Public Expenditure Review Workshop December 1-2, 2010

1. Public Expenditure Review WorkshopDecember 1-2, 2010 The Planning and Budget Process Andrew BirdMokoro Consultants

2. Overview • Strengthened planning and budgeting architecture: • Reinstatement of NDP process • More realistic and strategic approach to budget planning • MPSA budgets now activity based • But, in practice, reforms not sufficiently linked: • NDP sector action plans not linked to the budget • Insufficient analytical work to guide resource allocation • Medium-term focus of the budget remains weak • Issues over the transparency of the Planning and Budgeting Processes

3. Lessons of International Experience • Review and evaluations have raised questions about: • The realism and rigidity of national planning exercises and their ultimate usefulness. • Whether MTEF reforms have resulted in improved budget outcomes. • Whether the necessary conditions are in place for successful implementation of performance oriented budgeting initiatives. • Main lessons: • Proceed gradually and stepwise – similar reforms in advanced economies have often taken over 10 years. • Learn from experience – if things are not working, find out why and implement changes

4. 1. National Development Plan and Strategy

5. Reinstatement of the NDP Process • PRSP in 2000 marked return to medium-term economic policy and planning. • 2006 National Vision 2030 to be operationalised though five year development plans and annual budgets. • Fifth National Development Plan 2006-10 more realistic than predecessors emphasising: • macroeconomic stability, • improved economic governance, • administrative and regulatory reforms, and • improved public service delivery. • Broad based consultative process in preparing NDP.

6. Issues • Difficult to link to the budget planning process: • No multi-year fiscal framework . • Used different sector classification to the budget • Analysis tended to be reflective, policy prescriptions and program plans not sufficient developed. • No process for updating and adapting strategies and plans to reflect changes in economic circumstances and the government priorities. • FNDP quickly became outdated and less relevant in guiding government decision-making.

7. Recommendations • SNDP an opportunity to address weaknesses of FNDP: • Include 5 year fiscal accounts projection within which the NDP proposals have been developed. • Better elaborated sector strategies and priorities that link to NDP objectives. • Fully costed sector action plans linked to resource allocations that are consistent with the fiscal accounts projections. • Introduce process for regular review and updating of NDP linked to the MTEF/Budget process: • NDP strategy review and update at beginning of each year • Updating and rolling forward of sector action plans as part of integrated NDP/MTEF/Budget Process.

8. 2. Medium-Term Expenditure Framework

9. Zambia’s MTEF Process • Comprehensive and unified Budget • Includes nearly all fiscal actions • Single budget process for capital and current spending • Two stage MTEF process, that reflects practice in many countries • Strategic phase leading to Green Paper • Medium-Term Macro-Fiscal Framework • Review of sector programmes and priorities (SAGs) • Resource ceilings for budget implementation • Budget formulation phase – ABB • MPSA Budget Framework Papers • ABB submissions • Consultations at key stages in process: • MTEF/Budget Cabinet Consultation Paper • Green Paper • Finalisation of draft Budget • Budget now approved by Parliament by beginning of FY.

10. Issues • No formally agreed MTEF and budget planning calendar • MTEF and budget process starts late leafing insufficient time for analytical work • Little input from MPSAs during the strategic phase • Little guidance for sector reviews, SAGs not functioning effectively. • Outer year resource ceilings lack credibility and have failed to bring a medium-term perspective to MPSA budget planning • MPSAs continue to plan their budgets for a single year. • Procedures for capital investment management problematic • Project selection/appraisal procedures fail to exclude wasteful projects • Commitments for on-going capital investment projects not tracked by MoFNP or fully taken into account in setting resource ceilings.

11. Recommendations 1:An Integrated NDP, MTEF and Budget Calendar • Expand MTEF/Budget Consultation Paper to include review of NDP cross-cutting strategies and priorities (Feb) • SAGs review and update NDP/MTEF sector action plans (May) • Update macro-fiscal framework (end May) • MTEF/ Budget Green Paper finalised (end June) • Budget guidelines and resource ceilings issued (July) • MPSAs prepare detailed budget proposals (end Aug) • Budget hearings (end Sep) • Update macro-fiscal framework (end Sep) • Draft budget finalised and sent to National Assembly (Oct)

12. Recommendations 2:Strengthening the Technical Basis of the MTEF • Strengthen capacities for macro-fiscal analysis • Updated macro-economic forecasts at key points in MTEF/Budget cycle • Review of fiscal policies and priorities • Revitalise SAGs and provide guidance and instructions for reviewing and updating NDP/MTEF sector action plans: • Incorporate policy and strategy developments • Review implementation progress • Initiatives/measures to improve program effectiveness and efficiency • Updated action plan consistent with macro-fiscal framework. • Progressively increase credibility of outer year resource ceilings • Include forward spending commitments on capital investment projects as Annex to the Budget

13. Integrated NDP/MTEF/Budget Calendar

14. 3. Preparation of MPSA Budgets

15. Activity-Based Budgeting • ABB introduced in 2000 replacing previous line-item budgeting process • Utilises two tier classification breaking down spending allocations by program and activity • Outputs identified at program level and included with targets in the budget estimates. • ABB seen as having: • Improved transparency of the budget (both officials and Parliamentarians) • Made it less easy to divert resources to other activities

16. Issues • Risk of strategic focus and management of the budget is being undermined: • Excessive number of programs/activities. • Overly detailed breakdown of expenditures by economic item • Inconsistencies in the basis under which ABB has been applied in different ministries (Large variations in the number of programs). • Some major Economic items shown as programs and activities (personal emoluments, utility costs, capital projects) • Excessive number of outputs and indicators but output information not used in budget presentation and monitoring.

17. Recommendations • Undertake a detailed review ABB implementation to: • facilitate a more strategic approach to budget planning • develop a consistent institutional ly or functionally linked classification of programmes and activities that links to the NDP • reduce the complexity of budget preparation • introduce a stronger budget monitoring element • Streamline the use of the economic classification in the budget • distinguish between control items to be shown in the budget; • and accounting items that would only be used in recording expenditure

18. 4. Transparency Issues

19. Stakeholder Consultation: Stakeholder consultation does take place, but formal processes often not working effectively (e.g. through the SAGs). Consultation around the Budget is often informal and at too late a stage in the process. • Internal Transparency: Compressed deadlines reduce MPSA engagement in planning and budgeting processes. Undermines link between MPSA inputs and final plans and budgets. • External Transparency: Zambia scored 36 out of 100 in the 2010 Open Budget Survey, ranked 60 out of 94 countries surveyed. Classified as providing minimal information about the budget.

20. Improving Transparency • Formally adopt, publish and implement an annual planning and budgeting cycle setting out the key processes, outputs and deadlines. • Identify key documentation to be placed in the public domain and establish deadlines for its publication on the MoFNP website. • Look at how the format, content and presentation of public documents can be improved to make them less impenetrable and make them more widely accessible.