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The capabilities of ministries of finance and planning to coordinate capital and recurrent expenditure

20 December 2017
Joan Stott
Capabilities of ministries of finance and planning
(Photo by CABRI)

Through various peer-exchange and learning opportunities, such as policy dialogues and in-country work, including joint research with the Overseas Development Institute, CABRI identified and supported the capabilities of ministries of finance, budget and planning in Africa.

In December 2015, CABRI launched a research project on the co-ordination between central finance agencies and the line functions, specifically regarding budget formulation for capital projects and their associated recurrent costs. The report identifies the conditions under which countries with different institutional structures and economic conditions are best able to co-ordinate relevant actors to integrate public capital and recurrent expenditures. The four country case studies focused on the financing of the education sector in Botswana, Namibia, Rwanda and South Africa

Over a two-year period, CABRI led in-country interviews with officials as part of documenting systems and processes to extend the understanding of coordinative capabilities. This area of research that builds on previous studies on the capabilities of ministries of finance.

CABRI’s long-standing experience in facilitating exchanges between ministries of finance and planning has highlighted that governments tend to underfund operations related to the maintenance of infrastructure projects, leading the assets to steadily fall into disrepair. The delinking of capital and recurrent expenditures is more acute when governments have separate capital and recurrent budgets, as is the case in some African countries. Our research investigates how countries manage this process and co-ordinate information within the strategic planning and formulation phases of the budget, in both instances of a single finance and planning ministry or separated processes:

  • Despite institutional separation of planning and budgeting, South Africa and Rwanda have more integrated capital and recurrent expenditures planning institutions. In both countries, one institution or unit is responsible for managing both capital and recurrent budgets. However, South Africa does not use the category of development expenditure, as is the case in Rwanda.
  • Botswana and Namibia have separate institutions responsible for capital and recurrent expenditures. Namibia has the most institutionally separated system, with full separation from the centre to the line ministry. Botswana has a unique ministry in charge of capital and recurrent expenditures which are managed by two separate units, both at the central and line ministry levels. Since the in-country interviews were conducted, Namibia made progress in implementing a system that is similar to Rwanda.

While finance ministry capacity can be described more tangibly, capability as the process that transforms capacity into performance, is not directly observable. It is also now understood that capabilities are very often interdependent. Our research has shown that the presence of certain capabilities such as analysis, delivery and regulation, enhanced a ministry’s ability to coordinate effectively. In addition, the study also made clear that the following internal factors determine coordinative capability:

  • Institutional memory and experience
  • Organisation of budget offices along sector lines
  • Communication capacities
  • Have appropriate numbers of skilled staff to gain the authority to coordinate the budgetary decisions of other actors.
  • Are better able to coordinate other actors, particularly line ministries, as they can obtain sector knowledge and experience to build relationships and engage other actors authoritatively.
  • Are result-oriented, willing to adjust internal and external processes to address emerging challenges as well as collaborate internally to coordinate other actors and set appropriate information requirements.
  • Have political support within government. Where support is lacking, other factors such as the ministry’s analytical capacity, monitoring capabilities, and relationships and engagement with other actors become critical, and
  • Have effective regulation directs the activities of other actors and prescribe what should be considered when decisions are taken.
  • Ability to build the capacity of other actors in the budget process
  • The ability to set up and maintain information databases
  • A result-oriented culture, geared towards reform and internal collaboration.

Furthermore, our research shows that coordinative capabilities can be improved when finance ministries:

The capabilities of ministries of finance and planning to coordinate capital and recurrent expenditure Synthesis report and background interviews (Botswana, Namibia, Rwanda and South Africa) are now available on the CABRI knowledge hub. As CABRI moves into its new strategic plan in 2018, further emphasis will be placed on the building of public finance management capabilities using the Problem-Driven Iterative Approach developed at the Harvard Kennedy School of Government.

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