erosion has been supported country-wide. R3: The sustainable production of key food security crops and of household production of micronutrient-rich foods has been increased country-wide. R4: Food and Nutrition Security Information Systems are set up and operationalised in MINAGRI in conformity to result N 8.2 of the National Multi-sectoral Strategy to Eliminate Malnutrition ( ) and the National Strategy for the Development of Statistics ( ), Sector Statistical Development, Economic Cluster. The EU Delegation will pursue policy dialogue around the objectives of the programme and key issues of the sector policy implementation and the compliance with the conditions for disbursement of the SBS tranches. The dialogue will be conducted in the framework of the annual Joint Sector Reviews and the more frequent sector working group meetings. The main objectives of the policy dialogue strategy will relate to the specific objectives of this SBSP and its main elements will be the following: When performance targets were not achieved or exceeded with a significant margin, the EU Delegation will seek more detailed explanations from MINAGRI during the JSR and the preparation of the payment dossiers. The communications to MINAGRI about what amount from the variable tranche is to be disbursed will be used as part of the dialogue. The EU Delegation will include in these letters relevant messages on issues of concern (if any) regarding the continued eligibility of the SBS, its implementation and the sector performance in the areas focused upon by the SBSP. The policy dialogue will factor-in the Annual Planning, Budget Preparation and Policy Review Calendar (JSRs, Strategic Issues Papers, Budget Consultations, Communication of earmarked grants to Districts, Finalization of MTEF and Budget, EDPRS progress reports, Imihigo reporting, etc.) The results of fiduciary assessments and sectoral Public Expenditure Review will be harnessed and play a catalytic role in strengthening the sector-specific PFM-dialogue. The careful documentation of all sector policy dialogue processes, including signed minutes, wherever appropriate, will be an important factor in ensuring the impact and consistency of the policy dialogue. Risks and assumptions Risks at district level concern mainly their capacity to engage in daily accounting, procurement and fiscal management operations and in the nationally mandated planning, budgeting, MTEF, budgeting execution and reporting processes. These issues have been analyzed by a recent District PFM Capacity Assessment study and are at the core of the administrative reform processes (PFM Reform and Fiscal Decentralization Strategies) and most of them will be addressed by the PSCBS 3. Other assumptions concern the timely 3 The Public Sector Capacity Building Secretariat (PSCBS) will act as the guarantor of the quality, the consistency and the interaction between all capacity building components of the sectors of health, energy, agriculture, mining and 5

6 finalization of MINAGRI s revised M&E framework and that the draft process of SPAT-3 will address explicitly the issues of food security and decentralization. Elements of the envisaged risk management include inter alia: Support the sector s analysis of sub-national absorption capacities and functions for the implementation of the sector strategy. Proactive contribution to the review and refinement of MINAGRI s M&E framework. Advocate for sharing of interim financial and non-financial sector progress reporting. Assure and maintain the dialogue with representatives of beneficiaries and local authorities. Stakeholders The direct beneficiaries of the programme are the 30 Rural Districts and other sub-district government entities involved in the implementation of the SPAT-programmes (sector-, cell- and village administrations). The final beneficiaries of the SBSP are the rural farmers and their households, that is the entire rural population whose income and livelihoods rely predominantly on agricultural activities. MINAGRI is accountable for the execution of the MINAGRI-budget and the implementation of the SPAT-2. MINAGRI will soon prepare the SPAT-3. MINECOFIN has an important supportive and guidance role as far as the District's strategic planning, budget preparation, budget execution, financial and performance reporting are concerned. MINALOC is in charge of the administration of policies and processes involving local governments/decentralization. The Rwanda Environment Management Authority (REMA) is mandated to facilitate coordination and oversight of the implementation of national environmental policy and legislation, including soil and water conservation. RALGA 4 takes part in the SWAp group, ASWG and the JSRs. Crosscutting Issues Both MINAGRI and Districts, according to their respective Budget Call Circulars, are asked to consider within their Strategic Issues Papers cross-cutting issues such as gender, environment, HIV/AIDS, employment, capacity building and