REPUBLIC OF KENYA Ministry Of Finance DONOR HARMONIZATION AND ALIGNMENT IN KENYA Paper presented at the Kenya/Donor Consultative Group Meeting held on 11 th to 12 th April, 2005 in Nairobi By D. K. Kibera Director External Resources Department ERD - April, 2005
1.0 Introduction The continued decline in Official Development Assistance (ODA) resources, in relative terms generally, due to competing needs worldwide, has now made it imperative for Development Partners and Recipient Countries to agree on expediting action on implementing the harmonization agenda, in order to improve aid delivery through reduction of transaction costs. These commitments are well documented in the Rome and Paris Declarations of February, 2003 March, 2005 respectively. Furthermore, the need for Recipient Countries to fast-track interventions that could facilitate the achievement of the Millennium Development Goals (MDGs) by 2015, as agreed at the Monterrey Conference of 2002, has introduced a sense of heightened urgency and importance in honouring these commitments. However, from Kenya s experience, it is apparent that the harmonization process demands a certain amount of flexibility and willingness, mainly on the part of Development Partners, which is not easy to achieve. This is because although most Donors are, in principle, willing to harmonize and align their support to national priorities and strategies, in tandem with commitments made at the international level, the reality at country-level is different due to various constraints, as explained later. According to the Strategic Partnership with Africa (SPA) Annual Plenary Meeting that took place in Johannesburg, South Africa, in January this year, harmonization in Kenya is still considered to be at discussion and concept stage. This is disappointing since Kenya was one of the pilot partner countries on harmonization that were selected during the First High-Level Forum in Rome, which meant that expectations were high that the harmonization agenda would be speedily implemented. 2.0 Post-Consultative Group Meeting of 2003 The Consultative Group (CG) Meeting of November 2003, during which Donors pledged a total of US $ 4.1 billion for Kenya, was a great opportunity for us to expedite action on this agenda by ensuring that Donor resources were aligned to the Economic Recovery Strategy- Investment Programme (ERS-IP). However, the process of completing the ERS and subsequently getting the necessary IMF and World Bank approval took much longer than was expected, as the approval was granted in May, 2004. The late approval of the ERS, just before the completion of the Draft Annual Estimates exercise for FY 2004/2005, inevitably meant that Donor support could not be properly aligned to the ERS and the Medium-Term Expenditure Framework (MTEF) Budget. In addition, the process of translating Donor pledges into firm budgetary commitments was largely disappointing as most Development Partners either disowned their pledges or only 2
committed a fraction of their pledges in the Budget. However, despite the above factors, we have still been able to make some progress in moving towards harmonization and alignment of Donor Support to the ERS. 3.0 Progress on Harmonization to date Maintenance of a forum for constant dialogue between the Government and Development Partners, including the budget process, through the Kenya Co-ordination Group (KCG), which normally meets bi-monthly, and the GoK/Donor Joint Technical Working Group (JTWG). The KCG has met seven times since the last CG Meeting; Timely preparation of an MTEF Budget starting from FY 2005/2006 that will be based on relatively well costed programs and based on a realistic budget envelope from FY 2005/2006. Towards this end, the Budget Outlook Paper, Budget Strategy Paper (BSP) and Public Expenditure Review (PER) 2005, have been finalised. These will help translate core Government policy statements into coherent medium-term expenditure plans, complete with sector ceilings and budget allocations and will inform the budget for FY 2005/2006; Strengthening of the fiduciary framework, budgeting process, financial controls, procurement practices, audit systems and tightening controls and imposing appropriate sanctions for financial malpractices through the enactment of the necessary Laws and administrative actions; Progress in Sector-Wide Approaches (SWAps). There is a SWAP in place under the Governance, Justice, Law and Order Sector (GJLOS) while other SWAps are at various stages of development e.g. national statistics, water, education and health. Establishment of a comprehensive monitoring and evaluation system to review the implementation of the Economic Recovery Strategy-Investment Program (ERS-IP) focusing on results, identifying problems in implementation and reforming public policy accordingly. The first Annual Progress Report (APR) of the ERS has already been finalised; Agreement on an annual ERS review calendar that provides Development Partners with the required information for provision of Budget Support and Sector Support through the development of sector strategies and joint sector reviews jointly with Development Partners through Sector Working Groups (SWGs); and 3
Preparation of a National External Aid Policy, which once complete will articulate the Government s policy on mobilization of external financing within the framework of an evolving aid architecture that is characterised by increased and competing needs. The first draft has now been circulated to various stakeholders for review and comments and we hope to have the final draft ready by June, 2005, for subsequent approval by the Cabinet. 4.0 Constraints to effective harmonization Despite these important developments, progress in harmonization is still below expectations due to a number of factors: Lack of adequate leadership. Although, the Government ought to take the lead in harmonization, sometimes this is not possible due to lack of adequate capacity and/or overburdening donor demands which negate effective leadership and management of the harmonization process; Weak procurement and financial management systems. Whereas Donors have widely accepted that their support should be aligned around the ERS, progress in harmonising assistance to this strategy has been limited to some extent by the weak procurement and financial management systems that do not meet the required international standards. But there is need to expedite action on pending legislative reforms such as passing of the New Procurement and Disposal Bill, which will go a long way in strengthening the Government s own system; Aid policies and commitments are mainly made at Donor capitals and Headquarters and local field offices have little autonomy or programming authority mainly due to legal and administrative impediments; Sectoral preference and/or inclination. Some Development Partners prefer or inclined to certain sectors that might not be aligned to national priorities; and Systemic difficulties in aligning earmarked funds under pooled resource arrangements for sector support e.g. Global Funds. 5.0 Recommendations and Possible Solutions The need to strengthen the Government s capacity to lead the harmonization process. Harmonization and alignment are relatively new development processes for the Government and capacity building is, therefore, essential for effective leadership and 4
