The Participation and Civic Engagement Team works to promote poverty reduction and sustainable development by empowering the poor to set their own priorities, control resources and influence the government, market and civil society institutions; and influencing governmental and private institutions to be responsive, inclusive, and accountable. Note No. 69 March 2003 Participation in Public Expenditure Systems An Issue Paper on Participation in Public financed by domestic and international taxpayers Expenditure Systems1 (in the form of development credit), efficacy of public spending is not only important from a The Origin of Public Expenditure development effectiveness lens, but also because of accountability to the financiers of public The mainstream public economics literature spending which includes the poor who pay makes the case that government intervention indirect taxes. ought to be considered in two instances, i) when market failures occur because of externalities, That governments step in to correct market public good properties, incomplete information, failures does not mean, however, that they and lack of competition, or ii) when market themselves don't fail. Their typical constraints activities worsen distribution of income. After are: establishing at least one of these, the government chooses among a range of instruments to redress · Information constraints: the distance the resultant allocative as well as productive between the state apparatus and poor people inefficiency. The instruments include regulation, can distort both the content and speed of the tax or subsidy redressal, and public-funded flow of information required for effective private provisioning. In developing countries anti-poverty planning and intervention. where absolute poverty, often rural and agro- · Capacity constraints: Even if it was known based, is the biggest development challenge, what ought to be done, states in developing provision of basic services like primary education countries may lack the financial and human and health, infrastructure, income generating and resources to undertake desired development employment activities warrants state involvement actions. for reasons stated. Because public spending is ___________________________________________________________________________________________________ This note was prepared by Swarnim Wagle and Parmesh Shah of the Participation and Civic Engagement Group in The World Bank as an issue paper for the Action Learning Program on "Participatory approaches at the Macro level". Further details and documents related to this Action Learning Program are available at www.worldbank.org/participation The views expressed in this note are those of the author(s) and do not necessarily reflect the official policies of the World Bank. · Incentive constraints: Unlike the private participatory processes don't lend themselves to sector that is primarily guided by pursuit of an automatic endorsement in all grassroots profits, bureaucratic and political incentives activities, a compelling body of empirical are not as clearly defined, and may be evidence exists today which makes a strong case misaligned with development objectives, for people's participation at the micro level. A making anti-poverty interventions less relevant question to ask now is whether the micro effective. successes can be scaled up to the macro level. Formal prescriptions to redress these problems Scaling Up Participation include capacity strengthening, decentralization, and institutionalization of accountability systems. Attempts have been made in some countries to But because past experience has shown that these scale up ­ or out ­ processes of civic engagement are inadequate, civic engagement - a process that to the macro level, the domain of adopting, organizes citizens or their entrusted implementing, and evaluating aspects of socio- representatives to influence, share, and control economic policy, e.g., multi-year macro public affairs and development initiatives, economic packages (Ireland), municipal budget implementation and resources - has emerged as formulation (Brazil), and civic evaluation of an effective complementary development public sector performance (India). Here, while instrument. It is both a means and an end to the evidence is not as conclusive as at the micro better development. It is an end because in open level because country specific experiments vary societies democracy ideally encompasses more in scope, and outcomes are preliminary. But there than the ritual of competitive elections; and it is a are encouraging results in some areas. Public means because, subject to conditions, it Expenditure Management - systems that deal contributes to redressing some government with the collection and allocation of public failures by bridging the information divide, resources, is one of them, especially in view of alleviating capacity constraints by making the biggest development goal of the new century, available alternative channels of service delivery, which is to reduce absolute levels of poverty for and checking growth of perverse incentive over 1.3 billion people, mostly in Africa and regimes through demands on accountability. The South Asia. process of civic engagement is additionally potent when it becomes a constructive If financial resources are a necessary but contributor to an alliance of three most important insufficient ingredient for modern socio- agents in public policy and management: economic development, then the first question to bureaucratic action, political action, and citizen ask, even before exploring options for increasing action. the volume of resources is whether governments use existing resources prudently or not. Are There are, of course, limitations to what participation can bring, most noteworthy of resources being targeted to the right sectors? Do which are, i) costs in terms of money, time and they flow to the designated sectors? Should they management, ii) risk of elite capture, iii) be flowing to the sectors in the stipulated possibility of instability, and iv) illegitimate amounts at all? In other words, all good public representation. While because of these pitfalls, expenditure systems must pass the test of Accounting, Monitoring, Auditing and Evaluating on a sustained basis. It is then that While poverty can be reduced through multiple participation becomes an integral component in channels (such as growth spurred by private Public Expenditure Management because investment) public spending in basic service citizen's engagement can assist in processes that provisioning remains one of the most direct lead to better targeting, allocation, and