Sector Costing Training Manual Introduction

Sector Costing Training Manual
Introduction
Why Training Manuals?
This Sector Costing Training Manual accompanies, and follows on from the MTEF Training
Manual. Both manuals have been adapted from Rwanda’s MTEF Budget Processes and
Procedures Guide (2008) and the National Planning, Budgeting and MTEF Guidelines
(2008).
Rwanda has taken great strides in public financial management over the past 10 years,
implementing fast-paced reforms which have had significant impact on the budget processes
and procedures at the national and district level.
The Budget Processes and Procedures Guide serves as a comprehensive reference manual,
documenting all the processes and procedures that are required in preparing, executing and
monitoring the government budget at the national and district levels.
The MTEF National Planning and Budgeting Guidelines is a more user-friendly, practical
tool that outlines the common principles, guidelines and terminologies used in strategic
planning and MTEF budgeting. Its aim is to clarify and show the links between strategic
planning and 3-year budgeting so that the consistency and quality of plans and budget
improve over time. This will help to strengthen and enhance credibility of MTEF budgeting
in Rwanda over the medium term.
The MTEF Training Manual and the Sector Costing Training Manual complete the set of
guides, providing the basic background information, presentations and interactive learning
activities on MTEF strategic planning and budgeting in Rwanda, as well as a detailed guide
on the importance of and steps involved in costing sector strategic plans and budget agency
action plans as part of training sessions to budget agencies in December 2009 and a core
group of ‘trainers’ drawn from the Ministry of Finance and Economic Planning
(MINECOFIN) and key sectors in June 2010.
The target audience for the training manual spans the planning and budget officers of budget
agencies that are responsible for preparing agency (and sector) strategic plans and 3-year
budgets. The core group of ‘trainers’ were invited to participate in a ‘training of trainers’
session in June 2010, after which they will be tasked to facilitate similar such training for a
wider audience of planning and budgeting officers across the Rwandan public sector.
The aim is to ensure comprehensive training on MTEF strategic planning and 3-year
budgeting as well as sector strategy costing within 2010 as part of a key reform to strengthen
and revitalise the MTEF budgeting process in Rwanda.
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The training manuals therefore present the information and presentations that will be used in
the initial training sessions in December 2009 and June 2010 in a format that may be adapted
and further developed to suit the specific needs of budget agencies for ongoing training over
the next few years.
Budget agencies may expand the basic structure in the training manual and customise for
future training by:
•
Adding information, examples and case studies as well as resource materials that are
specific to their agency and/or sector; and
•
Developing supplementary modules that focus in greater detail on particular concepts
or issues that are relevant to the budget agency or set of agencies concerned.
The basic structure of the Sector Costing Training Manual is presented on page 3, with the
MTEFr Training Manual being a separate stand-alone manual. The training manual is aligned
to a 1- to 2-day training period covering four sessions. Each session includes a presentation
and interactive group activities. The recommended time period for each session is merely a
guide and may be lengthened if more time is allocated to the interactive group activities.
The table on page 3 sets out the primary learning objective to be achieved in each session.
This is complemented by a set of training/ presentation slides that summarise the information
provided to the training group.
The training manual, including the set of presentation slides and training programme is
available on the website of the MINECOFIN at http://www.minecofin.gov.rw.
For more information contact:
Christophe Nsengiyaremye
National Budget Unit
MINECOFIN
Tel: +250 xxx
Fax: +250
Email: christophe.nsengiyaremye@minecofin.gov.rw
Website: http://www.minecofin.gov.rw
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Structure of the Training Session
Day 1-2 Sector Costing Training
Session
Learning Objective
1
What is sector strategic planning?
To locate sector strategic planning as a key
step in the annual planning and budgeting
cycle
2
Linking sector strategies to MTEF
budget programme structures
To clarify the links between sector
strategies and MTEF budget programme
structures
3
Costing sector plan and budget
programme outputs
To enhance understanding of the
importance of and steps required in costing
sector outputs
4
Sector and agency MTEF budget
prioritisation
To accentuate the role that sector costing
plays in enhancing MTEF credibility
3
Session 1
What is sector strategic planning?
Presenter: _________________________________________________________________
Broad purpose of the session
To locate sector strategic planning as a key
step in the annual planning and budgeting
cycle
Proposed duration
1 - 2 hours
Learning objectives
To understand the role that sector strategic
planning plays in the broader national
planning framework
To develop a clear understanding of
components of, and benefits that result from
sector strategic planning
To highlight the benefits of sector wide
approach ( SWAPs)
1.
Part of strategic planning more broadly...
In sessions 1 and 2 of the MTEF Training Manual we introduced the concept of strategic
planning as “the overall planning or the ‘how’ government decides to prioritise, implement
and achieve its policy priorities. Strategic planning charts a direction for government to
follow; guides the budget process; and sets key areas, objectives, targets and strategies for the
stated period.”
We talked about the importance of linking planning and budgeting in a 3-year or mediumterm expenditure framework (MTEF), so that government is better able to align or match its
planning for service delivery to its spending plan, costing and prioritising its plans to fit
within an agreed and affordable expenditure envelope.
We now focus our attention more specifically on sector strategic planning – how sector
strategic planning fits into the broader national planning framework; understanding sector
strategic planning in greater detail; and the benefits of introducing a sector-wide approach or
SWAp.
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2.
The national planning framework
Rwanda has made considerable progress in developing a robust national planning framework
comprising Vision 2020; the Long Term Investment Framework (LTIF); the Economic
Development and Poverty Reduction Strategy (EDPRS); sector strategic plans, District
development plans; the Medium Term Expenditure Framework (MTEF); and the Annual
Actions Plans and District Performance Contracts. The relationships between these planning
instruments are depicted in figure 1 below.
Figure 1 The Rwandan national planning framework
Vision 2020
LTIF
EDPRS
District development
plan
Sector strategies
MTEFs
Annual
action
plans
Annual
action
plans
Annual
Budget
Monitoring and
Evaluation
(PRS APR, Budget Execution
report)
Source: MINECOFIN, 2008
Vision 2020 sets the longer term perspective and objectives for Rwanda, and therefore
represents the overarching framework for all government activities. As such Vision 2020 is
used as a basis for the elaboration of national and sectoral development plans for the medium
and long term. It is not a blueprint for sector activities. Rather, it establishes the national
priorities within which sector plans should be developed.
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The Long Term Investment Framework (LTIF) projects Rwanda’s economic output or gross
domestic product (GDP) and government resources and expenditures over the longer term to
provide a context in which to embed the medium term plans. The LTIF provides an indication
of the investments required to achieve Vision 2020 objectives.
The Economic Development and Poverty Reduction Strategy (EDPRS), adopted by
Government in 2007, covers a 5-year period (2008-2012) and provides the national priorities
within which the sector strategic plans should be developed. Updated annually through the
EDPRS annual report, it is based on in-depth participatory poverty assessments and broad
consultation of Rwandese society and development partners, and covers aspects related to the
actual management of public expenditures as well as sectoral development objectives.
A sector policy is a statement of government’s objectives within a sector and a summary of
how they will be achieved within a specific sector. A sector policy usually emerges from a
wide range of consultative processes between government branches and national
stakeholders. Often, it includes a set of objectives to the intended level of access to
government services in that sector.
A sector strategy describes how the government intends to implement the sector policy over
the medium term (3-5 years). The strategy sets out intermediate targets and objectives. It
should be recognized that some policy objectives are not achievable over a short period. The
sector strategy provides a high level action plan for implementing the sector policy which is
then reflected in the annual sector budgets
In conclusion, the EDPRS and the sector strategies define the medium term (often 5 years)
objectives and priorities of the Government, respectively at national and sector level. They
also define performance indicators to measure the results achieved. They cover both recurrent
and development expenditures, and should in theory cover all sources of revenue: donor
projects, agencies’ own revenues and resources from the national treasury.
The EDPRS and the sector strategic plans set the framework for the district development
plans or the 5-year plans of the districts. The district development plans make the link
between local priorities and national priorities as outlined in the EDPRS and sector strategies,
and are updated annually.
The district development plans are elaborated with the involvement of grassroots
communities, civil society (associations), faith-based organisations and other development
players operating in the district and look at problems and constraints experienced in the
district and their causes, as well as available opportunities. These problems are then
prioritised (at the district level) and strategies are elaborated to solve the problems.
Annual action plans are prepared each year by all budget agencies. They identify activities to
be carried out each year by the budget agencies. They are finalised and adopted at the end of
the fiscal year so that they are aligned to the MTEF and annual budget, adopted by
Parliament.