management. For effective partnership, there is also need to develop corresponding capacity in Donor Agencies; Need to identify a Quiet Time for the Government annually, preferably between April and June, in order to enable the Government to prepare the annual national Budget as part of the proposed Partnership Principles still under discussion. This calls for rationalization of missions and/or fielding of Donor joint missions and adoption of joint analytical work. There is also need to strengthen mutual accountability through the development of a joint Performance Assessment Framework based on our own systems, complete with indicators and timelines for joint reviews and remedies for slippages. In this regard, the Annual Progress Report (APR) of the ERS-IP, would be a good start; Need to increasingly move towards budget support, which has minimal transaction costs due to use of national systems. It also enhances predictability of resources, strengthens local ownership and accountability by linking aid more directly to local priorities besides enhancing resource allocative efficiency; Release of budget support through fixed tranches rather than variable tranches. This has the advantage of minimizing and rationalizing conditionalities while ensuring that planned activities are speedily implemented through a single injection of the required financial resources; and Need to avoid political conditionalities and rationalization of necessary conditionalities. Political conditionalities should be avoided in development programmes and projects. Where conditionalities are deemed necessary, they should be development-oriented and relevant to the area of support. Flexibility should be observed particularly in reforms that require legislation. This is because Parliament is an autonomous body that controls its own business independent of the Executive, as provided for under the Doctrine of Separation of Powers. 6.0 Way Forward GoK Harmonization Secretariat In recognition of the staff capacity constraints that the Treasury is experiencing with co-ordination of the harmonization agenda, a Secretariat will be set up within the Ministry of Finance, with support from the HAC Group, to carry out this responsibility for a period to be jointly determined. The draft Terms of Reference have already been prepared and have been sent out to HAC for comments to pave way for recruitment. 5
Sector Support Donor Committee (SSDC) The Government intends to set up a Joint Sector Support Donor Committee (SSDC) that will give policy guidelines to line Ministries and Development Partners on Sector-Wide Approaches (SWAps). The TORs for this Committee are being developed. We hope that will curb the current practice of stovepiping, that is, coordination at sectoral level rather than national level, as is the norm with budget support. Capacity building GoK and HAC have agreed to undertake a study tour to Uganda in early May, 2005 as one way of building capacity and drawing lessons, for improved harmonization and to facilitate the preparation of the proposed Joint Assistance Strategy (JAS). We also intend to jointly organise a number of sensitisation workshops on harmonization, with a view to ensuring that all stakeholders are fully conversant with the Harmonization agenda, as soon as possible. Preparation of a Joint Assistance Strategy (JAS) The Government welcomes the move towards the preparation of a Joint Assistance Strategy (JAS) since this will facilitate the delivery of development resources, through a common assistance framework, with minimal transaction costs. This is commendable and a move into the right direction and therefore appeal to all Development Partners to support the initiative to its logical conclusion. Partnership Principles We welcome the development of the Partnership Principles since they will regulate the framework of GoK/Donor partnership, for more effective development co-operation. We were, therefore, hoping that our Development Partners would table the draft Partnership Principles for adoption by this meeting, in line with the commitment made at the last CG Meeting. Piecemeal implementation of these principles is not the solution and we, therefore, appeal to our Development Partners to expedite action on this important issue. 7.0 Conclusion At the Second High level Forum which took place from 28 th February to 2 nd March, 2005 in Paris, both Partner Countries and Development Partners unanimously reaffirmed their commitment to the harmonization and alignment agenda and managing for development results. Following this Forum, The Government now has a deeper sense and appreciation of the need to offer effective leadership and to enhance collaboration with our Development Partners in order to speedily implement this important agenda. Indeed, during this CG Meeting, have been able to reflect on 6
progress to date and hope to jointly agree on strategies that will facilitate better progress in the harmonization agenda, this year and beyond. Further, in order to make meaningful assault to poverty and to facilitate the achievement of the Millennium Development Goals (MDGs), it is imperative that we work towards the establishment of a credible framework of mutual partnership and rebuild confidence and trust, in the true spirit of MDG 8, which emphasizes the importance of global partnerships in development. As a country, this remains our greatest challenge in this agenda. The synergy that would accrue from a strong partnership would certainly go a long way in facilitating and enhancing socio-economic development thus bequeathing the coming generations, a much more prosperous Kenya, hence its importance. 12 th April, 2005 7