Madagascar PER

1
Madagascar PER

• Helping to link the Budget to the PRSP
• Christos Kostopoulos, ECSPE
• Dieudonne Randriamanampisoa, AFTP1

2
Madagascar PER PRSP ? Budget

• COUNTRY PROFILE
• PRSP Objectives, Implementation challenges,
  Recommendations
  
• Macro
• Allocative
• Budget management
• ACCOMPLISHMENTS (modest), LESSONS, AND NEXT STEPS

3
Madagascar PER PRSP? Budget A. Country Profile

• Population of 17 million, 80 percent live in
  rural areas (2004) size of France and Belgium,
  Kenya, Thailand
  
• Great underexploited potential for economic
  growth and development - including a rich natural
  resources, fisheries, tourism, textiles
  
• Declining growth, due to poor policies

• Early 1990 reforms gradually pay off between
  1997-2001 GDP gr. 4.6 avg. per.

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Madagascar PER PRSP? Budget A. Country Profile
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Madagascar PER PRSP? Budget A. Country Profile

• ..as if thats not enough..
• 2002 A political crisis in the first half of the
  year severely disrupted the economy
  
• GDP contracted by 13 percent, inflation was 16
  percent, drop in investment and collapse of
  revenues
  
• Destruction of economic infrastructure (bridges,
  roads) and sharp rise in urban poverty
  
• EPZs closed
• Poverty rose to 81 (simulation)
• ..respects 10-political/reform cycle
• 2003 Economic recovery (9.8 percent of GDP
  growth brought real incomes to 90 of pre crisis
  levels )
  
• 2004 Two cyclones, a sharp depreciation in the
  MGF and a collapse of vanilla prices

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Madagascar PER PRSP? Budget A. Country Profile

• Extended dialogue on PEM issues and excellent
  GOM-WB relationship
  
• PEM-PFM Related activities

• PER 2003/04 was an opportunity for follow-up on
  previous PEM/PFM and stock-taking exercise ask
  of service delivery

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Madagascar PER PRSP? Budget B. PRSP Objectives
and Implementation Challenges

• PRSP Objectives To promote rapid and sustainable
  development to reduce poverty by half in 10 years
  from 70 to 35
  
• PRSP Priorities
• Improving Governance
• Broad-based Growth (Transportation initially)
• Bringing Social and Material Security (Education
  Health Security)

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Madagascar PER PRSP? Budget B. PRSP Objectives
and Implementation Challenges

• PRSP Challenges
• Implementation Challenge 1 Macro framework
  restrained
  
• Implementation Challenge 2 Expenditure
  composition not fully aligned with PRSP
  priorities
  
• Implementation Challenge 3 Budget process
  (preparation and execution) still poor and
  capacity is limited, despite efforts

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Madagascar PER PRSP? Budget B. PRSP Objectives
and Implementation Challenges

• Implementation Challenge 1 Macro framework
  restrained
  
• PRSP was ambitious 2004-2006 GDP gr 7.5 Cap
  exp 10.2 GDP high deficit despite high debt
  end 2001 101 Nominal GDP
  
• But PRGF was more cautious 2004-2006 GDP gr 6
  Cap Exp 8.7 GDP
  
• Year 2003 turned out better than expected, and
  set GOM on a higher expenditure path although
  poor consensus on macro undermined MT planning
  
• Need post 2006 framework.

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Madagascar PER PRSP? Budget B. PRSP Objectives
and Implementation Challenges

• Implementation Challenge 1 Macro framework
  restrained (cont)
  
• Recommendations
• Raise revenues
• Improve revenue forecasting
• Prepare annual budget framework papers to link
  resource availability to PRSP objectives
  
• Prepare a post-2006 macro framework
• Implementation Challenge 2 Expenditure
  composition not fully aligned with PRSP priorities

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Implementation Challenge 2 Expenditure
composition not fully aligned with PRSP priorities
..changes relative to GDP are modest
Despite efforts to prioritize within
the envelope
Budget Allocations
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Madagascar PER PRSP? Budget B. PRSP Objectives
and Implementation Challenges

• Implementation Challenge 2 Sectoral expenditure
  composition not aligned with PRSP priorities
  (cont)
  
• Allocations not aligned with Business Plans/PRSP
  
  
• Marginal changes made in composition in favor of
  priorities (government, transport, education)
  BUT..
  
• ..impact on GDP ratios is minimal
• Excessive allocations to administration
• Health sector allocation is still far behind the
  need
  
• Agricultural sector is neglected
• Not enough to Justice and environment sectors
• High Degree of Centralization
• Recommendations
• (i) further prioritize (!!??), but this not easy
  except for some MOF expenditures
  
• (ii) increase envelope by raising revenues and
  receiving more external assistance
  
• (iii) look at sectoral policy issues that can
  affect intra-sectoral expenditures (education,
  transport, environment)

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Madagascar PER PRSP? Budget B. PRSP Objectives
and Implementation Challenges

• Implementation Challenge 3 Budget process still
  poor and capacity is limited, despite efforts
  
• Recent achievements
• Prepared Public Finance Priority action plan
  (2004/05) and established coordination committee
  in the Ministry of Finance to coordinate, monitor
  and evaluate reform agenda
• Introduction of program budgets for 2005
• Implementation of the recommendation of an audit
  on the treasury
  
• Putting in place of an integrated financial
  management system is ongoing
  
• Preparation of the new procurement code
• Establishment of the General Inspectorate for
  Finances (IGF)
  
• Introduction of a results matrix for all
  ministries and departments

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Madagascar PER PRSP? Budget B. PRSP Objectives
and Implementation Challenges

• Implementation Challenge 3 Budget process still
  poor and capacity is limited, despite efforts
  (cont.)
  
