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Poverty Reduction Support

Poverty Reduction Strategyand Paying for Performance

IntroductionIn 2000, the donor organisations and agencies introduced the "Poverty Reduction Strategy" (PRS) concept with the main idea that each recipient country should develop a poverty reduction strategy outlining how they were going to achieve a reduction in Poverty, Economic Growth and Good Governance. This strategy was accompanied with, and linked to, an annual budget and a Medium-term expenditure framework in which a Government would indicate, for each of their agencies, what the priorities and the requirements were for the implementation of this strategy in the medium-term. In line with the PRS more aid should be delivered through budget support. In 2005, the donor community agreed in their Paris declaration on Aid effectiveness, to promote the use budget support as the main method of delivering aid. The most important aim of General Budget Support (GBP) is that a recipient country achieves the three PRS goals through a direct transfer into the account of the recipient's treasury. The EU has been in favour of Budget support and Europe AID published in 2007 their Guidelines on the Programming, Design & Management of General Budget Support. Although these guidelines explain extensively the overall conditions of budget support and the characteristics of its fixed and variable tranches, it is not too specific on the latter, or in other words on what makes these variable tranches variable. It mentions that they combine two factors: 'Scoring' and 'Weighting' but, how to apply weighting and scoring is left to the experience and interpretation of the reader. Furthermore, in the document Joint Evaluation of General Budget Support of 2006 in which an extensive group of evaluators reports on the status of GBP in seven countries, the extent in which weighting and scoring is applied and their relevance in contributing to improved performance is not easy to assess.Both Weighting and Scoring are essential parameters in the determination of a variable tranche as they pay service to the overall policies and goals of the PRS. The following example shows a Performance Assessment Matrix which contains crucial components for determining budget support is for ensuring that the focus of government’s policy is transparent and on improving performance.

The structureThis is an example a variable tranche in multi sector budget support. It shows Milestones (MS) and Verifiable Indicators (VI) for each government entity. The four budget entities are,

The 'Head part of the choice has four main actors1 the Ministry of Finance, 2 the Ministry of Social Protection, 3 the Ministry of Agriculture 4 the Department of Statistics. The Poverty Reduction Strategy for them means:- "Good Governance" at both the Ministry of Finance and the Department of Statistics where the focus is on proper financial management and on independent and good quality information.- "Poverty Reduction" at the Ministry of Social Protection where the focus is on transparent and efficient targeting of the poor.- "Economic Growth" at the Ministry of Agriculture which focuses on an increased role of the market in the agricultural sector.The milestones used are taken from a roadmap for improvement based on a diagnostic review of a Government's capacity to reform. An important characteristic of the matrix is its focus on achievement.

The responsible key staff members of the relevant governmental body together with members of a EU mission have constructed the structure above by choosing and defining on what Mile-stones(MS) and Verifiable Indicators(VI) to use, deciding the time both MSs and VIs could be achieved and determining the minimal and maximal values for each of them to an extent that their values were neither too prudent nor too ambitious but still challenging. These MSs and VIs form a Performance Assessment Matrix. This matrix allows the persons responsible such as the Ministers of Finance, Social Protection and Agriculture to indicate and to give weight to what they are considering important and relevant to be achieved. A financial consequence of putting more weight to a certain MS or VI is that when it has been achieved relatively more budget support money will be awarded than in case it had received less weight.All this information is entered in an MS Excel workbook. The contents of that workbook is shown in the PDF file here on the left. Its last pages show examples on how the changing in weights and differences in scoring have an effect on the actual budget support. To open this PDF file, click on the button at the left. A click on the "Movie ON" buton shows in a movie the Exel sheets and the effects of weighting. The Excel file also can be obtained. A click on the button opens a secured "PayPal" site where after having paid €10 for the file with Paypal or a credit card, it will be possible in a "Click2Pay" site to download the file.

In ConclusionAlthough Budget Support was regarded as the main aid modality at the 2005 Paris donor conference, it has come under pressure because of questions about the impact and results of this aid modality, about the quality and value for money. According to the European Centre for Development Policy Management that might be the reason the EC communication on budget support no longer refers to it as its “preferred aid modality.”Reading in the 2003 guidelines in bold that Budget support is the transfer of financial resources; hearing a key staff member of a donor agency saying : "We do not like these piecemeal detailed indicators, but prefer to be sure that our pupil has passed..." (as, if one could ever decide to have a recipient country fail?); having experienced a reluctance amongst donors to transfer less aid than the amount indicated in an agreement and; the lack of clarity on the weighting and scoring then this dwindling enthusiasm is not surprising. In its 2011 communication to the European Parliament “The Future Approach To EU Budget Support To Third Countries” the Commission’s emphasis on "transfer of resources" was negligable in the first chapter but fortunately, in it’s second chapter, it makes clear that “EU budget support should continue to ensure a high degree of predictability, to put strong emphasis on development strategies that are nationally owned and to use performance related tranches.”Against this background, the example will be useful. First, it is showing 'Weighting' and 'Scoring' and how it can be applied; an issue the 2007 EU guidelines on Budget Support only slightly addresses. Secondly, it is dealing with what is given in "The 2003 OECD guidelines on effective aid delivery" as the main burden of recipient countries e.g. that the priorities are donor driven. It demonstrates how recipient countries can be given the lead position in determining the priorities in their PRS and how donor and partner governments both determine what MSs and VIs to include, establish the time frame and agree on the maximal and minimal values to be achieved. It also defines the concequences of a "too prudent" and "too ambitious" policy has on the variability of budget support.

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Good Governance

Economic Growth

Poverty Reduction

Three Poverty Reduction goals are

The 2003 OECD guidelines

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