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Strategic Financial PlanningPlanification financière stratégique                Alan Hall              Chair of the EUWI  ...
1. Background      Finance is a scarce resource• Good Governance is essential to reduce risk and attract  finance.• Sound ...
2. Background                 Realism: The 3 T’s• There are only three sources of finance: Taxes, Tariffs, Transfers• Gove...
3. Background  Governments face stark choices1. Lower ambitions (or renege on commitments).2. Access more grant aid (it ha...
4. Background          The myth of low tariffs    “low tariffs help the poor who cannot    afford to pay and are unwilling...
5. Background    Strategic Financial Planning (SFP)1. Analyses needs and gaps before trying to access funds and   decide o...
6. Lesotho             Lesotho SFP study• Develop and maintain a strategic financial plan for water supply  and sanitation...
7. Lesotho             Elements of the study• Intensive data collection and analysis• Take account of economic policies, p...
8. Lesotho    Planning Methodology                   Macro-economic forecast                   •Prices    •Production/ Inc...
9. LesothoResults: Total Funding Needs             Average Annual Funding                 Needs to 2020                   ...
10. Lesotho            Population served3,500,000                  Rural Pop un-served                  Urban Pop un-serve...
11. Lesotho    Water Sector Funding SourcesWater Sector Funding Sources to 2015     User                                  ...
12. Outcomes                        SFP Outcomes• Formed the basis of engagement with Finance Ministry.• Objective discuss...
13. Lessons                  Constraints1. Data collection and analysis problematic.2. Institutional anchorage of the SFP ...
14. Lessons                     Lessons1. Provides a structured and comprehensive approach – replaces    the usual ad hoc ...
15. Observations  Overcoming Financing Obstacles• SFP provides reality check – and helps set realistic aims.• Help Governm...
16. Observations                   Strategy issues• Whole project costs must be factored in (less 40% are for  infrastruct...
17. Observations               Distractions!• Worldwide Economic crisis – reduced access  to finance.• Investment without ...
Thank you• EUWI FWG reports:• Strategic Financial Planning for water supply and sanitation in  Africa (English and French)...
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Strategic financial planning euwi

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Strategic financial planning euwi

