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April 07, 2017

Coordinating the Planning and Budgeting Functions of Government

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Posted by Ashni Singh[1]

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The IMF’s Regional Technical Assistance Center (RTAC) for Anglophone West Africa and Cabo Verde (AFRITAC West 2) recently convened a workshop to discuss the challenges of improving coordination between the strategic planning and budget preparation functions of government. with the aim of achieving better alignment between policy priorities and fiscal resource allocation.

The workshop was held during March 6-10, 2017, in Cabo Verde, and was declared open by the host country’s Minister of Finance, Olavo Correia. The closing ceremony was addressed by AFRITAC West 2’s Center Coordinator Lamin Leigh. The event was also supported by two of the IMF’s other RTACs, those for Francophone West Africa (AFRITAC West) and Southern Africa (AFRITAC South). It attracted high level participation from the macro-fiscal, planning, and budget directorates of the ministries of finance, as well as the ministries of planning and national planning agencies where they exist, from all five Anglophone West African countries as well as five Lusophone African countries.[2]

The typical configuration of planning instruments in developing countries comprises a longer-term development vision, supported by a national development plan and sectoral strategic plans for the medium term. In practice, these instruments often bear a weak relationship with the annual budgets that are prepared, approved, and executed, and through which resources are allocated. The weakness of this relationship undermines the credibility of the planning and resource prioritization function, the policy basis for the budgeting function, annual and medium-term budget reliability and, ultimately, the achievement of national development objectives.

Factors that have traditionally contributed to the weakness in this relationship include:

  1. Gaps in the legal framework, e.g., failure to establish a robust link between a viable fiscal framework, the national development plan, sectoral plans, and annual budgets;
  1. Institutional fragmentation, e.g., assignment of functions to separate ministries, or assignment of the planning function to a semi-autonomous commission;
  1. Weak coordination, e.g., across institutions where there is fragmentation, or between planning and budget directorates where they are located within a single ministry;
  1. Weak implementation of key instruments of integration, e.g., situating the national development plan within a viable medium-term fiscal framework, costing sectoral plans within a finite fiscal constraint, expressed through a medium-term expenditure framework, and linking budgetary allocations to strategic outputs and outcomes; and
  1. Low fiscal discipline often associated with political economy factors, undermining the authority of an integrated planning and budgeting function.

Addressing this issue is recognized as a priority, especially for developing countries. Allen (2009) identifies the need to strengthen the link between public priorities and the budget among the core objectives to be pursued by developing countries in reforming budgetary institutions.[3] More recently, Krause et al (2016) point out that the impact of separate planning ministries on the budget process is an issue of greater relevance to developing countries, but is still under-studied and poorly understood.[4]

In Africa, this challenge has long been faced by middle-income countries and fragile states alike, irrespective of their legal and administrative colonial legacy.[5]

Several countries in Anglophone West Africa have experimented with alternative configurations of institutional allocation of responsibilities, periodically merging and demerging ministries of finance and planning. In 2015, for example, Nigeria demerged its Federal Ministry of Finance, delinking the budget and planning function into a separate Federal Ministry of Budget and National Planning, and relocating the Budget Office of the Federation from the Ministry of Finance to the Ministry of Budget and National Planning. In contrast, in 2013, Liberia merged its Ministry of Finance and Ministry of Planning and Economic Affairs into a single Ministry of Finance and Development Planning.

Within Lusophone Africa, several countries have enacted national planning laws and established National Planning Systems. In 2011, Angola enacted their Lei de Bases do Regime Geral do Sistema Nacional de Planeamento while, in 2014, Cabo Verde enacted similar legislation. Both laws establish a national planning system, comprising long-term, medium-term, and short-term planning instruments, identify the annual budget as the short-term planning instrument, and formalize the link between the identified planning instruments of varying horizons.

Against this background, the workshop provided a forum for deliberations aimed at: (i) identifying factors affecting alignment between strategic plans and annual budgets; (ii) sharing relevant international and regional examples of approaches to, and experiences in, improving coordination; and (iii) identifying necessary actions to be taken by each participating country to strengthen coordination between the planning and budgeting functions.

