Making Budget Reform Matter for Poverty Reduction

1
Making Budget Reform Matter for Poverty Reduction

• The case of Madagascar
• Günter Heidenhof
• Lead Specialist, AFTPR

2
Madagascar Background

• Before 2001 Madagascars per capita income
  declined by 40 percent (1970-2001) - economic
  and political reforms with little results
  
• December 2001 general elections two parallel
  governments
  
• July 2002 end of political crisis new
  government operational in late 2002
  

3
Madagascar Key Data

• Population 17 million 80 percent rural
• GDP growth 9.8 (2003), 5.3 (2004), 4.6 (2005)
• US 242 per capita income (2004)
• Poverty incidence 72.1 percent (2004) against
  69.7 in 2001 and more than 80 percent in 2002
  
• Poverty mostly rural
• Literacy rate 71, child malnutrition 33, gross
  primary enrollment rate 120, access to safe
  water 45 (2004)
  

4
Madagascar Policy Strategy

• Phase 1 until 2001
• 2001 draft full PRSP focusing on social sectors
• Phase 2 2002-05
• 2003 full PSRP focusing on governance and
  restoration of rule of law, on broad based
  economic growth, human development and social
  protection goal reduce poverty by 50 percent
  within 10 years, average growth 8 percent
• 2004 Introduction of results framework
  Politique Générale de lEtat
  
• 2004 Introduction of annual business plans for
  sector ministries
  
• 2005 New vision Madagascar Naturellement
• 2005 Updated PRSP to reflect new vision, in
  particular with regard to private sector
  development
  
• Regular progress reports confirm mixed results

5
Madagascar Budget

• Budget reforms
• Phase 1 until 2001
• Relatively modern institutional and legislative
  framework for public finance introduced but dual
  budget system
  
• New Chart of Accounts
• Phase 2 2002-05
• IFMIS partially operational
• Strengthening internal controls partially
  successful
  
• Strengthening external controls - successful
• Revenue agency reform partially successful
• Medium term perspective of the budget
  partially successful
  
• Program budgeting largely unsuccessful
• Procurement reforms partially successful
• Greater transparency partially successful
• Public Finance Action Plan - successful

• Budget preparation and execution
• Allocations are partially in line with PRSP
  priorities (yes for social sectors and
  infrastructure, no for decentralization and
  judiciary)
• Revenues significantly below projections
• Preparation process flawed by weak macro
  forecasting, lack of strategic discussions about
  priorities and trade-offs and limited implication
  of sector ministries
• Recurrent and capital budgets are not consistent
  prepared separately under different timelines
  and institutional responsibilities
  
• Uneven budget execution rates
• Serious liquidity problems because of low
  revenues and unpredictable inflows of donor
  funds
  
• Capacity building needs seriously underestimated,
  in particular at the level of the sector
  ministries
  

6
Madagascar Some Conclusions

• Policy Strategy
• This document reflects donor desire rather than
  government policy
  
• Little results focus with too many indicators
  (4000), monitoring evaluation weak
  
• Costing incomplete
• Implication of civil society limited
• Transitional arrangements insufficient because of
  (i) policies, results framework, sectoral
  programs and budget are not integrated, (ii)
  fragmented procedural arrangements and
  institutional responsibilities

• Budget
• Budget does not adequately reflect policy
  priorities of government
  
• Little room for strategic decision making -
  budget is prepared behind closed doors between
  IMF and Ministry of Finance with little
  implication of the Cabinet
• Budget is unreliable and consequently not a
  management instrument that facilitates
  implementation of government policies.
  
• Public Finance Action Plan needs further
  prioritization and sequencing
  

7
Madagascar Phase 3

• Budget
• Budget 2007 and medium term perspective will
  reflect MAP priorities
  
• Partnership agreement in 2005 of budget support
  donors to strengthen aid harmonization
  
• Regular reports to Cabinet about budget execution
  AND progress of MAP implementation
  
• Series of programmatic ESW jointly conducted by
  government and donors will provide analytical
  underpinnings for expenditure management reforms
  
• Annual PEFA assessment ( independent review by
  donors) to evaluate impact of reforms
  

• Policy Strategy
• Madagascar Action Plan (MAP) to replace PRSP -
  is linked to the MDGs, sets out a results
  framework for 5 years with clear indicators,
  focuses on 8 commitments in the areas of good
  governance, education, health, infrastructure,
  rural development, economic and private sector
  development environment and national solidarity.
  
• MAP integrates donor support under national
  programs with harmonized implementation and
  evaluation arrangements
  
• Costing ongoing
• Joint Government-donor monitoring evaluation
  with clear institutional responsibilities for
  reporting and monitoring
  

8
Madagascar Challenges

• Approach to policy development, implementation
  and evaluation remains technocratic with little
  implication of the outside world
  
• MAP overly ambitious lack of progress will
  question credibility
  
• Communication within government is inefficient
  and negatively impacted by strong hierarchical
  culture
  
• Decision making is highly centralized role of
  Cabinet is limited Presidency is dominating
  decision making
  
• Procedural and institutional arrangements are
  often complex and bureaucratic overall
  administration has no focus on achieving results
  substantial behavioral changes at all levels
  required
• Implementation of public finance reforms slower
  than expected
  
• Exogenous factors (cyclones, petrol prices) might
  constrain ability to implement ambitious program
  

9
Madagascar Some Lessons

• Overall Madagascar is a case in point for a
  dysfunctional system where policies, sector
  strategies and budget are not adequately
  integrated. But Government is adjusting rapidly
  if intended results do not materialize MAP
  intends to address deficiencies
• Degree of ownership should be carefully evaluated
  competing policies and strategies are an
  indicator for problems
  
• Integration efforts need to address existing
  political, cultural, procedural and institutional
  country context - technocratic approach does not
  yield intended results effective communication
  is essential genuine dialogue requires open
  debate and implication of relevant stakeholders
• Consistency between policies and budget requires
  that budget is a somewhat reliable instrument
  
• Demand for integration is weak in an environment
  where donors finance the bulk of the investment
  budget in sectors
  

10

• Thank you very much!