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Lastly, each year each ministry and district defines a performance contract or imihigo signed
with the President of Rwanda, outlining key performance objectives and targets that the
Ministry or district is contracted to achieve over the year to come.
3.
Sector strategic planning
Sector strategic planning is a key step forward in strengthening planning and budgeting as
well as the monitoring and evaluation of service delivery towards Government’s socioeconomic goals and objectives set out in the EDPRS.
A sector strategic plan differs from most planning documents in ministries since it is a single
strategy covering an entire sector, designed and implemented by a partnership of all relevant
actors (government, donors, non-governmental organisations and other stakeholders) within
the sector.
As such, a sector strategic plan sets the goals and objectives of the sector as a whole, ensuring
all stakeholders have a common vision for the sector’s development. It clarifies the roles and
responsibilities of stakeholders, creating a clear direction and action plan that guides all
spending in the sector (government, donor, private and non-governmental), and helping to
formalise institutional and coordinating relationships between MINECOFIN, line ministries
and donors.
As such a sector strategic plan plays a key coordinating role, promoting greater coordination
and efficiency between stakeholders so that partners can pool resources (such as knowledge
and skills, financial, logistical) to reduce duplication and promote synergy in planning and
budgeting, in particular. It also promotes donor co-ordination, harmonisation and alignment.
Lastly, and perhaps most importantly, a sector strategic plans attempts to ensure continuity,
so that institutional or staffing changes do not cause suspension of policies and the strategic
and implementation processes, as the sector strategy is jointly ‘owned’ by all partners.
Each sector strategic plan should provide the following components:
•
Overview of the sector: including the vision for the overall development of the sector,
an institutional overview, review of progress and policy context.
•
Strategic framework: the focus areas in which policy interventions are planned,
together with proposed targets, strategies and priorities that will underpin sector
development.
•
Implementation: discussing the institutional framework through which the sector plan is
implemented and the budget structure.
•
Costs and MTEF budget: the estimated costs (both recurrent and developmental) of the
strategy and the available resources set out in a 3-year or MTEF sector budget.
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•
Monitoring and evaluation: the targets for measuring performance over the same 3-year
period as the MTEF budget, together with the precise definitions of the indicators
(meta-data), and the agreed EDPRS actions for the sector to reach its targets.
4.
A sector wide approach
Given extensive international donor involvement in Rwanda, the government encourages all
budget agencies to follow a sector wide approach or SWAp.
SWAps bring together government, donors and other stakeholders in each sector. Under
government leadership, the SWAp involve broadening policy dialogue, developing a single
sector policy that address public and private sector issues; ensuring a credible common and
credibility costed spending programme; common monitoring arrangements; and more
coordinated procedures for funding and procurement.
A key feature of a SWAp is that there is joint responsibility between government, donor
partners and other stakeholders in the development of a sector strategic plan, during the
implementation and any future adjustments of the plan.
Rwanda has 14 sector groups of which the first five (5) are prioritised for sector costing:
Priority sectors for costing
•
Health, nutrition, population and HIV/AIDS (the ‘health’ sector);
•
Education, research and development (the ‘education’ sector);
•
Agriculture & animal husbandry (the ‘agriculture’ sector);
•
Infrastructure;
•
Justice, reconciliation, law and order (the ‘justice’ sector) ;
Remaining sectors
•
Economic growth, and financial sector development;
•
Private sector development;
•
Employment promotion and capacity building;
•
Environment and land use management;
•
Water and sanitation;
•
Social protection;
•
Security;
•
Decentralisation, citizen participation, transparency and accountability; and
•
Environment, gender, HIV/AIDS, social inclusion, and youth (cross cutting issues).
In four of the priority sectors (health, education, agriculture and infrastructure), there is a
single lead ministry, lead donor and budget agency, supported by its semi-autonomous public
agencies, donor partners and other stakeholders.
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The remaining priority sector, that is justice, is slightly different incorporating a number of
ministries and budget agencies. The ministries include justice; internal affairs; the Supreme
Court; the ministry of defence; the National Public Prosecution Authority; and the President’s
Office, because of the Reconciliation Commission. The sector also includes a range of semiautonomous public agencies and development, donor partners and other stakeholders.
Sector strategic planning and budgeting therefore draw on the lead or constituent line
ministry and budget agency strategic planning and budgeting processes, broadening such out
to a sector wide policy dialogue and the development of a sector strategic plan and
consolidated 3-year MTEF budget proposal.
Following a SWAp therefore means that the sector strategic plans discuss the institutional
arrangements through which the SWAp is implemented, listing the various bodies, their
constituent members and responsibilities. The sector strategic plan should clarify
responsibilities for monitoring and reporting on the plan’s implementation, and should also
take into account aspects of decentralisation and district involvement in implementation.
SWAPs should also include a consolidated 3-year MTEF budget that is appropriately costed
and reflects an overarching programme and sub-programme structure which includes all the
budget lines of the line ministries, districts and semi-autonomous agencies. This facilitates
analysis of how funds are spent to achieve the outputs and service delivery targets that are set
out in the sector strategic plan.
Sectors are coordinated at the national level through sector working groups which include the
government and development partner representatives, co-chaired by the lead ministry and the
lead donor of a sector. They provide a forum to bring together all the relevant stakeholders of
a particular sector to share information, jointly review progress and raise any key issues that
are pertinent to the particular sector.
Table 1 Sector working groups
Theme / Sector Working Group
Lead Government
Institution (Chair)
Lead Donor
(Co-chair)
Other participating
institutions*
Theme 1: Economic Growth, Private Sector Development and Infrastructure
1.1 Economic Growth & Financial
Sector Development
MINECOFIN
World Bank
BNR, RRA, SFB, MINICOM,
MINAGRI, HIMO, ILO,
CESTRAR
1.2 Private Sector Development
MINICOM
USAID
RIEPA, BRD, OCIR
The/Café, ORTPN,
CAPMER, RPSF
1.3 Infrastructure:
MININFRA
EC
MINITERE, Electrogaz,
RITA, KIST, TIG, CDF, MVK
& 4 Provinces
Energy
World Bank
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Theme / Sector Working Group
Lead Government
Institution (Chair)
Lead Donor
(Co-chair)
Transport
EC
ICT
UNDP
Habitat and urbanisation
German Cooperation
1.4 Employment Promotion &
Capacity Building
Other participating
institutions*
MIFOTRA
World Bank
HIDA, HIMO, MINICOM,
RIAM
2.1 Agriculture and Animal
Husbandry
MINAGRI
World Bank
MINITERE, MINALOC
(CDF), MININFRA,
MINICOM, HIMO, TIG,
OCIR The/Café, MIFOTRA
2.2 Environment and Land Use
Management
MINITERE
UNDP
REMA, MINAGRI, MVK
3.1 Education, Research &
Development
MINEDUC
DFID
RITA, MIJESPOC, KIST,
NUR, Universities
3.2 Health, Nutrition, Population &
HIV/AIDS
MINISANTE
Belgium
CNLS, RAMA, Mutuelles de
Sante, PNLP, NISR
3.3 Water & Sanitation
MINITERE
ADB
MININFRA, MINISANTE,
MINAGRI, Electrogaz,
REMA, MINEDUC
3.4 Social Protection
MINALOC
DFID
HIMO, MIGEPROF, FARG,
MINEDUC, MINISANTE
3.5 Science, Technology &
Innovation
MINISTR
DFID
3.6 Youth, Culture & Sports
MIJESPOC
Theme 2: Rural Development
Theme 3: Human Development
Theme 4: Good Governance
4.1 Justice, Reconciliation, Law &
Order
MINIJUST
4.2 Security
MINADEF
4.3 Decentralisation, Citizen
Participation, Empowerment,
Transparency & Accountability
MINALOC
UNDP
MININTER, MINAFFET,
MINADEF, Supreme Court,
gacaca, NURC, NHRC,
RDRC, Ombudsman,
Prosecutor, TIG
MINIJUST, MININTER,
MINAFFET, NSS
Netherlands
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MININFOR, RALGA, MVK &
4 Provinces
Theme / Sector Working Group
Lead Government
Institution (Chair)
Lead Donor
(Co-chair)
Other participating
institutions*
Multi-disciplinary Group on Cross-Cutting Issues
Environment, Gender, HIV/AIDS,
Social Inclusion, Youth
MINECOFIN
DFID & UNDP
HIDA, RIAM, MINEDUC,
MIJESPOC, National
Women's Council, CNLS,
MINALOC, MIGEPROF,
MIFOTRA
Note: * Districts, Civil Society, Private Sector, Parliament, Primature and MINECOFIN are represented in every
Sector Working Group.
