United Nations Capital Development Fund Performance Budgeting in Developing Countries Dr R McGill UNCDF - a UN fund for investing in LDCs to reduce poverty and achieve the MDGs

Outline of presentation Meaning of PB Concepts in PB Governance through PB Challenges of implementing PB Builds on EB decision 2005/05: maintain UNCDF as an independent organisation with closer financial relationship with UNDP. Designed to enhance UN and UNDP efforts in support of MDGs in LDCs. Ensures UNCDF can respond far more effectively to the demands of LDCs. Upholds reputation for excellence in local development and microfinance. Capitalizes on successful partnership between UNCDF and UNDP. Cutting edge in implementing UN reform and simplification & harmonisation.

Meaning - PB defined Performance budgeting is the over-arching process of (a) planning and targeted budgeting, to achieve (b) infrastructure and service delivery, that is (c) measurable and accountable. Programme budgeting is a technique or instrument, embedded in this process.

Meaning - PB checklist 1 & 2 PB fails at the first hurdle if the shift from input to output-based budgeting is not accepted and practised. PB is conceptually redundant without a strategic context to condition the resource allocating process.

Meaning - PB checklist 3 & 4 PB assumes that the real test is of resource allocation against future intentions (plan), tempered by recent performance. PB requires all priorities to be in ranked sequence so that difficult choices are impossible to avoid.

Meaning - PB checklist 5 & 6 PB’s key unit of planning and budgeting analysis is the programme (the technique or instrument). PB has to reconcile the programme structure with the organisational structure it represents (a retreat from the original concept within PPBS?).

Concept 1 – ‘institutional’ The institutional mapping of the nationally determined functions, the resulting context, structures and processes that deliver MDGs, PRSPs and PEM decisions within MTEF - to achieve improved performance in ISD. PB can’t work if the institutional map is not clear and functioning.

Concept 2 – ‘financing’ The financial mapping of the income sources of the client LGs in terms of (i) local revenues, (ii) transfers from all parts of central government and (iii) sources of non-government finance (mainly from donors) - to establish the real areas of discretion in local budgeting. PB can’t work if the finances aren’t flowing.

Concept 3 – ‘planning’ Analysing (and if non-existent, testing) formats, structures and processes of local development planning, to articulate the development challenge in any local government area – to provide the strategic frame for PB. PB can’t work if a development plan or strategic framework is not in place.

Concept 4 – ‘budgeting’ Pushing the conversion of conventional ‘line-item’ budgeting into an ‘output-based’ or performance budgeting format – to target and measure government performance in relation to ISD and the local dimensions of MDGs. PB can’t work if the conversion from input to output budgeting is not achieved.

Participatory plan and budget Accountable review of performance Concept 5 - external logic Participatory plan and budget Accountable review of performance Strategic (3 year targets) Effectiveness of impact Operational (annual targets) Efficiency of output Budgeting Economy of inputs

Concept 6 – internal structure Strategic framework and objectives analysis Goal, Objectives, Prioritisation Programme and target analysis Strategic targets, Prioritisation, Annual targets Activities and input analysis

Governance 1 - accountability Accountability for public expenditure management (PEM), to deliver targeted infrastructure and services, comes down to communities and client groups’ involvement in: Assessing last year’s performance; Supervising this year’s implementation; and Planning next year’s proposals.

Governance 2 - measurability Measurement is constructed around the principles of testing the economy, efficiency and effectiveness of all performance. PB measures the Economy of the INPUTS, the Efficiency of OUTPUTS and the Effectiveness of the IMPACT.

Challenges of implementation - 1 Country specific – both Yemen and Mozambique The “lack of fit” between policy context, structures and processes. Vertical SWAPs versus horizontal (i.e. integrated development planning. Technical Programme definition The reality of measurement The PB to GFS interface

Challenges of implementation - 2 Interface with GFS reforms and supporting information systems: PB programme structure GFS classifications to fit An information system to support both …and finally, an example of measurement.

Measuring performance Projects 2003 ($400,000) Budget Actual Variance % var' (1) Economy of inputs (where T = 100%) (A) % specification (B) % time (2) (A+B)/2 = efficiency of output (C) % occupancy rate / use of facility (D) % assessment of 'problem solved' (3) (C+D)/2 = effectiveness of impact Total performance (1+2+3/3) 1 Class rooms & office; Kerkebet 73,981 69,570 4,411 6 94 96 55 76 100 90 2 Class rooms & office; Geleb 61,436 37,834 23,602 38 62 80 45 63 75 3 Class rooms & office; Hagaz 72,631 72,511 120 95 98 4 Class rooms & office; Habero 107,793 105,221 2,572 40 70 89 5 Class rooms & office; Hamelmalo 74,460 66,949 7,511 10 73 87   Totals 390,301 352,085 38,216 88

Present and future in LDCs ? At present: Mozambique, Yemen and Eritrea. Immediate future: Sudan (Red Sea State) and Ethiopia.

Ron McGill, Senior Technical Adviser ronald.mcgill@undp.org Thank you! Ron McGill, Senior Technical Adviser ronald.mcgill@undp.org