Transcript Madagascar PER

Madagascar PER
Helping to link the Budget to the PRSP
Christos Kostopoulos, ECSPE
Dieudonne Randriamanampisoa, AFTP1
Madagascar PER: PRSP  Budget
A. COUNTRY PROFILE
B. PRSP – Objectives, Implementation
challenges, Recommendations
i. Macro
ii. Allocative
iii. Budget management
C. ACCOMPLISHMENTS (modest),
LESSONS, AND NEXT STEPS
Madagascar PER: PRSP Budget
A. Country Profile
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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
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–
10
1.4
Left scale
5
1.3
1.2
0
1.1
-5
1
0.9
-10
0.8
-15
-20
1966
Right scale
0.7
0.6
1971
1976
1981
1986
GDP per capita (% growth)
1991
1996
2001
relative to SSA x So. Africa
Source: Live Database and IMF
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Early 1990 reforms gradually pay off between 1997-2001; GDP gr. 4.6 avg. per.
Madagascar PER: PRSP Budget
A. Country Profile
PRE-PRSP INDICATORS
2001
Poverty Indicators
Incidence of poverty (national) (%)
Rural (%)/ Urban (%)
70
77/44
Service Delivery Indicators
Roads on poor cond / sh of paved rds
80/11.6
Net primary school enrolments[1](%)
67
Repetition rate in rural primary school,
11th grade (%)
Pre-natal consultation, %
37
Infant mortality (out of 1000)
86
Immunization rate[2](%)
36
Electricity connections (% of households)
15
Water connections[3](% of households)
21
Source: EPM 1997, 1999, 2001.
63
Madagascar PER: PRSP Budget
A. Country Profile
..as if that’s not enough..
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2002: A political crisis in the first half of the year severely
disrupted the economy
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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
Madagascar PER: PRSP Budget
A. Country Profile
 Extended dialogue on PEM issues and
excellent GOM-WB relationship
PEM-PFM Related activities
2001
2002
IPRSP
Crisis
AAP-1
02Bgt
2003
BPs>
CPAR
03Bgt
PRSP
CFAA
EUaudit
2004
PEMAP>
PRSC1
PER
PER
2005
PEMAP2
PER
PrgBgt
Bud
Cal
04Bgt
PER
PRSC2
05Bgt
 PER 2003/04 was an opportunity for follow-
up on previous PEM/PFM and stock-taking
exercise; ask of service delivery
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)
Madagascar PER: PRSP Budget
B. PRSP Objectives and Implementation Challenges
 PRSP Challenges
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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
Madagascar PER: PRSP Budget
B. PRSP Objectives and Implementation Challenges
 Implementation Challenge 1: Macro framework restrained
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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.
Macroeconomic Frameworks PRSP and PRGF
4th Rev PRGF (Jul 03)
Average
2000-2001
PRSP Jul 03
Average
5th Rev PRGF Dec 04
Average
Average
2002
2003
2004-2006
2003
2004-2006
2003
2004-2006
GDP gr.
5.4
-12.7
6.0
6.0
6.0
7.5
9.8
6.3
CPI eop
6.7
13.5
7.0
5.0
8.0
5.1
-0.8
8.3
I/GDP
16.8
14.3
7.5
20.4
17.5
22.4
17.9
24.6
Rev + Grants
14.7
10.2
14.9
15.0
15.0
14.9
15.4
18.9
10.9
8.0
10.6
12.0
10.6
12.0
10.3
12.4
Expenditures
16.8
15.7
18.2
18.5
18.2
20.1
19.5
22.5
Capital exp
7.0
4.8
7.3
8.7
7.3
10.2
7.8
11.4
-2.1
-5.5
-3.3
-3.5
-3.3
-5.3
-4.2
-3.6
Revenue
Deficit
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
Implementation Challenge 2: Expenditure composition not fully
aligned with PRSP priorities
Despite efforts to prioritize within
..changes relative to
the envelope…
GDP are modest
Budget Allocations
Percent of non interest expenditures
Pre-PRSP
2001
2003
2004
Percent of GDP (data note)
Pre-PRSP
2001
2003
2004
Total
100
100
100
15.6
17.3
20.1
Governance
General Administration
o/w budget, fin. admin
Defense
Public security
43.9
37.9
25.1
2.4
3.5
44.6
35.5
26.0
3.9
5.2
42.1
32.8
24.5
4.1
5.2
6.8
5.9
3.9
0.4
0.5
7.7
6.1
4.5
0.7
0.7
8.5
6.6
4.9
0.8
1.0
Growth
Energy
Agriculture
Environment
Transport & Communication
o/w Transport
Others (incl Industry)
28.2
1.7
5.8
2.5
13.3
13.0
4.9
25.3
1.5
4.9
2.4
11.2
10.8
5.3
26.4
1.3
5.2
2.3
12.9
12.6
4.8
4.4
0.3
0.9
0.4
2.1
2.0
0.8
4.4
0.3
0.8
0.4
1.9
1.9
0.9
5.3
0.3
1.0
0.5
2.6
2.5
1.0
Social
Education
o/w Primary Education
Health
o/w Primary Health care
Others
27.9
12.5
2.3
9.0
2.8
6.5
30.1
15.2
6.4
8.4
2.9
6.5
31.5
18.4
6.1
7.4
3.4
5.7
4.4
2.0
0.4
1.4
0.4
1.0
5.2
2.6
1.1
1.5
0.5
1.1
6.3
3.7
1.2
1.5
0.7
1.1
Madagascar PER: PRSP Budget
B. PRSP Objectives and Implementation Challenges
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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
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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)
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
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)
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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)
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
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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)
Madagascar PER: PRSP Budget
Summary 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 Budget
Summary of linkages b/w Budget and PRSP
Generic Budget Cycle with some
Madagascar “PRSP-Budget Preparation” Reforms in Red
Budget
Framework
Paper
PRSP
Business
Plans
Program
Budgets
Macroeconomic
Framework
Budget Calendar
Ceilings
Ministry ceilings
developed based
on bottom up
requirements
Sector Review
Ministries define their
objectives, results indicators,
activities and costs for three
year period based on policies
and priorities
Cabinet
Debates ceilings
based on
government
priorities
National Assembly
Approves first year
estimates, two
forward years
indicative
Three Year Estimates
Ministries finalise
estimates based on
approved ceilings for
three year period
Review of
progress by
central
ministries to
feed into setting
of ceilings for
next year
Managing and Reporting
on results
Ministries use information
on results to improve
management and report
progress
Information on results is used in planning the next budget cycle
PRSP Annual Review
Results Matrix
Madagascar PER: PRSP Budget
D. 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
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Reforms take time
Capacity building is critical
Reform management is key to maintaining reform
pace
 Next steps
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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
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 BonillaChacin, 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.