Evaluation of Budget Support Operations in Morocco Summary July 2014 Development and Cooperation EuropeAid
A Consortium of ADE and COWI Lead Company: ADE s.a. Contact Person: Edwin Clerckx Edwin.Clerck@ade.eu Contract No EVA 2011/Lot 4 This evaluation was carried out for the European Commission Evaluation Unit of the Directorate General for Development and Cooperation - EuropeAid The full report can be found on the International Cooperation and Development website : https://ec.europa.eu/europeaid/node/80199_en The opinions expressed in this document represent the authors points of view which are not necessarily shared by the European Commission or by the authorities of the countries concerned. Disclaimer: The official, approved Executive Summary is the French version of the text
Evaluation of Budget Support Operations in Morocco Summary This evaluation concerns all budget support (BS) operations implemented in Morocco between 2005 and 2012. This support was provided by seven Development Partners (DPs): the European Union (EU), the World Bank (WB), the African Development Bank (ADB), the Spanish Agency for International Development Cooperation (AECID), the Agence Française de Développement (AFD), the Kreditanstalt für Wiederaufbau (KfW), as well as the European Investment Bank (EIB) 1, which was associated with the study for its participation in the programme of support to the education sector. The evaluation was led by the EU, Spain (SGCID), France (AFD) and the Ministry of Economy and Finance of the Government of the Kingdom of Morocco. Profile of budget support implemented in Morocco between 2005 and 2012 A total of 3.58 billion was disbursed to Morocco in the form of sector budget support between 2005 and 2012, amounting to 43% of Official Development Assistance (ODA) for the period. The WB provided 38% of the total budget support; the ADB, 33%; the EU, 21%; the EIB, 5%; and bilateral agencies, 2.3%. Out of the total of 54 budget support programmes provided to Morocco over the period, 40 were sector budget support programmes granted to eight sectors, one was a multi-sector support programme and 13 concerned the cross-sector theme of public governance. Support to public governance and the financial sector was the largest in financial terms (amounting to 26% and 20.7%, respectively, of the total amount of budget support disbursed from 2005 to 2012) whilst the relative shares of total budget support disbursed to each of the other sectors were relatively much lower: education, 14.9%; 1 As agreed during the evaluation structuring phase, AFD and exceptionally EIB funding in the education sector was considered as budget support to the extent that it shared many of its characteristics. 1
health and water and sanitation, 8.4% each; housing and human development, 7.5%; agriculture, 7.1%; transport and energy, 3.3% each; and multi-sector, 0.3%. Agriculture and transport benefited from budget support only since 2010. Methodological approach used for evaluation The evaluation of budget support was undertaken using the methodological approach of the Development Assistance Committee of the Organisation for Economic Co-operation and Development (OECD/DAC). Using the three step approach, it first set out to identify (i) the effects of budget support inputs on the relationship between external aid and the budget processes and national policies (Step 1, Levels 1 and 2), then (ii) their effects on public policies, public sector institutions and public spending (Step 1, Level 3). Considering the large number of sectors having benefited from budget support, identification of the contribution of budget support inputs to public service delivery has been limited to the health and education sectors, the financial sector and to public governance in these sectors (Step 1, Level 3). Secondly, the approach entailed the implementation of an attribution analysis of the results and impacts of public policies and external factors for these same sectors (Step 2, Levels 4 and 5). Finally, Step 3 of the approach compared the analyses of Steps 1 and 2 in order to identify the contribution made by budget support to public policies and to results and impact. Background to the implementation of budget support and main characteristics Background favourable to budget support: 2005-2012 a period of reforms From 2005 to 2012, a growing number of DPs granted an increasing amount of their ODA in the form of budget support. This move was facilitated by Morocco s launching of major economic reforms for economic and external trade liberalization, started in the late 1990 s (in particular with the signing of the free trade agreement with the European Union in 1996 and trade agreements with Turkey, the United States, Egypt, Jordan and Tunisia). The reforms adopted by the 2
authorities to restructure the Moroccan economy, whether structural reforms (public governance, modernisation of the productive sector, restructuring of the financial sector, etc.) or sectoral policies (agriculture, industry, transport, education, health, etc.) and the convergence of the Moroccan authorities and DPs objectives, provided a favourable context for the provision of budget support. During the period, the incidence of poverty also decreased significantly, although regional disparities persisted and the unemployment rate remained high, particularly amongst young graduates. Important progress was recorded in the access to education and health services, which enabled considerable improvements in primary, intermediate and secondary education completion rates and the population s health status. A diversity of budget support programmes underpinning ambitious government reforms The budget support provided to assist the Government with its reform efforts is characterised by a wide diversity of approaches, designs and implementation modalities so that it is difficult, in Morocco s case, to consider budget support as a homogenous financing instrument with unique characteristics that are shared amongst the 54 programmes. The advantages expected from budget support as a financing instrument for cooperation, which underpin the OECD/DAC s evaluation methodological approach, should enable budget support to: Improve the relationship between foreign aid, the national budget and the policy processes (evaluation Step 1, Level 2); and Improve the quality of public policies, the strength of public sector institutions, the quality of public spending (increased allocative and operational efficiency) and the public service delivery (evaluation Step 1, Level 3). Education and health: two sectors in which budget support have best illustrated the principles of the instrument In the education and health sectors, budget support by different DPs has been relatively well harmonised and coordinated, benefiting from their long experience supporting these sectors as well as from joint coordination frameworks, joint missions and integrated matrices mainly 3
