GUIDELINES FOR SWAPSFile name: SPSP Guidelines FINAL (dist by DG)1.doc Page 6 Printed: 07/04/03 1 INTRODUCTION 1.1 Purpose of the Guidelines1.1 Purpose of the Guidelines The Council

EUROPEAN COMMISSIONEuropeAid Office de Coopération

Guidelinesfor

European Commission Support to Sector Programmes

February 2003Version 1.0

GUIDELINES FOR EC SUPPORT TO SECTOR PROGRAMMES

File name: SPSP Guidelines FINAL (dist by DG)1.doc Page 2Printed: 07/04/03

Acknowledgements

The preparation of these guidelines has been managed and guided by DG AIDCO, with theassistance of the HelpDesk for methodological and training support in Project CycleManagement, Sector Programmes and Budgetary Aid. This program is managed by a consortiumled by ITAD, comprising ADE (Belgium), GFA (Germany) and Eptisa (Spain).

The document has been approved for use by AIDCO management after consultation of DGDEV and DG RELEX. It is hoped that it will also be of assistance to partner governments, toother bi-lateral and multi-lateral development agencies and to individuals working on thedevelopment of Sector Approaches and Sector Programmes. Many people commented bothformally and informally on the first draft and contributed enormously to the final structure andtext.

It is planned that the guidelines should be revised on a regular basis in order to ensure theyremain up to date and to provide for feedback based on their practical application. Commentsupon the guidelines are therefore warmly welcomed and should be forwarded to VirginiaManzitti ([email protected]).

mailto:[email protected]



Guidelines for ECSupport to Sector Programmes

1 INTRODUCTION................................................................................................................. 61.1 PURPOSE OF THE GUIDELINES.................................................................................................................... 61.2 CONTENTS AND ORGANISATION OF THE GUIDELINES......................................................................... 7

PART 1 GUIDING PRINCIPLES FOR SECTOR APPROACHES & SECTORPROGRAMMES............................................................................................................................... 8

2 RATIONALE, DEFINITIONS & CHARACTERISTICS.................................................... 82.1 DEFINING THE SECTOR APPROACH AND THE SECTOR PROGRAMME ................................................ 8

2.1.1 The dynamic nature of Sector Programmes .................................................................................... 102.2 WHY MOVE TOWARDS A SECTOR PROGRAMME ? .................................................................................. 122.3 COMPONENTS AND PROCESSES OF A SECTOR PROGRAMME............................................................... 13

2.3.1 The six typical components................................................................................................................ 142.3.2 Donor and stakeholder co-ordination mechanisms ....................................................................... 142.3.3 The main steps in the development of a Sector Programme........................................................ 152.3.4 Sequencing harmonisation of systems and procedures ................................................................. 17

2.4 CHALLENGES AND LESSONS OF EXPERIENCE ....................................................................................... 202.4.1 Where is a Sector Programme most likely to succeed?.................................................................. 202.4.2 Lessons of emerging good practice in Sector Approaches ........................................................... 22

3 POLICY ORIENTATIONS OF THE EC........................................................................... 243.1 DEVELOPMENT POLICY ORIENTATIONS OF THE EUROPEAN COMMUNITY ................................... 24

3.1.1 Implications for policy on Sector Programmes ............................................................................. 253.2 GOALS AND OBJECTIVES IN SUPPORTING SECTOR PROGRAMMES..................................................... 26

3.2.1 Overall Goals........................................................................................................................................ 263.2.2 The Commission’s objectives in supporting Sector Programmes ............................................... 26

3.3 GUIDANCE ON COMMON POLICY DILEMMAS ......................................................................................... 273.3.1 Balancing ownership with other European Commission objectives........................................... 273.3.2 Matching Sector Programmes with poverty reduction objectives ............................................... 283.3.3 How wide is the sector? ...................................................................................................................... 293.3.4 The role of different stakeholders in a Sector Programme........................................................... 303.3.5 Implementing Sector Programmes in parallel with decentralisation ........................................... 343.3.6 How should technical assistance be deployed in Sector Programmes? ...................................... 36

PART 2 OPERATIONAL GUIDELINES FOR A SECTOR POLICY SUPPORTPROGRAMME (SPSP)................................................................................................................... 37

4 SPSP DEFINITION & OPERATING MODALITIES....................................................... 384.1 PROVIDING SUPPORT IN THE PRE-SECTOR PROGRAMME PHASE ....................................................... 38

4.1.1 Re-thinking projects ............................................................................................................................ 394.1.2 Promoting Sector Approaches and their development into Sector Programmes ..................... 39

4.2 WHAT IS AN SPSP? ....................................................................................................................................... 404.3 THE OPERATING MODALITIES FOR AN SPSP.......................................................................................... 41

4.3.1 The basis for choosing the operating modality............................................................................... 414.4 SECTOR BUDGET SUPPORT......................................................................................................................... 42

4.4.1 When is Sector Budget Support appropriate ? ................................................................................ 454.4.2 Choosing targeted or non-targeted sector budget support ........................................................... 46

4.5 COMMON POOL FUNDING ......................................................................................................................... 48



4.5.1 When is Common Pool Funding appropriate for an SPSP?......................................................... 484.5.2 Different types of common pool funding ....................................................................................... 494.5.3 Advantages and disadvantages of common pool funds ................................................................ 504.5.3 Common pool funding: how to proceed ......................................................................................... 51

4.6 FUNDING THROUGH COMMISSION-SPECIFIC PROCEDURES ................................................................ 534.6.1 Where would Commission-specific procedures be appropriate ?................................................ 544.6.2 Applying Commission-specific procedures: how to proceed ....................................................... 54

5 THE CYCLE OF OPERATIONS FOR AN SPSP.......................................................................... 555.1 THE SPSP CYCLE.......................................................................................................................................... 555.2 THE PROGRAMMING PHASE ....................................................................................................................... 57

5.2.1 Purpose and content of Programming ............................................................................................. 585.3 THE IDENTIFICATION PHASE..................................................................................................................... 59

5.3.1 Objectives and outputs of the identification phase........................................................................ 595.3.2 How to manage the identification process ...................................................................................... 605.3.3 Scope of analysis required during Identification............................................................................. 615.3.4 Quality support process ...................................................................................................................... 615.3.5 Completing the EoID & drafting the Terms of Reference for Formulation............................. 63

5.4 THE FORMULATION PHASE ........................................................................................................................ 645.4.1 Updated assessment of the Sector Programme .............................................................................. 645.4.2 Choice of operating modality............................................................................................................. 655.4.3 Detailed design of the SPSP and drafting of the Financing Proposal......................................... 65

5.5 THE FINANCING PHASE .............................................................................................................................. 685.5.1 Finalisation of the Financing Proposal............................................................................................. 685.5.2 Appraisal by Quality Support Group and Inter-Service consultation ......................................... 705.5.3 Opinion of the financing committee and Commission decision ................................................. 70

5.6 THE IMPLEMENTATION PHASE.................................................................................................................. 715.6.1 SPSP start-up ........................................................................................................................................ 715.6.2 Monitoring of the Sector Programme .............................................................................................. 715.6.3 Specific monitoring requirements for the SPSP ............................................................................. 72

5.7 THE EVALUATION PHASE ........................................................................................................................... 73

6 THE SEVEN KEY AREAS OF ASSESSMENT.................................................................. 756.1 THE MACRO-ECONOMIC ASSESSMENT .................................................................................................... 76

6.1.1 Objectives and scope........................................................................................................................... 766.1.2 Analysis of the national development strategy................................................................................ 766.1.3 Assessment of macro-economic prospects and risks..................................................................... 776.1.4 The potential for Budget Support financing ................................................................................... 77

6.2 ASSESSMENT OF THE SECTOR POLICY...................................................................................................... 786.2.1 Sector policy: quality and consistency with development objectives........................................... 786.2.2 The role of government in the sector............................................................................................... 79

