MDG based poverty reduction strategies May, 2005

2 Agenda  What is an MDG based poverty reduction strategy?  What is an MDG based needs assessment?  How can the MDGs be financed?  Aligning MDG processes with existing country mechanisms

3 Meeting the MDGs requires several types of necessary inputs  Broad-based public investments in people, infrastructure, and environmental management  Sound policies and governance including good economic management  Improved access to international trade (makes an important but small contribution for low-income countries)  MDGs are achievable, but only just  There is no “magic bullet” – each input is necessary  Many countries are well governed but cannot afford the public investments necessary for growth  These integrated investments need to be planned over the long-term

4 Africa’s Special Needs: look beyond standard diagnosis of poor governance Africa faces many structural constraints, e.g.:  High disease burden (e.g. malaria, HIV/AIDS, TB)  High dependence on low-productivity rainfed agriculture  Poor infrastructure & few navigable rivers  Small internal market size  Low population density  Population living far from the coast  Governance is important but not the only issue in Africa  Each of these constraints can be overcome through targeted public investments  Trade plays an important role, but is not the only solution

5 Adopting a goal-oriented approach  The MDGs represent a unique global partnership  Development practice needs to flip the question: FROM How close can we get to the MDGs under the current constraints? TOWhat will it take to achieve the MDGs?  Countries should adopt development strategies ambitious enough to achieve the MDGs (or MDG-based poverty reduction strategies)

6 Principles of MDG-based Poverty Reduction Strategies Typical PRS today MDG-based PRS PRS aligned with MDG needs assessment MDG MDG Base Year Target Deadline slow/no progress to date YEAR MDG target Level of MDG progress Scaled-up plans to achieve the MDGs based on country needs assessments 2015 Goals guide the PRS “accelerated” progress through PRS YEAR ? MDG MDG Base Year Target Deadline slow/no progress to date MDG target Level of MDG progress Implied (but uncertain) trajectory still falls far short of MDGs

7 What is an MDG-based poverty reduction strategy? 1. Ambition- national targets are at least as ambitious as MDG targets for Scope- the range of sectors identified is broad enough to achieve all the MDGs 3. Rigor-for each sector, the strategy is based on a detailed, bottom-up needs assessment 4. Timeline-the medium term strategy is nested in a 10 year MDG framework 5. Financing- sources of financing are determined in line with ensuring broad based access to MDG goods and services

8 Integrated strategies are required  Gender equality  Education  Health systems (including sexual and reproductive health)  Agricultural productivity  Water supply, sanitation, and water resources management  Energy  Transport  Environmental management  Slum upgrading and urban planning  Trade facilitation  Science, technology, and innovation  Regional infrastructure  Etc.

9 Approach to MDG-based poverty reduction strategies MDG Needs Assessment through 2015 MDG-Based 10-year Framework MDG-Based PRS  Identify combination of scaled up inputs needed to meet MDGs  “What” & “How Much”  Identify combination of policies and programs to meet needs  “How To”  Short-term 3-5 year strategy to launch 10-year strategy, including:  MTEF  Macro framework

10 Agenda  What is an MDG based poverty reduction strategy?  What is an MDG based needs assessment?  How can the MDGs be financed?  Aligning MDG processes to existing country mechanisms

11 Objectives of an MDG Needs Assessment  Answer the question: “What would it take to achieve the MDGs?”  Translate the MDGs into operational targets  “Localize” the MDGs  Develop a strategy for increasing “absorptive capacity”  Strengthen coherence between planning and budget processes and guide programming of expenditures  Provide a monitoring and accountability framework  Support the national policy dialogue and negotiations with development partners

12 What is an MDG Needs Assessment?  Who and where are the poor? –Identifying the population in need  What needs to be done? –Needs Assessment from now until 2015 –Goods, services, infrastructure  How much will it cost and what are the human resource implications? –Local unit costs x population in need –Human resources required to meet each MDG

13 MDG needs assessment approach

Develop List of Interventions Interventions are defined as “investments in goods, services and infrastructure” as distinct from policies and institutions For example, interventions include:  Infrastructure (classrooms, roads, hospitals, toilets, water and electric connections)  Human resources (teachers, training staff and materials, administrative support)  Goods (books, medicines, improved stoves, computers)  Interventions to reduce barriers (subsidies for girls, microfinance, abolition of school and health care fees)

Specify Targets for Each Intervention  Reduce the proportion of food insecure subsistence farmers by half by 2015  Primary completion rate to reach 100 percent, gross enrolment rate to reach 107 percent by 2015  Electricity for all schools and health facilities by 2015 Coverage targets need to be specified for interventions. For example:

Estimate Resource Needs Estimate the Total Cost Country demographic data Costs per beneficiary TOTAL COSTS Target Population Target coverage rates Cost components for key interventions