inequality. The EU Delegation has launched in August 2011 a Strategic Environmental Assessment to assess the agricultural sector and the rural feeder roads sub-sector. In 2009/10 MINAGRI acted as a pilot sector for MINECOFIN s Gender Budget Statement initiative and in the FY 2011/12 budget process, MINAGRI was a pilot ministry for environmental mainstreaming. Implementation issues Method of implementation Direct centralised management Procurement and grant award procedures For evaluations, all contracts implementing the action must be awarded and implemented in accordance with the procedures and standard documents laid down and published by the Commission for the implementation of external operations, in force at the time of the launch of the procedure in question. Budget and calendar The total budget after the additional commitment of EUR 20,000,000 by the present rider increases to EUR 40,000,000, composed of fixed component of EUR 20,600,000 and a variable component of EUR private sector concerned by the Strategic Capacity Building Initiative (SCBI), which is supported by several members of the agricultural SWAp group (WB, DFID, USAID, CIDA, JICA, etc.). 4 RALGA's mission is to strive for an efficient, effective, transparent and accountable local government. Its mandate includes lobbying, advocating and capacity building of members. Bilateral consultations with RALGA were held twice in Among the main issues analysed were the need for (1) capacity building at District level, (ii) clarification of functions and roles for decentralized sector policy implementation, and (iii) up-scaling the scope of the Joint Action Development Forums (JADF) for sector policy communication and coordination at District level. The development of the performance indicators of the present Rider has been shaped by field missions and the corresponding consultations held with both Local Government staff and final beneficiaries. 6

7 19,000,000. EUR 400,000 is reserved for possible evaluations of the SBSP. The disbursement profile is summarised in Table 1. In each FY, the disbursements will be effected in the first quarter, i.e. in the period July to September. The operational period lasts 68 months from the signing of the Financing Agreement (19/04/2010) to 31/12/2015. The period of execution lasts 92 months from the signing of the FA. Table 2 Indicative budget and disbursement profile (in EUR million) Tranche FY 2009/ / / / / / / 16 SBSP without Rider Fixed Tranche Variable Tranche Increase by Rider Fixed Tranche Variable Tranche SBSP with Rider Total Both proportion and total amount of the Variable Tranche increase progressively between FY 2009/10 and FY 2015/2016 with the exception of a slight decrease in FY 2013/14 which corresponds to the 1 st year of SPAT-3 and the inclusion of new performance indicators/targets in the area of District PFM and food security. The high share of the VT in FY 2014/15 and 2015/16 is due to the fact that the indicators introduced by the rider (see Results N R1, R3 and R4) will only be assessed during that period. Performance monitoring and criteria for disbursement The general conditions for the disbursement of all tranches are linked to a set of general eligibility conditions: (1) satisfactory progress in the implementation of the sector policy including appropriate funding by the government, (2) satisfactory progress in the implementation of the program to improve PFM; and (3) satisfactory progress in the maintenance of a stability oriented macro-economic policy. The specific condition for the release of the variable tranches is that at least 90% of districts have submitted financial reports on the previous year's expenditures and are compliant with the applicable timeline and format. The variable tranche will be disbursed following an assessment of 6 performance indicators in the domains of District PFM, environmental sustainability and food security. The indicators have been derived from the logframe of SPAT-2 and related sector-specific (post-harvest) and cross-sector (reduction of malnutrition) national strategies. Evaluation and audit No audit is foreseen as the expenditure will be audited by the Rwandan Office of the Auditor General. The programme may be subjected to a mid-term and final evaluation. Communication and visibility Communication and visibility activities will aim to (i) harness key events such as signing ceremonies, tranche release decision, joint sector and visits to supported areas for media coverage and press releases respectively, (ii) support consultations with NSAs, donors, and parliament and (iii) popularize the information on the SBSP in the country. Communication and visibility activities will primarily target the citizens of Rwanda, but also the wider donor community in Rwanda as far as transparent communication is concerned. The audience in Europe will be served through the information provided through other specific Commission initiatives (e.g. Touch Screen Development). 7