6.3 ASSESSING THE SECTOR MEDIUM TERM EXPENDITURE FRAMEWORK .............................................. 816.3.1 The rationale for a sector MTEF ...................................................................................................... 816.3.2 Suggested indicators of progress in MTEF development ............................................................. 826.3.3 Applying indicators within the MTEF assessment process .......................................................... 84

6.4 ACCOUNTABILITY AND PUBLIC EXPENDITURE MANAGEMENT (PEM) SYSTEMS............................ 856.4.1 Key information to be gathered ........................................................................................................ 856.4.2 Basic principles to be followed .......................................................................................................... 86

6.5 ASSESSMENT OF THE STATUS OF DONOR CO-ORDINATION............................................................... 876.5.1 Some good practice principles ........................................................................................................... 886.5.2 Key issues in assessing donor co-ordination systems .................................................................... 90

6.6 ASSESSMENT OF PERFORMANCE MONITORING AND CLIENT CONSULTATION SYSTEMS ............... 906.6.1 Defining an appropriate framework for performance indicators ................................................ 91



6.6.2 Support to improvements in statistical and measurement systems ............................................. 926.6.3 Development of client consultation mechanisms........................................................................... 92

6.7 THE INSTITUTIONAL AND CAPACITY ASSESSMENT................................................................................ 936.7.1 Scope of assessment ............................................................................................................................ 936.7.2 The institutional framework............................................................................................................... 946.7.3 Organisational and implementation capacity................................................................................... 946.7.4 Capacity building and change management..................................................................................... 95

List of Text Boxes

Box 2.1 The Working Definitions of the European Commission Page 9Box 2.2 Clarifying the Technical Jargon Page 11Box 2.3 Conditions for a successful Sector Programme Page 21Box 3.1 EC support to Sector Programmes: the basis of partnership Page 28Box 4.1 Defining Additionality in Sector Budget Support Page 45Box 4.2 EC Regulations on Common Pool Funding Page 51Box 4.3 Guidelines for evaluating operating procedures of Common

Pool Funds Page 52Box 4.4 Disadvantages of Commission-specific procedures Page 53Box 5.1 The End of Identification Document (EOID) Page 63Box 5.2 Financing Proposal for an SPSP: Key elements Page 69Box 6.1 Economic framework for assessing the role of government Page 80

List of Figures

Fig 2.1 Typical sequencing of steps in a Sector Programme Page 16Fig 2.2 The transition from fragmented to unified procedures Page 19Fig 4.1 Criteria for targeted or non-targeted budget support Page 47

List of Tables

Table 3.1 Roles of different stakeholders in a Sector Programme Page 32Table 4.1 Overview of Assessment process and its implications Page 43Table 5.1 The Cycle of Operations for an SPSP Page 56Table 5.2 Scope of analysis required at SPSP Programming

& Identification stages Page 62Table 5.3 Scope of analysis required at SPSP Formulation stage Page 65


File name: SPSP Guidelines FINAL (Printed: 07/04/03

1 INTRODUCTION

1.11.11.11.1 Purpose of the GuidelinesPurpose of the GuidelinesPurpose of the GuidelinesPurpose of the Guidelines

The Council and the European Parliament have adopted a series of resolutions aimed at the re-orientation of aid instruments, where appropriate, towards increased use of budget support andsector-wide approaches. In March 2002, the Guide for the programming and implementation ofbudget support for third countries was adopted. The production of these Guidelines on ECSupport to Sector Programmes represents a further step in the operationalisation of thesedecisions. It draws upon a previous EC document, Sectoral Policy Support Programmes, ofApril 2000.

The Guidelines are targeted evaluating support by the Euby partner governments. It iother development agenciesexperiences of Member StateAid in applying what has com

Sector Approaches or Sector coherent sector policies and stakeholders in a unified procof these processes and outline

The programme of actions reSector Programme. In otherProgramme (SWAP), a Sec

The aim of these Guideli

� What is a Sector

� How best to supp

� How to assess thhow EC financia

� How to manage support through

� How to choose t

Objectives of the Guidelines

nes is to provide guidance on:

Approach and what is a Sector Programme.

ort a Sector Approach process within a partner country.

e quality of a Sector Programme so as to judge whether andl support should be provided.

the design, financing and implementation of EC financialeach stage of the cycle of operations.

he appropriate operating modality to use in each context.

dist by DG)1.doc Page 6

at Commission staff responsible for designing, implementing orropean Commission to the implementation of Sector Programmess also hoped that they may be useful to partner governments, to, consultants and staff of NGOs. They build on the positives, partner governments and staff of RELEX, DG Dev and Europee to be known as the “Sector Approach”.

Wide Approaches (SWAps) are processes aimed at development ofstrategies. They involve Governments, Donors and other sectoress and framework. The Guidelines describe the key characteristics how the Commission believes they may best be supported.

sulting from a Sector Approach is defined in these Guidelines as a contexts, it may also be described as a Sector Wide Approachtor Investment Programme (SIP) or a Sector Development



Programme (SDP)1. For the purposes of these Guidelines, we use the terms Sector Approachand Sector Programme and describe the corresponding EC financing mechanism as a SectorPolicy Support Programme.The Guidelines include the Commission’s approved definitions of the key concepts. They alsoprovide cross-references to related Commission manuals and guidelines, in particular the Guideto the programming and implementation of budget support for third countries.

An important point to remember is that Sector Approaches and Sector Programmes must, apriori, reflect the particular circumstances of individual sectors and countries. There can thereforebe no blueprint and these Guidelines seek only to provide guidance on how to proceed. Theyshould be used in close conjunction with relevant sectoral guidelines2.

One of the objectives of the Guidelines is to show how the standard cycle of operations needs tobe adapted to the requirements of Sector Approaches and Sector Programmes. However, theGuidelines do not intend to be exhaustive in their presentation of the Commission’s proceduralrequirements. They specify the particular requirements for supporting a Sector Programme and inno way seek to replace relevant official documents and instructions (i.g. the Inter-servicesAgreement, the "Guide to the Programming and Implementation of Budget Support in thirdCountries", Practical Guide to EC external aid contract procedures . etc…)

1.21.21.21.2 Contents and Organisation of the GuidelinesContents and Organisation of the GuidelinesContents and Organisation of the GuidelinesContents and Organisation of the Guidelines

The Guidelines are presented in two parts:

• Part One comprises Guiding Principles for Sector Approaches and SectorProgrammes. This explains Commission policy in relation to Sector Approachesand Sector Programmes, and the guiding principles on EC Development Co-operation. It presents a definition of terms and a summary of the rationale forSector Programmes, their objectives, and key characteristics. It includes a section onemerging lessons of good practice and also presents guidance on commondilemmas which arise in supporting Sector Approaches and Sector Programmes.

• Part Two comprises Operational Guidelines for Sector Policy SupportProgrammes. It explains the steps which must be followed to provide EC financialsupport to a Sector Programme. It is divided into three chapters. The first explainsthe three types of financing/ operating modalities available and the issuesdetermining the choice between them. It also outlines how support can be providedin the all important “pre-Sector programme” phase. The second details the actionsto be taken at each stage of the cycle of operations for a Sector Policy SupportProgramme. The final chapter describes the seven key assessment areas which mustbe reviewed in order to judge the quality of a Sector Programme and decide uponthe desirability of financial support, the appropriate modality and level of funding.

In addition, a set of annexes has been provided containing examples of key documents,schematic terms of reference and further references. The schematic terms of reference will needto be adapted to the specific context and examples should be utilised only for orientation.

