Agricultural Public

Expenditure Reviews:

A Synthesis

Monday, June 15, 2009

Shenggen Fan

Director

Development Strategy and Governance Division

International Food Policy Research Institute

Outline of Presentation

• Why Ag PER ?

• Ag PER and overall budget and

expenditure framework

• Major findings

• Ways forward

• Gaps to be addressed in future Ag PER

Page 2

Why Ag PER?

• Agriculture is critical in food security, poverty

reduction and overall economic growth

• Agricultural spending is one of the most

important instruments in promoting

agricultural growth

• Public resources are limited and should

therefore be allocated and spent efficiently

• M&E to assess whether spending is on track in

achieving development goals

• Empower poor and ensure accountability and

good governancePage 3

Ag PER and Budget Cycle Framework

• National Development Strategies and Plans

• Budgeting: MTEF

• Budget Execution

• Monitoring and Evaluation

• Impact Assessment

Page 4

Planning

Budgeting

Execution

-Review Policy and past

performance

-PRSPs, Sectoral Strategies,

Investment Plans etc.

Sample Annual Budget (Uganda):

October: Draft Budget Ceilings

November – December: Sector Budget

Framework Paper

January: Prelim estimates

March: National Budget Framework

Paper to Cabinet and Parliament

April-May: Parliament and Public

Expenditure Review

June: Amendment and Finalization of

Budget

-Implement planned

activities

-Collect revenues,

release funds

-Deploy personnel

-Undertake activities

Medium Term Expenditure Framework (3-5 years)

-Develop sectoral programs/objectives

-Develop macroeconomic/fiscal and sectoral

expenditure

-Define sector resource allocations

-Prepare and approve sectoral budgets

Monitoring and Evaluation-Monitor activities and track expenditures

-Evaluate policy activities’ effectiveness and feed the results into future plans

Budget Cycle Framework

National Development Strategies/Plans

Page 6

• PRSPs

• National economic and development plans

• National investment plans

• Agricultural/rural development strategies

• Major development goals

• Sector and policy priorities

• Sequence interventions

• Broad resource allocation

Medium Term Expenditure Framework

• MTEF provides the linking framework that

allows expenditures to be driven by policy

priorities

• Top-down resource envelope: link

expenditures to revenues

• Bottom-up: intra-sectoral allocations

• Typical MTEF includes six stages

Page 7

Six Stages of MTEF

Page 8

STAGE CHARACTERISTICS

I. Development of

Macroeconomic/Fiscal

Framework

Macroeconomic model that projects revenues and

expenditure in the medium term (multi-year)

II. Development of Sectoral

Programs

Agreement on sector objectives, outputs, and activities

Review and development of programs and sub-programs

Program cost estimation

III. Development of Sectoral

Expenditure Frameworks

Analysis of inter- and intra-sectoral trade-offs

Consensus-building on strategic resource allocation

IV. Definition of Sector Resource

Allocations

Setting medium term sector budget ceilings (cabinet

approval)

V. Preparation of Sectoral Budgets Medium term sectoral programs based on budget

ceilings

VI. Final Political Approval Presentation of budget estimates to cabinet and

parliament for approval Source: PEM Handbook (World Bank, 1998a: 47-51), adapted.

Budget Execution

• The key issues on budget execution are

whether deficit targets are likely to be met,

and whether any budget adjustments agreed

upon at the preparation stage are being

implemented as planned

• On the expenditure side, the key issues are

whether the outturn is likely to be within the

budget figure; whether any changes in

expenditure priorities (against past patterns)

