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What NEPAD implies for African policy makers
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1. Theme 1: Sound economic policy-making and execution for operationalizing the development goals
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According to the NEPAD framework document (para. 49) sound economic policy-making and execution loom large in making the benefits of NEPAD a reality. This precondition for the renewal of Africa entails the restoration and maintenance of macroeconomic stability, especially by developing appropriate standards and targets for fiscal and monetary policy and by instituting transparent, legal and regulatory frameworks for financial markets and the auditing of private companies and the public sector.
NEPAD endorses the Millennium Development Goals (MDGs), (para. 59). But on present trends, only the five countries of North Africa-with significantly lower poverty levels and better access to education, health and other social services than the rest of the continent-are on course to meet the poverty reduction and social development goals. Sub-Saharan countries are unlikely to meet the goal of reducing poverty in half or reversing the spread of HIV/AIDS by 2015. But progress on the social development goals is more varied, with a number of countries poised to meet them. In Burkina Faso measles and yellow fever vaccinations are at 65%, against the target of 60%. In Botswana and some countries of Southern Africa, it is estimated that over 25% of the adult population is infected with HIV, the virus that causes AIDS. In Mauritania despite a dispersed populace, primary school enrollment is at 90% and school access at 95%. And in Chad, gross primary enrollment has risen to 60%, up from 31% in 1994.
Accelerating progress towards meeting MDGs will require that a more effective framework is put in place for channelling public resources. Country-owned Poverty Reduction Strategy Papers (PRSPs) have elicited unequivocal recognition in NEPAD as the principal framework for building continent-wide priorities into national poverty reduction programmes and for coordinating international support. There are six principles underlying the PRSP process and they complement the five core principles of NEPAD:
- Being country driven-involving broad-based participation by civil society and the private sector in all operational steps.
- Being results oriented-focused on outcomes that will benefit the poor.
- Being comprehensive-recognizing the multi-dimensional nature of poverty.
- Being prioritized-so that implementation is feasible in both fiscal and institutional terms.
- Being partnership oriented-involving the co-coordinated participation of development partners (bilateral, multilateral and non-governmental).
- Being based on a long-term perspective of poverty reduction.
There is a large spectrum of views on the achievements of the PRSP approach so far (see Box 1 below). It is generally agreed that it is too early to assess the impact of the implementation of PRSPs on poverty outcomes. But some weaknesses of the PRSP have been noted. These include the lack of a long-term growth strategy; the weak integration of sector plans in the PRSP; and a tendency to focus on improved and pro-poor public expenditure management rather than private sector investment and employment generation. A general problem noted by the European Commission is that the PRSPs have a missing middle: that is, the mechanism that leads from policies to outcomes is not elaborated. The Highly Indebted Poor Country (HIPC) Ministers of Finance and PRSP coordinators have echoed this concern about the missing middle:
"The scale of growth planned under the PRSP is frequently adequate to halve poverty by 2015…[but] there is no in-depth analysis of how the sectoral and structural measures in the programme will produce the targeted growth rates, nor have programmes examined sufficiently how macro, sectoral and structural measures will translate into changes in the distribution of the benefits of growth. Savings, investment, domestic resource mobilization and employment remain under analyzed; insufficient attention is being given to social inclusion and equity in many PRSPs."
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Box 1: PRSP Learning Group-insights from experiences
NEPAD's recognition of the importance of PRSPs as the country level framework for translating vision into action provides added impetus for finance ministers to address three broad sets of issues that emerged from the recent ECA-sponsored Learning Group on PRSPs.
Legitimacy of the PRSP participatory process: For the most part, the participatory process surrounding the PRSPs has been regarded as successful. However, participants pointed out that the participatory PRSP processes tend to be ad hoc at the moment and need to be institutionalized. For the PRSP process to be successful, there must be high-level political commitment to the process. Some participants felt that most governments in Africa are not yet ready to accept civil society groups as serious stakeholders in policy formulation. A clear and comprehensive strategy for information, education and communication is a prerequisite for developing successful participatory processes.
National capacity needs: Capacity constraints in government were emphasized as seriously hampering institutional capacity to undertake systematic analysis of the causes and consequences of poverty, design and implement poverty reduction policies and programmes, and monitor their impact. Participants agreed that governments should take measure not only to build capacity but also to retain it. Civil service reforms are key in this regard to correct the incentive and wage structure of the public sector. Future donor support for capacity building must also become more strategic and needs to reach out to local universities and think tanks to support them to play a catalytic role.