focused on the results of the strategies supported. However, the fragmented nature of sectoral policies in these sectors was reflected in the targeting of budget support matrices, support and dialogue at subsectoral level strategy implementation and/or at activities related to specific investments or specific regions. The DPs have not promoted a genuinely sectoral approach through their budget support and sectoral dialogue with the ministries has remained more technical than strategic. Diversity of budget support in other sectors In the financial sector and in public governance, budget support was generally well harmonised; this was facilitated by the limited number of DPs (two or three). They were totally aligned on reforms undertaken by the government and were usefully supported by technical expertise and the sharing of knowledge of best international practices. The focus of this budget support, as well as that of budget support provided to all other sectors except education and health (but including basic medical cover) was entirely focused on improvement of the legislative and regulatory frameworks and/or institutional organisation. All DPs mainly (or even exclusively) used process indicators for disbursement of their budget support. In all of the other sectors (transport, water/sanitation, energy, agriculture, human development, etc.), budget support was more diverse, less harmonised and often geared to specific areas of activity; the government was also less active in the coordination of DPs in these sectors. Main Conclusions and Recommendations Some direct positive effects of budget support: alignment and harmonisation of aid, increased coordination of DPs, change in the nature of transaction costs. Despite their individual differences, budget support programmes, by attracting other DPs into the sectors and into budget support, have boosted the alignment of foreign aid to Moroccan domestic policies and procedures and increased harmonisation between DPs. Budget support also contributed to increased coordination between DPs and a change in 4
the nature of transaction costs for authorities and DPs (reduction of traditional aid management transaction costs, increase in costs of dialogue accompanied by benefits related to improved collaboration with DPs). However, this coordination was often limited only to DPs granting budget support and, even in this case, did not lead to the adoption of fully joined operating methods. The ministries should actively coordinate support (budget and other types of support) whether it is sectoral or cross-cutting. DPs should systematically implement common budget support identification and monitoring mechanisms. The technical expertise and dialogue supporting the reforms were greatly appreciated; the financing supplied played a more limited role. Although the macro-economic and financial importance of financial contributions of budget support was limited (0.7% of GDP, 2% of public revenues on average throughout the period 2005-2012), budget support nonetheless made it possible to increase the government s budgetary room for manoeuvre, particularly during times of budgetary tension (budget support was equivalent to 5% of estimated discretional expenditure on average from 2005 to 2012). The technical support, provided as an integral part of or in addition to budget support, was one of the instrument s strong points: it provided know-how for the design and the implementation of reforms in various sectors, and played a decisive role in the strengthening of the sectors legal and regulatory frameworks and of beneficiary ministries organisational and institutional frameworks. The DPs should continue providing high level technical support to the government of Morocco for the preparation of reforms and reinforce technical support for their implementation. Budget support also made a significant contribution to the improvement of the dialogue structures in some sectors, sometimes even initiating their set-up and in some sectors strengthening intra-sectoral consultations. The dialogue promoted by budget support helped the authorities to keep their reforms on-track and acted as an accelerator for the implementation of some reforms. However, this dialogue remained strongly attached to issues directly linked to performance matrices 5
indicators to the detriment of a more strategic dialogue concerning the development results achieved through the implementation of public policies. The latter took place within other frameworks (AA/SA, Article IV consultations of the IMF) without links to budget support and without involving all of the DPs providing budget support. The DPs and the Moroccan government should steer the dialogue and budget support matrices towards a more strategic level. Budget support should no longer target one sub-sectoral strategy, one programme, one group of activities or one geographical area but be firmly anchored at sector level. The matrices should promote evidence-based policy making by including sectoral development result indicators in order to demonstrate the success (or otherwise) of the public policies implemented and promote discussion on their orientation and implementation. Budget support has been effective in supporting major progress in the renewal and modernisation of sectoral legislative and regulatory frameworks. Through the use of disbursement conditions/triggers linked to legislative, regulatory and institutional reform measures, budget support has promoted dialogue and technical discussions, which facilitated the implementation of reforms and stimulated the process of reforms in the various sectors. Budget support thus played a decisive role in modifying the regulatory and legislative frameworks of the sectors: restructuring of the financial sector, improvement of public finances and taxation, implementation of basic medical cover in health, projects to establish and restructure initial training of teachers in education, urban planning in the housing sector, etc.. Some aspects of the reforms and particularly more politically sensitive or difficult measures were, however, not achieved during the period and, where progress has been made, it has not permitted full implementation of the reforms (for example, legislation prepared but not passed or if passed, not yet applied in 2012). In these cases, or where reforms were complex and required the interaction of several ministries, the authorities and DPs did not take sufficient account of the limits of the ministries remits in their choice of indicators. In fact, the DPs paid considerable attention to socio-economic, institutional and to a lesser extent environmental aspects of the budget support programmes during formulation (preliminary diagnostic studies, 6
