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Returns to Spending and Optimal Budget AllocationReturns to Spending and Optimal Budget Allocation
Ronald ManganiRonald Ma...
Key MessagesKey Messages
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Context: The GoM Poverty Reduction GoalContext: The GoM Poverty Reduction Goal
___________________________________________...
Context: The GoM Poverty Reduction GoalContext: The GoM Poverty Reduction Goal
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How Spending is Functionally Classified MattersHow Spending is Functionally Classified Matters
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How Spending is Functionally Classified MattersHow Spending is Functionally Classified Matters
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Standard Measures of Returns to Spending May Miss the PointStandard Measures of Returns to Spending May Miss the Point
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IHS3 BIA: DISTRIBUTION OF FISP NET SUBSIDY
FISP Net Subsidy share, Rural vs. Urban (%)
• Subsidy pro-poor in urban: pro-po...
IHS3 BIA: DISTRIBUTION OF FISP NET SUBSIDY
• Subsidy pro-poor in urban: pro-policy
• Subsidy mostly favors middle income h...
IHS3 BIA: DISTRIBUTION OF NET GOM SUBSIDY IN EDUCATION (TO
COMPARE)
Distribution of GoM Subsidy by Wealth, by Level (%)
• ...
Implications for Optimal GoM Budgeting
___________________________________________________________________________________...
Implications for Optimal GoM Budgeting
___________________________________________________________________________________...
End
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Returns to spending and optimal budget allocation

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Returns to spending and optimal budget allocation

  1. 1. Returns to Spending and Optimal Budget AllocationReturns to Spending and Optimal Budget Allocation Ronald ManganiRonald Mangani University of MalawiUniversity of Malawi Presented at the National Symposium onPresented at the National Symposium on ““Eight Years of FISP - Impacts and What Next”Eight Years of FISP - Impacts and What Next” Lilongwe, 14 - 15 July 2014Lilongwe, 14 - 15 July 2014 __________________________________________________________________________
  2. 2. Key MessagesKey Messages ________________________________________________________________________________________________________________________ o Poverty reduction is the primary goal of GoMPoverty reduction is the primary goal of GoM o Social spending is more effective for poverty reduction thanSocial spending is more effective for poverty reduction than economic spendingeconomic spending o Social welfare aspect of FISP is most critical by design, butSocial welfare aspect of FISP is most critical by design, but compromised by spending under MoAcompromised by spending under MoA o FISP spending under Social Protection is more appropriateFISP spending under Social Protection is more appropriate
  3. 3. Context: The GoM Poverty Reduction GoalContext: The GoM Poverty Reduction Goal ________________________________________________________________________________________________________________________ • GoM set poverty reduction as its primary goal (MGDS, Vision 2020) o Growth = medium for poverty reduction largely via economic sector o Development = medium for poverty reduction largely via social sector o But there is a thin line: FISP → food security → better nutrition → health → development FISP → more output → growth • Do growth and development achieve comparable impacts on poverty? o Effective poverty reduction entails discriminatory public spending → But Pareto-Optimal o Growth more utilitarian: no regard for income/wealth inequalities o Development more egalitarian: directly pro-poor & pro-vulnerable
  4. 4. Context: The GoM Poverty Reduction GoalContext: The GoM Poverty Reduction Goal ________________________________________________________________________________________________________________________ • GoM budget = key tool for achieving the poverty reduction goal • Functional classification of the GoM Budget o Economic spending = source of most growth (utilitarian) o Social spending = source of most development (egalitarian) o General spending = “unnecessary necessity” • But some of it directly pro-growth and pro-development (e.g., security)
  5. 5. How Spending is Functionally Classified MattersHow Spending is Functionally Classified Matters ________________________________________________________________________________________________________________________ • Unequivocal: Minimise general spending, maximise social and economic spending
  6. 6. How Spending is Functionally Classified MattersHow Spending is Functionally Classified Matters ________________________________________________________________________________________________________________________ • FISP has both social and economic elements (WB PER 2013) • How responsive is poverty reduction to social and economic spending? Proposition: • Poverty reduction requires more social spending than economic spending – (direct/first round effects on poverty; more “developmental”) Proposition: • Poverty reduction requires more social spending than economic spending (direct/first round effects on poverty; more “developmental”) Propositions: •From perspective of poverty reduction, social welfare aspect of FISP more important than productivity aspect (ref: social spending more poverty-reducing) •From perspective of programme design (“it’s a subsidy!”), welfare aspect of FISP more important that productivity aspect (“targeting vulnerable, resource-poor) •FISP welfare aspect thwarted by allocating resources to Agriculture instead of Social Protection (scale; inter-ministerial politics)