Aligning donor policies with the PRSP: Innovations in donor aid modalities and partnership arrangements (for example, in Mozambique, Rwanda and Tanzania) are being tried in a few countries. But to forge a partnership genuinely reflecting the PRSP principles, donors need to do much more to replicate in more countries the positive innovations that are already being tried, harmonize aid procedures, and improve coherence in their aid and trade policies. There was also a consensus that more needs to be done by external partners to respect the centrality of the priorities articulated in the PRSP and to realign their programs accordingly. Participants felt that donors still placed undue emphasis on procedures and process and needed to shift their focus to be on impact. At the same time, participants stressed that African governments on their part have to realize that the primary responsibility to ensure that aid is being effectively used and to envisage the strategies that over the long run would reduce their dependency on external aid rested with Africans themselves.
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Turning to macroeconomic policy, the HIPC Ministers state that "our main concern is not realism, but that many programmes continue to be too restrictive…especially for countries which have achieved sustained low inflation. Nor has there been much evidence of exploring possibilities for alternative macroeconomic paths, taking into account non-demand causes of inflation, recovery of demand for money and private sector credit needs." All these lessons need to be taken into account as more countries develop full PRSPs.
The NEPAD framework document also gives special attention to the reduction of poverty among women. It prescribes specific actions such as establishing a gender task team to ensure that the specific issues faced by poor women are addressed in the poverty reduction strategies of NEPAD. Some country level attempts are already being implemented.
Past attempts to implement plans such as the PRSP have often been frustrated by a lack of implementation mechanism and resources. Today, a general consensus is emerging on the appropriate implementation strategy to overcome these problems. The implementation strategy consists mainly of better public expenditure management through strategic planning, MTEFs, and monitoring mechanisms.
Public expenditure management and MTEFs
Effective and strategic use of public resources is a critical ingredient of a country's development strategy. Yet public expenditure management in many African countries has suffered from overprogramming, inadequate prioritization, weak project screening and expenditure management, lack of ownership of project and programmes, and inadequate monitoring and supervision. These problems have caused real budget allocations to fall to about half the level of the mid-1990s, bringing down project completion rates and productivity. These fiscal problems are also at the heart of poor macroeconomic performance-high inflation, overvalued exchange rates and poor economic growth-of many African countries.
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Box 2: Is MTEF a panacea?
Experience suggests that identifying the essential components of a successful MTEF is not easy. Despite their theoretical popularity, there are few established medium-term frameworks. Those that do exist, especially in developing countries, have only been recently introduced and are still evolving. As one set of pioneers resolve teething problems, other apparent successes unexpectedly collapse. But some lessons are emerging from MTEFs in OECD countries, as well as from the contrasting experiences of the extended MTEFs currently under development in Ghana and Malawi and the more basic MTEFs introduced in South Africa and Uganda.
- Experience in OECD countries suggests that stringent conditions have to be fulfilled before the full benefits of medium- term frameworks can be realized (IMF 1999).
- These conditions are unlikely to be fulfilled in most developing countries. However, even the basic acceptance of the principles of medium-term budgeting may improve the realism of sector budgets. This is a significant gain for many developing countries where a large gap between stated policies and actual resources leads to ad hoc spending cuts in budget implementation.
- Budget reforms are only sustainable if they demonstrate early benefits to key players in the process. It is particularly important that the introduction of any form of medium-term framework brings improvements in the predictability of organizational funding. This appears to have been achieved in South Africa, despite resistance from those agencies facing reductions in funding. In Uganda the designation of protected sectors (health, education, roads) has restricted unpredictability to lower priority areas. In contrast, little predictability seems to have been achieved in Ghana or Malawi and there are indications that this is impeding progress.
- Improved predictability relies on reducing the gap between forecast and actual revenue, thereby reducing the need to cut expenditures during the budget year. Technical improvements to revenue and debt forecasting are therefore key to giving public sector managers the budget predictability they need to manage effectively. They can also highlight situations where revenue estimates are being inflated in order to avoid hard budget decisions.
- Improvements in the costing of policies and programmes will take longer to achieve. They require a fuller information base and cannot be delivered without the active involvement of sector ministries. Successful budget reforms depend on introducing and sustaining appropriate incentives for these ministries to support the changes. The Ugandan experience with protected sectors may suggest a useful way forward where such conditions are difficult to establish for government as a whole.
