Front Matter

Front Matter Page

INTERNATIONAL MONETARY FUND AND INTERNATIONAL DEVELOPMENT ASSOCIATION

Actions to Strengthen the Tracking of Poverty-Reducing Public Spending in Heavily Indebted Poor Countries (HIPCs)

Prepared by the IMF’s Fiscal Affairs Department and the World Bank’s Poverty Reduction and Economic Management Network

In collaboration with other departments of the IMF and the World Bank

Approved by Teresa Ter-Minassian and Gobind Nankani

March 22, 2002

Front Matter Page

  • Acronyms

  • Executive Summary

  • I. Introduction

  • II. Objectives and Underlying Principles

  • III. Follow-Up Bank/Fund Missions to Finalize Assessments and Action Plans

  • IV. Assessments of Public Expenditure Management Systems

    • A. Benchmark Assessments

    • B. Availability of Data on Actual Spending

  • V. Actions Envisaged by Countries

    • A. Short-Term Measures to Strengthen Public Expenditure Management

    • B. Medium- to Longer-Term Strategies

  • VI. Assistance Providers

    • A. Internationally Supported Programs

    • B. Bank-Supported Programs

    • C. Fund-Supported Programs

    • D. Assistance Gaps

    • E. Implications for Bank or Fund Assistance

  • VII. Next Steps

  • VIII. Risks

  • Table

  • Table 1. Actions Envisaged in the Short Term

  • Figures

  • Figure 1. Relative Need for Upgrading PEM Systems

  • Figure 2. Substantial Upgrading Needed to Meet Benchmarks

  • Boxes

  • Box 1. Salient Features of the Assessment Approach

  • Box 2. World Bank/IMF Ongoing PEM Work

Acronyms

AFR

Africa Region

AFRITAC

Africa Regional Technical Assistance Center

CFAA

Country Financial Accountability Assessment

CPAR

Country Procurement Assessment Review

DANIDA

Danish Agency for Development Assistance

DFID

Department for International Development

ESAF

Enhanced Structural Adjustment Facility

ESW

Economic and Sector Work

EU

European Union

FAD

Fiscal Affairs Department

HIPC

Highly Indebted Poor Countries

IDF

Infrastructure Development Fund

IFI

International Financial Institutions

IFMIS

Integrated Financial Management Information Systems

IGR

Institutional and Governance Review

MDG

Millennium Development Goals

MTEF

Medium-Term Expenditure Framework

NORAD

Norwegian Agency for International Development

OECD-DAC

Organization for Economic Cooperation and Development—Development Assistance Committee

PEFA

Public Expenditure and Financial Accountability

PEM

Public Expenditure Management

PER

Public Expenditure Review

PETS

Public Expenditure Tracking Surveys

PREM

Poverty Reduction and Economic Management Network

PRGF

Poverty Reduction and Growth Facility

PRSC

Poverty Reduction Support Credits

PRSP

Poverty Reduction Strategy Paper

PSIA

Poverty and Social Impact Analysis

ROSC

Report on the Observance of Standards and Codes

SECO

Secrétariat d’Etat à l’Economie (Swiss State Secretariat for Economic Affairs)

SPA

Strategic Partnership with Africa

USAID

United States Agency for International Development

WAEMU

West African Economic and Monetary Union

Executive Summary

This paper is a follow-up to the March 2001 Board paper entitled “Tracking of Poverty-Reducing Public Spending in Heavily Indebted Poor Countries (HIPCs)” and seeks the Board’s concurrence on the approach to tracking poverty-reducing spending. In that paper, staff reported on the preliminary desk assessments of the capacity of 25 HIPCs to track poverty-reducing public spending. The preliminary assessments found that two of the 25 HIPCs should be able to carry out satisfactory tracking with a small amount of upgrading of their public expenditure management (PEM) systems, seven would require some upgrading, and the remaining sixteen would require substantial upgrading. The Board discussions of that paper identified four follow-up tasks to be undertaken in conjunction with country authorities: to finalize the assessments, to prepare action plans to improve PEM systems, to identify existing and planned donor assistance and any gaps that may remain, and to report on progress in reforming PEM systems as part of regular reviews of Bank- and Fund-supported programs.

The preliminary assessments were finalized during April-November 2001 through detailed discussions with country authorities. The final assessments presented here produced overall results that are broadly similar to the preliminary desk assessments, but with some significant differences in particular country cases. The assessments are based on the same methodology that was adopted for the earlier Board paper. Of the 24 countries included in the current assessment, nine require some upgrading to be able to track poverty-reducing spending satisfactorily, and the remaining fifteen require substantial upgrading. However, with some effort and commitment, most HIPCs can significantly strengthen their PEM systems within the next 1-3 years. Despite the overall weakness of PEM systems, a small number of HIPCs are currently providing data on poverty-reducing spending in a manner that is consistent with their PRSPs. For a larger number of countries, it is possible to establish a broad mapping of budget data to the poverty-reducing spending categories defined in PRSPs and interim PRSPs (I-PRSPs). An even larger number of HIPCs are providing broad-brush functional data on social spending.

The discussions with country authorities also focused on the preparation of action plans to strengthen PEM capacity in HIPCs in both the short and medium term. Short-term actions include broadening the coverage of government expenditures, upgrading classification systems, introducing functionally based in-year reporting, and piloting of integrated financial management information systems (IFMISs). Most countries are introducing bridging mechanisms, such as “virtual” poverty funds, to facilitate immediate tracking. Bridging mechanisms are short-term adaptations of the existing PEM system to produce the requisite data on poverty-reducing spending. In the case of “virtual” poverty funds, the existing budget classification system is used to tag and track poverty-reducing spending without the setting-up of separate institutional arrangements. Medium-term actions focus on strengthening overall legal and regulatory frameworks and budget formulation and monitoring processes, full implementation of IFMISs, and the development of human resources.

More than 25 bilaterais and multilaterais are currently providing assistance to HIPCs on PEM, and only a small number of gaps in assistance were identified. Bank- and Fund-supported programs place a heavy emphasis on strengthening PEM capacity of HIPCs. Both institutions continue to deepen the dialogue with country authorities on PEM to define country assistance programs in light of the agreed assessments and action plans. The specific activities and instruments of the Bank and Fund are to a large extent complementary, and staff are working further to strengthen these complementarities.

Countries should now be encouraged to incorporate the action plans into PRSPs and other country-owned documents. This can serve as the basis for marshaling the remaining assistance and reinforcing ownership. Staff will continue to report on progress in implementing PEM reforms in HIPCs as part of the normal review of Bank- and Fund-supported programs. Staff intend to carry out the next comprehensive review of country PEM capacity for tracking poverty-reducing public spending in HIPCs in 2004.

The assessment and action plan approach outlined in the paper carries significant risks. The first is the risk of weak ownership by governments and partial or ineffective implementation of action plans. A counterpart to this is the risk of unrealistic expectations on the part of the development community. Institutional reform is a long-term process, and progress inevitably proceeds at varying speeds in different settings and over different time periods. A further risk is the over-interpretation or misuse of the assessment results. And finally, there is the risk that assessment results could reduce donor support for system-wide approaches to policy-reform and institution-building. Should the first risk materialize, progress in improving PEM systems will follow a slower path. Should the latter risks materialize—unrealistic expectations, over-interpretation or misuse of the results, or reduction in donor support for system-wide approaches—the level or poverty-impact of donor assistance could be adversely affected.

Actions to Strengthen the Tracking of Poverty-Reducing Public Spending in Heavily Indebted Poor Countries
Author: International Monetary Fund