1 We recognise that these terms are not exact synonyms. Chapter 2 of the Guidelines includes a section on definitions which

presents the terminology favoured by the Commission.2 For example, the Commission has issued guidelines for the rural development, transport and water sectors and guidelines for

education and health are forthcoming. The WHO-convened Inter-agency group on Sector-wide approaches in health alsoprovides rich material available on http://www.cc.cec/home/dgserv/dev/body/theme/index_B3_ssp.cfm .

http://europa.eu.int/comm/europeaid/tender/gestion/index_fr.htmhttp://europa.eu.int/comm/europeaid/tender/gestion/index_en.htm



PART 1 GUIDING PRINCIPLES FOR SECTORAPPROACHES & SECTOR PROGRAMMES

2 RATIONALE, DEFINITIONS & CHARACTERISTICS

2.12.12.12.1 Defining the Sector Approach and the Sector ProgrammeDefining the Sector Approach and the Sector ProgrammeDefining the Sector Approach and the Sector ProgrammeDefining the Sector Approach and the Sector Programme

Sector Approaches and Sector Programmes have been labelled over time in different ways: SIPs(Sector Investment Programmes), SDPs (Sector Development Programmes), Sector ExpenditureProgrammes, and more recently SWAp (Sector Wide Approach) 3. There are distinctions betweenthese names and different points of emphasis. However, in spite of the varied terminology used,there are key principles on which there is an agreement in the international donor community.

Firstly, it is accepted that they should be led by partner governments. Secondly, they have thecommon goal of improving the efficiency and effectiveness with which internal andexternal resources are utilised. This common goal reflects a mutual concern to improve theresults of government and donor spending both by focussing resources on the priorities stated innational poverty reduction strategies or similar documents, and by improving the quality ofspending. In striving to attain this goal, sector approaches share three common objectives:

• To broaden ownership by partner Governments over decision-making with respectto sectoral policy, sectoral strategy and sectoral spending.

• To increase the coherence between sectoral policy, spending and results throughgreater transparency, through wider dialogue and through ensuring a comprehensiveview of the sector.

• To minimise as far as possible the transaction costs associated with the provisionof external financing, either by direct adoption of government procedures orthrough progressive harmonisation of individual donor procedures.

3 Some agencies make a distinction between SWAp (the approach) and SWAP (the programme)

This chapter:

� Defines a Sector Approach, a Sector Programme and a Sector PolicySupport Programme.

� Explains the goals and objectives of Sector Programmes.

� Describes their key characteristics and the main steps in their development.

� Summarises the basic conditions for Sector Programmes and the emergingprinciples of good practice, based upon the lessons of experience.



In addition, there is general agreement that the Sector Approach is a process. In other words, itshould embody ongoing improvements over time in relation to these three central objectives.Within this overall context, there are three specific definitions, which are essential to themanagement of operations funded by the Commission. These are reproduced in the box below.

Box 2.1: The Working Definitions of the European Commission

The Sector Approach

…………is defined as a way of working together between government and development partners.The aim is to broaden Government ownership over public sector policy and resource allocationdecisions within the sector, to increase the coherence between policy, spending and results and to reducetransaction costs. It involves progressive development of a comprehensive and coherent sector policy andstrategy, of a unified public expenditure framework for local and external resources and of a commonmanagement, planning and reporting framework.

A Sector Approach may be supported by the EC through participation in dialogue and co-ordination. Such participation need not involve any transfer of funding to the partnergovernment or other stakeholders within the country.

The Sector Programme

As a result of following a Sector Approach, Governments in consultation with partner donors andother stakeholders may develop an updated sector policy and action plan. This is defined as a SectorProgramme, if it includes the following three components:

- An approved sectoral policy document and overall strategic framework (such as a PRSP)- A sectoral medium term expenditure framework and an annual budget.- A co-ordination process amongst the donors in the sector, led by Government.

When funding is transferred by the EC, the purpose is to support the Sector Programme orsome agreed sub-set of activities within that Programme. The decision on whether to providefunding will depend upon an assessment of the quality of the Programme.

The Sector Policy Support Programme (SPSP)

……………is the programme of the European Commission by which financial support isprovided to the partner Government’s Sector Programme. An SPSP may follow threetypes of operating modalities:

I. Sector Budget Support – which is the modality of choice, wherever appropriate andfeasible.

II. Financial contributions to pooled Common Funds which fund all or part of the SectorProgramme.

III. Commission-specific procedures (European Commission budget or EDF).



2.1.1 The dynamic nature of Sector Programmes

The definition of a Sector Programme utilised in these Guidelines is the same as that proposed inthe Commission document of April 2000, and also utilised by the SPA donors4. This places theaccent upon the existence of three components : 1) a sectoral policy document and overallstrategic framework, 2) a sectoral medium-term expenditure framework and annual budget, and3) government-led donor co-ordination.

The above criteria (more fully explained in Box 2.2) provide a helpful “benchmark definition” ofa Sector Programme but, as with any definition, they are not perfect. In particular, it is useful tobe aware of two potential shortcomings in the use of these criteria:

• Firstly, they give an image of a relatively static process: either a programme is or isnot a Sector Programme. The reality is more complex than this: the three“components” of the Sector Programme may take a long time to develop.Moreover, once they are in place, further refinement and improvement is alwaysnecessary. Successful Sector Programmes are highly dynamic.

• Secondly, the criteria do not in themselves prescribe the methods by which theSector Programme should be developed. The Sector Approach represents a newway of working between governments and donors. Hence, the methods by which aSector Programme is produced and implemented are important. Although they canvary, they should all embody the principles of ownership, coherence andharmonisation.

A working definition (Foster, 2000) that has gained acceptance among practitioners captures thethree SPA criteria but also emphasises the need to move towards common procedures (and inparticular Government procedures). It qualifies a Sector Programme as a situation when:

“all significant funding for the sector supports a single sector policy and expenditure programme, underGovernment leadership, adopting common approaches across the sector, and progressing towards relying onGovernment procedures to disburse and account for all funds”.

As stated earlier, the Sector Approach is an approach rather than a blueprint - flexible andadaptable to a changing environment. Sector Programmes are constantly developing - making thecoverage of the sector more comprehensive, bringing ongoing projects into line with the sectorpolicy, and developing common procedures and increased reliance on government systems. TheCommission utilises the SPA definition of a Sector Programme but also promotes anappreciation of the dynamic nature of Sector Programmes and stresses the importance of themethods by which such programmes are developed and implemented.

4 Strategic Partnership with Africa (SPA): A forum composed of all donors providing budget support programmes to African

countries..



Box 2.2: Clarifying the Technical Jargon

a) The 3 defining components for a Sector Programme

What is an overall strategic framework?Government policy within a sector should ideally contribute to a set of higher level goals andobjectives, which Government has adopted for all of its activities. Usually, this would besummarised in a national development strategy, a 10 Year Plan or something similar. APoverty Reduction Strategy Paper (PRSP) would also be an example of an overall strategicframework. As a general rule, a sector should be a priority within the PRSP if thecorresponding Sector Programme is to be supported.

What is a sectoral policy document?A sectoral policy is a statement of government’s objectives within a sector and a summary ofhow they will be achieved. It explains the proposed role of government and non-governmentagents within the sector. It distinguishes activities to regulate provision of services by themarket from direct financing or delivery of services by government. Often it will include aset of objectives relating to the intended level of access to government services, the minimumacceptable quality for those services and the charges which might be levied for them, if any.

Sector policies usually emerge from a range of decisions by government - some legal, someadministrative, some budgetary. In order to determine what is sector policy, it is oftennecessary to refer to several documents. Over time the clarity of objectives and strategy maybe lost and duplications and inconsistencies arise. Issuing a single sectoral policy documentmakes policy more transparent so that a coherent, unified approach may be re-established.

What is a sectoral medium term expenditure framework?A medium term expenditure framework is a system for planning actions and programmingspending over a 3 to 5 year period. It reconciles systematically the achievement of strategicobjectives with respect for aggregate resource limits. In some countries, the whole budgetprocess is managed through an “MTEF” system; in others it is limited to specific sectors andacts only as a broad guide to spending decisions. A sectoral medium term expenditureframework must have four minimum characteristics:

- firstly, it must be comprehensive, in the sense of including all sources of financing tothe sector and all proposed spending.