are being implemented in specific areas as

planned

Page 9

Monitoring and Evaluation

• Monitoring: systematic collection of data on

specific indicators to provide management

and main stakeholders of ongoing

expenditures with information on the

achievement of objectives and progress in

the use of allocated funds

• Evaluation: determination of the relevance of

objectives, efficacy of design and

implementation, efficiency of resource use,

and sustainability of results

Page 10

Impact Assessment

• To assess the impact of public spending on

development targets such as growth,

income, income distribution and poverty

reduction

• Need to consider both direct and indirect

impact

• Long term versus short term impact

• Time lag of public spending

Page 11

Agricultural Budget Cycle

• Part of overall budget process

• Link to agricultural, food, and rural

development strategies

• Difficult to assess outcome in short run

• Involves a more complicated political

process

• Capacity in agricultural budgeting is weak

Page 12

Six Country and Two Cross-country Studies

Six Country Cases

• Nigeria

• Ethiopia

• Uganda

• Nepal

• Laos

• Honduras

Two Cross-country Studies

• Public spending in

developing

countries: trends,

determinants and

impact

• Growth and poverty

impact of agriculture

related public

expenditures

Page 13

Major Findings

• Failure to link budgets with strategies and

policies

• Spending patterns are not pro-growth or pro-

poor

• High centralization despite decentralization

plans

• Low execution capacity

• Donor funding not integrated

• Lack of effective tracking and monitoring

system; poor data quality and availability

Page 14

Page 15

Conceptual Framework: Public Spending

and Impact

GOVERNMENT

SPENDING

ECONOMIC SPENDING:

-Agriculture

-Infrastructure (energy,

transport, telecom, etc.)

-Technology

INCOME POVERTY

SOCIAL SPENDING:

-Health

-Education

-Nutrition

-Social safety nets

GROWTH

-aggregate growth

-sector-specific (agriculture,

services, industry)

-regional distr. of growth

SPENDING OUTCOMES:

-Better access to infrastructure

-More use of technology

SPENDING OUTCOMES:

-Human capital accumulation

-Basic needs/Capability

-Income distribution

DETERMINANTS

OF ALLOCATION:

-Financial

-Political

-Economic

-Governance

DETERMINANTS

OF EFFCACY:

-Governance

-Capacity

-Targeting

EXOGENOUS FACTORS:

-Population Growth

-Agroecological Conditions

-Macro and Trade Policies

-Asset (Land) Distribution

TAX REVENUES:

-Income

-Corporate

-Value-added taxes

-etc.

OTHER SPENDING:

-General administration

-Defense

-etc.

OTHER SOURCES:

-Borrowing

-External aid

-Domestic nontax revenue

Returns in Growth and Poverty Reduction to Investments and Subsidies, India

Page 16

1960-70s 1980s 1990s

Returns in Agricultural GDP (Rps per Rps Spending)

Roads 19.99 8.89 7.66

Education 14.66 7.58 5.46

Irrigation Investment 8 4.71 4.37

Irrigation Subsidies 5.22 2.25 2.47

Fertilizer Subsidies 1.79 1.94 0.85

Power Subsidies 12.06 2.25 1.19

Credit Subsidies 18.77 3 4.26

Agricultural R&D 8.65 7.93 9.5

Returns in Rural Poverty Reduction (Number of Poor reduced per Million Rps Spending)

Roads 4124.15 1311.64 881.49

Education 1955.56 651.4 335.86

Irrigation Investment 630.37 267.01 193.21

Irrigation Subsidies 393.7 116.05 113.47

Fertilizer Subsidies 90.07 109.99 37.41

Power Subsidies 998.42 125.5 59.15

Credit Subsidies 1448.51 154.59 195.66

Agricultural R&D 642.69 409 436.12

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Effects of Government Spending, China

Coastal Central Western Average

Returns to total rural GDP yuan per yuan expenditure

R&D5.54 6.63 10.19 6.75 (2)

Irrigation1.62 1.11 2.13 1.45

Roads8.34 6.90 3.39 6.57 (3)

Education11.98 8.72 4.76 8.96

Electricity3.78 2.82 1.63 2.89 (5)

Telephone4.09 4.60 3.81 4.22 (4)

Returns to poverty reduction no. of poor reduced per 10,000 yuan expenditure

R&D 3.72 12.96 24.03 10.74

Irrigation 1.08 2.16 5.02 2.31 (7)