Source: EDPRS
At the district level, the corresponding coordination structure is the Joint Action Forum.
(JAF) The district JAF is a mechanism through which development activities at districts and
sector levels which promotes cooperation among people or community acting in development
and social welfare of the population.
It brings together all actors in districts including districts authorities, stakeholders, the
community beneficiaries and the district government to discuss and coordinate development
planning, monitoring and evaluation. It is important to recognise that the forum aims at
coordinating activities at all levels so as to combine all efforts instead of scattering them and
also avoiding colliding between donors’ activities. However, the JAF is not a forum for
decision making or negotiation of external aid.
5.
Activity 1
In small groups or pairs, participants are asked to select a sector strategy from among the five
that are prioritised for costing and review whether it adequately covers the main components
as follows:
•
Overview of the sector: including the vision for the overall development of the sector,
an institutional overview, review of progress and policy context.
•
Strategic framework: the focus areas in which policy interventions are planned,
together with proposed targets, strategies and priorities that will underpin sector
development.
•
Implementation: discussing the institutional framework through which the sector plan is
implemented and the budget structure.
•
Costs and MTEF budget: the estimated costs (both recurrent and developmental) of the
strategy and the available resources set out in a 3-year or MTEF sector budget.
•
Monitoring and evaluation: the targets for measuring performance over the same 3-year
period as the MTEF budget, together with the precise definitions of the indicators
(meta-data), and the agreed EDPRS actions for the sector to reach its targets.
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Session 2
Linking sector strategies to MTEF budget
programme structures
Presenter: _________________________________________________________________
Broad purpose of the session
To clarify the links between sector strategies
and MTEF budget programme structures
Proposed duration
1 - 2 hours
Learning objectives
To clarify the practical steps and links
between:
• the sector plan logical framework
• the budget agency annual action plan
• the budget agency budget programme
structure
• the consolidated sector MTEF
1.
Why link sector planning to sector budgeting?
In sessions 1 and 2 of the MTEF Training Manual, we drew attention to the importance of
integrating planning and budgeting in a medium-term budgeting or MTEF approach, as this
helps to align or match planning for service delivery to a 3-year budget or spending plan.
It also leads to greater certainty as budget agencies (and sectors) are able to plan and budget
for service delivery in line with governments’ overarching policy priorities and within
affordability constraints.
Part of integrated planning and budgeting is undertaking a costing of outputs and services that
are to be delivered. Accurate costing of outputs and service helps to provide robust
information on which sectors are able to make the requisite budget trade-offs and choices in
budgetary reprioritisation. This introduces efficiencies and contributes to greater
effectiveness or impact in the use of public money.
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Lastly, feedback on actual spending and service delivery performance are critical to
improving the quality and credibility of integrated planning and budgeting in the next annual
planning and budget cycle.
The above said; the practice of linking sector planning to sector budgeting and MTEF
preparation is not an easy task. This session focuses on the first step; that is aligning the
sector strategy to the budget programme structure.
2.
Sector strategies – the logical framework approach
Under the 2007 EDPRS process, all sectors worked on developing sector strategies based on
sector-specific logical frameworks. These frameworks, as set out in the matrix in table 2, are
clearly structured, leading from a sector goal or developmental vision to measurable
objectives or purpose, outputs and activities that need to be undertaken. Performance
indicators at the various levels track progress on delivery of target outputs, and potential risks
that may impede delivery are identified.
Table 2 The sector (logical) framework matrix
Hierarchy of
Objectives
Key Performance Indicators
Means of
Verification
Goal
Impact indicators
The broader
development impact
to which the sector
interventions
contribute – at a
national and sectoral
level.
Measures of the extent to which a
sustainable contribution to the goal
has been made, for example
improving children’s nutritional
status, reducing child morbidity and
mortality, improved youth literacy
rate, increase income of rural poor.
Purpose
Purpose indicators
The specific and
immediate impact of
the strategic plan.
Conditions achieved indicating that
the purpose- level objectives have
been achieved, generally referring
to access to or satisfaction with
services provided.
Outputs
Output indicators
The direct physical
results of the plan,
usually within the
direct control of the
implementing agency.
All sub-programmes
will contribute to this.
Conditions achieved indicating that
the output objectives have been
achieved, for example, teachers
employed, fertiliser provided,
health workers trained.
Critical Assumptions
Sources of
information and
methods used to
collect and report it.
From Purpose to Goal
Sources of
information and
methods used to
collect and report it.
Assumptions concerning
the purpose/goal linkage.
From Programme to
Purpose
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Sources of
information and
methods used to
collect and report it.
Assumptions concerning
the programme/purpose
linkage.
Activities
Input indicators
The tasks carried out to These refer to the
implement the project human & financial
and deliver the identified resources, physical
outputs.
facilities,
equipment, etc, that
are needed to
implement a
strategy.
Source: MINECOFIN, 2008
Implementation
time-frame
Indication of
when activities
will be
undertaken.
Responsibility
Assumptions
Who is responsible for Assumptions concerning
undertaking the
the activity/output linkage.
activity?
Sectors were encouraged to update the sector (logical) frameworks in their strategy review
and update processes that followed the 2007 EDPRS process. As a result, the sector (logical)
framework still informs the structure of most of the sector strategies at present.
3.
Agency action and cash plans
Article 16 of the Financial Regulations provides that as soon as the annual budget is
approved, the Permanent Secretary and Secretary to Treasury/ MINECOFIN shall prepare for
the Minister of Finance a letter informing each budget agency to send its annual work plan,
annual cash flow plan and annual procurement plan based on the approved national budget
for the next fiscal year.
Within this context, each budget agency is mandated to identify outputs and activities to be
carried out in that respective year which are in line with the appropriations/vote of the budget
agency. The outputs are then costed and a timeline for implementation during the course of
the year indicated.
Subsequently, budget agency are required to prepare cash plan based on the annual work
plans and represents a monthly breakdown of planned income and expenditure over the
course of the year based on the approved budget and most importantly the annual cash plans
are based also on the economic classification used in the annual budget.
4.
Budget classification and structure
Moving to the structure of the budget, the 2006 Organic Budget Law on State Finances and
Property (OBL) provides that expenditure estimates for each budget agency may include
functional, economic and programmatic classifications in line with international classification
standards. These are defined in the Government Financial Statistics (GFS) manual developed
by the IMF.
What is the difference between functional, economic and programmatic classification of
information in the budget?
Functional or sector classification identifies the broad purpose of government expenditures.
This allows a strategic overview as to which functions or sectors government has allocated its
money in the budget, and is involved in directly, through providing outputs or services, as
well as indirectly, through regulation.
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Examples of functional or sector classification include health services, education, housing
and community amenities, and the like. Some functions may be implemented by more than
one budget agency for political, administrative and technical reasons.
Economic classification identifies the source, legal base, and nature of inputs to be purchased
as well as the nature of budgetary transfers within a given budget agency and government as
a whole.
It creates a basis for classifying all expenditures for the purposes of budget preparation and
review, accounting reporting, auditing, and finally for the economic analysis of government
transactions.
Examples of economic classification include wages and salaries, office furniture, purchase of
building, spending on utilities and maintenance, to name a few.
Programme classification extends functional or sector classification by classifying
government expenditure according to the purpose or objective to which it contributes. In
general, a programme may refer to any suitable and meaningful group of recurrent and
investment activities and projects that contribute towards achieving a common result.
Since 2000, the Government of Rwanda has prepared the budget using functional, economic
and programmatic classification. To this end, in the 2000/01 budget agencies were asked to
prepare their budgets using programmatic and economic classification, in line with the 1986
GFS classification.
Eight years on there is still not a common understanding across government as to what
programmatic classification actually entails, and as yet MINECOFIN has not issued clear
guidelines on such. This has led to considerable variation in how programmes across
government are defined, in turn reducing transparency in budget formats and the budget
overall.
5.
More on budget programmes...
5.1. Definitions
A budget programme is a main division within a budget agency’s budget that funds a clearly
defined set of outputs or services within the agency’s legislative and other mandates.
Importantly, for accountability purposes, a budget programme should resource a specific
management unit or section within the agency that is responsible for delivering on the defined
set of outputs or services.
A sub-programme is a constituent part of a budget programme that is used to deliver clearly
defined outputs or services that contribute towards achieving the objectives of the programme
of which it forms part.
Outputs are the final goods or services that budget agencies either plan for or actually
produce or deliver to the public. Key output examples include the number of students
educated, patients treated, childcare places provided, kilometre of road tarred, and the
megawatt of electricity provided, to name a few.