• Outstanding issues
• Preparation
• A weak macro and fiscal framework
• Restricted role of cabinet (in preparation and in
  accountability)
  
• Marginal involvement of line ministries in budget
  preparation process
  
• Line ministry capacity in preparation is weak
• Need well elaborated strategies (objectives,
  institutional arrangements, costing - funding
  availability)
  
• Available programmable envelope
  limited-inadequate non salary expenditures (e.g.
  education, transport and environment)
  
• Execution - Disbursement of funds
• Many processing steps to make payments (11 from
  commitment to execution)
  
• Limited time for budget execution between April
  to October
  
• Weak cash management in place
• Procurement problems related to investment budget
  (accounting/accountability)
  
• A flawed system of financial monitoring
  (execution data of donor funded investment,
  budget reporting system of line ministries,
  accounts of treasury reliability of expenditure
  data)

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Madagascar PER PRSP? Budget B. PRSP Objectives
and Implementation Challenges

• Implementation Challenge 3 Budget process still
  poor and capacity is limited, despite efforts
  (cont.)
  
• Outstanding issues (cont)
• Execution-Management
• A highly centralized public administration (only
  3-4 percent of the national budget is managed by
  the communes)
  
• Ineffective management and organizational
  structure (e.g. education, transport and
  environment)
  
• Recommendations
• Tremendous training needs in the area of program
  budgeting, procurement and integrated financial
  management system
  
• Developing a budget framework paper to strengthen
  macroeconomic framework preparation and make
  planning more transparent
  
• Enhancing the role of Cabinet and strengthen
  participation of line ministries at different
  stages of budget preparation process
  
• Introducing a coherent results-based management
  framework (linking business plans and program
  budgets to PRSP, regular implementation reports)
  

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Madagascar PER PRSP? BudgetSummary of linkages
b/w Budget and PRSP

• Presidential commitment to PRSP (end 02 for 03B)
• Including PRSP Business Plans (end 02 for 03B)
• Strengthening of revenues / fiscal framework
  (03B-05B)
  
• Continuous re-prioritization (03B-05B)
• Orientation/linking of Budget Reform towards
  implementing policies and getting results
  (03B-05B) via single government-owned PEM/PFM
  Action Plan
• New budget calendar (05B)
• Early macro framework with IMF/BFP
• More time for budget prep at line ministry level,
  coordinate with annual PRSP review (June)
  
• Strengthen Cabinet in prioritization and reform
  monitoring
  
• Later submission to Parliament
• Introduction of Program Budgeting (05B) to link
  Budget to PRSP
  
• Introduction of a results matrix (05B)

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Madagascar PER PRSP? BudgetSummary of linkages
b/w Budget and PRSP

• Generic Budget Cycle with some
• Madagascar PRSP-Budget Preparation Reforms in
  Red

Budget Framework Paper
Budget Calendar
Macroeconomic Framework
Ceilings Ministry ceilings developed based on bot
tom up requirements
Cabinet Debates ceilings based on government prio
rities
National Assembly Approves first year estimates,
two forward years indicative
Review of progress by central ministries to feed
into setting of ceilings for next year

PRSP
Business Plans
Sector Review Ministries define their objectives,
results indicators, activities and costs for
three year period based on policies and priorities
Three Year Estimates Ministries finalise estimate
s based on approved ceilings for three year period
Managing and Reporting on results
Ministries use information on results to improve
management and report progress
Program Budgets
Information on results is used in planning the
next budget cycle
PRSP Annual Review
Results Matrix
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Madagascar PER PRSP? BudgetD. Modest
accomplishments, Lessons and Next steps

• Accomplishments (PER GOM and WB)
• Raised awareness on resource issues
• Raised awareness on progress on reforms
• Reinforced links between PRSP and budget
• Gave ammunition to reformers
• Lessons
• Reforms take time
• Capacity building is critical
• Reform management is key to maintaining reform
  pace
  
• Next steps
• PRSP remains MT policy document and expenditure
  roadmap
  
• PER fed into 2005 PEM/PRM action plan
• GOM to lead PER in 2005
• Implementation of recommendations

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Madagascar PER Team

• Guenter Heidenhof and Christos Kostopoulos (Task
  Team Leaders), Odile Keller, Emile Louis Rene
  Finateu, D. Randriamanampisoa, Sylke von Thadden,
  Gervais Rakotoarimanana, Sylvain Rambeloson
  (Public expenditure management) Jacob H.
  Bregman, Maria Eugenia Bonilla-Chacin, Patrick
  Ramanantoanina (Education) Willem van Eeghen,
  Janet Dooley, Anna van der Wouden (Country
  Management Unit) Susanne Holste, Noroarisoa
  Rabefaniraka (Transport) Kirk Hamilton, Martien
  Van Nieuwkoop, Bienvenu Rajaonson,
  Jean-Christophe Carret (Environment) Robert
  Keyfitz, Luc Razafimandimby, Adam Schwartzman,
  Aurelien Kruse, Benu Bidani (Macroeconomic) Laza
  Razafiarison (Macro/Public Finance) Madeleine
  Chungkong, Mavo Ranaivoarivelo, Lanto
  Ramanankasina (overall support) Sanjay Pradhan,
  Brendan Horton and Stefano Paternostro are the
  peer reviewers. Helga Mueller was Sector Manager.
  Hafez Ghanem was the Country Director through
  mid 2004, and James Bond supported the PER as
  Country Director afterwards.