- secondly, it must be realistic so that projections of financing are not over-estimatedand projections of costs are not under-estimated.

- thirdly, it must be clear about how resources will be utilised and what are the desiredresults to be monitored, meaning that it must derive from a clear action plan.

- finally and most importantly, it must be endorsed at senior political level.

b) What are Transaction Costs ?

The concept of transaction costs aims to capture the aggregate cost of the administrativeactivities involved in managing development assistance, which have no value either to therecipient government or to the donor other than to permit an aid transfer to take place. Alldevelopment assistance will have some transaction costs and in most cases, these will beshared by donors and the recipient government. Sector Programmes seek to minimisetransaction costs either by reducing their sum total or by altering the way these costs areshared in favour of the government.



2.22.22.22.2 Why move towards a Sector Programme ?Why move towards a Sector Programme ?Why move towards a Sector Programme ?Why move towards a Sector Programme ?

The sector approach aims to offset the weaknesses of project support. It does this firstly bysupporting a government–owned policy and strategy, secondly by promoting coherence betweenpolicy, budgeting and actual results and thirdly, by reducing (in the medium to long run) thetransaction costs of utilising external finance. The approach broadens the notion of impactbeyond the scope of one specific donor and focuses on the combined impact of Government, alldonors within a sector and other important private sector and NGO stakeholders. As a result,donors evolve from supporting specific activities to co-financing a policy with the partnercountry and other donors. These co-ordinated efforts are made on the basis of objectives set bythe government and in the framework of a coherent public sector expenditure programme.

Perhaps the most important feature of the approach is that it brings the sector budgetback to the centre of policy-making and unifies expenditure programming and management5,regardless of the source of funding. In this respect, it is a response to the breakdown ofbudgetary, organisational and management structures in aid dependent countries. Thisdeterioration of government systems, while partly the result of political and fiscal crises, has beensignificantly worsened by the multiplication of stand-alone donor projects, working outside ofgovernment systems, often with their own Project Implementation Units (PIUs) and dedicatedtechnical assistance.

The justification for the focus on projects as the main vehicle of aid before the mid-1990s wasthe belief that the principal constraint to development was a lack of investment and that projectswere the most efficient way to deliver capital investment. Alongside this lay a conviction thatprojects provided the best structure for minimising the risk of financial malfeasance and thus forguaranteeing to tax payers that their aid was producing concrete results.

However, a series of aid evaluations undertaken over the mid to late 1990s pointed to a multitudeof problems with projects:

• The ability of donors to force their own priorities upon governments and to insist onspecific management requirements and implementation procedures undermined theownership of policies and programmes by national authorities.

• Multiple projects did not favour the development of a coherent national sector policyand led to fragmentation, duplication of efforts and loss of coherence betweenactions funded by local and external resources.

• Funding of multiple investments by donors lacking an overall vision and priorities led tounbalanced sectoral development (at geographical and sub-sectoral level), and tendedto generate imbalances between recurrent and investment budgets.

• For countries with a large number of aid projects and a multitude of donors, each withtheir own reporting schedules and accounting requirements, the transaction costs ofdelivering aid through projects were becoming unacceptably high.

• The extensive reliance on parallel, non-government project management structures andspecial staffing arrangements was seriously undermining the effectiveness ofgovernment systems, with negative effects right across government.

• The use of donor-specific mechanisms of accountability was corroding the normalstructures of democratic accountability.

5 Jones, S. and A. Lawson (2000), Moving from projects to programmatic aid, Operations Evaluation Department Working Paper

Series No.5, World Bank.



By working outside normal government systems, in particular the systems of budget planning andexecution, accounting, procurement and performance management, aid projects not only missedthe opportunity to assist in the strengthening of government systems, but actually ended upundermining their credibility and reducing their effectiveness, even in areas of governmentactivity completely untouched by aid. Simultaneously, the primacy given to donor demands foraccountability was increasingly forcing governments to be accountable to donors rather than toparliaments and their people.

In summary, these critiques highlighted two fundamental problems: aid financed projects almostby definition would not use government systems and structures and secondly, the use of donor-specific approval and review processes for projects inevitably removed government ownership,making it difficult for government choices and priorities to rule over project selection. Thenegative consequences for longer term institutional capacity were very serious:

Aid agencies have a long history of trying to ‘cocoon’ their projects using free-standingtechnical assistance, independent project implementation units, and foreign experts - ratherthan trying to improve the institutional environment for service provision…..They haveneither improved services in the short run nor led to institutional changes in the long run.(World Bank, Assessing Aid: what works, what doesn’t and why. OUP, 1998)

The lessons of these evaluations have been increasingly internalised in the policies of theEuropean Commission and of other bi-lateral and multilateral financing agencies. Major effortshave been made in recent years to ensure that projects are part of a national policy and thatdonor co-ordination is improved. But such an approach is still inadequate where large numbersof projects continue to exist and where the very structures of policy making, budgeting andplanning are weak.

Ironically, it is only by placing reliance on weak government structures that a real demand fortheir improvement can be generated. Sector approaches seek to do exactly this. Where theminimum conditions for success exist, they can create a virtuous cycle whereby a clearer sectorpolicy creates greater coherence, permitting governments to assert ownership, while a reductionin the number of projects and in their transaction costs stops the dissipation in administrativecapacity and allows budgetary and planning systems to become stronger. If the channels ofdemocratic accountability are simultaneously strengthened – by enhancing the roles of Parliamentand civil society – then this can reinforce the pressure to improve the efficiency and effectivenessof the public service and hence to strengthen planning, budgeting and management structures.

2.32.32.32.3 Components and processes of a Sector ProgrammeComponents and processes of a Sector ProgrammeComponents and processes of a Sector ProgrammeComponents and processes of a Sector Programme

The Commission’s definition of a Sector Programme is based upon the existence of threeminimum components, described in Box 2.1 and 2.2 above. However, for a Sector Programme tooperate effectively, these three components are rarely sufficient in themselves. In addition tothese, a successful Sector Programme would normally include a performance monitoring system,an agreed process for moving towards harmonised systems and a systematic mechanism ofconsultation with beneficiaries of government services and with non-government providers ofthose services. Therefore, a Sector Programme would typically comprise at least six components6.The involvement of non-government stakeholders in Sector Programmes is one specific aspecton which the Commission and many other development agencies lay special emphasis.

6 See Brown, A. et al (2001) The Status of Sector Wide Approaches, Working paper 142, Overseas Development Institute, which

places this six-component definition within the broader context of the processes promoted by Sector Approaches.



2.3.1 The six typical components

In many respects, all a Sector Programme seeks to do is to re-emphasise basic principles of goodplanning and management. In particular, three components of a Sector Programme would bepresent in a well-run sector ministry anywhere in the world:

i) A clear sector policy and strategy to know what government is aiming toachieve in the sector and how – distinguishing government’s regulatory role fromits service delivery role, specifying the roles of non-government agents andoutlining any necessary institutional reforms.

ii) A sectoral medium term expenditure programme, based on a comprehensiveaction plan, to clarify what is the expected level of available internal and externalresources and how these resources will be utilised in pursuit of the policy.

iii) A performance monitoring system to measure progress towards theachievement of policy objectives and targeted results, distinguishing between maleand female beneficiaries and different social groups as appropriate.

What is different about a Sector Programme is that it seeks to correct distortions specific tocontexts where there is a high level of aid dependency. These distortions arise in particular wheremany of the activities in the sector are financed from external funds and where these externalfunds are not programmed and managed in the same way as government funds.