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Activities are the internal processes and activities that go into producing one or more outputs,
whereas inputs are the specific requirements to undertake an activity, such as the labour,
personnel, materials, capital and financial resources that are combined to produce outputs.
5.2. Why use budget programmes?
The main purpose of a budget programme structure is one of accountability as it helps
Parliament and ordinary citizens relate the allocation in the annual budget to the target level
of outputs that sectors and budget agencies plan to deliver as set out in their respective
medium-term sector strategies and agency annual plans, and the actual monies spent and
outputs delivered as reported in annual joint sector reviews and agency budget execution
reports.
A focus on outputs provides an appropriate basis for costing strategic plans as costs are
allocated to the delivery of outputs. It also provides a clear and rationale basis for allocating
resources to programmes and sub-programmes in the annual budgeting and MTEF process.
Lastly, using a budget programme structure helps to improve accountability, financial
management, monitoring and control as it establishes clearly defined management sections in
budget agencies within which managers are held accountability for managing financial and
other resources in the delivery of a defined set of outputs or services and targets for these
outputs.
6.
Creating and amending budget programme structures
A budget agency’s budget programme structure should be created in the context of preparing
the sector strategic plan and the agency annual action plan. This ensures that there are clear
links between the strategic plan and annual action plan (logical) frameworks and the budget
programme structure.
In general, there are three types of budget programmes. Support services or administrative
programmes group activities that provide transversal and centralised internal support services
to the entire budget agency, such as human resources, financial management and information
technical service, as well as provision for the ministerial and Director-General offices.
Usually these services are grouped into an administrative programme that is standardised as
programme 1 in the budget programme structures of all budget agencies.
Enabling programmes perform specific functions that help other programmes to deliver
services. These may typically include policy, strategy and regulatory functions.
Lastly, service delivery programmes deliver outputs or final goods and services to the public
in line with budget agency mandates.
Amendments to a budget agency’s budget programme structure should only be considered
within the context of reviewing a sector strategic plan or updating the agency annual action
plan. This does not mean that the budget agency’s budget programme structure should be
changed each time the sector strategic plan is reviewed or the agency annual action plan is
prepared.
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Rather, changes to a budget agency’s budget programme structure should be limited and
unless there exceptional circumstances, a budget programme structure should remain fixed
for at least five years, changing only when the mandate of the budget agency changes.
Situations which may require a change in an agency’s budget programme structure include:
•
An expansion of an existing programme or the delivery of new services due to changes
in the legal or policy mandate of a budget agency that cannot be accommodated within
the agency’s current budget programme structure.
•
Changes of a technical nature where there is a merging or segregation of budget
agencies due to a policy decision; a transfer of functions between budget agencies or
between programmes within a single budget agency; or an existing programme is no
longer required.
•
Following a strategic review process where there are changes to the organisational
structure that should be mapped into a revised budget programme structure for the
purpose of accountability.
Any proposed changes to a budget agency’s budget programme structure should be submitted
to the MINECOFIN national budget unit in November each year following the outcome of
the joint sector reviews.
7.
Moving to a sector budget and MTEF
Moving to a sector budget and 3-year MTEF is the next step in the process.
This is an easy task in the instance where a sector involves only one budget agency as well as
the donor, private sector and non-governmental partners, and the sector strategy and target
frameworks are aligned to the budget agency budget programme structure.
However, a sector may represent more than one budget agency, as well as involving other
donor, private sector and non-governmental agencies, and the sector strategy may or may not
include all the budget programmes in each constituent budget agency.
In these instances, developing a sector budget and MTEF is more complex. Where entire
agency budget programme structures are mapped to the outputs in a sector strategy, the sector
budget and MTEF may be drawn through a consolidation of all the budget agencies’ budgets
and MTEFs.
Where a sector strategy is selective in including some but not all the target outputs of its
constituent budget agencies, developing a sector budget and MTEF involves costing and
mapping the outputs in the sector strategy to their related budget sub-programmes, the level
at which outputs are costed in the budget programme structure, and consolidating theses into
a sector budget and MTEF.
It is only when these processes are complete that an appropriately costed sector budget and
MTEF will emerge.
17
6.
Activity 2
In small groups or pairs, participants are asked to work with the same sector strategy selected
for activity 1 and the relevant budget agencies’ latest available annual action plans and
budgets, examining the link between the sector strategies and the agency budget programme
structures.
More specifically, participants are asked to:
•
Examine the sector strategy logical framework and discuss whether it appropriately
reflects recent engagements in the sector and whether the (logical) framework approach
is clearly reflected in the strategy.
•
Examine the constituent budget agencies’ budget programme structures, asking whether
the design appropriately reflects the sector strategy framework and the relevant budget
agency’s annual action plan, and corresponds to best practice in respect of the design of
a programmatic and performance approach to budgeting.
•
Discuss how the outputs in the sector strategies link to the outputs aligned to subprogrammes in the budget agencies’ budget programme structures.
18
Session 3
Costing sector plan and budget programme outputs
Presenter: _________________________________________________________________
Broad purpose of the session
To enhance understanding of the importance
of and steps required in costing sector
outputs
Proposed duration
1 – 2 hours
Learning objectives
To clarify key costing concepts
To develop a better understanding of the
stepped approach to costing outputs
To work towards costing sector strategies
and developing accurate sector and budget
agency MTEF baseline estimates
1.
Why cost sector strategic plans and outputs in particular?
The MTEF budgeting approach relies on accurate and reliable ‘bottom-up’ costing of sector
strategic plans and budget agency annual action plans that are aligned to the government’s
over-arching strategic policy priorities, which for Rwanda are set out in the updated EDPRS
for 2008 - 2012.
Without accurate costing, budget agency and consolidated sector expenditure and MTEF
estimates are not reliable or credible, reducing credibility in the MTEF system as a whole.
Accurate costing of outputs and services also help sectors and budget agencies to phase
spending plans more appropriately over a MTEF period, aligning their 3-year spending plans
to their output or service delivery plans, set out in the sector strategies and budget agency
annual action plans.
Lastly, accurate costing of outputs and services helps to provide robust information on which
sectors and budget agencies are able to make the requisite budget trade-offs and choices in
the face of hard budget constraints during the annual budget process. Some activities may
need to be discontinued, scaled down or not undertaken at all in order that new priority
activities may be undertaken or that priority programmes may be stepped up within the
available expenditure ceiling. This process of making budgetary choices and trade-offs is
19
called budgetary reprioritisation, allocating funds to government’s strategic policy priorities
and to programmes and interventions which will have the greatest socio-economic impact.
2.
Key costing concepts
A key challenge in costing in the public sector is allocation and apportioning costs to specific
outputs and activities. This allows managers to calculate the costs of delivering the same
output level in future years, taking into account increased input costs in particular, or the cost
of increasing or the savings generated from decreasing the level of output in future years.
There are two main approaches to costing. Incremental costing starts from the existing budget
for the programme or activity, and asks whether this is best increased, reduced or left the
same in order to achieve the programme’s objectives and target output levels subject to the
available budget ceiling. It is most often used when estimating the costs of existing policies
and programmes for the new MTEF period, given reasonable accuracy and credibility in the
baseline estimates.
Zero-based costing takes an in-depth look at a programme or activity, evaluating the type and
quantity of outputs produced and the processes or activities that produce those outputs. It
involves questioning the amount and type of inputs that are used in producing the outputs for
the programme, and re-assessing these as if starting from a blank sheet of paper – from
‘zero’. Costing of new policies, legislation and programmes most often relies on zero-based
costing techniques.
The starting point for costing is the definition of the unit of output or activity to which costs
should be attached. These are called unit costs, and may be a single measure, such as the cost
per learner in a schools, the cost per occupied hospital bed or outpatient, to name a few.
Costing process must take account of the cost drivers or the factor or activities that drive the
costs of a budget agency. In the education sector, the number of learners in schools
determines personnel costs, particularly if pupil: teacher ratios are enforced. Other cost
drivers include learner support materials, utilities or operating costs of school buildings, and
transport.
The units to which costs will be attributed or the unit costs reflect an important choice in any
costing exercise. They should be the main and most important cost drivers within a
programme.
It is also important to take account of different cost behaviours. Variable (or direct) costs
vary directly with an increase or a decrease in output. For instance, variable costs in health
service provision include drugs, X-rays and meals that vary directly with number of patients
treated. In public works, construction material is a variable cost that relates to square meters
constructed.
Fixed (indirect or overhead) costs remained unchanged as an output or activity increases or
decreases. Fixed costs in hospitals and in schools are the maintenance of the building and the
cost of cleaning services.
