Transcript Performance Based Grant Systems

Performance Based Grant Systems
(PBGS) – Using Grants as Incentives
Concept and International Experience
By Jesper Steffensen
March 22, 2010 – WUF
[email protected]
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Overview of the Presentation
1. Background
2. Objectives and Concept of Performance-Based
Grant Systems (PBGS)
3. Experiences and lessons learned
4. Design issues, future prospects and challenges
2
Background and Introduction
Intergovernmental fiscal transfers is the most
important element in the funding of LG expenditures in
developing countries (>60 % of overall funding)
The design is a great challenge in any country
Transfers without consideration on the incentive
systems and performance have often created
unintended problems
Lack of LG incentives to improve performance,
• To strengthen financial management,
• Own LG tax collection – crowding out impact
• Accountability and good governance
Wish to avoid sending more money into a “black box”
3
Background and Introduction
Inefficient capacity building support
No incentives for LGs to utilise it efficiently
Fragmented and weak impact of previous support
modalities on LG institutional performance
(projects)
Many failed PFM reforms – Why is it not working?
Muted downward accountability
Wish to move towards on-budget funding
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Overall Objective of PerformanceBased Grants (PBGs)
Performance-based grants (PBGs) provide
incentives for LGs to improve their performance by
linking the access to and size of the release of
grants with their performance in pre-determined
areas:
They supplement other grant objectives
They supplement other incentive frameworks, e.g.
salaries
The incentives are primary monetary
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Specific Objectives of PBGS
1.
2.
3.
4.
5.
6.
7.
Provide more funds for local priorities and ensure that
spending is where there is a clear absorption capacity –
basic safeguard against misuse of funds
Promote strong incentives for LGs (as corporate bodies) to
improve in key performance areas and adhere to standards
Supplement CB needs assessment and Monitoring and
Evaluation systems
Strengthen the capacity development efforts (focus and
incentives) – New approach towards demand-driven CB
Improve management and organisational learning
Improve accountability (up/down), participation and
citizens’ access to information on key issues
A strong tool to bring funds on-budget and
streamline/harmonise and align donor support
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PBGS Influence on Accountability Mechanisms
PGBS
Central Government
Local Council
Own
staff
Sector
Dept.
Staff
Citizens, Voters, Tax payers and Users
7
PBGS Typology - Focus
Type of Performance
Service Delivery
A
Multi-Sector Usage
Service Delivery Focus
B
Sector Specific Usage
Service-Delivery Focus
(Rwanda)
(SEG-Uganda, selected
OECD Countries)
D
Sector-Specific Usage
Institutional Focus
C
Multi-Sector Usage
Institutional Focus
Institutional
(e.g., Uganda, Tanzania,
Nepal, Bangladesh – pipeline:
Solomon Islands, Philippines
and Ghana)
Multi-Sector
(Philippines, Tanzania)
Sector-Specific
Use of Funds
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Mutually Strengthening Components of the System
1. CAPITAL/DEV. GRANT
•Clear formula-based distribution
•Performance-based award
•Significant local discretion
3. CAPACITY BUILDING
GRANT (Demand Driven)
•More easily available than capital grant
•Combination of local discretion
and supply-side constraints/inputs
Institutional Set-Up
2. ASSESSMENT PROCESS/INCENTIVES
•Assessment manual with clear indicators
•Annual assessment process (contracted out)
LG
LG
LGs use capacity-building resources to improve
performance in response to incentives!
LG
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Component 1 - Development Grant
Size and utilization
Sufficient to create incentives, sometimes undermined by easy
access to alternative flows (e.g. Social funds)
Often minimum 20 % of the total development grants
Most countries about 1-4 USD per capita
Ideally, it should be sufficient to be of interest for the sectors
Use formula-based basic allocation formula
• Expenditure needs, revenue capacity and cost variations or proxies
• + adjustment against performance
Clear investment menu – positive and negative list
Capital versus recurrent
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Component 2 - Assessments
Overall issues
Most countries use annual assessments
Use of a set of defined indicators (defined in due
time)
The specification of indicators is important – a
”special science”
Use of elaborated manual – most countries
Various methods for assessments
Internal versus contracting out – combined teams
High credibility in the assessment in pertinent (neutral +
validation)
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Principles for the Indicators and
Assessment – A Special ”Science”
SMART: Specific, Measurable, Achievable, Realistic and Time-bound
(not ambiguous)
Not overlapping
Within the LG control (attribution)
Derived from existing legal and institutional framework (i.e. not parallel
systems) and where supported
Focus on core weaknesses in the LG performance (e.g. PFM,
transparency, project implementation efficiency etc.)
Balanced and provide clear “signals” for areas, which should be
improved
May be gradually refined, but keep it relatively stable and simple
Weighting (score from e.g. 0-100, balanced performance)
Progressive performance of each LG versus benchmarking with other
LGs?
