Alia Moubayed Washington, April 26, 2007 Public Expenditure and Institutional Review Restructuring Public Expenditure to Sustain Growth The story World Bank - Economic Policy Group - Eastern Europe and the Balkans Albania
What are the main institutional constraints? Develop an up-to-date picture of the quality of the PFM system and establish a baseline for monitoring the progress of PFM reforms in future. Public Exp. and Financial Accountability (PEFA 2006): Assess fiduciary risk of Albania’s budget looking at both public financial management (PFM) and procurement. Country Fiduciary Accountability Assessment (CFAA 2006) Focus on accountability of public sector management (civil service pay, public financial and investment management To the extent possible explore sector governance issues: social and infrastructure sectors (health, education, social protection, water, power and transport) Public expenditure and Institutional Review (PEIR 2006):
Assessing the Procurement System 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Legislative Framework Institutional & Management Capacity Procurement Operations & Market Practices Integrity & Transparency [Albania Score] Norm for Region Maximum Score Figure 1. Public Procurement System at a Glance— Four OECD/DAC Pillars
Increase allocations for non-wage recurrent spending ,
O&M in the infrastructure sectors
Non-wage recurrent in secondary education and primary health.
Keep the wage bill in check ,
Maintain capital spending at current high levels only if subjected to the rigor of investment management procedures ,
Alleviate the burden of interest payments,
reduce overall debt levels,
lengthen domestic maturities, and
seek long-term external (official and private) financing.
Gradually reduce remaining subsidies (water and railway).
Re-balance inter-sectoral allocations Functional Classification (% of GDP), 2004 More to education, less to general public services, infrastructure to generate its own financing
Adjust intra-sectoral allocations- some examples In Education: shift priority towards expanding secondary education In Health : increased incidence of non-communicable disease shift spending from the hospital sector and pharmaceuticals in favor of preventive care In Social Protection: revisit social insurance model as a way of providing old-age security World Bank Social Insurance Review In Transport : reduce financing to railways and invest only in priority roads as per ANTP
Operationalizing the Albania PEIR: link to Bank operations
Informed the design of new investment loans: Education Excellence and Equity Project, Transport Project, Feeder road project
Main analytical underpinning for reform program under Development Policy Operation (DPO)
Water: reform of subsidy system (operating and investment subsidy)
Health: rationalization of spending in the hospital sector
Public Financial Management Reforms: Focus on Public Investment Management, and Procurement
Pension: design of a new strategy, review of social protection schemes.
Eye opener for future analytical work :
Programmatic PEIR (2007-2009): Fiscal decentralization and Municipal finance, sub-national PFM, annual review of Public Investments in MTBP (priority sectors), capacity building to strengthen public expenditure analysis.
Review of social protection: a comprehensive approach
Local roads financing study
Annual fiscal update to track progress on public finance reforms
Operationalizing the Albania PEIR: Link to GOA policy processes
Establish a framework for implementing PEIR proposed reforms and link them to MTBP:
Strategy formulation level: sector strategies and National Strategy for Development and Integration (e.g.water, social insurance, health, ..)
Resource allocation level : PEIR recommendations reflected in MTBP
PFM reform implementation : New MoF Strategy outlines reforms based on PEIR/CFAU/PEFA/ROSC findings
Establish a monitoring framework for tracking reform progress:
Monitoring plans part of the Integrated Planning System
PEFA indicators formally adopted to measure progress in PFM reforms
Link to Bank operations and GOA policy processes