11 nicaragua budget support group (bsg) 2005 – 2007 more effective cooperation? 4 th lac prs-donor...
TRANSCRIPT
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NICARAGUABudget Support Group (BSG)
2005 – 2007 More Effective Cooperation?
4TH LAC PRS-Donor Meeting, June 14 2007, Washington, D.C.
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CONTENTS
Background
Alignment
Conditionality
Relationship with the IMF
Dialogue
Challenges
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BSG Background
2-year on-going dialogue to join partners and prepare arrangement for budget support
In May 2005, 9 donors signed a Joint-Financing Arrangement (JFA) with the Republic of Nicaragua, to support the Government’s efforts to achieve long term sustainable economic growth and poverty reduction as defined in its PND (PRSP)
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MembersBilateral
Germany, Finland, Norway, Sweden, The Netherlands, Switzerland, United Kingdom (DFID)
Multilateral
European Commission, The World Bank
In 2005:Bilateral BSG member funds totaled 34% of all bilateral assistance
Multilateral BSG member funds accounted for 36%
of all multilateral assistance
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BSG Deliveries 2005-2007
Budget Support Group Assistance 2005 – 2007/1
(in US$ million)
2005 2006 2007Donor Comm. Actual Comm. Actual Comm. Actual
EC 19.9 11.8 30.9 27.9 22.5 8.5
Finland 1.8 1.8 4.2 4.4 2.5
Germany 5.6 0.0 2.4 2.4 5.1
Netherlands 10.8 10.8 12.0 12.8 14.0
Norway 3.1 3.1 2.9 3.0 3.1
Sweden 7.7 7.7 8.7 9.5 0.0
Switzerland 5.1 5.1 10.0 10.0 5.2
United Kingdom 0.0 0.0 1.8 1.8 2.8
World Bank (IDA) 35.0 0.0 35.0 30.0 25.0 25.2
Total BS 89.0 40.3 107.9 101.8 80.1 33.6
/ 1 Up to March 2007
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BSG assistance at the macro level
2005 2006 2007 /1
Total disbursements 40.0 101.9 80.5
% of ODA 7% 40% 18%
Of which
grants 40.0 69.4 50.4
loans 0.0 32.4 30.1
as % of Nat. Budget 5% 8% 6%
as % of remittances 8% 16% 11%
as % of FDI 21% 34% 26%/1 Projected
Sources: Central Bank, Ministry of Finance, IMF
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Need for alignment?2005 raw data
43 donors present in Nicaragua 397 project implementation units, of which 138 were parallel to the line ministries
Total disbursed ODA = U$542 million, of which only U$305 were registered in the Budget
Approximately 400 missions visited the country, averaging 1.3 missions per day!
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The Alignment story
Before 2005
Non-transparent national budget planning
Line ministries received donor funds outside control of the Ministry of Finance
In 2005
The Government took responsibility approving the Financial Administration Law (LAF)
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LAF implementation
Greater discipline required for line ministries and donors to get support on time and on budget
Difficult transition in 2006: apprx. US$36 million of donor support left outside the budget
Proposed Budget for 2007could not be approved
In 2007, the US$36 million have been included in approved National Budget, according to the LAF
Now, there are better conditions for alignment
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How does BSG operate in practice?
Key issues for Dialogue includeFundamental PrinciplesMacro-economic stability and growthProgress on the implementation of the PRSPublic sector reform and political governanceAlignment and harmonization practices
Annual Meeting (May-June)Decision on preliminary financial commitments
Mid-Year Meeting (Sep-Oct)Confirmation of financial commitments
Presentation of National Budget to the National Assembly (Oct-Nov)
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Conditionality
Conditionality defined as “the specific set of conditions attached to the disbursement of budget support …ranging from explicit agreements to implicit understandings and from traditional ex ante conditions based on promises to ex post conditions based on actual completed measures” /1
JFA Fundamental PrinciplesPerformance Assessment Matrix (PAM)
/ 1 WB 2005, Conditionality Revisited
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Fundamental Principles for the provision of Budget Support
Nicaragua has agreed to adhere to the following principles:
Commitment to international law and conflict preventionRespect for human rightsDemocratic principles, including free and fair electionsRule of LawIndependence of the judiciaryTransparent and democratic processesAccountability and the fight against corruptionSound macro-economic policiesCommitment to Poverty Reduction
The breach of any of the these principles may result in the stop of disbursements.