Special considerations for the poor LGs? (indicators, “handicap”)
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Component 2. Assessments - Tools to Adjust
Allocation
Minimum conditions
Basis safeguards to ensure capacity to handle funds
On-off-triggers
Not too many as it may deprive incentives and blur focus
Realistic in scope, but should reduce fiduciary risks to an
acceptable level
Example: ”Final accounts submitted on time”
Performance Measures
More qualitative
Can vary in scope and content
Example: ” development plan developed with involvement of
citizens through open meetings”
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Examples of Typical Minimum Conditions –
Basic Safeguards
1.
2.
3.
4.
5.
6.
7.
8.
Medium term up-dated development plan approved on time
Linkage between the development plan and budget (medium
term forecast)
Core staff in place and functional committees
Accounts for previous FY produced, cash books and bank
reconciliations up-to-date
Internal audit function in place and working
Capacity building plan developed and approved by council
Co-funding requirements from LGs adhered with
No adverse audit report and/or all previous audit queries
addressed
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Examples of Typical Performance Areas
Areas have to be under the LG control, clearly defined,
and measurable!
Organisational performance (e.g. structures and processes)
Planning (e.g. quality of plan and level of citizens’ participation)
Budgeting performance (e.g. outturns against budget)
Fiscal performance, (e.g. local revenue performance)
Financial management (e.g. books of accounts, bankreconciliation up-to-date, commitment control systems)
Accountability and transparency (e.g. publication of budgets,
accounts and audit reports and involvement of citizens)
Cross cutting issues (e.g. environment, poverty focus, gender)
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Component 3: Capacity Buidling
PBGSs often encompass a strong element of
Capacity Building (CB) support
Combined supply and demand driven (CB grants)
To help the LG to improve performance
To respond to the weaknesses identified in
assessments
Often easier access to this support (lower MCs) –
e.g.: ”a CB/HR development plan is in place”
Broad and generic focus
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International Experiences
Positive and expanding experiences
Relatively new phenomenon - examples
Uganda (1997, full scale from 2003)
Kenya (2001/02)
Tanzania (2004, full scale from 2005)
Nepal (2004 pilot, full scale 2008/09)
Bangladesh (2003 pilot, roll-out 2007-),
Indonesia and Pakistan (2005-) – area based
Sierra Leone (2006/07)
Solomon Islands (2008)
Ghana 2009
Preparatory work in other countries e.g. India, China, Zambia and
the Philippines
Most experiences from multi-sectoral – systems focusing on
basic generic LG performance (“first and second generation”)
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Feature
Uganda
(2008)
Ghana
(2009)
Nepal
(2009)
Indonesia
(2006)
Bangladesh
(2008)
SoI
(2009)
Minimum
conditions
8
9
13
6 + 30 for
various stages
Pilot 9
8
Performance
measures
121
60
57
NA
Pilot 42
64
Assessment
Combined
Ministry +
QA
Contracted
out
Countracted
out
Submission of
documents to
project office
External audit
contracted
Contracted
out/ audit
Scoring
Fixed
scoring
Relative
performance
Fixed
scoring
Phasing of
reform levels
Fixed
scoring
Relative
perform.
Formula
Population.,
poverty
land +
performance
Population,
land, equal
share +
performance
Population,
HDI, equal
share, cost
indes and
performance
Selection
based on
reformmindness and
poverty
Population +
performance
adjustments
Population,
equal
share +
performance
Coverage
Nationwide
Nationwide
Nationwide
Piloting
Roll-out
Nationwide
Funding
GOU + DP
GOG+DP
GON + DP
GOI +DP
GoB+ DP
Gov + DP
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Lessons Learned on Impact from Asia and
Africa
Improved focus on performance, competition and
dialogue on how to improve performance amongst LGs
Improved planning, budgeting and financial
management
Funds spent on core service delivery areas
Strengthened legal adherence, e.g. procurement
Supported reform minded “drivers of change”
Improved accountability in all directions
Improved efficiency in capacity building support as
linked to assessments and clear benchmarks for
improvement
Provides room for more LG decision-making as
performance improves and reduces need for detailed
regulations/tight control
Supported a move from project to programs to entire budget
support systems- improved harmonisation and
alignment
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Key Issues in Design and Implementation
Arrangements – Conditions for Impact
Institutional Arrangements
 Government commitment, leadership and capacity
 Strong oversight and quality assurance (integrity)
 Certain level of autonomy for LGs required (attribution)
 Harmonised approaches to assessment and coordination of CB
support
 Need to be aligned with overall grant system

Should be well linked to the budget cycle (size and timing)
Funding Arrangements
 Size of the PBGS pool of funds must be “meaningful” relative to
other revenues
 Predictability important (volume, proper information flows,
timely releases, formula-based)
 It can be undermined by other “easy”/conflicting resource flows
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Design Issues – Conditions and Impact
A PBGS is potentially a strong tool in the overall fiscal system
(offers great potential), but the design is important
Requires resource intensive preparations
May tend to be overly complicated – keep in simple and robust
Some extra costs related to the management of the system,
assessments etc.
Requires intense dialogue and coordination in preparation and
implementation
Neutral, professional and robust assessments
Cannot stand alone!
The overall environment (legal, institutional, fiscal factors)
matters
A PBGS addresses the institutional (corporate) incentives,
but the individual performance incentives (salary, conditions
etc.) are equally important
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End of Presentation
THANK YOU
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