Journal Issue

An Operational Approach to Development Planning

International Monetary Fund. External Relations Dept.
Published Date:
December 1969
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Albert Waterston

AFTER about two decades during which planning—by which is meant here government planning for economic and social development—gained virtually universal acceptance in the less developed countries, questions are being heard about its usefulness for accelerating the rate of growth. While development plans have proliferated, and the techniques by which they are formulated have improved, the average annual rate at which real domestic product has grown in the less developed countries has shown no appreciable improvement since the 1950’s; and in Latin America, and even more in southern and southeast Asia, the annual rate of growth has actually declined.

Those who oppose government intervention in the economy, in renewing or increasing their attacks on development planning, have not failed to point to the poor record. To this defenders of the accepted system of planning reply that what is at fault is not the conventional planning approach, but the failure of governments to follow the precepts and prescriptions laid down by planners. In effect, they say, that if the facts do not accord with the theory, so much the worse for the facts. This should not be taken as arrogance, for those who hold this view mean that governments, by their actions or their failure to take appropriate action, create or perpetuate situations that are inimical to development planning.

Malfeasance or nonfeasance may indeed be the crux of the matter, but with a different import than is intended by those who defend the traditional planning approach. Thus, if there is something in the nature of conventional planning, or in the milieu of the low-income countries, that makes it unrealistic to expect the responses required for the successful operation of conventional planning in these countries, it may be more sensible to try, at least at first, to modify the theory rather than the facts, i.e., to modify the planning approach rather than the responses of the political authorities. If this be so, it is well to ask how it may be done.

Conventional Planning

Conventional development planning, which requires the sequential preparation of long-term (perspective), medium-term and annual plans, has great virtues. Yet it has been criticized because it is technically imperfect and because the data on which it must be based are unreliable, when they can be found. But these deficiencies, although serious, are not nearly as important as another factor in explaining why planned development has performed below expectation and need. For the evidence accumulated in the last decade indicates that conventional planning is incompatible with the existing political and economic environment in most low-income countries. This is because there is implicit in that planning approach an assumption that although change is inevitable it occurs in a generally stable environment. But the fact is that change, sudden, frequently unforseeable, and great, in political and economic conditions of countries, particularly in the less developed world, has become characteristic of the modern age.

The record of the last decade makes it clear that political instability is the norm for low-income countries. In the last ten years there have been no fewer than 58 coups d’etat in these countries. The impact which these changes make on planning is better understood when one recalls that governments rarely continue with their predecessors’ medium-term or long-term development plans. And even when there is no change in the top leadership of a government, political instability may make the execution of such plans difficult or impossible. This was true, for example, before the 1968 military coup in Peru, where six cabinets served in the five years President Belaunde Terry held office; and it is true in a country, such as Nigeria, where civil strife reaches proportions that interfere with the orderly conduct of government.

Undue economic uncertainty also inhibits the preparation and execution of development plans in low-income countries. Where short-term problems are a source of concern, unexpected declines in foreign and international aid and loans occur, or substantial fluctuations in the prices of primary exports reduce foreign exchange earnings below expected levels, it becomes difficult or impossible for some countries to adhere to medium-term plans and targets.

Political instability and economic uncertainty, when combined with the largely formalistic acceptance of development plans and inadequate administrative systems often found in low-income countries, largely explain why such countries without much planning experience and expertise fail to carry out their plans. However, instability and uncertainty in recent years have also made medium-term planning undesirable for some countries which are deeply committed to planned development and have the planning expertise and administrative capability to carry out medium-term plans. Thus, France, India, the U.S.S.R., and Yugoslavia have all had to replace recent medium-term plans with annual ones when unforseen events made it impossible to deal effectively with development problems as framed in their medium-term plans.

Planning From Another Vantage Point

In a period of about three and one half years when, under World Bank auspices, I advised 16 countries in Africa, Asia, and Latin America on planning problems, I was able to evolve and test an annual planning-cum-sector-programing approach to planned development which gives promise of increasing returns from planning efforts in low-income countries.