for example) but did not analyse political and administrative factors or the budget hearing process. The DPs should ensure that greater account is taken of the constraints of the sectors and the political and institutional context of the administration in the choice of triggers when designing budget support programmes. The way in which budget support was designed and used did not allow the Moroccan government or DPs to concentrate on the purpose of public service namely, meeting the needs of the people. Most of the budget support was geared to process measures, which proved useful in the provision of step-by-step support for reform processes which require significant political commitment and sustained efforts in the medium term. However, this approach did not enable neither the Moroccan government nor DPs to consider the bigger picture of the provision and use by the population of public services (despite these aspects sometimes being covered during the monitoring of some programmes), or to determine whether the orientation given by the reforms was appropriate for the attainment of the objectives sought by public policies. Monitoring and sectoral dialogue should be oriented towards the results of the policies supported. DPs must support the authorities to set-up or reinforce monitoring mechanisms of results for the populations concerned. Disbursement of budget support programmes should be based on an evaluation of the development results achieved through the implementation of public policies. Budget support supported social policies that enabled progress but whose impact on regional, gender and urban/rural disparities remained limited. In the social sectors, evolution of result and impact indicators were mitigated. In health, people made greater use of health services (particularly those related to reproductive health) specifically thanks to the extension of medical cover. The evolution of the main health result indicators was generally good and related not only to the implementation 7
of the health sector policy but above all to economic development and improved access to a source of clean water. In education, there was greater contrast in the evolution of results and impact indicators (for example, increased enrolment rates but weakness in the quality of learning). In this sector, public policies played a significant role by developing the provision of schooling (linked to the school building programme) and social measures implemented as part of the Emergency Programme. Major disparities remained in the two sectors between regions, genders and urban and rural environments. Concerning the financial sector and public governance, budget support was effective in its support of the implementation of reform measures but the impact of public policies on the population was not monitored by the Moroccan government or the DPs. In the financial sector, the analytical work carried out upstream of the formulation of budget support programmes and the intense political dialogue that took place during the programme preparatory phases efficiently supported the restructuring of the financial sector that began in the 1990s, which created favourable conditions for the development of the private sector. In terms of public governance (management of public finances, public administration and the taxation system), budget support enabled the introduction of the principles of performance and transparency, as well as a positive dynamic of change and a new management culture within the public administration. Some politically sensitive measures were not yet implemented during the evaluation period. In total, the contribution of budget support to the impact on the population will only be measurable in the medium to long term; at this time its effects are mainly identifiable at the level of public policies and public institutions. It is essential for cooperation to evolve from the support to reform to support to the implementation of results-oriented policies that form part of a medium term planning. Adopting such an approach based on monitoring the impact of policy implementation will enable budget support to have a lasting effect on the reduction of poverty and inequality, and on sustainable development. 8
Budget support did not contribute to improving the alignment of budget allocations to public policy priorities Budget support programmes have contributed to disseminating the principles and practices of performance oriented and transparent budget management. However, this did not generate a dialogue between the government of Morocco and the DPs on the content of fiscal policy or the role of the budget in particular. The absence of a global Medium Term Expenditure Framework (MTEF), the difficult interpretation of the different budget elements, the still poorly-defined role of regional and local community budgets in the financing of sector service delivery and the importance of resources dedicated to specific expenditures, which are therefore not subject to budget arbitrage, have undermined the use of the budget as a policy implementation tool. The DPs should support the reform of public finances aiming to transform the budget into a tool for the implementation of government policy. The fragmentation of sector policies, by limiting the realisation of complementarities and synergies between public action in the various sectors and within each sector, and the targeting of budget support to subsectors or programmes, have limited the effectiveness of budget support. DPs must place their budget support genuinely at sectoral level and support the authorities in the reaching of their objectives of improved internal coherence and prioritisation of public policies. Budget support has not fostered transparency or mutual accountability Budget support did not facilitate DPs interactions with the authorities on the content of the macroeconomic, fiscal or budget policies or on the progress made in terms of public expenditure efficiency. Moreover, the results of the use of public resources in terms of public service quality and the impact of the policies on the population were not central to the policy dialogue between the DPs and the authorities. Budget support did not contribute to the set-up and operation of a public policy evaluation system and/or of accountability mechanisms that would demonstrate the relevance, efficiency and effectiveness of the public policies supported, 9
which would enable to report to Moroccan stakeholders and DPs citizens and parliaments on the use of public monies. The Moroccan government and the DPs must increase their mutual transparency and responsibility: this concerns both financial contributions, macroeconomic and budget management, and the participation by citizens and stakeholders in the public policy processes. 10
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