madagascar per helping to link the budget to the prsp christos kostopoulos, ecspe dieudonne...

Madagascar PER

Helping to link the Budget to the PRSP

Christos Kostopoulos, ECSPEDieudonne 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

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

-20 -15 -10 -5 0 5

10

1966 1971 1976 1981 1986 1991 1996 2001 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4

GDP per capita (% growth) relative to SSA x So. Africa

–

Right scale

Left scale

Source: Live Database and IMF

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


PRE-PRSP INDICATORS 2001

Poverty Indicators

Incidence of poverty (national) (%) 70

Rural (%)/ Urban (%) 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 (%)

37

Pre-natal consultation, % 63

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.


..as if that’s 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


Extended dialogue on PEM issues and excellent GOM-WB relationship

PEM-PFM Related activities2001 2002 2003 2004 2005

IPRSP Crisis BPs> PRSP PEM- AP>

PRSC1 PEM- AP2

AAP-1 CPAR CFAA

EUaudit

PER PER PERPrgBgt

Bud Cal

PER

PRSC2

02Bgt 03Bgt 04Bgt 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)


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


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.

Macroeconomic Frameworks PRSP and PRGF

4th Rev PRGF (Jul 03) PRSP Jul 03 5th Rev PRGF Dec 04

Average Average Average Average

2000-2001 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

Revenue 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

Deficit -2.1 -5.5 -3.3 -3.5 -3.3 -5.3 -4.2 -3.6


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

Percent of non interest expenditures Percent of GDP (data note)Pre-PRSP

2001 2003 2004Pre-PRSP

2001 2003 2004

Total 100 100 100 15.6 17.3 20.1

Governance 43.9 44.6 42.1 6.8 7.7 8.5 General Administration 37.9 35.5 32.8 5.9 6.1 6.6 o/w budget, fin. admin 25.1 26.0 24.5 3.9 4.5 4.9 Defense 2.4 3.9 4.1 0.4 0.7 0.8 Public security 3.5 5.2 5.2 0.5 0.7 1.0

Growth 28.2 25.3 26.4 4.4 4.4 5.3 Energy 1.7 1.5 1.3 0.3 0.3 0.3 Agriculture 5.8 4.9 5.2 0.9 0.8 1.0 Environment 2.5 2.4 2.3 0.4 0.4 0.5 Transport & Communication 13.3 11.2 12.9 2.1 1.9 2.6 o/w Transport 13.0 10.8 12.6 2.0 1.9 2.5 Others (incl Industry) 4.9 5.3 4.8 0.8 0.9 1.0

Social 27.9 30.1 31.5 4.4 5.2 6.3 Education 12.5 15.2 18.4 2.0 2.6 3.7 o/w Primary Education 2.3 6.4 6.1 0.4 1.1 1.2 Health 9.0 8.4 7.4 1.4 1.5 1.5 o/w Primary Health care 2.8 2.9 3.4 0.4 0.5 0.7 Others 6.5 6.5 5.7 1.0 1.1 1.1

..changes relative to GDP are modest

Despite efforts to prioritize within the envelope…

Budget Allocations

Implementation Challenge 2: Expenditure composition not fully aligned with PRSP priorities


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)


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


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)

Madagascar PER: PRSP Budget B. PRSP Objectives and Implementation ChallengesImplementation 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)

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)

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

Generic Budget Cycle with some

Madagascar “PRSP-Budget Preparation” Reforms in Red

Macroeconomic Framework

Sector ReviewMinistries define their

objectives, results indicators, activities and costs for three

year period based on policies and priorities

CeilingsMinistry ceilings developed based

on bottom up requirements

CabinetDebates ceilings

based on government

priorities

Three Year EstimatesMinistries finalise

estimates based on approved ceilings for

three year period

National AssemblyApproves first year

estimates, two forward years

indicative

Managing and Reporting on results

Ministries use information on results to improve

management and report progress

Review of progress by

central ministries to

feed into setting of ceilings for

next year

Information on results is used in planning the next budget cycle

Budget CalendarBudget Framework Paper

PRSP Annual Review

Results Matrix

Business Plans

PRSP

Program Budgets

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

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.

madagascar per helping to link the budget to the prsp christos kostopoulos, ecspe dieudonne...

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