tracking instruments. Further, budgets serve numerous of resources. They can also help in reconfiguring socio-economic purposes by allocating resources sets of development policy choices. Tools of in ways that promote or hinder growth and Public Expenditure, like national budgets, are equity. Despite this overarching importance, themselves important policy statements budgets in developing countries have not been as expressed in money terms. However, beyond the effective as they should be. This is why the development effectiveness argument, the issue agenda to reform public expenditure systems has for participation in PE is also one of been given such a high priority. As the Bank's accountability. Poverty Reduction Strategy Sourcebook summarizes, a number of urgent technical Accountability as a Citizen Right reforms needed in existing PE systems include the following. Guided by ideological or other policy choices, · Better resource planning: a longer term governments may be active in areas not planning horizon where policy choices are necessarily characterized by market failures. disciplined by realistic resource availability. Irrespective of motivations, governments Government programs should compete for universally tax citizens to undertake expenditures funding, not rely on routine increments. Cost on their behalf. Since the beginning of Analysis of public projects ought to be a re- civilization, taxes have been the most practical iterated exercise. way of revenue generation to finance public · Better accounting, auditing and spending. Taxes are raised domestically, procurement: a transparent process of although they may also be received in the form of formulation, approval, implementation and international transfers from taxpayers in other reporting among the formal institutions ­ the countries as is the case with development cabinet, finance ministry, line ministries, lending. Because most sources of government office of the auditor generals is a primary spending are citizen entitlements, in money or in requirement. This should be complemented kind, a basic case can be made to see transparent by information disclosure and press freedom accounting of public expenditures as not only a laws. means to an efficient development outcome, but · Better performance: allocation alone does not also as a fundamental citizen right - an end in ensure impact. Greater link between itself. resources and performance guided by measurable indicators. Reforming Public Expenditure Systems Formal institutional remedies of these kind are Budgets ­ national, provincial or municipal - necessary to strengthen national public represent a government's statement of expected expenditure systems, and this has been the focus revenues and expenditures over a period of time. of most public sector reform programs. But incorporating elements of civic engagement to budget involves the Ministry of Finance, Cabinet, complement these institutional reforms has so far and the Sector Ministries. been an under-appreciated and under-tried innovation. Drawing on a number of successful Participatory Budgeting in Porto Alegre: cases and tested models from around the globe, a Promoting Responsive Government framework for Participatory Public Expenditure A city in an indifferent financial state before 1989 System is presented, where civic groups because of de-industrialization, in-migration, influence stages of the budget process in a cyclic indebtedness and poor revenue base, major fiscal and and iterative manner. The framework proceeds other reforms were initiated between '89-'91, yielding spectacular achievements in subsequent years, credit with a caveat that what is sought is not an ad-hoc for which has been given to the participatory budget institution of a participatory channel that subverts process. Since 1989, the Workers Party has won three established politico-legal processes which have consecutive municipal elections in Porto Alegre which has been called by a leading journal `the city with the constitutional recognitions, but draw on inputs best quality of life' in Brazil. Between `89 and `96, the that civic engagement affords to make the public number of households with access to water services expenditure system more transparent, rose from 80% to 98%; percentage of the population served by the municipal sewage system rose from 46 accountable, and efficient toward the end of to 85; number of children enrolled in public schools poverty reduction. doubled; in the poorer neighborhoods, 30 kilometers of roads were paved annually since 1989; and because of transparency affecting motivation to pay taxes, Participation in Public Expenditure revenue increased by nearly 50%. Over 80 Brazilian Management cities are now following the Porto Alegre model of participatory budgeting. This spans four key stages in a cyclic manner: Analysis. This stage arrives post-presentation of Formulation, Analysis, Expenditure Tracking, the budget in the legislature, and involves review and Evaluation. of the impact and implication of different policy proposals and allocations. Civic engagement is Formulation. When revenue and expenditure used to demystify the seemingly technical estimates are being prepared, processes of civic content of the budget, create general awareness, engagement can influence how the expenditure and even inform and train parliamentarians to proposals are made ­ to which sectors and in pressure the executive for pro-poor changes. which amount. But opening up the formulation There are numerous examples of civic process also helps the government present policy engagement in improving budget literacy: and resource options to the public, so that Institute for Economic Affairs in Kenya, DISHA participation simply doesn't create a wish-list of in India, IDASHA in South Africa. conflicting demands or over expectations. Cases here include the Participatory Budget Formulation in nearly 100 Brazilian municipalities. Civic Engagement can also involve preparation of Alternative budgets to pressure changes in the official budgets. Alternative Federal Budget of the Canadian Center on Policy Alternatives presents a case study on this front. Formulation phase of the Tracking Expenditures in Uganda: Diagram1. ConceptualFramework:PARTICIPATORYPUBLIC Promoting Efficiency EXPENDITUREMANAGEMENT Once revealed that less than 30% of allocated capitation money was reaching the schools on average BudgetFormulation at the end of 1995, the government acted immediately to improve the flow of information, and make budget allocations transparent by: i) publishing amounts AFB-Canada;Porto AFB-Canada;Porto Alegre,Brazil transferred to the districts in