Achieving Results Performance Budgeting in the Least Developed Countries August 2006 Introduction | Foreword | Executive Summary Download pdf version of entire book (3.16 mg) Purchase this book at UN Publications or Amazon.com.

Foreword

Since 1966, UNCDF has been mandated by the General Assembly of the United Nations to invest in developing countries. At present, it is the only UN agency able to commit capital that is focused exclusively on making investments in the Least Developed Countries (LDCs.) Within the LDCs, UNCDF generally works in the poorest, and mostly rural, areas. Our entry point are governments and the communities they serve. A basic feature of UNCDF practice is to embrace decentralization to achieve broad-based local development while also implementing broader principles of good governance and economic development.

There are 50 LDCs. UNCDF is currently working in 28 of them. By the end of this decade, we hope to be fully involved in at least 45. Our mission is to reduce poverty in these countries and to help them achieve the Millennium Development Goals (MDGs). We generally work at local, regional / provincial and national levels in our projects. Governments at these levels are among our most important partners. Our method of work includes investments in human and institutional capacity to enhance local development and in small-scale infrastructure and access to social services projects. We also seek to build inclusive financial sectors in the countries where we operate and to make investments in financial services infrastructure and microfinance institutions. We seek to replicate and scale our pilot projects, and we provide capacity building and technical advice at a policy level to many national and local governments.

The capital funding modality that we use with local governments to fund socioeconomic infrastructure investments is popularly known as the Local Development Fund (LDF). The LDF is a method of achieving sustainability in the local development process by requiring the local planning, budgeting, management, and monitoring of public expenditures. This local public expenditure management is closely aligned and integrated with national planning and budgeting systems so that appropriate capacity and funding mechanisms are developed at both levels.

An LDF is generally established by UNCDF in conjunction with a local government based on a modest investment amount per capita. The theory is that when such funding is initially available from external sources (the LDF), institution and capacity building proceed to gain access to this funding. Subsequently, actual investments must be made and monitored to ensure continuing access to these funds. As the LDF funding from UNCDF declines (largely due to our programme requirements that LDF’s become an institutional part of national decentralization strategies), increased local capacity in both revenue mobilization and improved systems of fiscal transfers from central government replace the LDF. This institutionalization and sustainability objective remains a central platform to our local development work.

Local revenue mobilization and increased central government transfers, however, do not ultimately determine how the internal system of a local government manages this revenue, plans for development, converts these plans into expenditure programmes or allocates funds to deliver them. Over recent years, UNCDF has sought to answer this question through the principle of Performance Budgeting (PB). PB seeks to convert budgets from an ‘input-based’ to an ‘output-based’ format. It requires the preparation of local development plans and the integration of these plans into a local government budget. The underlying theme of PB is two-fold. First, it seeks to introduce accountability into the performance review, implementation and planning process. Secondly, it seeks to construct measurability through economy, efficiency and effectiveness tests. The modality for this is a local government’s annual report, plan and budget (ARPB).

UNCDF PB developments are taking place in Mozambique, Yemen and Eritrea. UNCDF advised on the PB programme formulation in Armenia. Possibilities are being explored in Sudan. Ethiopia is declaring an interest in UNCDF’s PB approach at the local level, to both compliment and fit with national PB reforms, being supported there by IMF. PB teams from these countries attended a UNCDF-sponsored comparative workshop in Tanzania in September 2005 (Ethiopia was not involved at this time). Tanzania is the location of previous PB by this book’s editor.

This book is designed to address the challenges of Performance Budgeting in the LDCs. The Tanzania workshop yielded much of the information mentioned in these pages. The workshop and our other experience in the field also highlight the fact (reiterated at the IMF Senior Seminar on Performance Budgeting in December 2005), that PB requires a long-term commitment to ensure that the necessary technical (as well as institutional and political) conversions take place.

More recent training work on PB in Sudan’s Rumbek and then in Port Sudan highlighted two additional imperatives, in plain language. First, there must be a “bottom- up” approach to planning and budgeting. Within national priorities, including the commitments to the MDGs, local communities should be empowered to plan what is most important to them, to participate in the resulting implementation and to be part of the resulting review process. The second imperative is that there must be an “outputbased” approach to all planning and budgeting, certainly at the local government level but, ideally, regionally and nationally as well. This is why UNCDF is working closely with the IMF and other partners. IMF, in particular, is the architect and principle source of technical advice on national financial management reforms, through the introduction of government financial statistics (GFS). This represents a structured approach to the classification of government revenue and expenditure. All UNCDF experimentation in PB is in countries where GFS reforms are taking place.

The goal of all Performance Budgeting is for local governments to be able to prepare and implement local economic development plans within national economic development frameworks. These plans should result from inclusive, participatory, multi-stakeholder processes and should result in durable, sustainable planning, management, and financing structures. Ultimately, however, plans need to be implemented and investments need to be made “on the ground” to enhance access to infrastructure and social services and to encourage the development of local communities. Through such development, we believe that local governments will be able to establish the predictable, recurring, diverse sources of revenue they will need to make further investments in poverty reduction and public welfare. These sources may consist of local tax revenues, national government transfers, donor support and other funds, but in all cases all such revenue and resulting expenditure must be accountable, transparent and measurable.

Thus, the approach UNCDF is increasingly taking to local development is “bottom - up” and “output-based.” Performance Budgeting is critical to this approach, and it is one to which UNCDF is firmly committed. Accordingly, we seek to share our experience and learning on this important subject, and we view this book as a first step in this direction.

In conclusion, I would like to thank Ron McGill, one of our Senior Technical Advisors and expert on Performance Budgeting, for his efforts, leadership, and initiative in producing this book. His many years of experience with local governments and communities, particularly in the LDCs, bring a well-informed, “real world” flavour to these pages, which is much needed and appreciated by local development practitioners. I also extend my thanks to all Ron’s colleagues in UNCDF’s Local Development Practice Area, particularly through the various country-based project teams, who collaborated with Ron on this book. It is their collective hard work and experience that informs the insights and analysis that this book contains.

Richard Weingarten
Executive Secretary, UNCDF