Among the themes addressed were: (i) the evolution of development planning and budgeting in developing countries, and the impact of this evolution on actual practice, including the challenge of integration; (ii) medium-term fiscal and expenditure frameworks as a critical tool for integration, and the role these can play in coordinating costed strategic plans with annual budgets; (iii) minimum prerequisites for such instruments to be implemented effectively; (iv) linking budget allocations to strategic outcomes, including the use of medium-term performance frameworks, and how results can be introduced into the planning and budgeting processes through such instruments as program- and performance-based budgeting; (v) integrating overseas development assistance into the planning and budgeting systems; and (vi) legal and organizational structures for more effective alignment between policy priorities and fiscal resource allocation.

It was noted that, in many developing countries, substantial human resources are devoted to the task of preparing national development plans, and their updates, but that these plans have thus far had only limited impact on policy prioritization and resource allocation. It was also noted that the trend in many advanced and emerging market countries over recent decades has been to absorb the planning function within the budgeting function, specifically through medium-term budget frameworks, so that comprehensive development plans have largely disappeared as an instrument of policy. At the same time, what was previously known as the planning function has been redefined as, and reoriented towards, policymaking rather than planning.

It is yet unclear, however, whether developing countries are destined to move in the same direction, particularly given their relative location along the development trajectory, coupled with the fact that much of the demand for costed national and sectoral plans originates from the engagement between these countries and their international development partners. In the near term, therefore, the priority remains to ensure that the planning function be suitably scaled for efficiency, wherever it is located institutionally, and be adequately integrated with the budget function using such instruments as were discussed during the workshop.

The workshop’s timeliness is highlighted by the fact that the new 2016 Public Expenditure and Financial Accountability (PEFA) Framework now explicitly recognizes the need for alignment of budgets with strategic plans.[6] Dimension 16.3 of the new framework measures the extent to which expenditure proposals are aligned with costed strategic plans. It indicates that strategic plans should identify resources required to achieve planned outputs and outcomes, as well as cost implications of current policy commitments. It further indicates that cost information should include recurring expenditure, capital costs, and future recurrent cost implications of investment commitments, as well as every source of funding, and should be realistic taking into account the government’s fiscal policy objectives and fiscal constraints.

[1] Regional Advisor (PFM, AFW2), Fiscal Affairs Department, IMF.

[2] The ten participating countries were Angola, Cabo Verde, Ghana, Guinea Bissau, Liberia, Mozambique, Nigeria, São Tomé and Príncipe, Sierra Leone, and The Gambia. The facilitators were Richard Allen, Florence Kuteesa, Mary Betley, and Ashni Singh.

[3] Allen, R., 2009, The Challenge of Reforming Budgetary Institutions in Developing Countries, IMF Working Paper WP/09/96.

[4] Krause, P., Hadley, S., Mustapha, S., and Welham, B., 2016, The Capabilities of Finance Ministries, Overseas Development Institute.

[5] Lienert, I., 2003, A Comparison Between Two Public Expenditure Management Systems in Africa, IMF Working Paper WP/03/2.

[6] PEFA Secretariat, 2016, PEFA: Framework for Assessing Public Financial Management.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

Comments

Interesting conference and important discussion. However, when talking about planning and budgeting it is crucial to take the line ministries into account where actual sectoral planning and budgeting is taking place. Curiously, we tend to primarly focus on strengthening PFM functions in central agencies such as the MOFs or planning ministries. The MDAs that have to function within the PFM regulations are often overlooked resulting in very different outcomes in terms of planning and budgeting efficiency and eventually effectiveness of policy implementation. In my view, more research and capacity development should focus on line ministries and their role in budget planning and execution. Martin Williams worte and interesting piece on the varying performance of Ghana's spending ministries in terms of adherence to budget processes and budgetary outcomes (available via his website:https://martinjwilliams.com/research/). Worth reading!

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