Joanna Komorowska

1. Methodology for measuring government expenditures in support of food and agriculture sector development Joanna Komorowska

2. Outline • Key concepts • MAFAP classification • Budgetary transfers versus revenue foregone • Mapping aid onto government expenditures • What will we learn from the PE indicators?

3. Motivation • Agriculture’s key role in raising incomes, reducing poverty and improving food security • Reflected in 2003 Maputo declaration • Important to be able to analyse the performance of expenditures – but there is a lack of systematically organised data • African governments recognise the need to gather such information on a regular basis in order to make evidence-based policy choices • Having an economically meaningful classification system is a pre-requisite for policy analysis and efficient budgetary processes

4. The main principles of classification of policy measures in MAFAP • Seek to measure all expenditures that are supportive of sectoral development (both from national resources and aid) • Seek to monitor both, the level and the composition of expenditure measures • Complementarities and trade-offs between spending in different categories

5. The main principles of classification of policy measures in MAFAP • Primary focus on food and agriculture sector, but possible to include forestry and fisheries • Seek to capture related public expenditures in rural areas • Important role in ag sector development

6. Key concepts: what policies to consider? • That generate monetary transfers to: • agricultural agents individually • agricultural agents collectively • rural sector more generally • Objectives or economic impacts of policies not considered • General policies not considered, even if they generate transfers to agricultural producers agriculture-specific agriculture supportive

7. The main principles of classification of policy measures in MAFAP • Seek to distinguish between different economic characteristics of expenditure measures The main categories differ depending on how policy measures are implemented and not their objectives or impacts

8. Discussion question 1 What information should be considered to understand how policy measures are implemented?

9. Information on policy implementation • Who is the recipient • What is the basis for payment (area, income, unit of output etc.) • Commodities covered • Conditions attached to obtain the payment

10. The way in which measures are implemented matters - examples • Input subsidies in China • Extension services in Uganda

11. Input subsidies in China • Comprehensive Subsidy on Agricultural Inputs introduced in 2006 • Objective: to compensate grain producers for an increase in prices of agricultural inputs such as fertilisers, pesticides, plastic films and diesel • Implementation: payment per unit of land, not necessarily to buy inputs • Conclusion: direct payment supporting farmers’ incomes

12. Extension services in Uganda • NAADS responsible for extension services provision • “classical” extension services, but also input subsidies: although officially input subsidies were abolished, subsidised inputs are distributed through other channels, particularly agencies providing extension services (Uganda case study after WB2010)

13. MAFAP classification (see handout with categories and their definitions) I. Agriculture-specific policies 1.1. Payments to the agents in the agro-food sector: producers (e.g. input subsidies), consumers, input suppliers, processors, traders, transporters 1.2. General sector support II. Agriculture supportive policies: rural education, health, infrastructure

14. MAFAP classification • I.1. 2. Payments to consumers • Food aid • Cash transfers • School feeding programmes • Other I.1. 1. Payments to producers • Payments based on output • Input subsidies: • variable inputs • capital • on-farm services • Income support • Other I.2. General sector support: ag. research, technical assistance, training, extension, inspection, infrastructure, storage, marketing and other

15. Discussion question 2 Are the proposed MAFAP categories exhaustive? What other categories of spending might be present in Tanzania?

16. Budgetary transfers versus revenue foregone • Transfers in support of food and agriculture sector development may be provided in two forms: • actual budgetary transfers (such as production subsidies) • and the revenue foregone by the governments (such as tax concessions)

17. Estimating budgetary transfers • Complete coverage of institutions, administrative levels and financing instruments • Important to identify all budgetary expenditures in support of food and agriculture sector regardless their: • source of funding (national or aid) • public institutions involved • administrative level • financing instrument used

18. Estimating budgetary transfers • Budget planning versus actual spending • Both should be collected • Actual spending should be used in the classification and other calculations • Contrasting the two will feed into the PE efficiency analysis

19. Estimating budgetary transfers • Treatment of one-off investments versus recurrent expenditures • Both should be included • Both should be recorded on annual basis using information on actual year-to-year spending

20. Estimating budgetary transfers • Treatment of policy administration costs • Generally should not be included in the classification • Exception: when support is provided via services e.g. extension, research or inspection • Excluded admin costs will be collected separately to contribute to the PE efficiency analysis

21. Discussion question 3 How to estimate policy administration costs associated with policy transfers in support of food and agriculture sector development?

22. Estimating revenue foregone • Support may be provided in forms that do not imply actual transfers from the budget: • Tax concessions (income, VAT on inputs, fuel) • Most common in Africa? • Preferential lending (from the bank to ag. producers) • Administered input prices (SOE charging lower prices for inputs to ag. producers)

23. Estimating revenue foregone • A largely empirical and potentially complex task • Only those should be captured that unambiguously provide support to agriculture and can be measured in a reasonable time frame and with adequate accuracy

24. Estimating revenue foregone • Tax concession can be measured by establishing counterfactual and quantifying monetary value of the tax reduction by comparing the value of tax revenues from the counterfactual and the target group.

25. Discussion question 4 What types of revenue foregone measures are present in Tanzania? How can they be estimated?

26. Mapping aid onto national expenditures National budgets CRS, AidData • Agriculture specific • Payments to agents in agro-food sector • General sector support • Agriculture supportive • DAC donors • Other bilateral • Other multilateral • Central government • Local government • Specific projects conducted by NGOs or international organisations DONORS MAFAP public expenditure classification budget

27. Mapping aid onto national expenditures • Recording aid flows at every step of its distribution will help to: • Clarify how effective donors are in disbursing committed money • Establish the extent to which aid is provided for a specific purpose or in a form of general support to the budget • Establish the extent to which disbursed aid was actually spent

28. Discussion question 5 Is it possible to establish a direct link between donor commitments and disbursements and budgeted amounts and actual spending at the national level?

29. Potential problems related to classification of expenditures measures • Disaggregation of programmes may be difficult • Solution: estimate using expert consultations and/or allocation keys • Classification categories may not be exhaustive • Solution: classify to the most suitable “other” category • Categories will be revised periodically to adapt to the existing expenditures measures

30. What information are we looking for? • Policies that generate transfers in support of food and agriculture sector including: • Detailed description of policy implementation criteria (for whom, how, for which commodity, under which conditions) • Actual expenditure • Source of funding (national and/or aid) • Government level (national/subnational) at disaggregated level (MAFAP classification)

31. What information are we looking for? • General characteristics of spending: • Proportion of admin costs in total expenditures • Recurrent versus development budget • Ratio of actual spending and budget allocations • Share of aid in budget allocations and share of aid in actual spending • Aid type – loans versus grants • Off-budget expenditures at aggregated level (derived indicators)

32. What will we learn? • Proposed indicators seek to keep track of both the level and composition of expenditures (national and aid) • How much of budgetary allocations are disbursed • Whether they address the investment needs • Correspondence of spending with stated objectives • Trade-offs and complementarities between different spending categories • Role of aid • Effectiveness – economic impact?

33. THANK YOU