Transcript Impressive growth performance

Budget Support and
Poverty Reduction in South Asia
Shanta Devarajan
Shekhar Shah
Forthcoming in Budget Support as More Effective Aid:
Recent Experiences and Emerging Lessons
World Bank, April 2006
Main messages
• South Asia needs second-generation
reforms, but these are deeply contested
• Governance problems persist, politics is
clientelist, reform capacity varies greatly
• If funding is to be provided, budget support
improves chances of policy & institutional
change in both strong and weak settings
• Budget support faces new challenges as
ground realities change in South Asia
2
Impressive growth
Real GDP Growth 2001-2005
Sri Lanka
Nepal
Maldives
India
Bhutan
Bangladesh
10.0
8.0
6.0
4.0
2.0
0.0
Pakistan
Real GDP Growth
Real GDP Growth 2005
3
On track for income poverty
reduction
South Asia: Share of people living on less than $1 a
day (%)
45
40
41.3
35
35.1
31.1
30
25
20.6
20
16.4
15
1990
1996
Actual
2001
Projected
2015
Path to goal
4
But a long way to go on health and
gender parity
AFR
AFR
SAR
SAR
MNA
MNA
LAC
LAC
2001
1990
ECA
ECA
EAP
EAP
0
50
100
Child Mortality
150
200
0
20
40
60
80
100
120
Gender Equality
5
Governance problems persist
•
•
•
•
Corruption (Bangladesh)
Conflict (Afghanistan, Nepal, Sri Lanka)
Lagging states (Bihar, Sindh, Two “Indias”)
Delivery of basic services (India, Pakistan)
6
Needed: second-generation
reforms
•
•
•
•
•
•
Restructuring state-owned enterprises
Reducing untargeted subsidies
Privatizing banks
Improving public expenditure management
Implementing sector reforms
Decentralizing to increase accountability
7
Characteristics of South Asia
• Very strong reform settings (Punjab, South
India) and weak reform settings (Bihar,
Baluchistan, Bangladesh, Nepal) co-exist
• Policies and programs are highly
contested in open, democratic settings
• Politics more clientelist than
programmatic, so reformers often lose
elections
8
Success in both high and lowcapacity settings requires
• Decisions for which policymakers can be
held accountable
• Client ownership to sustain progress
• Deep local knowledge
• Political choices on timing and sequencing
of contested, long-haul reforms
• Focus on outcomes, not on inputs
9
Budget support for secondgeneration reforms
• Focusing on budgets that matter
– State-level, medium-term reform framework
(Andhra Pradesh, Karnataka, NWFP, Punjab)
– Improve state finances (India)
10
03/04 RE
02/03
01/02
00/01
99/00
98/99
97/98
96/97
2
95/96
94/95
93/94
92/93
91/92
5
90/91
89/90
88/89
87/88
86/87
85/86
Percent of GSDP
Fiscal deficits of Indian states
9
8
7
6
Poor states
4
3
Other states
1
11
Budget support for secondgeneration reforms
• Focusing on budgets that matter
• Exercising flexibility in implementation
– In timing (Karnataka, AP, Pakistan PRSC)
– In addressing binding constraint to growth
(Bangladesh governance)
– In aligning reforms with political realities
12
Budget support for secondgeneration reforms
• Focus on budgets that matter
• Exercising flexibility in implementation
• Promoting ownership
– Support PRSPs or equivalent (AP Vision
2020, Regaining Sri Lanka)
– Dialogue and analysis create climate for
reform (knowledge partnership Tamil Nadu)
13
Budget support to strengthen public
sector management
• Reveals capacity gaps (budget reform in
Bangladesh)
• Maintains dialogue, joint search for
solutions to problems (Bangladesh DSCs)
• Supports sector reforms (Punjab, AP,
Nepal)
14
Budget support to scale up human
development
• Keeps policymakers’ attention on human
development (Punjab education)
• Promotes innovation in service delivery
and supports devolution (also Bangladesh)
– Supply-side (textbooks, school councils)
– Demand-side (stipends for girls)
15
Primary school enrollment
Punjab, Pakistan, 1994-2005
12000000
19.9%
12.7 %
10000000
Average increase1.5% per annum
8000000
6000000
4000000
2000000
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
16
Budget support to scale up human
development
• Keeps policymakers’ attention on human
development (Punjab education)
• Promotes innovations in service delivery
(Punjab, Bangladesh ESDSC1&2)
• Cross-fertilizes learning (India primary
education and HIV/AIDS, Nepal education
and health)
17
Challenges in South Asia
• Decentralization
– Third-, fourth- and fifth-tier governments
• Governance
– Dealing with crises (Nepal, Sri Lanka)
– Donor perceptions, “writing a blank check”,
“money down a rat-hole”
18