20
Semi-variable costs contain a fixed as well as a variable element. Examples are the rental of
capital goods, where a fixed rental may be combined with a service charge for each unit of
use, and hospital laundry costs, were the fixed component relates to infrastructure and
personnel costs and the variable costs include water, power, and cleaning agents, to name a
few.
Lastly, step costs are not pure fixed or variable costs. Whereas they may not increase for
several or many units of output, they also do not remain constant no matter what the level of
output. For instance, personnel costs in education do not increase with every additional
learner but only with every 30 or so learners that join the system. Hospital administration
services would only increase when an additional set parameter of beds have been added to the
system. Step costs are important when the level of an output or activity is expected to
increase or decrease.
3.
Output costing – step by step
Output costing is the process of determining the total cost of each output or final good and
service that a budget agency produces. It assigns the total costs that a budget agency incurs in
a financial year to the different outputs that the agency produces.
There are seven main steps in the process.
Step 1: Specify the outputs to be costed
Starting from the sector strategic plan and the budget agency annual action plan, specify the
outputs and the output target levels – that is the quantity and quality of outputs that are
required to meet the sector and agency strategic objectives over the MTEF.
Here it is important to identify the level or quantity output that was serviced or produced for
the base year, as well as for a number of years prior to the base year. This will help to
determine a robust unit cost for the output. In instances where it is not possible to track
information on the number of beneficiaries, outputs produced or activities undertaken, budget
agency’s should try to identify proxy indicators that may be used to approximate the number
of units.
Step 2: Determine inputs required
The second step is to determine the inputs that are required to produce one unit of output and
the price of each input. The unit cost of an output is then simply the quantity of inputs that are
required multiplied by their respective prices or costs.
Allocating direct inputs used in producing or delivering an output is straight forward. Direct
inputs are those inputs which are traced or assigned to a specific output. Depending on the
nature of the output, direct inputs can be operational personnel, travel, and materials, to name
a few.
Allocating indirect inputs is slightly more complex. Indirect inputs are those inputs which
contribute towards producing an output, but unlike direct inputs, are not incurred exclusively
21
for one output. Indirect inputs often include overhead or administrative costs and can be
allocated using traditional costing methods or activity based costing.
Traditional costing methods consider the extent to which the indirect cost contributes to, or
was caused or driven by the output. As noted above, cost drivers are those activities, events
or factors that trigger or have a strong correlation to the cost being allocated. For instance, if
the office spaced used in delivering an output is 20 per cent of the rented accommodation
area, than the indirect rental cost incurred in delivering the output would be 20 per cent of the
total rental cost.
Activity based costing or ABC is a little more difficult, in that it examines the activities
undertaken within a spending agency, and then assigns costs to outputs according to the
consumption of the activity.
Each activity is costed on the basis of the resources consumed. ABC requires a more in-depth
understanding of processes and cost behaviour than traditional costing methods, and may
therefore be more expensive to undertake than traditional costing methods. For these reasons,
we suggest that traditional costing be used in allocating indirect costs to outputs.
Step 3: Determine the price or cost of the inputs required
The next step is to determine the price or cost of the direct and indirect inputs that are
required to produce the output.
Input prices or costs may be obtained from historical accounting information, past purchase
invoices, suppliers and retailers, employee time sheets and pay roll records. In compiling
input prices or costs, it is important to check that the prices or costs are ‘current prices’ and
where necessary to adjust for inflation to reflect the current price in the baseline year.
Step 4: Establishing the baseline cost
The baseline unit cost for the output is then the summation of the prices or costs for the direct
inputs and those for the indirect inputs that are used in producing a unit of the output.
The estimated unit cost may be checked against historical unit costs by dividing actual
spending for the base year by the number of units or quantity of outputs serviced or produced.
The baseline (total) cost of the output is then the unit cost of the output multiplied by the
quantity of output that was produced or delivered in the baseline year.
Step 5: Projecting the number of units of output into the MTEF period
Step five projects the number of units of output that are to be delivered in the MTEF period,
taking account of the underlying structural cost drivers and the output targets that are set out
in the sector strategic plan and the budget agency annual action plan.
For instance, the number of learners that are eligible for school enrolment is determined by
demographic cost drivers such as population growth and migration rates, amongst others.
22
Policy decisions that may affect output targets include those related to learner drop out and
repetition, to name a few.
Step 6: Adjusting forward unit costs with price information
Before projecting baseline spending using unit cost, the baseline unit cost must be adjusted in
future years with known price information. Common factors that should be taken into account
are inflation, or known additional adjustments, such as negotiated wage increase, and changes
in policies that govern the condition of public sector employment, such as an increase in
teacher pay progression.
Step 7: Multiplying the projected number of units by projected unit costs
The last step is to multiply the projected number of units by the project unit cost for each year
of the MTEF projection period to get a projected MTEF baseline cost or expenditure estimate
for the target level of output.
An accurately costed baseline estimate underpins the credibility of budget consultations in
respect of MTEF allocations to existing or approved policies, and facilitates the ‘rolling’ of
the MTEF outer year estimates forward with each annual budget process, enhancing
consistency and credibility in the budget process overall.
7.
Activity 3
Working in the same groups, participants are asked to select one or two outputs in the sector
strategy examined in activities 1 and 2 and cost each using the following seven steps and the
supporting information provided:
•
Step 1: Specify the outputs and output target levels to be costed
•
Step 2: Determine inputs required
•
Step 3: Determine the price or cost of the inputs required
•
Step 4: Establishing the baseline cost
•
Step 5: Projecting the number of units of output into the MTEF period
•
Step 6: Adjusting forward unit costs with price information
•
Step 7: Multiplying the projected number of units by projected unit costs
23
Session 4
Sector and budget agency MTEF and budget
prioritisation
Presenter: _________________________________________________________________
Broad purpose of the session
To accentuate the role that sector costing
plays in enhancing MTEF credibility
Proposed duration
1 - 2 hours
Learning objectives
To emphasise the importance of sector and
budget agency costing of outputs in
budgetary prioritisation
To highlight the role that reliable budget and
MTEF baseline allocations and estimates
play in strengthening the overall MTEF
system
1.
Budgetary prioritisation
Costing outputs in sector strategic plans and budget agency annual action plans is an integral
part of sector and agency planning and MTEF preparation (steps 3 and 4) in the annual
planning and budgeting process.
This takes place from September to December each year following the annual budget call
circular to sectors in September and the same to budget agencies in December each year.
By making costing of outputs a key part of these processes, and ensuring that the costing is
reflected in the MTEF forward estimates, the resultant sector and budget agency MTEF
baseline expenditure proposals hold a greater degree of accuracy and credibility ahead of the
budget consultations that take place between the MINECOFIN national budget unit and
budget agencies each year.
The annual budget circulars and the budget consultations are the steps in the annual planning
and budget cycle where the top down macroeconomic and fiscal estimation process meet the
bottom up sector and budget agency expenditure estimate process.
The annual budget circulars contain indicative sector and budget agency MTEF ceilings or
hard budget constraints that when applied to sector and budget agency MTEF expenditure
24
estimates and MTEF budget proposals force budgetary prioritisation or choices and tradeoffs. Budgetary prioritisation ensures that sector and budget agency MTEF estimates ‘fit’
within the available resource envelope set by the indicative ceilings and the budget
consultations.
2.
Reliable MTEF baseline allocations
The budget consultations feed into the finalisation of sector and agency budget allocations for
the next financial year and expenditure estimates for the second and third year of the MTEF.
The sector and agency budget allocations and MTEF forward estimates present a greater
degree of reliability as they are based on accurate output costing. Reliable MTEF forward
estimates allow the sector and budget agency expenditure estimates to be ‘rolled forward’ in
the next annual planning and budget cycle, deepening and enhancing credibility in the overall
MTEF system.
3.
Activity 4
The last activity requires participants in their small groups to work through the budgetary
choices and trade-offs or prioritisation in respect of the 2010 sector and agency budget and
MTEF estimates and the indicative budget ceilings that were set out in the latest available
September and December BCCs.
25
Sector Costing Case Studies
Tracking the experiences of sectors in costing of
strategic plans
Presenter: _________________________________________________________________
Broad purpose of the session
To track the experiences of four priority
sectors in costing of their strategic plans
Proposed duration
1 days
Learning objectives
To understand the different approaches that
the four priority sectors – health, agriculture,
education and justice – used in costing of
their strategic plans, highlighting best
practice
To highlight the main challenges as well as
successes that the sectors experienced in
costing of their strategic plans
To develop greater awareness of the
standardised simplified costing approach and
how such may be applied across sectors in
costing of sector strategies
1.
