Budget support training Module 2 Public policies (national/sector development strategy) (First eligibility criterion) Version October 2013

What do you need to know? Imagine: you work at a Delegation. The EC provides sector budget support to Education (ministry of Education and Culture). With one of your contacts you have had some informal conversations about the threat to cultural heritage in the country, as has happened in Iraq, Afghanistan and Mali. A few weeks later this medium level official presents you with a document titled “National Policy on Cultural Heritage” and asks whether this policy could be supported with BS as well. What do you need to know? 5 minutes buzzing 2

Outline of module 5 1.Public policies, coverage and objectives 2.Why is it an eligibility criterion for BS? 3.What to assess and when? 4.How to assess? 3

A public policy is a series of interlinked actions (= policy) designed and implemented by the state (= public) Policies contribute individually or jointly to various objectives  Macroeconomic stabilisation  Equity, vertical (income distribution) and horizontal (equal development across regions)  Resource allocation: i.e. providing public services: health, education; providing public goods (law & order, defence); building infrastructure Macroeconomic policies Fiscal policy Monetary policy Exchange rate policy Trade policy Public debt policy Structural policies (1) Governance Public sector management Decentralisation Public finance management Structural policies (2) Land use policy & land reform Market regulation Financial sector regulation Environmental regulation Sector policies Public services (education, health,..) Social security Social protection Running Head 12-Point Plain, Title Case

The public policy process 5 Initial situation (economic, social, political) Situation aimed at by the policy Public services delivery (infrastructure, social services, law and order, ….) Public Finance Management Budget preparation, approbation and execution Strategy/policy formulation

Public policies are designed and implemented by a series of public institutions General government comprises Central government State government, in federal countries Local government Social security funds are sometimes combined into a separate subsector Public sector includes, in addition to the general government, corporations and quasi-corporations controlled by the government units (including the central bank) 6 It is essential to understand the role, responsibilities and activities of these actors

Outline of module 3 1.Public policies, coverage and objectives 2.Why should it be an eligibility criterion? 3.What to assess and when? 4.How to assess? 7

The existence of a relevant and credible policy is essential: It is the interest of both the partner government and the Commission that their policy dialogue aims at improving the relevance and the credibility of the policy for the partner government  It is possible to implement badly a relevant and credible policy….  … but is not possible to implement properly a policy that is not relevant and credible  The existence of a policy/strategy is a prerequisite for government accountability Running Head 12-Point Plain, Title Case 8 for a fruitful use of BS BS is a modality to support policies:  A strategy/policy must exist and  it must be owned by the partner country

The policy dialogue Running Head 12-Point Plain, Title Case Is a key component of BS Remember BS = Money + policy dialogue + (capacity building) 9 Must be informed To contribute to the design and implementation of the partner’s policy To help the Commission with assessing and managing risk It should address:  The design and implementation of the government’s policy/strategy  The design and implementation of reforms (in particular PFM)  The annual results (outcomes) of the strategy and the nature of the policy response

Outline of module 3 1.Public policies, coverage and objectives 2.Why should it be an eligibility criterion? 3.What to assess and when? 4.How to assess? 10

Analysing the partner’s policy documents PRSP Sector policy programmes Institutional reform programs Etc. Running Head 12-Point Plain, Title Case Assessing the partner’s policy requires Understanding the partner’s policy What do they want to do? (what are the objectives?) How do they want to do it (instruments deployed, resources mobilised and allocated, institutions involved, …) Concluding BS is or is not the most appropriate aid modality to support the partner’s policy. The policy is or is not sufficiently relevant and credible to be eligible for EU budget support The focus of the assessment will differ according to the type of BS GGDC: governance, broad sustainable development, poverty eradication SBC: restoration of vital state functions & basic social services SRC: sector reforms, sector governance, service delivery.

