1. Managing Public Expenditures to Make Services Work for Poor People Discussion with Public Expenditure Thematic Group Shanta Devarajan, Shekhar Shah WDR 2004 October 31, 2002

2. Objectives 1.Discuss WDR framework 2.Explore questions relating to public expenditure management and service delivery 3.Invite inputs from TG on experiences of PE work & budget formulation, implementation, monitoring that suggest what does & does not work to improve services and outcomes for poor people

3. Services are failing poor people: MDGs—Global Aggregates Eradicate Poverty & Hunger Universal Primary Education

4. Growth is not enough Poverty Headcount % living on less than $1/day Primary Education Enrollment % Infant Mortality per 1000 Target 2015 Growth alone Target 2015 Growth alone Target 2015 Growth alone EAST ASIA 143100 1433 ECA11100 922 LAC87100 1430 MENA11100922046 SA2218100872970 AFRICA2440100643387 Source: Global Economic Prospects 2001, p.42 base case; Devarajan (2002)

5. Increasing public spending is not enough Regression line: Coefficient: -0.055 T-statistic: 0.755 Source: WDR 2004 Team

6. Similar changes in public spending can be associated with vastly different changes in outcomes… Source: WDR 2004 Team

7. …And vastly different changes in spending can be associated with similar changes in outcomes Source: WDR 2004 Team

8. Why are services failing for poor people? Governments spend on the wrong goods and people

9. Benefit Incidence of Public Spending Source: WDR 2004 Team

10. Why are services failing for poor people? Governments spend on the wrong goods and people Resources fail to reach the service provider (Uganda tracking study) Weak incentives for effective service delivery

11. Examples of ineffective service delivery Bangladesh: Absenteeism rates for doctors in primary health care centers: 79%. Zimbabwe: 13% of respondents gave as a reason for not delivering babies in public facilities that “nurses hit mothers during delivery”. Guinea: 70% of government drugs disappeared. Costa Rica: absenteeism rate is 30% in public health facilities.

12. Why are services failing for poor people? Governments spend on the wrong goods and people Resources fail to reach the service provider (Uganda tracking study) Weak incentives for effective service delivery Demand-side constraints

13. Accelerating progress: What is the problem? Economic growth not enough More public spending not enough - Why? –Governments often spend on wrong services & people –Resources fail to reach service providers due to corruption –Weak incentives for delivery, monitoring, accountability –Households can’t or don’t utilize services (parents pull children, particularly girls, out of school; problems of access) So, what is needed?

14. Development outcomes: the hope Benefits Government Primary education Countries with well- designed policies are supposed to leverage their own & external resources to produce human development outcomes…

15. Clients Government Providers Local Govt Benefits …but, there are many weak links in implementation, and much needs to come together to make services work & produce desirable outcomes Leakage of Funds Policies Institutional incentives Primary education Inappropriate spending (e.g. high teacher salaries; Insufficient supply of textbooks Public financing Implementation capacity Information & transparency Institutional incentives Low-quality instruction Capacity & incentives Curriculum & technology Monitoring & evaluation Lack of demand Ability to pay Intra-household behavior Community norms Development outcomes: the reality

16. Making services work for poor people

17. Unbundling the service chain-1

18. Policymaker-provider: Contracting NGOs in Cambodia Contracting out (CO): NGO can hire and fire, transfer staff, set wages, procure drugs, etc. Contracting in (CI): NGO manages district, cannot hire and fire (but can transfer staff), $0.25 per capita budget supplement Control/Comparison (CC): Services run by government 12 districts randomly assigned to CC, CI or CO

19. % Utilization of facilities by poor people sick in last month

20. Unbundling the service chain-2

21. Client-Provider: EDUCO Program in El Salvador Ministry of Education contracts with parent associations to deliver primary education in rural areas Parents’ associations –Hire and fire contract teachers –Visit schools on regular basis

22. EDUCO: % impact of 1 more class visit by ACE on test scores

23. Unbundling the service chain-3

24. Girls’ education in Bangladesh: FSSAP Female Sec. Sch. Assist. Project criteria: –Attendance in school –Passing grade –Unmarried Girls receive scholarship deposited directly into to account in their name School to receive support based on number of girls

25. Unbundling the service chain-4 Donors

26. Emerging Messages Incentives, Choice, Accountability No single solution for every service, every country –Public, private, NGO provision of services all possible –“Matrix” of characteristics & approaches –Most neglected actor: the client Complementarity between improved service delivery & increased financing Need to understand political economy Aid modalities affect service delivery

27. Public Expenditures and Service Delivery in the WDR Set within WDR approach of unbundling service delivery chain Discussed as primary cross-sectoral issue for improving service delivery Entry point for broader public sector reform Civil service, decentralization, M&E, regulation, anticorruption Scope for integration: priorities within government, across sectors, among donors, and over time

28. Public Spending & Service Delivery Well-functioning PE systems vital for health, education, water & sanitation services Budget allocations should reflect determinants of health and education outcomes However, PEM systems fall short of this ideal: – Often not backed up by good policymaking – Do not allocate adequate resources – Lack outcome orientation – Suffer from conflicting political & bureaucratic interests – Tradeoffs between sectors and over time not made – Integration across government missing

29. Cross-cutting PE Reforms for better service delivery Raise results-orientation of public expenditure programs: performance budgeting Update, regulate, and harmonize public procurement Update legal & regulatory framework for financial management Improve accounting and audit systems at central and local levels Implement regular expenditure tracking surveys Delineate clear responsibilities for M&E, establish clear service standards

30. A Large Agenda: PE work and Poverty Reduction PE Analysis PE Management Fiscal Sustainability Allocative Efficiency Incidence Analysis Poverty Reduction Budget Formulation Budget Execution Procurement Fiscal risk Reporting & oversight Quality of Policy Process PRSP PRSC Tracking surveys Service Del.survey Civil Service Reform Decentralization Related items Source: Rajaram, PREM Learning Week, June 2002

31. Questions for discussion Ways of cutting into and assisting countries manage this large, growing agenda when capacities are low (e.g. HIPC) Enhancing service orientation of budgets Integrating across PRSPs, sectors, donors Experience with MTEFs – Poverty impacts – Integration of social sectors Enhancing monitoring and evaluation Role of participatory budget analysis

32. Objectives Today 1.Discuss WDR framework 2.Explore questions relating to public expenditure management and service delivery 3.Invite inputs coordinated through TG Country-specific material for boxes Background notes on key questions in PE for making services work for poor people Stories of success and failure