Sector costing experiences
Sector costing is not a completely new concept in the Rwandan MTEF. Sector costing has
been undertaken in the health, education and agriculture sectors for a number of years, but to
differing levels of sophistication and quality; whereas costing in the justice sector is still at
early stages.
This session tracks the costing experiences in four of the five priority sectors – health,
education, agriculture and the justice sectors – showcasing best practice and highlighting the
main challenges as well as successes that the sectors experienced.
Presentation and discussion of the different sector experiences aims to develop greater
awareness of the standardised simplified costing approach and how such may be applied
across sectors in the costing of sector strategies taking into account appropriate skills transfer
26
and levels of absorptive capacity and capabilities in the sector secretariat teams and/ or
technical staff involved in planning and budgeting.
2.
Costing in the Health sector
The Health Sector Strategic Plan for July 2009 to June 2012 (HSSP-II) was finalised and
published in July 2009. The HSSP-II was costed using an input-based costing approach that
is similar to the costing approach recommended in this training manual.
The input costing of the HSSP-II was undertaken by a team of consultants from the Clinton
Health Access Initiative (CHAI), the Belgium Technical Cooperation (BTC) and the Ministry
of Health (MoH),
The costing exercise took into account the three different levels of the health sector:
•
District level (primary and secondary levels of care; and district management systems)
•
Tertiary care (the national referral hospitals); and
•
National programmes (national programmes that are centrally managed, including preservice training institutions).
The district level costing was undertaken through a detail bottom-up and needs-based costing,
completed in 2008 as part of implementing Rwanda’s District Health System Strengthening
Framework.
The framework was developed to show-case best practices in district health management and
service delivery across Rwanda and to set out current national norms and policies. Standards
were set as to what key features were needed to deliver quality care to the Rwandan people
with a view to achieving the MDG targets and other national objectives such as Vision 2020
and the medium term EDPRS health targets.
Each district was assessed in detail, including all health facilities, and strategies were
developed in a participatory manner to address health system constraints, such as the need for
a larger and better performance motivated health workforce, efficient drugs and commodities
distribution systems, decent infrastructure and functioning equipment, to name a few.
Assumptions made about the input costs for the activities such as salaries, drugs, equipment,
maintenance were based on the current known costs in Rwanda. Assumptions based on MoH
norms and standards were used to determine number of personnel required per health facility,
standard equipment numbers, and so on, as per the preliminary approach to classifying health
facilities set out in the table below.
The tertiary level costing was undertaken based on the available strategic plans of the referral
hospitals. As these reflected additional costs, they were added to the current on-going budgets
of these institutions.
National level costs were estimated using current budgets and complementing these with key
cost drivers for each programme. These include the national need for drugs and commodities
such as ARVs and insecticide treated net or ITNs, and medical equipment and human
resource needs to be managed centrally at the national level.
27
Costs from the three different levels of health care were then grouped and categorised within
the HSSP objectives and programmes. It was assumed that each cost contributes to one of the
three strategic objectives and one of the seven strategic programmes.
Using the input-based costing methodology, it was estimated that full implementation of
HSSP-II would require a total of USD 453 million in year 1 or fiscal year 2009/10, increasing
to USD 516 million in the third and final year of implementation (2011/12). Across the three
years, the consolidated total funding requirement is USD 1,4 billion.
The input-based costing and the estimated total resource requirements for implementation of
the HSSP-II were then assessed against available resources. At present, just under two thirds
(62%) of the HSSP-II is funded through external resources. Government resources amount to
about 29 per cent, whilst facility-based revenue (user fees) makes up the remaining 9 per
cent. The 2009 baseline of available resources from GoR and development partners was
determined using the Joint Annual Work Plan1 (JAWP 2009), which captures the majority of
resources dedicated to health services in Rwanda for the 2009 calendar year.
JAWP’s extension to, and comprehensive coverage of, off-budget project aid is critical in the
health sector context as it is estimated that RWF 148,5 billion or 66 per cent of the estimated
2009 total budgeted allocation in the health sector is financed off-budget by development
partners and multi-lateral agencies, mainly USAID (RWF 54,8 billion) and the Global Fund
(Rwf 20,9 billion), the latter which are not recorded in the GoR’s databases, partly due to the
US’s decision to utilise its own public finance systems and procedures rather than those of
aid recipient countries.
The JAWP and the HSSP-costing have been discussed in both the Joint Health Sector
Review and health sector cluster group meetings, and is a critical tool in planning and
budgetary reprioritisation in the health sector. The experience in the sector is that
strengthening the link between planning and budgeting requires strong coordination between
the MoH and its partners that underpins a joint discussion of health sector priorities given
limited resources. This facilitates an accurate assessment of financing gaps. In particular the
activity-by-activity view of available resources and spending in the JAWP helps to identify
programmes, districts and facilities that may need additional financing in order to meet their
performance targets, and considers how these funds may be sourced given overall financing
constraints.
The MoH is planning to undertake a mid-term evaluation of the HSSP-II in late 2010 and the
costing exercise will be updated at this point.
The Joint Annual Work Plan (JAWP) was initiated in 2008 as a country wide plan for the health sector in
Rwanda, capturing all planned and budgeted activities for all stakeholders at the central and district level for a
year. The HSSP-II costing feeds into the JAWP, which is then used as the main budgetary analysis tool in the
health sector
1
28
3.
Costing in the Agriculture sector
Costing of the latest available strategic plan for Rwanda’s agriculture sector – Strategic Plan
for the Transformation of Agriculture – Phase II (PSTA-II) – builds on the costing exercise
that was undertaken for the first strategic plan for the agriculture sector, which formed part of
the initial inputs into the 2007 EDPRS process.
Lead by a DFID consultant, the EDPRS costing for PSTA-I was completed using input-based
costing approach for a limited number (10 of 160) activities or actions at the sub-programme
level that were linked to clearly defined output indicators and targets for four main
programmes in the PSTA-I.
Unit costs, where possible, were sourced from the Ministry of Agriculture (MINAGRI)
departments, but in many cases, the credibility or robustness of the unit costs sourced was of
concern. The total cost for the 10 costed activities amounted to USD148,5 million or 99 per
cent of committed available funding in the agriculture sector.
The final costing spreadsheet is set out as a working document for the consultant costing
team rather than a user-friendly output that may be read by a third party at a later date.
‘Reading’ of the costing model requires a fair deal of interpretation, and is not easily
intuitive.
In 2007, MINAGRI contracted a further consultant team, lead by Roger Norton, who is an
independent consultant with specialist expertise in the agriculture sector, to revise the PSTAII and draft the PSTA-II, which covers the four-year period 2009 – 2012, terminating at the
same time as the EDPRS at the end of 2012.
Norton utilised the EDPRS costing spreadsheet as a basis for the PSTA-II costing.
Introducing the revised model, Norton included a detailed definitions and data sheet that sets
out the base assumptions and aggregate data for the costing model; projecting the data from
the base year of 2006 through to 2020. The inclusion of the definitions and data sheet as well
as the assumptions and the standardised input and calculation sheets show a methodological
approach to the costing. The costing uses the same input costs that were used in both the
EDPRS and the PSTA-I costing. That said, in a number of instances Norton over-rode the
detailed EDPRS costing information, and on the basis of other country agriculture sector
costing experiences, simply inserted the total cost for an activity that seemed approximately
correct.
The consolidated costing summary sheet highlights a total cost requirement of Rwf 196 889
million for MINAGRI in order to attain full implementation of PSTA-II and reach the stated
output targets by the end of the EDPRS period (2012).
However, the summary indicative financing requirement table in the PSTA-II itself sets out
the strategy’s required financing in USD, and is not disaggregated by source of financing.
This means that it is difficult to compare the costing exercise results with the indicative
financing requirement set out in PSTA-II
The PSTA-II costing is carried forward into the 2008 Agriculture Sector Investment Plan or
ASIP for 2009 to 2012. The ASIP lays out the investment requires of the PSTA-II, showing a
29
total investment gap of 41 per cent or approximately USD 346 million over three years (2009
– 2012). The gap is largest in programme 1 where the financing shortfall amounts to USD
250 million.
Part of the difficulty in reconciling the ASIP financing gap to the Norton costing is the
presentation of the ASIP and PSTA-II indicative financing requirement in USD and the
Norton costing in Rwf, without clear explanation as to the exchange rate used in currency
conversion.
In March 2007 Rwanda became the first country to sign a Comprehensive Africa Agriculture
Development Programme (CAADP) Compact. CAADP is the agricultural programme of the
New Partnership for Africa’s Development (NEPAD), which in turn is a programme of the
African Union (AU).