There are two crucial components of any Sector Programme which aim to correct thesedistortions:

iv) A formalised process of donor co-ordination; and

v) An agreed process for moving towards harmonised systems for reporting,budgeting, financial management and procurement.

The final component common to most Sector Programmes reflects how governments haveincreasingly learned to respond to their clients – the general public – and to involve non-government agents in service delivery. Hence, a Sector Programme would typically include:

vi) A systematic mechanism of consultation with clients and beneficiaries ofgovernment services and with non-government providers of those services.

The consultation mechanism might extend to formal participation in decision-making on sectorpolicy and spending (through membership of sector working groups, for example). Or it mightbe limited to survey work in order to improve understanding of the sector and, in particular ofthe supply and demand for services. The key point - stressed by the Commission and otheragencies - is that the concerns of the recipients of government services and of the alternativeproviders of services should be understood and factored into the design of sector policy andstrategy. Careful attention to gender issues is essential if these systems are to work well.

2.3.2 Donor and stakeholder co-ordination mechanisms

As we have noted above, the Sector Approach is a response to the breakdown of budgetary,organisational and management structures in aid dependent countries. As such, it needs to startwith a clear appreciation by the donors involved that their traditional ways of doing business areundermining progress and need to change. When a culture of aid dependency is well established,it is inherently difficult for governments to put across this message to donors. In most cases, they



need to rely on the close support of donors to re-inforce the message, to establish a firmcommitment to change and to introduce a culture of “self-policing” by donors. By playing thisrole, donors can also re-inforce government’s own commitment to the approach. For thesereasons, donor co-ordination mechanisms represent a crucial component of a Sector Programmeand are usually the starting point in moving into a sector approach.

Co-ordination processes will normally begin with relatively informal meetings where problemsare analysed and information shared. Over time they develop into increasingly structuredarrangements where donor commitments and agreed codes of behaviour are written down informal Memoranda of Understanding. (Examples are provided in Annexes 6, 7 and 8.) TheseMemoranda themselves evolve over time. They might initially comprise general “Statements ofIntent”, becoming more detailed as the areas of agreement become broader and donors morewilling to utilise common funding systems and to rely on government mechanisms. Thedocumentation of these agreements helps to create a type of “ratchet effect”, wherebyagreements once reached are consolidated through the drafting process and become less subjectto reversal if circumstances or personalities should change. In order for a large SectorProgramme to operate sustainably over time, quite a high level of detail is required in the MoU,including for example agreed dispute resolution mechanisms.

For these processes to work effectively and to generate progressive improvements, frequentGovernment-donor and donor-donor dialogue is needed. Often this will be facilitated by a “leaddonor” or lead group of donors. In addition to undertaking a “policing” role within the donorcommunity, this lead group will also be able to promote the role of non-governmentstakeholders. The involvement of non-government stakeholders in policy formulation andmonitoring is an important aspect of the added value provided by the sector approach but it is amode of working with which many governments remain unfamiliar and occasionally suspicious.Donors can play a useful role in advising governments on the most productive ways of involvingnon-government stakeholders and in providing access to international experience in this area.

2.3.3 The main steps in the development of a Sector Programme

It is impossible to define in a precise way the steps in the creation of a Sector Programme. Nearlyall will include development of the six components specified above but in most cases, aspects ofeach will already be in place, permitting some components to be developed quicker than others.Figure 2.1 shows a suggested sequencing of the components of a Sector Programme. However,in particular country and sector contexts, this sequencing might not be feasible or efficient.Hence, it should be used as a rough guide or aide memoire, not as a blueprint.

The main challenges revolve around the need to balance three requirements :

� The requirement for technical improvements in the six components, which takeaccount of their inter-relationship and the need for coherence.

� The necessity for these improvements and changes to be adopted (and respected)by all major stakeholders – hence the requirement for continuous consultation.

� The imperative to continue to run government activities and to deliver services: inother words to avoid devoting so much attention to system reform that day-to-dayoperations suffer significantly.

The starting point in most cases is to put in place common ways of working, of exchanginginformation and of reaching decisions on a joint basis. In a mature Sector Programme, these co-ordination mechanisms would embrace all stakeholders but better government-donor and donor-donor co-ordination would normally be the first step. It is crucial that systems of donor co-


File name: SPSP Guidelines FINAL (dist by DG)1.doc Printed: 07/04/03

ordination should be established and chaired by Government. It is also essential that they shouldinvolve participation from the Ministry of Finance in addition to the relevant sectoral ministry.

Once basic processes of co-ordination are in place, the sector policy is normally the next area forattention, although in some cases existing policy may be perfectly clear and acceptable to all.Usually, it is advisable to develop the medium term expenditure framework for the sector inconjunction with the policy because policy ambitions will necessarily need to be limited by thelevel of resources available7. Conversely, policy objectives will never be achieved if the pattern ofspending is not based upon an action plan consistent with that policy. Again, the involvement ofthe Ministry of Finance in these processes is crucial – firstly, to ensure that the aggregate resourceenvelope is realistic and subject to some degree of protection by the Ministry of Finance in caseof revenue shortfalls and secondly, to be certain that sectoral priorities are consistent with widernational priorities, as expressed in the PRSP or its equivalent.

Figure 2.1: A Typical Sequencing of the Steps in the Development of a Sector Programme

with and

7 Ensuring the consistency of sector policies with overall financing capacity is likely to require a variety o

education sector in particular, strategic objectives usually need to be matched against a 10 or 15 year resoumedium term expenditure framework then becomes a more detailed sub-set of this long-term plan.

1.Establish Government-led process of Donor

Co-ordination

2.Develop & agree aclear sector policy

and strategy

3.Develop & agree asectoral mediumterm expenditure

framework

At same timeas…….

Developmentof the 3 Basicelements of a

SectorProgramme

At the same time as ………. and …..

6 a). Develop

Common reporting Calendar

6 b). Develop & implement agreed proces harmonization of reporting, budget accounting and

Later, and over procurement systems. extended time period……………

SStrengtheningof the

Managementsystems forthe Sector

Programme

5. Developystematic client& stakeholderconsultationmechanism

4. DevelopCommon

PerformanceMonitoring

System

Page 16

f scenarios. In therce projection. The

s foring,



In so far as pre-existing systems of consultation with beneficiaries and with non-governmentstakeholders exist, it is important that these should be employed in developing the sector policyand expenditure framework. In this way, there is an early input into policy by clients, beneficiariesand non-government service providers. However, one should avoid overloading the reformprocess: the approach should be to employ whatever consultation mechanisms exist and to seekimprovements later.

With donor co-ordination processes established and the sector policy and sector medium termexpenditure framework also ready, a basic Sector Programme may be said to be in place.Experience suggests very strongly that only then does it become feasible to address in a seriousway the quality of the management systems for the programme. These comprise:

� The performance monitoring system.

� The client and stakeholder consultation mechanism.

� Harmonised systems for reporting, budgeting, financial management andprocurement.

Depending on the quality of existing systems, it would usually be appropriate to give priority toperformance monitoring and client consultation mechanisms before attempting to address theissue of harmonisation of procedures. There are two reasons for this – firstly, good performancemonitoring and good client consultation mechanisms are essential to ensure that sector policiesand spending plans are regularly adjusted in the light of results – in the absence of such systems,policies and plans are likely to lose their relevance. Secondly, harmonisation of procedures is acomplicated and lengthy process, which can delay potentially easier improvements in other areasand create considerable frustration among stakeholders. The one aspect of harmonisation whichshould be addressed simultaneously with performance monitoring and client consultationmechanisms is that of common reporting. (See 2.3.4).

All of the above steps are iterative. In other words, each of the components of the SectorProgramme will need to be produced in a basic form first before being refined later. The keymaxim is ‘to avoid the pursuit of the best becoming the enemy of the good’. Rather than aimingfrom the beginning for a high level of sophistication, it is better to start, for example, with asimple policy document which lays out objectives and broad approaches and to seekimprovement later as information systems develop and consultation processes are strengthened.