Roads 2.68 8.38 10.03 6.63

Education 5.03 13. 90 18.93 11.88

Electricity 2.04 5.71 7.78 4.85

Telephone 1.99 8.10 13.94 6.17 (4)

Poverty loan 3.70 3.57 2.40 3.03 (6)

(6)

(1)

(5)

(1)

(2)

(3)

Page 18

Effects of Rural Investment, Uganda

• Returns in shilling

per shilling

Investment

• Number of poor

reduced per

million shillings

investment

0

5

10

15

20

Cen

tral

East

Nor

thW

est

Uga

nda

Agricultural R&D

Education

Feeder Roads

Health

0

5

10

15

20

Cen

tral

East

Nor

thW

est

Uga

nda

Agricultural R&D

Education

Feeder Roads

Health

Evidence: Ethiopia (by Mogues, et al)

Page 19

0

2

4

6

8

10

12

14

16

Birr

incre

ase

in

p.c

ap

. ru

ral h

h e

xp

en

ditu

re a

sso

cia

ted

w

ith

1 b

irr

incre

ase

in

p.c

ap

. se

cto

ral p

ub

lic

exp

en

ditu

re

Road infrastructure

Agriculture

Health

Education

Summary of Public Investment Impact

(Mogues, et al)

Page 20

Ghana Uganda Tanzania Ethiopia China India Thailand

Agriculture 16.8 12.4 12.5 0.14 6.8 13.5 12.6

Education -0.2 7.2 9 0.56 2.2 1.4 2.1

Health 1.3 0.9 n.e. -0.03 n.e. 0.8 n.e.

Roads 8.8 2.7 9.1 4.22 1.7 5.3 0.9

Agriculture n.e. 1 2 n.e. 2 2 1

Education n.e. 3 1 n.e. 1 3 3

Health n.e. 4 n.e. n.e. n.e. 4 n.e.

Roadsd n.e. 2 3 n.e. 3 1 2

Sector

Returns to agriculture or rural income

(local currency/local currency spending)b

Ranking in returns to poverty reduction

What Have We Learnt from Impact Studies?

• Targeted spending needed for agricultural

growth and poverty reduction• Agricultural research/extension, rural infrastructure and

education have largest impact on both growth and

poverty reduction

• Impact of spending changes over time• Subsidies initially important to promote use of

technologies, but need to be phased out over time

• Irrigation often has large returns during initial stage of

development

• Large regional variations in impact exist within

countriesPage 21

Low Priority of Pro-poor Expenditures

Page 22

1980 1990 2000 2005 1980 1990 2000 2005 1980 1990 2000 2005

Agriculture a

7.1 5.5 3.8 6.3 14.9 12.3 6.3 6.5 7.7 2.1 2.5 2.5

Education 14.4 14.5 14.1 15.4 13.8 17.4 16.9 17.9 10.4 7.9 14.8 14.3

Health 4.9 4.5 6.7 8.1 5.3 4.3 4.3 5.4 5.8 6.1 7.6 8.4

T&C 11 4.5 4.7 5.8 11.7 5.2 3.8 4.5 6.8 2.6 2.6 2.4

Social Security 2.9 2.5 5 2.8 1.9 2.4 6.4 8.7 23.6 21.8 36.4 36.6

Defense 19.7 17.1 8.8 6.5 17.6 12.9 8.3 7.9 6.1 5 4.6 3.8

Other b

40.1 51.5 56.9 55.1 34.8 45.5 54 49.1 39.5 54.4 31.6 32

Sub Saharan Africa Asia Latin America

Page 23

Low Level of Agriculture Spending

1980 1990 2000 2005 1980 1990 2000 2005

AFRICA 7.3 7.8 10.3 13.9 7.1 5.4 6 7

SSA 3 3.6 4 8.7 4.1 3.7 3.5 6.4

ASIA 71.1 103 128.4 201.6 9.6 8.6 7.9 10.2

LAC 31.5 12.2 18.9 25.5 14.7 5.8 9.1 9.4

TOTAL 109.9 123 157.6 241 10.4 7.9 7.9 9.9

2000 international dollars, billions Percentage of AgGDP (%)

