2276 1 G nAGRICULTURE & NATURAL RESOURCES DEPARTMENT DISSEMINATION NOTES TOWARD SUSTAINABLE PRODUCTION SYSTEMS AND RURAL POVERTY REDUCTION Number 12 December 1996 Improving The Impact of Development Assistance: Sector Investment Programs total public expenditure progran; and (d) an Introduction inclination to design projects which were excessively centralized and state-oriented. An additional problem The program-based approach to providing is a tendency to implement the projects through development assistance, especially sector investment independent project management units created programs (SIPs), has recently attracted attention in the especially for this purpose: these facilitate project development community, especially in Africa. The implementation in the short-term, but fail to build or key elements of the approach, and the rationale for its sustain capacity for long-term project management.' adoption are often not well understood. This note discusses key issues important to the design, Sector adjustment programs implementation, and monitoring of SIPs. It describes the evolution of the program-based approach, defines For many countries, a first response to address needed SIPs, and explains how SIPs improve on conventional policy reforms is to initiate a sector adjustment approaches. It discusses the situations in which SIPs program. Sector adjustment programs are valuable are most likely to be successful, and describes some for "stroke of the pen reforms" (for example, early experiences with their design and elimination of export tariffs), which can be implementation. implemented in a short time period. However, they are less suitable for reforms which require broad The Evolution Of The Program-Based public consensus and major institutional and Approach regulatory changes. Investment projects Sector investment programs Historically, lendingto developingcountries has been By combining policy reforms with key sectoral Historicaltly,lending through drevelopaningcuntesteent investments, sector investment programs address the predormnantly through free-standing investment factors that have contributed to poor project projects, which were intended to alleviate a shortage performancetinate past.btey fo on nationa of human or physical capital assumed to be preventing less developed economies from achieving their full programs rather than individual projects. They address needed policy, institutional, and regulatory productive capacity. While many conventional reforms. They are based on a careful assessment of nvestment projects do meet their objectives, a the overall public expenditure program, and provide a significant proportion do not. Studies reveal that .. means of selecting and funding priority investments. conventional projects fail for several key reasons, including: (a) poor policy environments of recipient countries; (b) a lack of beneficiary participation in project design and implementation, which resulted in 1 For example, in Zambia before initiation of the a absence of commitment and ownership; (c) a failure Agriculture Sector Investment Program, there were 180 to fully assess the cost of projects (considering both known donor-funded projects, each with its own capital and recurrent expenditures), in the context of a administrative arrangement. AGR Dissemination Notes are an output of the Agriculture and Natural Resources Department of the World Bank. Further information and additional copies may be obtained by contacting Grace Aguilar, ext. 38971. FILE COPY They are prepared and managed by govemment and and (d) a clear understanding of institutional stakeholders, and are implemented through existing capacities to implement the program and measures to national institutions. Finally, they provide a address institutional weaknesses. framework for coordinating donor activities. Preparation And Implementation Of A SIPs are based on five key principles: Sector-Wide Program Currently, there are about 10 Bank-supported SIPs * They are designed and implemented within a under implementation and more than 40 under coherent policy framework that identifies preparation. Experience with them identifies the policy options and the implications of each for elements that need to be considered in the preparation institutional change and medium-term resource and implementation of SIPs. needs; Participation and consensus building. A key * They are sector-wide in scope or coverage; element of SIPs is that they involve all major stakeholders (public and private sector, potential * They are based on a careful assessment and beneficiaries, non-governmental organizations, prioritization of public expenditures; universities, civil society) in program design. The process of preparing SIPs includes workshops and * They are prepared and managed by the country regular consultations to build consensus around a set with government, local stakeholders, and of key issues, and to ensure government commitment nongovernmental organizations driving the and local ownership of the program. Building process; consensus can take considerable time, and SIPs often take longer to prepare than conventional projects. * Donors finance slices of the government's However, the systems of communication and program rather than individual stand-alone cooperation that are established during preparation projects. will be useful during implementation and will help ensure that the program is truly sustainable. SIPs are generally implemented over a medium-term time horizon (10-15 years, although donors' Sector strategy and institutional framework immediate commitments may still be shorter-term). While a country's macroeconomic policies should be In line with the broad scope of the operation -both in reasonably sound before the initiation of a SIP, there terms of participants and activities-careful may still be some sector policy issues to resolve monitoring of the program is critical. Monitoring within the context of SIPs. SIPs must therefore be focuses on both progress in sub-program based on a realistic analysis of a sector's policy implementation and overall sector performance, and issues, its current and potential role in the economy, success or failure of the program is explicitly key constraints and options for addressing them. This measured in terms of overall sector development. will allow stakeholders to address the key elements of the program, including the relative roles of the public Essential preconditions for SIPs. SIPs are not and the private sector in providing services. For suitable for all countries at all times. SIPs are example, governments may finance services, but beneficial only if govemments are truly committed to contract out delivery to private providers or them and are fully aware of their implications and nongovemmental organizations rather than delivering potential problems. SIPs are likely to work best them through a bureaucracy of its own. where there are the following: (a) no major policy distortions, (or at least there are measures in place to Public sector reform and capacity building. One of redress distortions); (b) a sector strategy which the objectives of a SIP is to build local capacity to articulates a long-term vision and identifies priorities; provide goods and services. If at the start of the (c) a