2.3.4 Sequencing harmonisation of systems and procedures

Harmonisation of reporting, budgeting, accounting and procurement systems is a key aspect ofany Sector Programme and in many cases the one on which partner governments place the mostemphasis. In practice, harmonisation often proves problematic, demanding of government timeand costly in terms of technical assistance and preparatory costs. Usually this is because “idealsolutions” have been sought from the outset, which bring together all aspects of harmonisationinto one unified process, typically structured around the establishment of a single common poolfund for the financing of the Programme. Experience suggests that this is not the most effectiveway to achieve progress towards harmonisation. Rather it is important to ask:

� Which aspects of harmonisation are likely to bring the greatest benefits?

� How will the costs of introducing different aspects of harmonisation compare?

� In the light of costs and benefits, what is the most appropriate sequencing ofharmonisation processes?



In order to answer these questions, it is important to “unbundle” exactly which objectives arebeing pursued through harmonisation. In general, harmonisation can contribute to all three ofthe main objectives of the Sector Approach, namely 1) increased ownership; 2) increasedcoherence in planning and resource allocation and 3) reduced transaction costs. However,whereas all types of harmonisation will serve to reduce transaction costs, not all will impactsignificantly on ownership and coherence of planning and resource allocation. In particular, onecan distinguish the establishment of shared information systems, common reporting andcommon planning and budgeting processes, on the one hand, which will improve ownership andcoherence. On the other hand, the creation of common disbursement and accounting systemsand common procurement processes impact primarily upon the reduction of transaction costs.

This is illustrated in figure 2.2 below, which shows how the transition from a fragmented to aunified planning and resource allocation system might occur. The sector can be seen to passthrough five stages as follows:

1) At the outset, we see a situation typical of many highly aid dependent countries. TheGovernment Budget may be consistent with the Sector policy but covers little more thanrecurrent expenditure. Some externally financed projects are programmed in conjunctionwith Government and included in approved Government planning documents. Mostdonor projects are not programmed in a manner coherent with Government policies andthe information on donor projects is incomplete.

2) The first set of improvements involves the comprehensive exchange of information onexternally funded projects, creating at least the potential for unified planning and forgovernment ownership over resource allocation decisions.

3) In stage three, comprehensive programming of all major expenditures in the sector isnow taking place, with resource allocation decisions all based upon one policy andexpenditure framework. In order to permit this, it would be necessary for expenditurereporting by externally funded projects to be based upon the same budget calendar as forthe Government Budget. (Ideally, there would also be common formats for presentationof information.) By this stage, we may say that a unified planning and resource allocationsystem has been established, although there are still a variety of disbursement andaccounting mechanisms in place.

4) In stage four, a common pool arrangement is established, thus unifying the accountingand disbursement systems for externally financed activities, although continuing tooperate in parallel with the government budgetary and accounting system. This wouldsignificantly reduce the transaction costs of multiple accounting systems but would makeno further contribution to unified planning and resource allocation nor to increasedownership.

5) In stage five a unified planning, budgeting disbursement and accounting system isestablished, following government procedures.

Clearly, this is a stylised presentation but the essential point that it illustrates is that a unifiedplanning and resource allocation system could in principle be established, whilst still maintaininga variety of accounting and disbursement systems. Having reached this stage, a direct move to theuse of government systems (as indicated by the dotted line in Figure 2.2) might be feasiblewithout the additional costs of setting up a Common Fund with its own accounting anddisbursement mechanism. This would of course depend on the quality of the governmentsystems and on the fulfilment of the conditions for the provision of Sector Budget Support.



Figure 2.2 The transition from fragmented to unified procedures within a Sector Approach

Government

Budget (largely

limited to recurrent spending)

Donor Projects on which Govt

has expenditure information

All resources managed through Government Budget

(enhanced by Budget Support)

1) Fragmented Initial Position

2) Complete information on Sector

3) Unified programming of sector

4) Unified programming with two budget systems

5) Unified budget using government procedures.

Donor projects largely unknown to Govt.

External Projects

included in Government

Plan (eg. Public

Investment Plan or MTEF)

Government Budget (largely


External Projects

included in Government Plan (eg PIP

or MTEF)

Donor Projects on which Govt

has expenditure information.

Government Budget (largely


All External Projects

included in Government

Plan

Government Budget

(now enhanced by

Budget Support )

External Financing through

Common Fund (programmed by

Government)

In summary, there are a number of points which need to be borne in mind in managing theprocess of harmonisation of procedures:

� The priorities for harmonisation and the approaches adopted should be based on arealistic assessment of the likely costs and benefits.

� In assessing the benefits of reduced transaction costs, the prime concern is with thetransaction costs borne by government:. Gains in this area may in the short termrequire increased transactions costs for donors

� Government systems should be used wherever possible, strengthened if necessarythrough small adaptations and modifications.



� Development of common procurement systems can be pursued in parallel toharmonisation of other management systems. In particular, it should be noted thatcommon procurement systems can be established quite independently of theexistence of a Common Pool Fund.

� Greater priority should be placed on establishing common review processes andtimetables, than on common accounting and disbursement procedures. Unifiedexpenditure programming and reporting systems can quite feasibly be establishedwhile continuing to utilise existing project accounting and disbursement procedures.

� The potential for making a direct move to budget support and the use ofgovernment procedures should be carefully assessed before embarking on thedevelopment of common pool funds.

� Where the use of budget procedures is not possible, common pool funds canrepresent a major saving in transaction costs if a critical mass of donors commit totheir use. When properly structured, they can also serve to reinforce gains alreadymade in the harmonisation of planning, budgeting and reporting systems.

Investment has been made by the Commission with the World Bank and other UN organisationsin the development of a standardised Trust Fund system for managing pooled funds. Referenceson this tool are provided in http://www.cc.cec/EUROPEAID/g1/org_int_en.htm.

2.42.42.42.4 Challenges and Lessons of ExperienceChallenges and Lessons of ExperienceChallenges and Lessons of ExperienceChallenges and Lessons of Experience

The potential benefits of the Sector Approach in contexts of high aid dependency are clear – interms of ownership, efficient and responsible government, better management of resources andgreater impact on poverty. Nevertheless, there are important challenges in developing andimplementing Sector Programmes. While there is broad consensus, funding agencies havedifferent policies and their interpretations of the sector approach may differ considerably.

Severe capacity weaknesses in partner Governments, combined with continuing incentives tosustain parallel project structures, will generally mean that progress can only be gradual. There arestrong reasons why government officials in aid dependent countries may wish to retain the statusquo with regard to the use of off-budget projects. Since the national budget system can rarelyguarantee a reliable and timely supply of funds, managers have an incentive to bypass the budgetso as to secure resources directly from donors and will often resist integrating donor funds intothe budget. Secondly, the project bureaucracy creates posts which are generally better paid andwith better equipment and conditions than the civil service can provide. There is also evidence ofsubstantial opportunity for rent-seeking in the management and administration of donor projects.

2.4.1 Where is a Sector Programme most likely to succeed?

This question is best approached from two perspectives. Firstly what is the right context?Secondly, within that context which appear to be the key pre-conditions for success?

The appropriate context for a Sector ProgrammeIt is worth recalling that the Sector Approach is essentially a response to the breakdown ofbudgetary and management structures within the public sector of aid dependent countries. Thestructures and systems of a Sector Programme would not be appropriate to areas of purely

http://www.cc.cec/EUROPEAID/g1/org_int_en.htm



private sector activity, where the behaviour of stakeholders is determined by the structure ofcompetition and the nature of regulation rather than by consultative processes and annualdecisions on public spending. There may occasionally be reasons for broader public-privatecollaboration – such as in planning tourism or in trade promotion – but such collaboration isprobably better managed outside of the context of Sector Programmes, which would generally betoo cumbersome for this purpose.