Planning from Below

In essence, this approach represents an attempt to give greater emphasis to “planning-from-below,” without which the practice prevailing in most low-income countries of “planning-from-above” with medium-term plans alone has yielded little. The proposed approach is primarily directed toward improving the management of investment and other current development decisions. At the same time, it seeks to set up each sector program as a bridge, now often lacking, between the medium-term plan and the projects prepared by technical ministries, departments, and agencies. This tends to increase the probability that medium-term plans will be carried out. In countries without medium-term plans, the proposed approach lays a firm basis for their effective employment.

The record of some developed and developing countries with long planning experience supports this approach. When several of these countries have found themselves confronted with especially difficult problems, or have faced the prospect of unpredictable change or unusual uncertainty, they have resorted to annual planning with good results. As already indicated, the U.S.S.R., Yugoslavia, and India have planned or now are planning with annual plans because their Governments decided that for a time conditions did not permit them to plan for more than a year ahead. France is in the same position, but is planning through its annual budget. Mexico, whose first plan (one of six years) was issued in 1934, has also planned for many years through its annual budget, notwithstanding the occasional preparation of medium-term plans by the Government. Yugoslavia and Mexico both have supplemented annual planning with multiannual sector programing.

The Annual Plan of Action

In theory, every medium-term plan must be followed by annual plans which make them operational. By allocating resources to specific projects and programs in the public sector, annual plans become the basis for government budgets; and by spelling out in detail the measures and instruments of policy required to stimulate private investment to conform with national development objectives, they transform the general development strategies and policies usually found in medium-term plans into a program of action for a year at a time.

However, few low-income countries prepare annual plans worthy of the name. The lack of annual plans makes it difficult to relate a medium-term plan to annual government budgets. This can be a fatal flaw, since budgets must reflect the medium-term plan if the plan is to be implemented. The absence of annual plans also makes it difficult to convert the general development strategies and policies in a medium-term plan into specific instruments of policy for the private sector. Where a medium-term plan exists, it is frequently out of date or does not provide a usable framework for public investment or economic policy and, hence, for annual operational plans.

In these circumstances, it has proven useful to prepare a comprehensive annual plan for the first possible fiscal year as an “annual plan of action” to coordinate continuing development activities in the public and private sectors. An annual plan of action can do much to reduce waste in the current allocations of scarce resources and help produce quick returns through the concentration of available resources on the most urgent projects of public investment. This is attractive politically as well as economically.

As a first step in preparing an annual plan of action, an inventory is taken of all public investment projects and programs, including those sponsored by public enterprises. While the inventory is proceeding, estimates are made for at least two or three years ahead of the amounts expected to be available for public investments, i.e., the sum of budgetary surpluses on current account, the expected net inflow of foreign public investment loans and aid, and net internal borrowing by the public sector. It is useful to have these estimates when the annual plan of action is prepared because commitments made in the plan to start or continue projects, if they are not completed within the year, imply that funds will be available to continue or complete them in later years.

If the inventory of public investment projects and programs reveals, as it often does, that more investment is being attempted than can be supported by resources likely to be available, some projects and programs have to be postponed or eliminated in accordance with priorities set after applying to them general economic, financial, technical, and administrative criteria.

Since foreign exchange is usually a major constraint on investment in less developed countries, public investment projects and programs to be included in the plan must also be examined to ascertain their foreign exchange requirements and to make sure that these requirements can be met. To this end, as a third item in the plan of action, a detailed foreign exchange budget, for two or preferably three years, must be prepared; it should include exchange allocations for each project and program included in the plan of action. The foreign exchange budget should also make appropriate allowances for the foreign exchange requirements of the private sector.

The annual plan of action should include a program of organizational betterment specifically devised to implement the plan. Since the time available to institute and carry out administrative and procedural reforms for this purpose is short, only minimal changes required to achieve the plan’s implementation should be attempted.

A fifth component of the annual plan of action is a technical assistance program devised specifically to aid the implementation of the plan. The technical assistance program should provide for consultants or other technicians required to expedite execution of public sector projects in the process of being carried out; the preparation of feasibility and other preinvestment studies for potentially viable projects or for investment studies of projects already identified as viable but not yet in process of execution; and the establishment and improvement of the organizational arrangements required to implement the plan of action.

As a sixth and final element, the annual plan of action should contain a set of specific measures and instruments of economic, financial, fiscal, and monetary policies through which the government will seek to implement the plan and, especially, to stimulate private investment along socially desirable lines.