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Performance Assessment Matrix (PAM)
Set of actions and targets with measurable indicators derived from the National Development Plan (PRSP)
Used during MYM for planning of n+1 and during AM for assessment of n-1
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PAM EvolutionDuring 2005, targets were based on existing bilateral/multilateral agreementsComplexity of matrix evidenced the need for simplification
2005 (as signed in JFA) 2006 (simplified)
Theme Actions…of
which legislation
Indicators / Targets
Actions…of which legislation
Indicators / Targets
Macro 3 0 3 1 0 6
Public Financial Management
10 2 9 2 0 8
Productivity 13 4 13 12 0 12
Social 8 0 26 11 0 12
Governance 12 2 15 5 2 16
TOTALS 46 8 66 31 2 54
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Character of BSG conditionalityAll conditions are agreed jointly Mainly ex-post:
Respect to fundamental principles Performance PAM n-1Progress in the year-to-date until MYMOverall satisfactory performance of PAM and Fundamental Principles is needed
Partially ex-ante:Appraisal of budget and planned actions and targets to be accomplished in n+1Planned actions and targets should meet satisfactory level of ambition and realism
Individual member decision with high influence from group discussion following dialogue with the authorities
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Commitments and Disbursements
Decision ProcessAM: Preliminary financial commitment based on assessment of accomplishment of actions and targets in n-1 MYM: confirmation of financial commitment based on progress in the year-to-date and appraisal of planned actions and targets to be met in n+1
Disbursements are made according to an agreed calendar with the Ministry of FinanceDisbursements in n of commitments made in n-1 can only be cancelled (or withheld) in case of breach of Fundamental Principles.
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Special Cases
European Commission: Decides in Annual Meeting (year n) disbursement of fixed tranche in year nDecides in Mid-Year Meeting (year n) disbursement of variable tranche in year n+1Amount of variable tranche depends on % of fulfilled actions/targets
The World BankPrior actions/triggers and benchmarks are agreed directly with Government and later included in the PAMFunds become available after compliance with prior actions
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Relationship with the IMF (1)
Macroeconomic stability is a fundamental principle of the JFA
This can be achieved with or without the Fund
IMF’s assessment and advice are important for the Government and the BSG
Nevertheless, a program with the Fund is not a condition sine qua non for BSG commitments or disbursements
Good coordination between BSG and IMF
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Relationship with the IMF (2)
In the 2005 crisis, the BSG requested a Letter of Comfort from the IMF before disbursing
In 2007, the BSG has explicitly stressed the importance of an agreement with the IMF
BSG members underline its independence from the IMF
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Results (1)
Donor Harmonization Improved analysis of national policy in Technical Working Groups Transparency about internal decision making process about conditions, disbursements, breaches and role of IMF. Global consensus about respect for fundamental principles of JFA to date Joint “like-minded” support outside BSG to jointly identified needs:
Public sector reform (PSTAC) Anti-corruption FundFund for defense of women’s rights Protest against penalization of therapeutic abortion Strengthening independent statistical system
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Results (2)
Improved predictability of external financing
Small differences between foreseen and real BSG disbursement
Exception: Sweden awaiting for their new multi-annual strategy.
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Progress in Dialogue2005
Conflict between parliament and government about their division of roles/responsibilities All structural reforms were put on holdDisagreement on national budgets for 2005 and 2006Off-track PRGFBSG postponed disbursement until (November):
Reestablishment of understanding between parliamentand government (“Ley Marco” agreement Bolaños-Ortega) Approval of structural reforms and national budgets 2005 and 2006Macro-economic stability and pro-poor spending
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Progress in Dialogue 2006
Good discussions in technical working groups and plenary in Annual and Mid Year Meeting, in spite of deficiencies in information Satisfactory continuity in macroeconomic policy, public finance management, economic growth, and pro-poor spending.Agreement on simplification of PAMConcerns about:
Free and fair electionsLack of independent judiciary Quality /effectiveness of pro-poor expendituresPenalization of therapeutic abortionPostponement of audit on budget implementation
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Dialogue so far in 2007
Satisfactory electionsSmooth political transition in macroeconomic stabilityApproval of national budget including grants, IDB-debt relief, without structural modifications.Continuity in macro-economic stability, increased pro-poor spending First reduction of public salaries.Progress in negotiation of programs with the IMF, WB and IADB
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Dialogue so far in 2007
Slow start of dialogue with BSGFirm ownership central governmentFirst ever audit of national budget implementationPostponement documentation on poverty and poverty spending
Some concerns:Insignificant poverty reductionHuman rights for women (therapeutic abortion, violence, access to justice and health service)Weak statistical systemLack of transparency in new public debt to Venezuela
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Challenges on the donor side
Consolidation BSG and open minded inclusion of new membersModality mix on macro-meso and micro levelIncreasing division of labor and convergence of instruments (shared appraisals, silent partnership)Continuity in coordination with the IMFSome differences between conditionalities of individual BSG members should not restrain the joint analysis and dialogue
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Challenges in dialogueBroadening dialogue with stakeholdersMutual understanding and agreement on conditionalityJoint evaluation of past experience in PRS and economic policySimplifying PAM, “in-sourcing” sectorial analysis and monitoringIncreasing joint (demand driven) technical assistance and support for institutional strengthening.Limit preaching in favor of practical support and mutual responsibility
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Final remarks
The Bottom-line:High levels of investment and disappointing growthHigh levels of poverty spending and disappointing poverty reduction
Mission of budget support:Long term commitment (avoiding stop and go)Priority to improving confidence in national institutions and conditions of good governanceMay result in higher effectiveness and efficiency of national investment and pro-poor expenditures