Agriculture’s Shares of National Budget

Page 24

0

5

10

15

20

25

30

35

Ethiopia

Nigeria

Uganda

Nepal

Agricultural Spending as % of Ag GDP

Page 25

0

2

4

6

8

10

Ethiopia

Nigeria

Uganda

Nepal

Ghana

(2000-2005)

Nepal

(1999-2003)

Nigeria

(2001-2005)

Magnitude of Spending

Ag exp as % of total exp.5.4 6.67 (irrigation+ag) 1.67

Ag exp as % of Ag GDP 3.7 4.25 6.30

Composition of Spending: Functional spending as % of total ag spending

Fertilizer 43.5

Livestock 2.7

Food security 22.0

Crops, livestock & fishery 23.7

Forestry 3.5

Cocoa 62.2

Research 10.6

Composition of Agricultural Spending(Mogues, et al; Benin, et al; and Dillon et al)

Spending not adequate for achieving development goals (Omilola, et al)

• Progress towards 10% budget allocation of the Maputo Declaration

0

5

10

15

20

25

%

Agricultural Expenditures as a share of total (%), 2007

CURRENT, 2007 (Unless otherwise noted)

CAADP 10% BENCHMARK

*=2006; **=2005; ***=2004; ****=2008 estimates

Only 8

countries

have met the

10% target

Required Ag Spending in Africa for

Achieving MDG1

Page 28

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0Actual Expenditure on Agriculture in 2004, billion USD

Annualized Ag Spending Required, billion USD (2008-2015)

Budget Allocation Versus Disbursements: Low Execution Rates

Page 29

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Average

Execution

Rate (%)

Honduras

Agricultural

and Forestry

Sectorn.i. 67.7 64.9 56.6 73.4 56.8 44.9 60.1 57.3 62.4 59.4

Nigeria

Agricultural

Sectorn.i. n.i. n.i. n.i. 91 58 60 85 103 n.i. 79

Ethiopia

Agricultural

and Rural

Development

83 86 72 71 80 79 85 82 n.i. n.i. 79.8

Uganda

Ministry of

Agriculture,

Animal

Industries and

Fisheries

(Recurrent

Budget)

n.i. n.i. n.i. n.i. 85.2 82.1 103.5 160.5 118.7 90.4 106.7

n.i.-not included in review

Ways Forward

• Effective M&E system to track ag. expenditures• Departments and programs undertaking regulatory and

supervisory activities need to receive sufficient funds

• Feed results into strategy and budget formulation

processes

• Alignment of MTEF and annual budgets with strategies and policies• Operational guidelines should be distributed, including

sound prioritization criteria

• Coordination mechanisms to ensure coherent expenditure

priorities, e.g. sectoral roundtable consultation processes

Page 30

• Strengthened budget execution through

reinforced political accountability

• Timely audit, reporting and publication of expenditures

• Sanctions for failing to comply with government

directives and/or budget/MTEF

• Decentralization plans• Allocation of appropriate resources

• Improvement of local technical capacity for priority

setting, designing and implementing programs, record-

keeping and expenditure reporting

• Clarification of division of functions among different

levels of government

Page 31

Ways Forward

Ways Forward

• Integrate aid into country strategy

development and budget framework

• Systematic collection of donor releases and

expenditures

• Budget Support: align and harmonize the

available donor funding with priority programs

• Demand-driven aid that fosters local ownership,

institution-building, and long-term sustainability

Page 32

Gaps to be Addressed in Future Ag PER

• Better link with strategies

• More explicit link with general public

expenditure review (returns to spending in

different sector)

• More institutional review

• Better understanding of political process

• Stronger impact assessment

• PE in agriculture or for agriculture?

Page 33