Identifying Indicators for Monitoring AFT: Competitiveness, capacity and performance

1. Identifying Indicators for Monitoring AFT: Competitiveness, capacity and performance 15 September 08, Geneva Vishnu BASSANT, Director, Development Cooperation Ministry of Finance and Economic Development

2. For effective monitoring of AFT • Beneficiary has an AFT-compliant development agenda with trade liberalisation at the core. Must be embedded in regional programs and in EPAs • Programme endorsed by development community • AFT pledges have are being delivered and are aligned to recipient agenda • A set of prior actions, triggers and KPIs that govern disbursement of funds as well as milestones to ensure that programme remains on track are agreed to In the absence of these prerequisites, evaluation and monitoring cannot be effective Vishnu BASSANT, Director, Development Cooperation Ministry of Finance and Economic Development

3. The case of Mauritius • A 10-year AFT-compliant reform agenda initiated in FY 06/07 to reduce reliance on preferences to move towards global competitiveness • Main objective is to open up to the rest of the world for trade in goods (duty free island) and services, movement of labour and capital. • Agenda also embedded in the region’s integration strategy and interim EPA • In the first year 40 major reforms and over 150 specific measures introduced around 4 pillars: • Fiscal consolidation • Improve Trade Competitiveness • Improve investment/business climate to be in top 10 • Democratise the economy: Participation, Social Inclusion and Sustainability • Programme endorsed and financed by development partners (EU, WB, ADB, AFD) • Basket of indicators covering wider reforms agreed with development partners (8 -10 per year) Vishnu BASSANT, Director, Development Cooperation Ministry of Finance and Economic Development

4. Selected components of the programme

5. The Results Framework • Fiscal performance: i) stabilize revenue; and ii) reduce expenditure (with increases in pro-poor expenditures) • Trade competitiveness: i) Revamp incentives to reduce anti-export bias; ii) Raise productivity of existing sectors; and iii) Facilitate development of dynamic new sectors; (v) restructure firms affected by liberalisation (Enterprise Programme) • Investment climate: i) Facilitate investment; ii) Increase labor market flexibility; iii) Attract skilled foreign workers; iv) Improve infrastructure; and v) Ensure environmental sustainability • Democratise the economy: i) Improve education; ii) Provide transitional support for unemployed workers (Empowerment programme); iii) Supply low-income housing; and iv) Strengthen social safety nets to target the most needy Vishnu BASSANT, Director, Development Cooperation Ministry of Finance and Economic Development

6. Fiscal Performance • Reduce primary spending as a percentage of GDP relative to FY 05/06. • Reduce tax expenditures by 0.5% of 05/06 GDP by measures enacted in the 06/07 Finance Act. • Use fiscal rules to set budget envelope and strengthen monitoring to ensure allocations to line ministries accord with preset ceilings. • Pass legislation to abolish ministerial discretion over tax and duty exemptions Vishnu BASSANT, Director, Development Cooperation Ministry of Finance and Economic Development

7. Trade Competitiveness • First year of phased tariff reduction toward eventual duty free island by cutting top ad valorem rate from 65 to 30 percent and reducing average tariffs by 2 percent • Unify tax and regulatory regimes for EPZ and non-EPZ firms, with the exception of labor regulation •  Reduce cost of International Private Leased Circuits by 20-35% Vishnu BASSANT, Director, Development Cooperation Ministry of Finance and Economic Development

8. Investment Climate • enact Business Facilitation Bill to enable ex post verification rather than ex ante approval; • designate the Registrar of Companies as one a one-stop center for business registration in the Business Registration Act; • Amend the Planning and Development Act to merge development and building permits. • transform the trade licensing fee into a single municipal fee to be paid post business operation through amendment of the Local Government 2003 Act. • Ease entry of foreign skilled workers by issuing permits within 3 working days on published rules • Link wages to productivity increases by replacing present wage setting mechanism with National Wages Council • Introduce flexibility in recycling labor while protecting workers not jobs. Vishnu BASSANT, Director, Development Cooperation Ministry of Finance and Economic Development

9. Democratise the Economy • Set up machinery for Empowerment Programme to spend Rs5 billion over 5 years on social protection, retraining and SME support. • Design measures to facilitate growth of formal SME sector, including: access to assistance, technical assistance and capacity building, SME consultancy service • Replace consumer subsidies with targeted cash transfers, with additional measures to increase support and opportunities to the poorest. • Evaluation, consolidation and refocusing where necessary of existing social welfare programs.  Vishnu BASSANT, Director, Development Cooperation Ministry of Finance and Economic Development

10. Improving the delivery of AFT: Lessons Learnt and Challenges • Need to untie TA , increase TA to MICs and build local capacity • IFIs and bilateral donors to pool resources and expedite provision of support in a predictable manner • Strengthen country offices or set up new ones in countries that have AFT-compliant programs • Donors need to ensure AFT-compliance when financing national programmes as is the case with the EC • Better coordination required with RECs by seconding staff • Country economists to interact with regional departments to ensure policy coherence • Regional IDA and Regional ADF should be made more flexible to support policy reforms in addition to financing projects • EC support to COMESA Fund may be replicated in other RECs Donors need to agree on KPIs to assess the effectiveness of their responses Vishnu BASSANT, Director, Development Cooperation Ministry of Finance and Economic Development