In February 2010, the GoR requested a United Nations (UN) Food and Agriculture
Organisation (FAO) technical support mission to review the costing of the ASIP and assist
MINAGRI in clarifying the costing process to the development partners and the agriculture
sector working group, given the move to work within a sector wide approach (SWAp)
modality.
The final recommendations of the FAO team noted that despite various inconsistencies, overestimations, under-estimations and misalignments noted in their review, the PSTA-II costing
did appear to provide a reasonable basis for the GoR and development partners to commit
their funds to the agricultural sector for the period 2010 to 2012.
It was recommended, however, that the GoR confirm its increase of spending to agriculture
by an additional USD 80 million as compared to the current MTEF allocations.
Lastly, the FAO team noted that lessons learnt in the process of PSTA-II should be taken into
account in the preparation of PSTA-III, which should start in 2011. In particular, enough time
should be set aside to discuss targets and costing, ensuring sufficient time for discussion with
MINAGRI technical and decentralised staff so that there is greater buy-in, ownership and
credibility in the resultant content of the programme.
Looking ahead to preparation for the PSTA-III in 2011, and given that the PSTA-I and
PSTA-II costing processes were based on 2006 unit cost prices, it may be worthwhile for the
agriculture sector to commission a specialist consultant team to undertake a rigorous unitbased costing exercise, using 2010 unit cost prices as an input for the new programme.
However, a key outcome of the assignment should be the institutionalisation of the costing
process through the development of a user-friendly costing and financial model and
associated guideline for PSTA-III and that the exercise should involve, and ensure knowledge
transfer to and capacity building within the MINAGRI planning and budgeting unit and
relevant development partners.
30
4.
Costing in the Education sector
Costing for the latest draft of Rwanda’s Education Sector Strategic Plan (ESSP) 2010 – 2015
that is contained within the updated Long Term Strategic Financing Framework (LTSFF)
2010 – 2020 builds on earlier costing and financial modelling exercises undertaken from
2003 onwards.
Rwanda’s first ESSP for the period 2003 – 2008, completed in 2003 aimed at developing a
strategic road map for education over the medium term, ensuring that all new financing
would be in broad agreement with clearly identified education priorities. The ESSP 2003 –
2008 was launched in the same year (2003) as the World Bank Education Country Status
Report for Rwanda, which reviewed key features and characteristics of the education system.
The results identified some of the main constraints on the sector’s performance and provided
a basis for discussing policy options to accelerate progress in future years.
The same year (2003) the Ministry of Education (MINEDUC) collaborated with the World
Bank to develop a long-term financing framework (LTFF) for the education sector, shaping a
generic education costing and financial model that the World Bank developed in 2001 as part
of its support to countries the Fast Track Initiative (FTI) education programme. The main aim
of LTFF was for MINEDUC to define its long-term targets for the education sector in line
with the Millennium Development Goals (MDGs), to see if these targets were realistic, and to
then put in place a long-term financial framework outlining the likely cost of moving towards
achieving the long-term targets.
The generic model template and the resultant 2003 Rwandan LTFF was focused on basic
education and the FTI benchmarks for primary education, and was designed to outline a
financing gap which external FTI resources might target in a financially sustainable manner.
As such, the model did not include higher education and had a basic generic capital cost
structure that only allowed for classrooms rather than other development or non-personnel,
non-capital spending such as textbooks, capacity development, and policy and strategy
development, to name a few. These limitations were due to the fact that the model had not
been conceptualised as a fully developed sector-wide model.
The ESSP 2008 – 2012 was the fifth update of the sector’s 5-year rolling strategic plan, and
included priorities of 9-years of free basic education and the promotion of science and
technology in education with special attention on information and communication technology
(ICT). Rwanda’s 9-year programme of free basic education has three levels: pre-primary,
primary and lower secondary education. The programme concentrates on early childhood
development, six years of primary education, three years of lower secondary education
(commonly known as tronc commun), and adult literacy.
In 2005 in preparation for the ESSP 2008 – 2012, MINEDUC and its development partners
agreed that there were limitations to the existing education costing and financial models and
that it would be important to develop a comprehensive model that could be used for
budgeting and MTEF purposes as well as being useful for projecting education enrolment
targets. This decision led to the development of user-friendly education sector costing and
31
financial model by Oxford Policy Management (OPM) for use by the MINEDUC research
and planning unit.
The resultant model is a 10-year Long Term Strategic Financing Framework (LTSFF) that
takes international commitments and Rwandan education policies as the starting point and
provides a framework under which policy choices are costed and their financial implications
compared to likely domestic resources and donor commitments.
The costing exercise and development of the LTSFF 2006 – 2015 uses a similar ‘bottom-up’
unit-based costing approach to that recommended in this training manual. The model is an
extremely well presented and user-friendly tool. Excel-based, the model consists of 12 sheets,
the first of which is a user guide that explains the layout of the model. All narrations to the
user are coded in red text in the sheets.
The first step of the costing exercise involves identification of data sources. The well defined
structure, presentation and layout of the education sector financial model and LTSFF 2006 –
2015 is clear when viewing the model’s data sources which are tabulated in respect of data
description, data type, sources used, and potential source for validation.
The next step sees the selection of input and output indicators, and collating data on their
historical trends as well as future projections. The sheet “stud-tch-crm” considers input
requirements in respect of teachers and classrooms that are driven by enrolment rates which
in turn are driven by population, repetition and drop-out. Part A sets out population
projections for children of school going age and the total population from 2005 through to
2015, using 2004 as a base year. Part B projects 2004 base data on new entrants and
repeaters, allowing for calculation and projection of gross entry, repetition, promotion, and
drop-out per schooling year, and by education sub-sector (primary, secondary, tronc comm.,
teacher education, technical education, higher education and non-formal education) against
desired target rates for 2009, 2014, and 2019.
Part C then projects teacher requirements by education sub-sector taking into account
enrolment, classes, head teachers and non-head teachers, as well as base student: class,
teacher: class, student: teacher ratios and the annual attrition rates of teachers. This then
allows projection of changes in total numbers of teachers, attrition (in numbers of teachers)
and numbers of new teachers required each year. A summary table shows a projection of the
demand and supply of newly qualified teachers, together with the requirement gap.
Lastly, the sheet projects enrolment numbers against the numbers of existing classrooms,
showing new classroom requirements by year given targets for student: class ratio, % of
double shift rooms, and the student: room ratio.
Sheet “costs” then assigns unit costs to the input requirements. These include the average
salary of a teacher per education sub-sector and non-salary expenditure as a % of total
expenditure. The latter includes a capitation grant, p6 examinations, support to activities,
textbooks and curriculum, in-service training, special-needs, girls’ education, inspection
requirements, heath/environment/HIV/Aids, school sports, catch-up (termed rattrapage), ICT
and solar panels, and classroom rehabilitation.
32
Sheet “resources” examines and projects resources directed towards education financing.
Projections of aggregate revenue consider total domestic revenue growth as a proportion of
GDP, external resources through general budget support, and external resources through
project support (capital). A more focused look at education resources then considers
resources for recurrent education expenditure from the budget and external resources for
recurrent education expenditure through sector budget support (SBS), arising at total
recurrent expenditure for education. Development resources are projected from external
resources from project support (capital) and development resources from the GoR budget.
This allows for calculation and projection of the financing gap, that is expenditure greater
than available resources, both for recurrent and capital (development) expenditure.
The ESSP 2010 – 2015 marks the update of the ESSP 2008 – 2012, aiming to improve how
education, particularly skills development, meets labour market needs by increasing both the
coverage and quality of 9-years basic education and strengthening PBE, which includes
technical and vocational education and training (TVET) as well as upper secondary education
and teacher education.
The structure and development of the LTSFF 2010 – 2020 is based on the LTSFF 2006 –
2015, using the same unit-based costing approach that is similar in approach to that
recommended in this training manual. The LTSFF 2010 – 2020 is a notably sophisticated and
extremely well presented user-friendly costing and financial modelling tool. The user-guide
sheet that is the introduction into the model clarifies that instructions are set out in red text,
inserted data are coded blue, and target data are coded green. The colour-coding helps to
‘walk’ the reader through the model, improving usability.
The model has been simplified to contain six excel sheets. The data sources sheet uses the
same structure of the data sources sheet developed for the earlier LTSFF, revising the data
sources, comments and potential source for validation.