Sector Programs

Annual plans, by themselves, have limited value for influencing basic economic changes because not much can be done in one year to bring about such changes. Moreover, most available resources are already committed to existing projects and programs. Annual plans also lack the perspective required to gauge the long-term effects of current investment decisions. Without perspective, investment decisions that appear to be sensible in the short run may produce internal or external bottlenecks and imbalances over longer periods.

But when annual plans are used in combination with multiannual sector programs, maneuverability and perspective become possible. Thus, projects included in an annual plan of action can be phased into sector programs over the years. The implications of going ahead with projects in a basic sector, e.g., in agriculture or industry, also can be related to other sectors, e.g., by the completion of complementary projects in transport and power. In this way, the annual plan of action determines some investments in each sector “from-the-bottom-up.” At the same time, by a system of “feedback,” projects included in sector programs determine which projects are to be included in the annual plans which follow the annual plan of action.

But, as suggested earlier, political instability, economic uncertainty, formalistic adoption of plans, and administrative shortcomings make long-term or even medium-term comprehensive forecasting difficult in most low-income countries and impossible in many. If the planners have not taken account of the likelihood that events will require major reorientation in the direction or scope of their plan, its life expectancy could be short. But if they have prepared for contingencies by considering alternative development strategies, and have studied the projects and programs required to give effect to them, plan revisions become more manageable.

Sector programs may be especially useful for revising plans if they are prepared in such a way as to identify alternative strategies and the projects required to implement them. For example, in agriculture it would be possible to consider alternative strategies for improving and increasing the output of current export crops, diversification of exports, and import substitution, or combinations of these. The projects and programs required to implement each strategy might be identified in the agricultural sector and in related infrastructure sectors, e.g., in the transport, irrigation, and power sectors. Project priorities could be set on the basis of the strategy adopted. Development strategies might range from maximal to minimal, each to be brought into play if resources were augmented or if they were reduced. In this way execution of projects could be speeded up or slowed down as resource availabilities dictated.

To facilitate a coordinated approach, a rolling program for the first three years could be maintained in each sector. Coordinated programing for more years would be desirable, but it is unlikely to be of much value in conditions of uncertainty and instability. Projects in the first year of the sector programs would be included in the annual plan, and provision would be made as required for those that continue beyond the first year in the three-year rolling sector programs. The three-year rolling programs would be compared with each other to ensure that adequate provision has been made for complementary projects and their coordination. Only minimal efforts would be made to relate projects among sectors beyond the three-year period on the assumption that intersectoral forecasting beyond a three-year period is likely to be of little value.

A prime purpose of sector programing should be the identification of various development strategies and the different projects required to give effect to them. When feasibility and other preinvestment studies for these projects had been carried out, a shelf of projects would become available to be drawn upon as circumstances require without great delay. This implies that more projects would have to be studied than are likely to be carried out. While this may appear wasteful, it is in fact likely to be less costly ultimately than being caught short of viable projects, a situation in which low-income countries frequently find themselves. Where a shelf of studied projects exists for a sector, choices among alternatives become possible. Furthermore, the existence of a stock of projects allows governments to arrange for financing projects long enough in advance to ensure their completion in accordance with a predetermined timetable.


From day to day, governments in the less developed countries make investment and other development decisions. The way these are made and carried out reflects the state of the political, economic, social, and administrative realities. And given the characteristics of under-development these decisions are often made without account being taken of development potentialities.

In contrast with the faulty decision making usually found in low-income countries, high quality decision making is required to achieve goals frequently found in medium-term plans. The planners know this, of course, and hope that the necessary improvements will be made in the decision-making process. But the gap between the way things are done and the way they would have to be done to achieve the plan’s objectives often proves to be too great to bridge in a medium-term plan period. Planners are usually better informed about the macroeconomic than the microeconomic aspects of planning. They therefore tend to have a much clearer notion about where a country must go to arrive at macroeconomic targets than they have about precisely how to bring about the political, managerial, and other changes which are usually prerequisites for starting up and maintaining momentum for the journey. Planners sometimes view their plan as though it were a beacon in the dark, without the need for marking out the way to it. Consequently, they rarely chart the reefs to look out for en route. Many who start the voyage do so with the optimism of the inexperienced who, finding the passage more difficult than they had expected, predictably give up before the journey’s end.

