Transcript BHUTAN - WORKSHOP ON PEM II APPROACHES TO PRIORITIZATION

BHUTAN - WORKSHOP ON PEM
II
APPROACHES TO PRIORITIZATION
OF EXPENDITURES
Mike Stevens
Thursday, 19 August 2004
Introduction
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Presentation will look at expenditure prioritization under
different PEM paradigms, chiefly: national planning,
PRSPs, ZBB, MTEFs
It will emphasize practices rather than “principles” (are
there any?)
It will not cover “benefit incidence” (another topic)
It will conclude with some comments on the Ninth Plan’s
approach to expenditure prioritization, a warning, and how
Bhutan might strengthen its existing machinery.
Documents examined
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The following Bhutan Govt documents were reviewed in
preparation for this presentation:
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Budget Manual (but how far has this been implemented – eg:
program structure?)
Ninth Plan (is there an accompanying PIP – list of projects?)
PRSP (this presents itself as a MTEF accompaniment to the Plan,
together with sections analyzing poverty)
Different approaches to prioritization
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Economist’s approach to prioritization: priorities can be
determined by economic analysis – eg: cost benefit
analysis of projects. National or sector plan comprises
projects with the highest rate of return, above a minimum
threshold, that can be financed with available resources
Poverty specialist’s approach: Plan and budgets should be
focussed on public spending which has greatest impact on
reducing poverty
Public Management approach: little scope for prioritization
anyway, since spending patterns are largely predetermined
by past policy decisions and unavoidable commitments
Approaches to prioritization, cont.
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Political scientists: politics will always determine
spending choices, and the task of technicians is to inform
those choices
Donors: ask for the government’s highest priorities to fund,
but if they really wanted to influence the composition of
spending, they would seek the marginal projects
(Governments, if they have a current budget surplus,
should keep high priority projects to themselves, to avoid
delay, and give donors second order projects while
pretending they are first order!)
Prioritization under different paradigms
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National Planning paradigm
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Centralized approach to expenditure prioritization: planners
articulate development strategy based on goals (4 in Bhutan), and
call for sector plans to achieve these goals. Planners effectively set
priorities by determining relative sector outlays (does Bhutan have
a mechanism whereby planners present ministers with options and
proposed outlays, ahead of instructing agencies to prepare plans?)
Annual budgets take lead from plan outlays and content
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Budget Manual 4.3.1: “Based on sectoral plans, priorities and
implementation capacity, the Agencies shall prepare budgets for
different programs and projects”
Agency PUs to keep the direction of the budget in line with the 5YP
Paradigms cont. - PRSPs
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PRSPs inherently take a different approach, in most countries
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Prior assumption that spending should be pro-poor (ie. Having greatest
impact)
Priorities should be arrived at in participatory way involving all
stakeholders (in contrast to central planning, which may be consultative,
but seldom truly participatory)
Unclear where pro-poor spending begins and ends – eg: spending on roads
and power which promote economic growth, or on security and justice
(absence of which affects poor most)
Problem of recurrent costs – high cost drivers of pro-poor spending
Biasing budgets to poor may conflict with political realities
Are PRSPs true spending plans or advocacy documents?
Paradigms cont. - ZBB
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Zero-based Budgeting (ZBB)
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In vogue 20-30 years ago in US states and LGs
Clean sheet each budget year, ranking programs in descending
order of importance (politically or otherwise), with cut off through
available funds, yields priority budget
Unworkable in developing countries for many reasons
Budget needs to be in program format
Programs need to be essentially outsourced (so that they can be easily
terminated)
Govts cannot turn their backs on past policy decisions each year
Administratively burdensome
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But as antidote to incrementalism, the concept is attractive
Paradigms cont. - MTEFs
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MTEF - at the opposite end of the scale to the 5YP, at
least as practiced in OECD countries (originators of the
concept)
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Budget ministry has no formal view on spending priorities – its
concern is fiscal aggregates: TR, TE, debt and deficit
Line ministries given resources for existing policy, and have
flexibility to reallocate to achieve agreed outputs or outcomes
How “headroom” (gap between existing policy allocations and TE)
is allocated is politically decided through collective cabinet
decision
In practice developing country MTEFs will be more top-down
How does Bhutan match these
paradigms?
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Ninth Plan – clear goals and strategy, and five year current
and capital planned outlays by sector
PRSP – cover paper to Ninth Plan, combines “MTEF” and
poverty analysis. Breaks down sector spending by year, by
current/capital, and by centre/district/village.
Not really a MTEF for two main reasons:
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Organized by sector, not ministerial/agency portfolio (essential to
locate managerial responsibility)
Based, like Plan, on “needs” not “availabilities”
Conclusions – what direction should
Bhutan take?
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Could stay with existing planning paradigm which is well
understood, driven by local revenues and aid, and by plan
priorities. Will maximize aid flows, but risks fiscal crisis
given large capital spending and likely high recurrent costs
of MDGs
Current PSRP doesn’t greatly change this – still a planning
model, not a true MTEF
Complement Plan with a better articulated MTEF
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MTFF dealing with budget aggregates, based on projected
availabilities and fiscal strategy
Conclusions cont.
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MTEF cont
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Divide MTFF into portfolio envelopes, initially top down,
(i) provide sufficient finance to cover existing commitments,
(ii) shape MTEF portfolio frame to reflect political priorities,
(iii)seek to program aid flows in dialog with donors
Regard Plan as articulation of sector policies and strategies, which
feed into MTEF, as ‘clearing house” for annual budget
Pay more attention to current side of budget by estimating how
total costs of policies/programs will evolve over Plan period – and
adjust as needed.
Within MTEF, MF should hold back a planning contingency, say
5-10%