Experience of budget reform in OECD and developing countries suggests that MTEFs can help improve budget processes and outcomes through greater clarity of policy objectives; predictability in budget allocations; comprehensiveness of coverage; and transparency in the use of resources. But experience also illustrates that MTEF is not a panacea - a successful MTEF must be diagnostic, rather than formulaic. In other words, improving budget outcomes requires a focus on where the real problems lie.
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The medium-term expenditure framework (MTEF) is seen as an appropriate response to the problem. MTEF is an approach to government planning and budgeting that ensures that ministries, departments, and agencies state specific things they will do to achieve their overall mission in a given period. Then they plan activities needed to achieve the set objectives and identify the inputs required, costing them. The objectives and activities must be SMART. That is, they should be specific, measurable, achievable, realistic, and time-bound. While there are some concerns about the efficacy of MTEF for many African countries, it is widely accepted as the best available strategy for public expenditure management (See Box 2 above).
In defining a medium-term framework as an operational concept, it is useful to distinguish three levels of development. A Medium-Term Fiscal Framework (MTFF) is the first, necessary step towards an MTEF. It typically contains a statement of fiscal policy objectives and a set of integrated macroeconomic and fiscal targets and projections. A Medium-Term Budget Framework (MTBF) builds on this first step by developing medium-term budget estimates for individual spending agencies. The objective of an MTBF is to allocate resources to the nation's strategic priorities and ensure that these allocations are consistent with overall fiscal objectives. This gives some degree of budget predictability to spending agencies, while ensuring overall fiscal discipline. In fact, an MTBF is the most basic type of MTEF. A Medium-Term Expenditure Framework (MTEF) develops the approach further by adding elements of activity and output-based budgeting to the MTBF framework. These methods seek to improve the value of money for public spending, in addition to reinforcing fiscal discipline and strategic prioritization.
Medium-term expenditure frameworks (MTEFs) have been found to improve the effectiveness of the budget and governance of budget management. The framework links outputs and outcomes to ensure consistency of sectoral expenditure levels with the overall resource constraints, in order to ensure macroeconomic stability and to maximize the efficiency of public expenditure in attaining predetermined outcomes. MTEF, by identifying sector strategies and by prioritizing programmes, will help in achieving the objective of poverty alleviation. In the meantime, spending will be within an affordable financial envelope.
Other innovations in managing resources include establishing Public Expenditure Review Commissions (such as in the Kingdom of Nepal). The tasks of the Commission can include prioritizing projects and regular expenditures, strengthening financial discipline, rationalizing expenditures by public enterprises and local authorities and reorganizing and rationalizing the government offices at the central, regional and district levels.
Another promising innovation is gender-based budgeting (see Box 3 below). Gender-responsive budgets empower women's organizations and civil societies to hold public spending accountable to international and national commitments for promoting gender equality.
Recent lessons from developing country experiences suggest that improvements in public expenditure management, requires the government to: integrate the regular and development budgets; reduce the number of projects; initiate a medium-term framework for the development budget; emphasize the completion of core programmes of priority projects; institutionalize the mid-term budget review; strengthen the capacity for monitoring expenditure as well as the physical progress of projects and programmes; decentralize some of the functions of the central government including primary education, health and agricultural extension activities; introduce performance-based budget allocations in selected areas; and increase budget allocations to priority sectors.
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Box 3
Gender-responsive budget initiatives-an increasingly popular tool
Gender responsive budgets are an innovative new tool that empowers women's organizations and civil societies to hold public spending accountable to international and national commitments for promoting gender equality. In recent years such initiatives have spread to more than 40 countries. They are globally networked with the support of agencies such as the commonwealth Secretariats, United Nations Development Fund for Women and Organization for Economic Cooperation and Development. Still experimental, the initiatives will take time to develop and bear fruit.
What are gender-responsive budgets?
Gender-responsive budgets are not separate budgets for women and girls. Rather, they are analyses of public spending through the lens of gender. They are a way of ensuring consistency between social commitments to achieve gender quality goals-such as in education or work-and the resources being allocated. The key question is, what impact does fiscal policy have on gender equality? Does it reduce gender inequality, increase it or leave it unchanged?
Gender-responsive budgets were started by Australian activists who pushed the government to assess the impact on gender equity of all elements of the national budget between the mid-1980s and mid-1990s. Many other countries later adopted the concept to expand participation and accountability in budgeting, especially in light of international commitments to promote gender equality.