Similarly, where aid dependence is not high and by implication the level of donor activity is low,governments may see no real justification for the high level of policy dialogue with donors whichthe sector approach implies. They may prefer to continue with project financing or to seekmacroeconomic budget support without adopting the full range of consultative and managementcomponents typical of a sector programme. In short, the Sector Approach is most appropriate toa public sector context with significant aid financing.

BOX 2.3: CONDITIONS FOR A SUCCESSFUL SECTOR PROGRAMME

Four essential conditions:

� Strong and effective leadership at sector ministry level.

� Commitment to the process elsewhere in Government, particularly in theMinistry of Finance and at senior political level.

� Broad consensus between Government and Donors on key policy andmanagement issues for the sector.

� A reasonable degree of macroeconomic and political stability leading to arelatively high degree of budget predictability.

Four important facilitating conditions:

Institutional relationships are manageable. Sector programmes have worked mosteffectively where they are defined in terms of the area of budget responsibility of a singlesector ministry. They are also easier to manage where there is a relatively small group ofsignificant donors to the sector.

There is an experienced “lead donor” or lead group of donors. Sector Programmesusually need a lead donor willing to support government in managing donor and stakeholderco-ordination through good advice and through bringing other donors “into line” whennecessary.

Incentives are compatible with the objectives of a Sector Approach. Problems are likelyto occur if the sector strategy involves cutting the budget or staffing of the ministry which isto take the lead role in implementing it. In addition, where civil service and othergovernment-wide reforms are in place to create incentives and performance-related rewards,it is easier to attract staff and to counteract the incentives to retain project bureaucracies.

“Quick wins” can be achieved to raise commitment and support. Developing a SectorProgramme is a lengthy process involving considerable negotiation, consultation and systemsdevelopment. Enthusiasm will dwindle quickly without tangible benefits at an early stage.

Sources: Jones, S. and A. Lawson, 1999; Foster, M., 2000; Brown A. et al, 2001.



Pre-conditions and facilitating conditionsEven within aid dependent, public sector contexts, experience points to the existence ofconditions, without which Sector Programmes are almost certain to fail. There are also importantfacilitating conditions, which, whilst not essential, do create a considerably more favourableenvironment for success. These are reproduced in Box 2.3.

Where the pre-conditions fail to hold, problems will inevitably arise:

In the absence of effective leadership from the sector ministry, the process tends tobecome donor led, and excessively driven by particular donor. In this situation there is a strongtendency for donor funded planning and consultation processes to be established that run inparallel to normal government systems. In agriculture, for example, there have been long andrelatively costly processes of “programme preparation” in a number of countries, usually basedaround “Secretariats” and “Task Forces” that are only loosely tied into government processes.

Lack of involvement and commitment from the Ministry of Finance means that the processis not integrated into the budget cycle and there can be no assurance that the plans developed willbe funded. In this situation, there are few incentives for the sector ministry to seek increasedtransparency in the use of donor resources (by bringing them within the budget envelope) and noprospect of implementing a coherent medium-term expenditure programme for the sector.

In the absence of a consensus on key policy and management issues for the sector, it maybe difficult to move the process forward. Ideally, problems at this level will lead to furtherconsultation, discussion and research from which consensus may develop. However, a danger isthat the desire of both donors and government to maintain the flow of funds and keep theprocess formally on track may lead to a “fudging” of key issues which later re-emerge as points ofcontention. A related problem is divergent expectations about the outcome of the process, withgovernments often concerned to move quickly to common pool funding or budget supportarrangements, while donors may initially be more concerned with policy reforms.

A weak macroeconomic environment and disagreements about governance can easilyderail Sector Programmes as donors lose confidence. The economic and politicalenvironment can be fragile, and dependent on events outside the sector. Failure to embed theprogramme in a broader macroeconomic and expenditure framework increases its vulnerability tobudget shocks, whether they are due to poor macro-economic management, external events orthe suspension of macroeconomic budget support by donors and multilateral agencies.

2.4.2 Lessons of emerging good practice in Sector Approaches

Several basic principles have emerged from experience. These are presented as guidance to ECstaff involved in supporting Sector Approaches.

� Respect the need for Government leadership and ownership. Donors must leaveinitiative with government while providing flexible support, information, and guidance onwhat is practically achievable over a particular timeframe.

� Avoid establishing parallel systems or processes as part of Sector Programmedevelopment, (such as special secretariats and “SWAP planning units”) and concentrate onstrengthening or reforming the normal government budgeting and planning system.

� Ensure the close involvement of the Ministry of Finance – there is a strict limit to whatcan be achieved at the sector level alone. Where the Ministry of Finance has not been closelyinvolved from the start, the process may be derailed by subsequent disagreements on thebudget envelope.



� Ensure high level political support. Encourage senior officials in the sector to seekpolitical input, to brief Cabinet and Parliament when appropriate, and to have acommunication strategy for the Programme. The objectives of sector policy must beconsistent with political concerns if they are to receive consistent support. Moreover, thesector strategy is likely to require attention to issues of government-wide concern (such aspublic sector reform), where political support will be needed.

� Plan for some “quick wins” in the implementation of the Sector Programme. Theseshould include both tangible gains perceived by the users of services – such as improvedmaintenance of selected, high use roads or increased supplies of medicines or reduced usercharges, and improvements perceived by sector staff and their managers, such as simplifiedbudget preparation processes, improved information, cleaner and better equipped offices, etc

� Design processes which economise on management, planning and policy skillswithin government, while progressively building up capacity. Most Sector Programmeshugely increase the contact time demanded of senior government managers by Donors. Beaware of this and find ways of reducing the transactions costs associated with aidmanagement.

� Be prepared to commit to long-term support. The mechanisms for managing SectorProgrammes take a long time to establish. Moreover, the implementation of sector strategiesusually implies long-term institutional change and organisational development. Many SectorProgrammes have ten-year time frames implemented in 3 or 5 year “tranches”: Donors musthave similar time horizons for a Sector Programme to succeed.

� Move cautiously and realistically on developing pooled funding arrangements – thisrequires careful preparation and capacity building, and may not be necessary (or costeffective) to achieve the goal of unified planning and resource allocation. Greater priorityshould be placed on establishing common review processes and timetables.

� Give attention to procurement issues – in many countries, public procurement is anendemic source of corruption at both local and central government levels. In this context,government systems cannot simply be adopted without substantial change. If this is notrecognised, corruption scandals are likely to occur which will dramatically undermineconfidence in the Sector Approach. In general, concerns over procurement are bestaddressed as an issue in their own right, rather than as an aspect of accounting andexpenditure control. Special procurement systems can be introduced for a Sector Programmewithout necessarily adopting Commission-specific procedures or common pool funding8.

8 For example, specific amendments and improvements to government systems might be agreed. Alternatively, governments might

choose to pass all procurement requirements for the Sector Programme through one donor, such as the European Commissionor the World Bank , and might possibly employ a procurement agent to manage this.



3 POLICY ORIENTATIONS OF THE EC

3.13.13.13.1 Development Policy Orientations of the EuropeanDevelopment Policy Orientations of the EuropeanDevelopment Policy Orientations of the EuropeanDevelopment Policy Orientations of the EuropeanCommunityCommunityCommunityCommunity

In November 2000, the European Parliament and the Council of Ministers approved thecommunication9 of the Commission on the policy of the European Community forDevelopment Co-operation. This policy was thus adopted not only for the EuropeanCommission itself but also for the Member States.

It built upon the international commitments of the Commission and the Member States – mostparticularly commitments to the International Development Targets, which were later ratified by149 countries as the Millennium Development Goals. These goals focus upon sustainablepoverty reduction for all – including in particular women and children, and on the necessaryimprovements in health, education and the use of natural resources to permit this.