When should public policy eligibility be assessed? Running Head 12-Point Plain, Title Case during design  Assess: the relevance of the policy the credibility of the policy during implementation  Assess  progress made in implementing the policy  results achieved  whether the policy continues to be sufficiently relevant and credible Public policy must be eligible when the programme is approved and at the time of each budget support disbursement 12

Outline of module 3 1.Public policies, coverage and objectives 2.Why should it be an eligibility criterion? 3.What to assess and when? 4.How to assess? 13

Eligibility assessment during design « Is the policy sufficiently relevant and credible for the BS programme objectives to be largely achieved ? » Delegations to provide 6-8 pages document accompanying the BS Action Fiche and covering 5 points: 1.Policy framework 2.Policy relevance 3.Policy credibility 4.Conclusion: EU Delegation’s appreciation of eligibility 5.Expected progress in policy implementation 14

1° Description of the policy framework  Policy formulation: Where is the policy defined? Period covered? Linkages with political cycles or other political processes? Approval process? Involvement of stakeholders in formulation.  Existence and quality of monitoring and evaluation framework? (reflects policy objectives, includes indicators, availability of a Performance Assessment Framework or PAF)  Review mechanisms and donor coordination (regular review process led by Government? Is it published? Stakeholders involved? )  Coherence of the policy with other government policies (coherence national, sector, local; intra-sectoral) 15

A good policy document should:  Be authored and endorsed by the Government (not the donors)  Address the role of the government in the sector/area and distinguish regulatory functions and service delivery  Define allocation of responsibilities between Ministries involved and tiers of government, and identify capacity constraints and requirements to mitigate them  Focus on the resources requirements to implement the policy, including current and capital expenditures  Have a strong result orientation  Set up clear mechanism for monitoring, review and updating the policy document 16

2°Relevance Does the policy address (in an efficient and effective way)  the overall objectives of poverty reduction, sustainable and inclusive growth and democratic governance?  the specific challenges and objectives identified in the public policy and supported by the specific BS contract? Does the policy aim at strengthening domestic accountability and national control mechanisms? 17

3° Credibility Credibility depends on:  the track record in policy implementation;  adequate funding of the policy. Related questions: Are there (appropriate) cost estimates of the policy? Are the cost estimates reflected in the budget and in the medium-term fiscal and expenditures frameworks? Is the budget comprehensive or are there important off- budget revenues and expenditures? Is the financial sustainability of the policy realistically assessed (domestic revenue mobilisation, external financing, contingent liabilities)? In case of fiscal decentralisation: are national budgets and sub-national budget allocations and mandates consistent? 18

3° Credibility (continued) Existence of a common performance assessment framework (PAF) to monitor/measure policy implementation Existence of baselines/targets/performance objectives with SMART/RACER performance indicators  Institutional capacity and ownership: Existence of capacity assessment for the ministries or agencies in charge of the policy Indications that the policy is sufficiently owned by the institutions that have to implement it  Analytical basis and data quality Is there a move towards evidence based policy formulation and decision making? Or is the lack of reliable data undermining the policy programme and the possibility to monitor it? 19

4° Delegation’s assessment of eligibility  Based on its analyses, the EU Delegation concludes whether or not the government policy is considered sufficiently (or no) relevant and credible and if its implementation can be supported with a Budget Support programme. 5° Expected outputs in policy implementation  Basis for monitoring progress during implementation of the policy must be specified.  Available PAF and review documents should be used.  If no available PAF, the EU Delegation should spell out how eligibility will be monitored. 20

Eligibility assessment during implementation This assessment is meant to verify:  whether the policy continues to be sufficiently relevant and credible, and;  whether there has been satisfactory progress in policy implementation. The assessment must take into consideration exogenous shocks (external and internal) Based on the same template than the baseline assessment of eligibility, but must focus on progress in policy implementation 21

Key messages  Assessment of the relevance and the credibility of the policy is a continuous task of the EC Delegations. It imposes: a comprehensive analysis of the situation at identification/formulation stage and the monitoring of the progress of the policy during implementation; to demonstrate that the policies supported by the BS contracts contribute to the overall objectives and to their specific announced objectives.  This requires an important collection and assimilation of information and informed opinions. The policy dialogue and the coordination with the Government and the donors should make this task more efficient and less difficult. 22