Better Sharing: Bigger Pie Planning and Budgeting for Inclusive Growth

1. Better Sharing: Bigger PiePlanning and Budgetingfor Inclusive Growth Presented by Allen Schick Conference on Public Sector Management in Support of the MDGs Bangkok, Thailand 13-15 June 2012

2. Development Strategies: Economic Growth • Focuses on raising per capita GDP • Assumes that higher GDP will improve social outcomes • Is bolstered by evidence that rising GDP often is associated with improved heath, education, and other outcomes • However, by itself growth tends to widen inequality and to disadvantage those left behind • Poor people living in rural areas, low paid urban workers, women and children may suffer social dislocation that makes them worse off when growth accelerates • Assumes that public sector performance improves because citizens expect more responsive government and better public services • In this model, PSM modernization is a byproduct of growth, not a precondition of development 1

3. Development Strategies: Targeted Results • Focuses on pre-selected indicators of wellbeing • Assumes that targets will spur policy changes that improve results • Based on expectation that targets will change behavior of politicians and managers, and facilitate monitoring of results • Gives priority to vulnerable people who may not gain from generalized growth • MDGs are the leading application of this strategy • The efficacy of MDGs indicates that targets generate desired change • Many low-income countries have recently achieved HDI (Human Development Index) gains that Exceed GDP growth • PSM modernization is a critical element of the targeted results strategy because getting results depends on policy and managerial actions by government 2

4. Making Growth Inclusive • The targeted growth strategy works best when it is accompanied by economic growth • But growth must include all sectors of society, especially those who do not directly benefit from macroeconomic improvement • Combining growth and targeted results enables the development community to assure that growth is inclusive • The role of the state is to manage economic growth and to establish policies that distribute the benefits of growth across society • Inclusive growth aims to transform political and bureaucratic cultures so that society values participation and shared benefits 3

5. PSM Modernization Enables a Targeted Results Strategy • A results strategy depends on policies and actions to achieve selected targets • Before MDGs, countries often announced development strategies without follow-up actions • Plans were disconnected from budgets, and budgets were disconnected from services • Governments lacked the means to assure implementation of approved plans and to monitor results • PSM mobilizes the policy and administrative processes of government to produce targeted results • PSM reform may be the difference between unfulfilled promises and genuine commitments • PSM links core administrative processes to focus on common results • These processes jointly and independently define, implement and assess targeted results 4

6. Managing the Public Sector with Results-Focused Processes • A targeted results strategy can be effective only when PSM processes focus on a consistent set of results • The core PSM processes are connected, but each contributes on its own to changing the country’s prospects • Each process mush address a fundamental question: What difference will it make to the country’s future if one or another course of action is taken? • Considering this question enlarges the window for change and development, for a future that is different from what would occur if the policy or action were not taken? • Planning and evaluation – the opening and concluding PSM processes – are most hospitable to this developmental orientation, budgeting and implementation require significant modernization on order to be change-promoting actions 5

7. Advocacy Planning • Sound planning serves the two development strategies mentioned at the outset • It promotes economic growth through programs and policies that benefit the country as a whole; and it promotes initiatives that assist those left behind or disadvantaged by growth • The second purpose is critical to planning because the vulnerable and disadvantaged gain less from market activity, and are therefore more dependent on government policies and actions • National plans should be explicit about the distributive impacts of government policies and actions • Effective advocacy planning requires government to apply the tools of policy analysis and program evaluation in defining national objectives and means of accomplishing them

8. Pro-Poor Budgeting • Despite good intentions, developing countries often fail to allocate resources to benefit the poor • Rigid budgets and incremental decisions limit government’s capacity to shift funds • Programs that purport to aid disadvantaged sectors may have unintended effects. For example, new roads may impoverish rural areas; subsidies for higher education may go to relatively affluent families • Governments can counter these tendencies by identifying the distributive impacts of ongoing and new expenditures • Active monitoring of the flow of money from the budget to end-users is essential to ensure that funds allocated for services to poor communities and households are actually used as intended

9. Focusing National Planning on Inclusive Growth • In many countries, planning begins with a broad canvass of national needs and policy proposals • MDGs are only one of the inputs into the plan that emerges from this unfocused process • These plans sometimes assume that growth suffices to develop the country and uplift all its people • MDG-driven countries integrate these goals into medium-term plans by (1) adding targets pertaining to economic growth, (2) re-targeting the MDGs so that they are consistent with planned growth and (3) channeling resources made available through growth to vulnerable people and communities • Realistic planning for inclusive growth should identify constraints that impede development and realization of the country’s MDGs, as well as policy and managerial initiatives to overcome constraints • It may be useful for the plan to present a “gap analysis” of the variance between current (or projected) conditions and inclusive growth targets, the factors accounting for the gaps, and the resources and steps planned to close or narrow the gap 8

10. Combining Performance-Based Budgeting and Medium-Term Frameworks in a Single Process Facilitates Inclusive Development Combining PBB and MTEF can be done through parallel baselines that shift decisions on changes in resources to changes in results Conventional MTEFs typically has a single baseline that projects future expenditures that will result from current policies PBB adds a second baseline that projects the results estimated from current policies The task of budgeting then becomes changing the expenditure baseline to generate changes in the results baseline 9

11. Constructing the MTEF Expenditure Baseline • The baseline is a projection of future budget amounts (revenues, expenditures, and the fiscal balance) if current policies are continued without change. Some countries include price and workload changes in the baseline • The baseline is constructed for each year covered by MTEF. Some governments prepare baseline projections that extend beyond the medium term • The baseline is an essential tool for measuring the money available in the budget for policy initiatives • The baseline takes account of medium term economic forecasts as well as approved policy changes • The budget impact of policy changes is measured in reference to the baseline • The central budget office maintains the baseline and estimates the budget impact of proposed and approved policy changes 10

12. Constructing the PB Results Baseline • The basic idea of PB is that government can purchase results by spending public money • Constructing a baseline enables government to identify and (for many activities) measure the results expected from expenditures • As in the expenditure baseline, a PB baseline projects future results if current policies are continued without change • Identify key factors and assumptions that explain projected trends, especially impediments to better performance. This explanation should be supported by data and analysis that enable government to make informed decisions on how to change the trend • Discuss policy initiatives to change to projected trend. For example, vaccination rates are low because working parents are unable to take their children to the health clinic during daytime hours; consider extending the clinic’s hours of operation • Establish performance targets for policy initiatives estimated to cause results to vary from those projected in the baseline 11

13. Using the Baseline to Measure the Results of Expenditure Change _____ Baseline projection of number of villages with clinics if current spending and policies are not changed --------- Number of villages with clinics if spending is increased by one million xxxxxx Number of villages with clinics if spending is increased by two million 12

14. Managerial Conditions for Successful MTEF/PB • Past reforms assumed that improving the budget process suffices to improve public management. The rationale was that if the budget is based on results, managers will drive their organizations to perform • It is now recognized that budgeting is shaped by the managerial culture and context within which resources are allocated and services are provided. If managerial conditions de-motivate public employees and discourage performance, efforts to budget on the basis of results will fail • To succeed, MTEF/PB must be part of a broad effort to reorient public sector management and to promote performance-based behavior in government organizations • Changing the classification of expenditures and the form of the budget to not suffice to focus government on results 13