The communication by the Commission also built upon the lessons of some 50 years ofinternational experience in the provision of development co-operation and specifically upon theresults of several influential aid assessments undertaken in the late 1990s10. These emphasised thecrucial importance for economic and social development of the policy and institutionalenvironment, the need for governments to take responsibility for improvements in these areasand the consequent need for development agencies to deliver support in ways which enhancedownership and promoted institutional development and good governance.

In summary, the new policy endorsed a results-based strategy for development co-operationwhich would target poverty reduction through the following elements:

� Good governance and the acceptance by governments of political responsibility andaccountability in the context of increased ownership of development policies bynational democratic bodies, public authorities, civil society and the private sector.

� Institutional development and the strengthening of capacities and systems in thepublic, private and NGO sectors.

9 COM (2000) 212 of 26th, April, 2000.10 In particular: European Commission (1996) Green Paper on Relations between the European Union and the ACP Countries on the Eve of the

21st century - Challenges and Options for a New Partnership, European Commission, Brussels; and World Bank, Assessing Aid: whatworks, what doesn’t and why. Oxford University Press, 1998; also earlier Communications by the Council during 2000.

This chapter:

� Summarises the current orientations of the European Community and theCommission with regard to Development Co-operation.

� Explains the implications of these policy orientations for Commissionsupport to Sector Programmes.

� Provides policy guidance on specific management dilemmas, whichcommonly emerge in supporting Sector Programmes.



� Promotion of the private sector as the main source of growth of production,employment and incomes and hence of poverty reduction.

� Integration of the objectives of sustainable development with those of goodmacroeconomic management, whilst giving priority to the development of socialservices and to access to basic public goods.

� Promotion of gender equality and the elimination of forms of discrimination andexclusion.

� Sustainable management of natural resources and the environment

� Peace, security, political stability and the reduction of national and regional armedconflicts.

� Relief from the impacts of natural disasters and the transformation of post- disastersituations into opportunities for development.

3.1.1 Implications for policy on Sector Programmes

In addition to re-appraising the objectives of development policy, the decisions of the Counciland Parliament also implied changes in the modalities for delivery of development co-operationand in the relative balance between different instruments. On reforming the management ofexternal aid, the statement of 10 November 2000 by the Council and the Commission ondevelopment policy encouraged adaptation of instruments in order to promote:

“increased recourse to sectoral support and to direct budgetary aid ...”

The Cotonou Agreement and MEDA Regulation specifically refer to this evolution. Annex 1reproduces the key statements from the Council and the Commission. In summary, theimplications were:

� The adoption of a more strategic approach in the choice of aid modalities,specifically focussed on the objective of poverty reduction and giving emphasis toownership, institutional development, and sound public finance management.

� A focus on the results achieved through the use of aid, specifically upon achievingpositive results with regard to poverty reduction.

� An emphasis on integrating sectoral support within a sustainable macro-economicpolicy.

� The use of budgetary support as the instrument of choice whenever feasible andappropriate.

� Increased support to Sector Approaches and Sector Programmes, wherever feasibleand appropriate.

� Increased support to the development of more effective sectoral policies andprogrammes in sectors with high importance for poverty reduction – particularlyeducation, health, and water as well as agriculture and rural infrastructure.

http://ue.eu.int/newsroom/newmain.asp?lang=1http://ue.eu.int/newsroom/newmain.asp?lang=1



3.23.23.23.2 Goals and objectives in supporting Sector ProgrammesGoals and objectives in supporting Sector ProgrammesGoals and objectives in supporting Sector ProgrammesGoals and objectives in supporting Sector Programmes

The Commission has declared its intention to support Sector Programmes, where appropriate.This intention is stated in the Communication of the EC Development Policy of 26, April2000 and again in the Joint Statement on the EC Development Policy of 10th, November2000 as well as in its statements on education, health and transport. (See Annex One.)

3.2.1 Overall Goals

EC support for Sector Programmes is granted in support of national and sectoral developmentpolicies and strategies that are consistent with the Community’s development policy objectives.These are (1) sustainable economic and social development; (2) the gradual integration of thedeveloping countries into the world economy; and (3) a commitment to combat inequality.Support for Sector Programmes underpins reforms in sectors regarded as important forsustainable economic and social development (e.g. agriculture, private sector, health, education, ,transport, water, energy, justice, food security, etc). Sector programmes supported by theCommission must also be consistent with the Commission’s cross-cutting principles ofDevelopment Co-operation.

Sector Programmes should be led by partner governments with the goal of improving theefficiency and effectiveness with which internal and external resources are utilised. This reflects amutual concern to improve the results of government and donor spending by focussingresources on the priorities stated in national poverty reduction strategies or similar documents,and by improving the quality of spending.

3.2.2 The Commission’s objectives in supporting Sector Programmes

The Commission believes that Sector Approaches and Programmes should be pursued inparticular to support three principal objectives:

• To broaden ownership by partner Governments over decision-making with respectto sectoral policy, sectoral strategy and sectoral spending.

• To increase the coherence between sectoral policy, spending and results (regardlessof the source of funding).

• To minimise as far as possible the transaction costs associated with the provisionof external financing, either by direct adoption of government procedures orthrough progressive harmonisation of individual donor procedures.

To this the Cotonou Agreement adds the requirements of transparent, accountable and effectivemanagement of public expenditure and publicly open and transparent rules on publicprocurement. Similarly, in relation to the participation of civil society, the Agreement alsospecifies the need for free circulation of information and for consultation and dialogue in theprocess of elaboration and implementation of sector policies and strategies.

Improved donor co-ordination is essentially a means of achieving improved ownership andcoherence and reduced transaction costs rather than an objective in itself. However, it is centralto the whole Sector Approach and may be an area where the Commission is especially well-placed to make a contribution. For example, the EC is often perceived as ‘a neutral but influentialbroker that is not involved with narrow issues and perceived national agendas’ (Ratcliffe and

http://europa.eu.int/comm/development/cotonou/agreement_en.htm`



Macrea, 1999). Potentially, this gives the Commission the possibility to act as a catalyst of donorsupport and a promoter of government ownership.

3.33.33.33.3 Guidance on common polGuidance on common polGuidance on common polGuidance on common policy dilemmasicy dilemmasicy dilemmasicy dilemmas

This section of the Guidelines addresses six design problems or dilemmas which commonly arisein the development of Sector Programmes and which often serve to delay the process. Thesedilemmas relate to six particular questions:

� Can the protection of ownership over-ride other objectives of the Commission?

� How do we ensure consistency with poverty reduction objectives?

� How wide is the sector?

� What is the appropriate role for non-government stakeholders?

� Should Sector Programmes be pursued in parallel with decentralisation?

� How should technical assistance be deployed in Sector Programmes?

3.3.1 Balancing ownership with other European Commission objectives

We have noted the emphasis placed by the Commission, the Council and the EuropeanParliament on the importance of ownership. Given that differences of opinion over the “right”policy or the “right” sector strategy will inevitably occur, the question arises whether the principleof ownership should under any circumstances override other objectives of the Commission?

The Commission’s policy on Development Co-operation is guided by fundamental principleswhich have been clearly stated in a variety of communications. There is no question of theCommission supporting any Sector Programme – however strong the leadership of government,if the Programme is inconsistent with these principles. The Commission can only support SectorProgrammes which are consistent with the objectives of the Community’s development policyand with the cross-cutting principles which the Commission has adopted for Development Co-operation.

Thus, it is important at the outset that there should be full agreement with partner governmentsover objectives and fundamental principles. This will still leave much room for disagreement overhow a policy is to be implemented; over what is the most appropriate co

Documents

GUIDELINES FOR SWAPSFile name: SPSP Guidelines FINAL (dist by DG)1.doc Page 6 Printed: 07/04/03 1 INTRODUCTION 1.1 Purpose of the Guidelines1.1 Purpose of the Guidelines The Council