commitment to rationalize public expenditures program, government agencies lack capacity to based on past public expenditure patterns, and efficiently provide essential services, then public identifies future priority expenditures that will be sector reform-including restructuring of government sustainable and consistent with the sector strategy; institutions-is a necessary part of a SIP. This 2 activity is often difficult. Many of the SlPs approved projects into the SIP framework and work towards thus far have experienced significant delays in pooling their funds and integrating them into the disbursement and implementation due to failure to government budget. The goal therefore is to build complete the restructuring of public institutions sound and transparent accounting procedures and within the agreed time-frame. This suggests that administrative rules that respond to donor concerns. during preparation, more attention should be devoted Fourth, in exchange for their participation, donors to developing a detailed outline of the steps involved often require assurance that the agreed public in implementing the restructuring program; obtaining expenditure program is fully funded. To ensure that assurances that the program is compatible with the program remains fully funded, a donor should be existing government regulations; and ensuring that the designated to serve as the "donor of last resort," and necessary finances (for example, severance payments) provide financing for whatever expenditures are not for the program are available. covered by other commitments. It is also essential that the government demonstrate its Implementation arrangements. Smooth willingness and ability to address the topic effectively implementation of SIPs requires extensive dialogue through upfront actions. Lack of action may reduce and a continuous flow of information among the stakeholders' enthusiasm and confidence in the stakeholders, particularly on procurement, flow of approach, and may discourage donors from funds, and auditing. It also demands procedures that transferring partial control of their operations to a not allow quick change in the program in response to yet functioning government structure. issues and obstacles as they arise. Consequently, most SIPs which are now under implementation Review of public expenditures. SIPs finance undergo an annual "joint government/donor review" priority activities whose selection must be based on during which the government presents to donors an analysis of the overall public expenditure program. implementation results of the past year, the work plan In most countries the obstacle to growth is not the for the next year, and an analysis of sector overall level of government spending, but the performance. The latter focuses on progress in efficiency of the public expenditure program. implementing policy changes, overall program Rationalizing public expenditures may enable the performance, and the outcomes and the impact of public sector to expand its activities using the same specific sub-programs. resources. The operation and maintenance costs of any investments undertaken through external Programming and monitoring of activities. It is assistance will inevitably have to be met from the important to develop and agree on indicators with government's own budgetary resources. The which to monitor the performance of the program. effectiveness and sustainability of investments will be This is important for three reasons. First, since SIPs greatly improved if, in the medium-term, these normally demand important institutional and policy- expenditures are included in the budget. changes at the sectoral level, policy-monitoring is desirable not only for donors to make sure the Donor participation. A SIP is not likely to be viable program is "on track," but also for government to unless all the major donors participate in supporting ascertain that the policy actions are indeed having the it. This often requires major changes in the way desired affects. Timely availability of monitoring donors manage their investment programs in results not only allows the managers to take corrective countries. First, donors should promote the building actions at relatively little cost, but builds public of long-term local capacity (long-term technical support for the program by providing it with assistance should aim at strengthening or information about its positive impacts. Second, complementing local capacity and be based on a information on the cost of publicly provided services country's demand). Second, donors should streamline and who benefits from them helps to refine the and forge common implementation arrangements program approach and to compare the costs and (joint supervision, common reporting and financial benefits (however imperfectly quantified) of specific management system, and, to the extent possible, public programs within and across sectors. Third, common procurement methods). Third, all results from monitoring provides governments and participating donors should integrate their ongoing stakeholders with information they need to modify the 3 program in response to changing conditions as they Establishing a network through which countries and arise (this flexibility is a key advantage of SlPs), and donors can exchange experiences and share best- to reallocate funds from sub-programs that are practices would go far to ensure that sector-wide performing badly to ones that are doing well, thus approaches truly fulfill their potential. providing an important incentive framework for the public sector. Further reading: Conclusion and Next Steps Deininger, Klaus. and Nwanze Okidegbe. The program approach is an important new way of Forthcoming. "From Adjustment to Sector providing development assistance, which promises to Investment? Program-Based Approaches to improve the development impact of govemment and Development Lending." Entwicklung and donor resources under particular circumstances. SIPs laendlicher Raum. address the underlying conditions which have hindered project performance in the past: poor policy Harrold, Peter, and Associates. 1995. "The Broad frameworks, weak institutional capacity, a lack of Sector Approach to Investment Lending." World stakeholder participation and commitment, and a Bank Discussion Paper, No. 302. Africa misallocation of donor and national resources. Technical Department Series, Washington, D.C. However, the SIP approach is still new and its progress needs to be continually assessed. This is Okidegbe, Nwanze. Forthcoming. "Fostering why SIPs contain mechanisms to ensure periodic Sustainable Development: Sector Investment monitoring and evaluation, and are sufficiently Programs." Agriculture and Natural Resources flexible in design to allow for periodic adjustments. Department, World Bank, Washington, D.C. This brief review of important experience and issues This Dissemination Note has been prepared by shows that, despite broad agreement on principles, Nwanze Okidegbe and Klaus Deininger and edited by considerable work needs to be done to fit the general Wendy Ayres under the supervision ofHans approach outlined here to the specific needs of Binswanger, Senior Agricultural Policy Adviser, particular sectors and individual countries. Office of the Director. 4