  7. 7. Standard Measures of Returns to Spending May Miss the PointStandard Measures of Returns to Spending May Miss the Point ______________________________________________________________________________________________________________ BCA measures may not be aligned to national goalBCA measures may not be aligned to national goal • Generally less than impressive results of BCA for FISP; better withGenerally less than impressive results of BCA for FISP; better with improved tools (e.g. Ricker-Gilbert; Chirwa & Dorward)improved tools (e.g. Ricker-Gilbert; Chirwa & Dorward) • NPV, BCR, FE measures usually utilitarian: not focused on povertyNPV, BCR, FE measures usually utilitarian: not focused on poverty • Need to emphasise the distribution of benefits from public spendingNeed to emphasise the distribution of benefits from public spending Benefit Incidence Analysis: Complementary measure of appropriatenessBenefit Incidence Analysis: Complementary measure of appropriateness • Allows assessment of distribution of benefits against program objectivesAllows assessment of distribution of benefits against program objectives • Allows objective comparisons of distribution of benefits across programsAllows objective comparisons of distribution of benefits across programs Consider BIA based on IHS3 (WB PER, 2013)Consider BIA based on IHS3 (WB PER, 2013) • Has FISP delivered on its key (social welfare/development) objectives?Has FISP delivered on its key (social welfare/development) objectives? • Are allocations to Education and FISP comparably developmental?Are allocations to Education and FISP comparably developmental?
  8. 8. IHS3 BIA: DISTRIBUTION OF FISP NET SUBSIDY FISP Net Subsidy share, Rural vs. Urban (%) • Subsidy pro-poor in urban: pro-policy • Subsidy mostly favors middle income households in rural areas: poor and non- poor households get equal shares: generally anti-policy Hence re-design program to address poverty reduction objective effectively
  9. 9. IHS3 BIA: DISTRIBUTION OF FISP NET SUBSIDY • Subsidy pro-poor in urban: pro-policy • Subsidy mostly favors middle income households in rural areas: poor and non- poor households get equal shares: generally anti-policy • Benefits by gender fairly balanced across all wealth levels: anti-policy??? Hence re-design program to target more female-headed???? Maybe No!!! Distribution of FISP Net Benefits (%), by Wealth and Selected Characteristics Poorest Quintile 2nd Quintile 3rd Quintile 4th Quintile Richest Quintile All households Malawi 17.6 21.0 22.3 21.5 17.6 100 Urban 23.3 24.6 22.8 14.8 14.6 100 Rural 17.2 19.9 22.4 21.4 19.2 100 Gender of head Male-headed 17.2 20.8 22.5 21.8 17.6 100 Female-headed 18.7 21.4 21.9 20.6 17.5 100 Rural Region North 21.3 19.6 20.5 19.9 18.6 100 Center 16.7 21.3 22.9 20.9 18.3 100 South 15.5 19.2 21.5 22.9 20.8 100 Source: IHS3 Survey data
  10. 10. IHS3 BIA: DISTRIBUTION OF NET GOM SUBSIDY IN EDUCATION (TO COMPARE) Distribution of GoM Subsidy by Wealth, by Level (%) • Subsidy progressive in primary education – the poorest households capture a greater share: pro-policy • Subsidy regressive in secondary education: anti-policy • Tertiary education is highly regressive: 82% of subsidy to the rich – anti-policy • The rich claiming far more of the education subsidy that of the FISP subsidy Hence re-structure education sector financing in secondary and tertiary!!!
  11. 11. Implications for Optimal GoM Budgeting ________________________________________________________________________________________________________________________ • Allocate FISP (or similar subsidy) resources to Social Protection Subsidy: → intervention against market failures → for distributive justice → is a “social sector” responsibility → productivity important, but not key focus Hence, in FISP: De-emphasise productivity (efficiency; growth) – most BCA Emphasise effectiveness (distributive justice; development) – e.g. BIA Evaluate outcomes against other “subsidies”; comparable smallholders • Prioritise & fund productivity initiatives of MOA regardless of FISP Productivity: → largely a functional markets concept → certainly a MOA duty with/without FISP
  12. 12. Implications for Optimal GoM Budgeting ________________________________________________________________________________________________________________________ • Proposed redirection of “FISP” allocations addresses key challenges Forms basis for scale-down to “true FISP” for target beneficiaries → reduces pressure on resources Restores MoA attention to productivity & growth (not social welfare) → directly benefits FISP & entire agricultural sector → scale down frees resources to MOA core functions Brings separation between management and technical advisory roles → Social Protection directly on board as program managers → MOA focuses on providing critical technical advice
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