Planners cannot limit themselves to saying what is to be achieved without showing how, when, and by whom it is to be done. Unless they give attention to the means for reaching macroeconomic goals, there is little reason to expect that planned development will be more successful in the future than it has been in the past. The operational approach to planning proposed in this paper is not especially original or new. Although the planning sequence and treatment proposed differs in some respects from the “planning-from below” phase of conventional planning, the components in the proposed approach are all recognizable parts of the planning matrix.

The proposed approach is not a negation of comprehensive planning, since it employs that planning in the formulation of annual plans. What is different is the order in which comprehensive planning is introduced, and this change seems desirable because it is better to improve current development decision making with annual planning rather than to postpone dealing with current decision making (as is done in many countries) by starting the planning process with longer-term plans. In this sense, the proposed approach is a form of “instant” planning in contrast with the “delayed” planning in the conventional approach. There is, of course, some risk in this approach that the need for the long view will be lost, but this risk is greatly reduced by the multiannual sector programs. By emphasizing annual plans, the proposed approach incorporates provision for plan implementation as an integral part of plan formulation. For whereas political authorities may make a plausible case for postponing firm decisions to implement a medium-term plan without immediately exposing themselves to the criticism that they do not really mean to carry out the plan (as happened in Nigeria in the case of the National Development Plan for 1962-68), this is not easy to accomplish for an annual plan because of the short time available for implementing a one-year plan. This is one reason why the proposed approach is properly referred to as “An Operational Approach to Development Planning.”

The proposed approach can be used in whole or in part with conventional planning, but it can be used alone if a country is not ready for conventional planning. While the two approaches are compatible they are not the same. Conventional planning seeks the optimal solution to the major problems of development; the proposed approach seeks the optimal exploitation of development possibilities, given the political, administrative, and social realities in a country. Unlike conventional planning, which to be effective usually requires substantial improvements in the political-administrative-social milieu in the medium-term, the proposed approach accepts that milieu as given in the short-term.

Like conventional planning, the proposed approach seeks to improve development decision making; but whereas the first approach does this by reference to goals which promise the greatest returns in the long run, the second does it by reference to shorter run which promise the fastest returns.

The second approach is second best, but only if the first works. If it does not, and in many countries it clearly does not, the second approach may be the best one available, at least until institutional arrangements for decision making are improved.

The proposed approach has certain advantages over the conventional approach. Its prime virtue is that it starts with the situation as it is in each country and applies those planning techniques which give the greatest promise of ameliorating the situation, instead of attempting to force every country into the same mold, somewhat modified perhaps to take account of individual differences.

A second virtue is that it suggests a way (there are undoubtedly others) for providing, “from-the-bottom-up,” a solid foundation for planning “from-the-top-down.” After all, it is the microeconomic factor which largely determines a country’s macroeconomic performance. Since plan implementation frequently starts before plan formulation (in the sense that it often takes longer to prepare projects than macroeconomic plans), the preparation of a shelf of projects for each sector provides a solution for “the project gap.”

While a stable development strategy is obviously desirable and in fact essential for conventional planning, the proposed approach does not by itself depend on year-to-year continuance of the same development strategy. A third advantage of the proposed approach, therefore, is the flexibility provided by sector programing with alternative development strategies. This makes the proposed approach well suited to the politically unstable and economically uncertain circumstances in which most low-income countries plan today.

A fourth advantage is that the elements in the approach are separable, thereby making each part usable without the others. This adds to the flexibility of the proposed method.

A fifth advantage is that since it introduces few planning concepts which are new, it requires few administrative or structural changes in government organization.

A sixth advantage is that it widens the planning function by making planners of those in the technical ministries, departments, and agencies who prepare sector programs and projects, as well as those who work on government budgets. Virtually everyone concerned with projects and sector programs must see himself as a planner, and be recognized as such by central planners, if development plans are to be carried out successfully.

It would be premature to make claims for the success of the proposal that I have outlined here. However, where it has been tried the results have been encouraging. In several of the 16 countries visited, application of part or all of the proposal has produced improvements in planning procedures and organizations. Although modest, the improvements have been welcome especially because, for the most part, they represented a reversal of downward trends in planning performance.

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