newspapers and radio Alegre,Brazil broadcasts; ii) requiring schools to maintain public Performance Karnataka, Karnataka, Budget India/Filipino DISHA,India; India/Filipino DISHA,India; Analysis Monitoring ReportCard GenderBudgetProj. notice boards to post monthly transfer of funds; iii) ReportCard GenderBudgetProj. S.Africa S.Africa Civic legally provisioning for accountability and Engagement information dissemination in the 1997 Local PETS-Uganda,G- PETS-Uganda,G- Governance Act; and iv) requiring districts to deposit Watch-Phil. Watch-Phil. all grants to schools in their own accounts, and Budget delegating authority for procurement from the center Expenditure to the schools. By 1999, capitation grants received by Tracking the schools had almost reached 100%. PublicExpenditureManagementCycle Performance Evaluation. The fourth stage of the Tracking. After the budget appropriations are cycle is evaluation where the performance of debated and approved by parliament, allocations selected publicly-funded agencies (sometimes the are disbursed to ministries and tiers below. But entire government) is assessed. One of the more because of institutional weaknesses such as analytically robust and powerful instruments to opportunities for rent-seeking and leakages, evaluate public performance draws on a private disbursed amounts may not reach the intended sector practice of soliciting feedback from beneficiaries in developing countries, with the citizens, and compiling `report cards'. The link between sound planning and good methodology involves administration of a survey implementation being tenuous. By identifying the to intended clientele of public services to elusive bureaucratic channels through which determine quality of, access to, and satisfaction funds flow, civic groups can highlight with such services. There are two practices: one bottlenecks in the flow of resource, and other where an independent groups conducts the survey systemic deficiencies. The work of Uganda's for government or donor agency; the other is one World Bank funded Public Expenditure Tracking where citizen groups conduct the surveys. These System, G-Watch project in the Phillipines, and exercises provide rich information on where and the Majdoor Kisaan Shakti Sangathan of how basic services are failing the poor. Rajasthan, India, offer examples of how tracking has been used to upset the status quo by allowing Bangalore Report Cards: Promoting Accountability a more efficient use of public funds for the poor. This stage may involve triangulation of Complementing a body of anecdotal evidence on the incompetence of public agencies, quantification of information received from independent enquiries, user perceptions in Report Cards provided credible funds released by finance ministries and accounts indicators of the extent of dis-satisfaction triggering submitted by line agencies to the exchequer. internal reforms. Although the quality of service could not have been radically overhauled in Bangalore between 1994 and 1999 just as a result of one Report Card findings, of the 8 agencies surveyed in 1993, 4 made attempts to respond to public dissatisfaction. The worst rated agency ­ the Bangalore Development Authority (BDA) ­ reviewed its internal systems for service delivery, introduced training for junior staff, and along with the Bangalore Municipal Corporation, engagement at any stage of the cycle can be began to host a joint forum of NGOs and public useful, but participatory public expenditure agencies to consult on solving high-priority problems such as waste management. The Karnataka Electricity systems only deliver when the feedback loop is Board, too, formalized periodic dialogues with institutionalized and space is given to external resident associations to garner feedback from users. voice at each stage. Experiences show that a Two other public agencies tried to strengthen their grievance redressal systems. However, the remaining culture of accountability can only be fostered if four stayed indifferent to the results demonstrating sustainable alliances among a reformist how public outcry alone is not sufficient to overcome executive, and legislature, an active civil society bureaucratic inertia. It is clear that report card initiatives need to be complemented by systemic and a responsible media can be forged. As an political reforms and citizen action. illustration, credibly executed report card findings can not only be used by auditors and the public accounts committees in parliaments, but The institutionalized works of the Public Affairs the media can be a powerful ally to healthily Center in Bangalore, India, and the Bank-funded nudge the state into acting. Filipino Report Card 2000, among other examples, offer useful precedents. The Report As with instances of participation in grassroots Cards usually identify the key constraints the projects, it has to be recognized, however, that poor face in accessing public services, their these processes can be costly in terms of money, views about the quality and adequacy of services, time and management intensity. But because the and the treatment they receive in their entire premise rests on the fact that public interactions with public service providers. Civic spending is crucial for poverty reduction, and input at this stage can influence both the internal because conventional modes of priority setting reform measures of the evaluated government and fund use can be ineffective, they need to be agencies as well as external evaluators such as complemented by innovative instruments of civic the report of the Auditor General to the engagement. This is necessary because, i) social parliament. accountability is a right, and ii) civic engagement can help make public expenditure systems save Institutionalizing Cyclic Participation in and use scarce resources to fight poverty better. Public Expenditures The two sets of critical success factors for participation in public expenditures are, i) technical skills and overall capacity of intermediary civic groups who analyze, track, and evaluate different stages of the budget process, and ii) conducive political environment in the form of free and able media, information disclosure laws, and political will to make government systems more open. One-off "Social Development Notes" are published informally by the Social Development Family in the Environmentally and Socially Sustainable Development Network of the World Bank. For additional copies, contact Social Development Publications, World Bank, 1818 H Street, NW, MSN MC5-507, Washington, DC 20433, USA, Fax: 202-522-3247, E-mail: sdpublications@worldbank.org. Printed on Recycled Paper