Check Results: Synergies Across Interventions  Long-term sectoral synergies: Maternal education leads to higher enrolment of children  Immediate sectoral synergies: Prevention interventions in health have rapid impact on disease incidence rates  Cross-sectoral synergies: Provision of roads increases access to emergency obstetric care Interventions will have direct benefits and in some cases will positive externalities across sectors. These impacts should be accounted for in the needs assessment. Examples of direct benefits and synergies include:

Check Results

19 Guiding Principles of MDG Needs Assessments  Undertaken in national planning contexts  Target setting, identification of interventions, unit costs done in consultative manner, reviewed by technical experts  Periodic revision of targets/interventions based on new information and implementation of programs  Methodology can be adapted to suit local contexts, provided basic MDG assumptions remain- no “one-size-fits-all”

20 Dealing with Absorptive Capacity  Absorptive Capacity can be broken down into several components:  Human resources  Information and management systems  Infrastructure  Monitoring and evaluation systems  Long term investments can be sequenced to systematically relieve capacity bottlenecks  Ability of countries to manage increased donor funds also requires better coordination from donors to reduce the administrative and managerial burdens on local government staff

21 Limitations Of Needs Assessments  Planning, not implementation tool  Input into planning process, not a plan in itself  A necessary, but not sufficient step for achieving the MDGs  Requires complementary efforts in policy formulation, institutional structures, local decision making and regular review and monitoring

22 Agenda  What is an MDG based poverty reduction strategy?  What is an MDG based needs assessment?  How can the MDGs be financed?  Aligning MDG processes to existing country mechanisms

23 Elements of an MDG financing strategy Household contributions Government MDG expenditures Debt service payments MDG Financing Gap (closed through ODA including debt relief) MDG Financing Needs Domestic resource mobilization

24 What do we mean by macrostability? 1. Contain inflation (domestic credit expansion) through coordinated fiscal and monetary policies – avoid “printing money” Wage ceilings Expenditure caps on national budgets 2. Avoid real exchange rate appreciation (Dutch disease)  A macroeconomic framework is needed to understand and manage these issues

25 Sequence of preparing an MDG financing strategy 1. Estimate financing needs 2. Prepare MDG-consistent macroframework 3. Project government resource mobilization 4. Estimate household contributions 5. Identify MDG financing gap (debt relief & development assistance) 6. Identify strategy for maintaining macrostability

26 Prepare an MDG-consistent macroeconomic framework  Purpose: –Estimate key economic variables (GDP growth, exchange rate, national saving, private sector investment, current account balance, etc.) –Project government revenues to map out MDG financing strategy –Support policy formulation »Monetary and fiscal stabilization »Pro-poor tax systems »Promotion of private sector investment –Check MDG needs assessment  Sequence: 1.Map out public expenditures (MDG needs assessment) 2.Develop macroframework in support of scaled up public investments  Available tools: –WB/IMF models (e.g. Revised Minimum Standard Model) –Government models

27 Identify Government expenditures for the MDGs  Sequence for projecting government MDG expenditures 1.Estimate current expenditures on MDG 2.Project public expenditures using macroframework 3.Identify non-priority expenditures that can be reprogrammed towards MDGs 4.Identify scope for increasing government revenues in manner consistent with achieving MDGs 5.Assess needed debt relief  Government MDG expenditures may rise by up to 4 percentage points of GDP through to 2015

28 Identify household expenditures for the MDGs  A note on user fees –Evidence is strong that direct and indirect user fees for primary education and essential healthcare are a barrier to access for the poor –Ending user fees often requires increased aid to make up for the government revenue shortfall –C.f. Education for all Initiative and Commission on Macroeconomics and Health  Household contributions for the MDGs –Important: aggregate household contributions across all sectors –Policy coherence: Incentive effects of well designed user fees must be compatible with policy objectives (i.e. no health and primary education fees) –Affordability: Estimate household contributions on basis of ability to pay

29 External finance for the MDGs  ODA requirements –Estimated as the residual needed to close MDG financing gap  Is Dutch Disease a barrier to scaling up? –Most MDG investments focus on supply side constraints thus minimizing consumption boom and exchange rate appreciation –Consensus among economists: macroeconomic stability can be maintained through good monetary policies if aid is »Predictable »Provided as grants »Matched by adequate debt relief

30 How to prepare an MDG-consistent MTEF 1. Ensure full coordination between ministries of finance and planning 2. Translate MDG expenditures obtained from needs assessment into the expenditure framework used by the country 3. Obtain government revenue forecasts from macroeconomic framework and MDG financing strategy 4. Ensure that medium-term expenditures and revenues match 5. Revise macroeconomic framework as necessary to identify economic stabilization policies in support of MTEF