  1. 1. Strategic Financial PlanningPlanification financière stratégique Alan Hall Chair of the EUWI Finance Working Group
  2. 2. 1. Background Finance is a scarce resource• Good Governance is essential to reduce risk and attract finance.• Sound institutions and competent staff necessary to make effective use of finance.• Information critical for good decision-making and design.• Sound project preparation essential for investment: support is needed for both ‘soft’ and ‘hard’ interventions.
  3. 3. 2. Background Realism: The 3 T’s• There are only three sources of finance: Taxes, Tariffs, Transfers• Government budgets are finite depending on taxes, tariffs and transfers.• Utilities only have income from tariffs or budget allocations (tax).• Aid transfers are from tax paid by workers in donor countries - limited and have to be used strategically.• Loans have to be paid back from taxes or tariffs.• Taxes and tariffs take many forms and are collected in many ways.
  4. 4. 3. Background Governments face stark choices1. Lower ambitions (or renege on commitments).2. Access more grant aid (it has increased but is limited and unpredictable).3. Raise more tax (and/or divert it from other uses).4. Increase tariffs for water services.5. Attract private investment (and thus raise tariffs).
  5. 5. 4. Background The myth of low tariffs “low tariffs help the poor who cannot afford to pay and are unwilling to pay”.• Low tariffs commit the poor to pay more for a worse service, whilst wealthier urban dwellers are subsidised.• It results in a lack of finance for maintaining assets and improving services and keeps the sector backward.• The least worst solution for extending services is to increase the pot of finance through higher tariffs.
  6. 6. 5. Background Strategic Financial Planning (SFP)1. Analyses needs and gaps before trying to access funds and decide on the sources.2. Provides Facts – essential to convince the Ministry of Finance.3. Provides a reality check - demonstrate there is no magic bullet.4. Country SFP studies supported by OECD and bilateral donors in Armenia, Georgia, Moldova, Kyrgyz Republic.5. Lesotho study supported by EUWI-FWG. Cost Euro 250,000.
  7. 7. 6. Lesotho Lesotho SFP study• Develop and maintain a strategic financial plan for water supply and sanitation services• Build capacity through a “learning-by-doing” process• Inform the ‘Sector Wide Approach’ for water through policy dialogue among government departments and with other stakeholders• Bring information and data from water and sanitation services (urban/ rural/ bulk water) together in one consistent format and establish a baseline 7
  8. 8. 7. Lesotho Elements of the study• Intensive data collection and analysis• Take account of economic policies, plans and government aspirations• Financing needs analysed according to four scenarios: 1. Business as usual 2. High Growth with Urban and Industrial Focus 3. High Growth with Rural Development Focus 4. Low Growth• Structured method used to analyse information based on the OECD ‘Feasible’ methodology• Household affordability a key input to get realistic figures
  9. 9. 8. Lesotho Planning Methodology Macro-economic forecast •Prices •Production/ Income •Public Revenues Demand Change SupplyExisting Targets Rules governing: Sources ofFacilities •Level •Public transfers Finance:and •year •User charges •User ChargesSituation •Private sector •Public budgets finance •Private fin. Inst. •Donors and IFIs Project available finance forExpenditure forecast Change •Investment expenditure•Investment expenditure •Targets •“Rules” •Recurring expenditure•O&M expenditure •Finance •Capacity Building etc Sources Financing Gap 9
  10. 10. 9. LesothoResults: Total Funding Needs Average Annual Funding Needs to 2020 Includes 100 O&M 90 Costs 80 70 60 mEUR 50 40 30 20 10 0 U San Scenario 1 Scenario 2 Scenario 3 Scenario 4 R San Sew UWS RWS
  11. 11. 10. Lesotho Population served3,500,000 Rural Pop un-served Urban Pop un-served3,000,000 Rural Pop served Urban Pop served2,500,0002,000,0001,500,0001,000,000 500,000 - 2020 2025 2030 2035 2009/10 2010/11 2011/12 2012/13 2015/16 2013/14 2014/15
  12. 12. 11. Lesotho Water Sector Funding SourcesWater Sector Funding Sources to 2015 User Contribu Scenario 3 tions 29% Water Sector Funding Sources to 2030-35 Governm ent & Donors 28% Governm ent & Donors 71% User Contribu tions 72%
  13. 13. 12. Outcomes SFP Outcomes• Formed the basis of engagement with Finance Ministry.• Objective discussion of tariff policy.• Analytical approach showed stark trade-off between reality and policy credibility – in a transparent way.• Results used to identify priorities and embedded into the budget and Medium Term Expenditure Framework.• Provided a platform for aid effectiveness and dialogue with donors.• Facilitated improvements in the Monitoring systems and cooperation between the Bureau of Statistics and water sector Institutions.
  14. 14. 13. Lessons Constraints1. Data collection and analysis problematic.2. Institutional anchorage of the SFP process and planning tools – changes in staffing make this fragile.3. A ‘project approach’ is good for initial development of planning tools and capacity building but not for the long term.4. Follow-up support is necessary to ensure sustainability of the achievements.
  15. 15. 14. Lessons Lessons1. Provides a structured and comprehensive approach – replaces the usual ad hoc approach2. SFP structured according to the sub-sector sub-divisions used in the budgeting process3. Flexible tool that allows for re-design/additions and updating according to the developments in the sector4. Must be ‘owned’ by the country. There is no ‘one size fits all’.5. Provides transparency therefore good for negotiations.
  16. 16. 15. Observations Overcoming Financing Obstacles• SFP provides reality check – and helps set realistic aims.• Help Governments allocate scarce public budgets more strategically for public goods and facilitate private investment.• SFP part of wider support on financing for water. For example: – for project preparation (trust funds not presently used for water), – for blending of finance from multiple sources, – For helping countries understand finance and how to access finance from different sources.
  17. 17. 16. Observations Strategy issues• Whole project costs must be factored in (less 40% are for infrastructure/construction).• Subsidies are needed but have to be designed and targeted.• Need to use a range of sources of finance and mechanisms and match different sources to different purposes.• Need different approach to serve the poor – if utilities are run as a ‘business’ then may need to have different agency to provide for the poorest communities.
  18. 18. 17. Observations Distractions!• Worldwide Economic crisis – reduced access to finance.• Investment without revenues - excessive national debt.• Right to water (and sanitation) has consequences - legal costs, withdrawal of financing?• Loss of public support if focus only on urban areas with lack of solutions for the poor.
  19. 19. Thank you• EUWI FWG reports:• Strategic Financial Planning for water supply and sanitation in Africa (English and French)• A Primer for Practitioners and Students in Developing Countries• available from:www.euwi.net/wg/financewww.gwpforum.org

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