Diverse country initiatives
Over the past decade advocates for gender equality began using gender-responsive budgets in a multitude of ways. Government, as in Australia, initiated some. Civil societies groups, as in the Philippines and South Africa, initiated others. And parliamentarians initiated others. Most focus on monitoring, while some engage in preparatory phases, as in Brazil and the United Kingdom. Most work at the national level, but some-as in Uganda-focus on local levels, where traditional and oppressive gender relations are stronger. All point to the effect of this new tool in stimulating a new participatory politics challenging the "power of the purse".
In South Africa the Women's Budget Initiative empowers parliamentarians and others with analysis and information to oversee and critique government budgets. It has been a collaborative venture of the Gender and Economic Policy Group (part of the parliamentary Committee on Finance) and two non-governmental organizations (NGOs) focused on policy research. By linking researchers and members of parliament, the researchers could be assured that their work would be taken forward into advocacy, while the parliamentarians would have a solid basis for their advocacy. From the start the core members of the initiative were also expected to draw in others as researchers and reference people. The initiative published a series of books and, more recently, a series of papers called Money Matters, written to be accessible to a broad range of readers. South Africa's government has also introduced gender budget analysis within the government, led by the Ministry of Finance. This and the above initiative have had some positive effects. For example, all sectoral budget reviews now include gender-sensitive analysis.
In Tanzania gender budgeting drew inspiration from Australia and South Africa. Initiated by the Tanzanian Gender Networking Programme, and NGO, the programmer's main strengths are the alliances created with government, especially its gender equality activists. Teaming up an NGO researcher with a government officer, the initiative has commissioned research on four sectoral ministries (education, health, agriculture, industry and commerce), on the Ministry of Finance and Planning Commission and on the budget process. It has also done research in selected districts.
Source: UNDP (2002).
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Monitoring progress towards the Millennium Development Goals
If MDGs are to serve their purpose as guideposts for NEPAD, progress must be regularly monitored using reliable data and subjected to critical evaluation. This process of monitoring and evaluation will strengthen policy-making by leading to revisions in policies and strategies aimed at achieving MDGs. Monitoring progress will also help build accountability and keep key agents at all levels of government and in civil society informed about the progress towards MDGs.
At the country level, monitoring progress towards the goals set in PRSPs is the responsibility of government with the engagement of civil society and their international partners. Thus, it will be difficult to introduce, design or modify poverty-related programmes unless one knows the profile and dynamics of poverty. Inadequate information has led to limited coverage of successful targeted programmes, and social service delivery has not been adequate. To make progress in poverty alleviation and in controlling HIV/AIDS and other diseases of poverty that hamper Africa's growth, policies and programmes must be designed on the basis of full information. Implementation must be effectively monitored and programmes evaluated regularly.
At the country level, monitoring should be structured at different layers. Annual reports should be prepared to provide an update on the progress of meeting individual but key development targets related to MDGs. Data gaps can then be identified and the indicators and the design of the report finalized with the consultation and participation of the line ministries, the central bureau of statistics, and other relevant agencies.
Governments should initiate, improve, and institutionalize data collection and analysis of poverty and social development indicators as well as of the impact of national policies and projects. Regular detailed household surveys that generate high quality estimates of trends in poverty and social development can provide much useful information.
For instance, to initiate and implement targeted poverty reduction programmes, a poverty mapping system needs to be introduced by gathering information on the spatial distribution of poverty-to identify the pockets of poverty.
Monitoring of grant-financed projects by the local authorities and NGOs should also be initiated and strengthened. Evaluation and monitoring of other related programmes should also be regularly undertaken. Line ministries, NGOs, and other relevant agencies should be coordinated for this purpose.
Key issues for discussion
- How can African policy makers scale up efforts to establish better statistical systems to monitor and evaluate progress, better public expenditure management systems to ensure efficiency of resource allocation and better integration of poverty reduction strategies with macroeconomic targets in development plans?
- What mix of skills and knowledge is required for countries to incorporate long-term growth strategies-including trade and industrial policy, technological progress and structural transformation-in their national plans?
- How can donors best support capacity building in the technical areas needed for effective implementation of MTEF? Key specific skills required are capacities for establishing comprehensive and coherent budgets and medium-term expenditure plans, economic forecasting, and debt management. Technical capacity for auditing and accounting-the backbone of government accountability-also requires greater emphasis.
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