31 Financial implications of meeting the MDGs  Typical low-income country needs: $110 p.c. per year through to 2015  Domestic resource mobilization comprises household contributions and government expenditures  To meet the MDGs countries need more aid and debt relief since domestic resource mobilization is insufficient  Macroeconomic stability can be maintained if aid is predictable, grants-based and coupled with adequate debt relief  At the global level MDGs are affordable within existing commitments (e.g. 0.7% target): –0.44% of rich countries’ GNI in 2006 –0.54% of rich countries’ GNI in 2015

32 Agenda  What is an MDG based poverty reduction strategy?  What is an MDG based needs assessment?  How can the MDGs be financed?  Aligning MDG processes to existing country mechanisms

33 Guiding Principles  High-level political commitment  Nationally-owned  Integrated into on-going processes  Inclusive with participation from key actors  Transparent  Regularly reviewed

34 Illustrative Organizational Structure Office of the President/Prime Minister/ Ministry of Planning and Finance MDG Strategy Group (led by Ministry of Finance or Planning, participation from line ministries, representation from UNCT) Thematic Working Groups (led by line ministries, including civil society, donors and UNCT, among others, covering different investment clusters such as rural and urban development, health, education, gender equality, environment, science and technology)

35 Illustrative Timelines

36 Human Resource Needs Key actors: roles and responsibilities  UN Country Team substantive and technical support:  Coordinator to support Ministry of Planning/Finance  Agency technical focal points for line ministries and participation in relevant working groups  UN coordinator to liaise with UNCT and with the IFIs  Donors  Representation in the working groups  Relevant technical support

37 Human Resource Needs (continued) Key actors: roles and responsibilities  Government  Overall coordinator from Ministry of Finance and Planning/office of President/office of Prime Minister  Ministerial leadership in each working group  1 analyst under each relevant line ministry (8-10 ministries)  1 population specialist, working closely with all ministries  1 macroeconomist working with Ministry of Finance/Planning to link with budgetary processes

38 Consultations Key actors: roles and responsibilities  Inclusion of broad set of stakeholders in working groups  Regular stakeholder workshops before, during and after preparation of needs assessments  Review of draft MDG PRS before finalization »

39 Periodic review of development outcomes  Objectives: –Track progress towards the MDGs –Assess effectiveness of intervention strategies –If necessary, prepare mid-course adjustments to the MDG- based poverty reduction strategy  Process: Data collectionOutcome evaluation Mid-term Course Corrections Set up systems for monitoring and data collection Evaluate outcomes against targets in PRS Identify changes required to return to MDG trajectory

40 Annex  Other costing methodologies- an overview  Frequently asked questions

41 Comparing Costing Methodologies Method & QuestionLimitations Costings based on ICOR Asks: “What is the aggregate level of investment needed to meet the poverty goal?”  Provide little guidance to programming expenditures  ICOR and poverty-growth elasticities cannot predict growth and poverty rates  Don’t project required changes in the composition of investments ·  Ignore MDG interventions that do not have a direct impact on growth  Historical ICORs and poverty elasticities apply only to marginal changes  Cannot estimate human resource and infrastructure requirements  Cannot avoid double-counting of interventions across sectors  Lump together public and private investments

42 Comparing Costing Methodologies Costings based on aggregate input- outcome elasticities Asks: “What is the aggregate level of investment required to meet individual Goals?”  Can only model a small number of aggregate variables across few sectors  Historical elasticities apply only to marginal changes  May ignore the impact of interventions outside of the sector (e.g., impact of water and sanitation on health outcomes)  Provide little guidance to programming expenditures and cannot calculate human resource & infrastructure gaps  Cannot avoid double-counting of interventions across sectors  The nature of production functions, elasticities of substitution, and number of parameters are partly dictated by the need to maintain a system of equations that can be solved rather than the actual dynamics of each intervention area  Mathematical complexity makes models difficult to understand for non-experts

43 Comparing Costing Methodologies Costings based on aggregate unit costs Asks: “What is the gap between current expenditures and those required to achieve each Goal?”  Unit costs based on current or historic expenditures,which may be a poor guide to future expenditures  Little guidance to programming expenditures  No information on human resource and infrastructure requirements for MDGs  No differentiation between capital and operating costs  Address only a subset of interventions within a sector  No cross-sectoral dynamics Intervention-based needs assessments Asks: “Which interventions are needed across sectors to achieve the Goals, and what are their associated costs?”  Cross-sectoral dynamics cannot be modeled dynamically, but require iterative adjustment of coverage targets  It is time intensive to develop detailed investment models  Requires links to macroeconomic dynamics that need to be modeled with the help of separate tools

44 Frequently Asked Questions  Why should countries undertake an unconstrained needs assessment?  Can policies and interventions be treated separately?  How does Goal 1 (income poverty) get covered in the analysis?  How should synergies, double counting and cross cutting issues across interventions be treated?  What needs to be done in the case of limited absorptive capacity?  How do issues of macroeconomic stability (e.g. “Dutch disease”) get addressed?