The sheet “stud-tch-crm” considers input requirements in respect of teachers and classrooms
that are driven by enrolment rates which in turn are driven by population, repetition, and
drop-out. Part A sets out population projections for children of school going age and the total
population from 2010 through to 2020, using 2009 as a base year.
Part B projects 2009 base data on new entrants and repeaters, allowing for calculation and
projection of gross entry, repetition, promotion, and drop-out per schooling year against
desired target rates for 2012, 2015, 2020 and 2025. This is done for each sub-sector in the
education system at a more detailed level than was completed for the LTSFF 2006 – 2015.
More specifically, the primary and lower secondary sub-sectors are further disaggregated into
each learner year for government schools, government aided schools and private schools,
respectively. Vocational training is disaggregated into public vocational training (in Centres
de Formation des Jeunes (CFJs), Ecoles Techniques Officielles (ETOs), and Integrated
Polytechnic Regional Centres (IPRCs)). Adult literacy is included.
Post-basic education is disaggregated into the different streams. For the academic stream, it
consists of three learner years for government schools, government-aided schools and private
schools. The technical or TVET stream is disaggregated into enrolment at public ETOs and
33
private ETOs, public IPRCs, and private TVET institutions. The Open and distance elearning stream is included, disaggregated by year 1 and year 2, supporting expansion of
learning at the upper secondary level. Teacher education is expanded into the existing 3-year
programme in teacher training colleges for primary pre-service, disaggregated by each of the
three learning years; the new primary pre-service programme that is disaggregated by each of
the 2 learning years (with 2 years being school based years probation); and lower secondary
pre-service disaggregated by year (2-year programme).
Higher education is expanded into enrolment in upper secondary pre-service disaggregated
by year (a 4-year programme); open and distance learning; and degree awarding higher
learning institutions disaggregated by public and private enrolment in the BA/BSc/BEd
stream, the medicine stream, the arts, humanities & social sciences stream and the education
stream. Overseas student enrolment is included separately. Higher TVET institutions are
included separated into enrolment in private and public colleges of technology, and IPRCs.
Part C then projects teacher requirements by each of these disaggregated sub-sectors taking
into account enrolment, classes, head teachers and non-head teachers, as well as base student:
class, teacher: class, student: teacher ratios and annual attrition rates of teachers. This then
allows projection of changes in total numbers of teachers, attrition (in numbers of teachers)
and numbers of new teachers required each year. A summary table shows a projection of the
demand and supply of newly qualified teachers, together with the requirement gap.
Lastly, the sheet projects enrolment numbers against the numbers of existing classrooms,
showing new classroom requirements by year given targets for student: class ratio, % of
double shift rooms, and the student: room ratio.
Sheet “costs” then assigns unit costs to the input requirements. These include the average
salary of a teacher per education sub-sector and non-salary expenditure as a % of total
expenditure. These costs are revised from the earlier LTSFF model to include a capitation
grant, teacher training, curriculum and textbooks, ICT and solar panels, special-needs
education, heath/environment/HIV/Aids & sports, p6 examinations, STI and other
(miscellaneous) costs (as a proportion of total costs).
Sheet “resources” examines and projects resources directed towards education financing.
Streamlined in comparison to the LTSFF 2006 – 2010, projections of aggregate revenue
consider total domestic revenue growth as a proportion of GDP and external resources
through budget support. A more focused look at education resources then considers domestic
resources for education, budget support resources for education, and project support
resources for education. This allows for calculation and projection of the financing gap (that
is expenditure greater than available resources).
Over the past nine years, the development and update of a robust education sector strategic
plan (ESSP) and a costed long term financing framework (LTSFF) have been critical in
directing domestic resources to their most effective and efficient use as well as providing key
instruments for leveraging additional resources from both private sector and bilateral or
multi-lateral development partners.
34
Notably, sector budget support (SBS) has increased as the main form of external funding and
now represents over 90 per cent of external support earmarked to the education sector and
just under half (48%) of the total education budget. Donor dialogue and conditions associated
with SBS have helped establish a strong budgeting, reporting and monitoring process in the
sector.
SBS provided since 2006 has underpinned increases in sector budget allocations, and
dialogue has had a clear influence on intra sector allocations, in particular increases in key
primary education budget lines, such as the capitation grant. The use of government systems
by sector budget support and the wholesale shift to SBS by donors, combined with
improvements in public finance management (PFM) across government (supported by
general budget support (GBS)), led to a strengthening of overall PFM in the sector and
increasingly reliable funding.
The past five years have seen increasing use of the ESSP and LTSFF in the annual planning
and budgeting discussions as the LTSFF model as become more robust and in line with the
education sector’s medium term expenditure framework (MTEF allocations). However, there
is still considerable progress to be made.
Key obstacles to further integration include limited MINEDUC capacity in the planning and
budgeting sections able to engage at a technical level with the LTSFF model. Engagement is
limited to ODI fellows, seconded to MINEDUC for a 2-year period. Limited
institutionalisation has meant that the LTSFF is used only be external consultants or ODI
fellows, with limited use by MINEDUC staff.
A key reason for such is the level of complexity of the model as successive iterations have
increased the model’s sophistication and coverage of the education sector. MINEDUC is
currently working to address such constraint, simplifying the model with the support of
MINECOFIN, DFID and the World Bank. One possibility is to create a 2-speed model,
where one level uses a simpler interface than excel provides, and which hides (and protects)
the formulae. Thus the user would simply be inputting data, and setting the model’s targets.
The second level should allow the user to change formulae as necessary. It is the setting of
formulae that is notably complex, requiring high level modelling skills. Hiding such formulae
for some users would undoubtedly improve the usability of the model.
The second reason for limited use of the LTSFF model in the annual planning and budgeting
process is that the direction of the model goes from inputs to costs. However, the reality of
annual budget consultation discussions is that MINECOFIN issues an indicative budget
ceiling to sectors (and budget agencies), and the sectors (and budget agencies) have to
adjusted their planned target outputs and associated inputs accordingly. This means that a
more suitable financial and costing model would be one where the availability of resources
determines target outputs which in turn determine required inputs. MINEDUC is currently
investigating the feasibility of reshaping the LTSFF for such purpose.
35
5.
Costing in the Justice sector
The Justice, Reconciliation, Law and Order (JRLO) sector strategy is a key component of the
Government of Rwanda’s (GoR) Economic Development and Poverty Reduction Strategy
(EDPRS) governance flagship programme. The twin pillars of the JRLO sector strategy are to
strengthen Rwanda’s commercial justice system, and to strengthen the delivery of justice at
the community level.
The JRLO sector is extremely complex consisting of 14 institutions, of which four are line
ministries (budget agencies). These are the Ministry of Justice (MINIJUST), the National
Public Prosecution Agency, the Ministry of the Interior (MININTER), and the Supreme
Court. The remaining 10 are semi-autonomous agencies that supervised by six budget
agencies – namely the four aforementioned and The President’s Office and the Ministry of
Defence. The agencies are:
•
The National Service of Gacaca Courts;
•
The National Human Rights Commission;
•
Travaux d’Intérêt Général Secretariat (TIG) or Community Service Secretariat;
•
The Institute of Legal practice and Development under MINIJUST,
•
The National Prisons Service (NPS),
•
Rwanda National Police (RNP) under MININTER,
•
The National Unity and Reconciliation Commission and the Ombudsman under the
President’s Office; and
•
The Military Courts and Military Prosecution under the Ministry of Defence.
Given the sector’s multi-institution composition, the GoR has established a JRLO steering
committee, comprising the secretary generals and/or permanent secretaries and heads of the
14 institutions, to facilitate institutional collaboration all policy, budgeting, operational, and
monitoring and evaluation matters that affect the JRLO sector.
The JRLO sector coordination secretariat provides operational and coordination support to
the sector. It is staffed by a small number of sector technical specialists, with access to short
term technical assistance and other technical inputs as needed to support implementation of
the strategy.
The JRLO sector finalized a sector strategy in November 2008. The Justice, Reconciliation,
Law and Order Sector Strategy and Budgeting Framework January 2009 – June 2012 is
premised on four main programmes (outputs) that are underpinned by 4 key outputs and 12
targets. The programmes include the universal access to justice; genocide ideology eradicated
and reconciliation mechanisms reinforced; rule of law, accountability and human rights
promoted; and safety, law and order maintained and enhanced.
The complexity of the sector is exacerbated by the finalization of institutional or budget
agency strategic plans for 2009 to 2013 which are not aligned with the JRLO sector strategy
2009 – 2012. Furthermore, the individual institution or budget agency strategic plans are
36
based on programmes which are not aligned to or do not translate into their own respective
budget programme structure, that is programmes and sub-programmes. This means that it is
virtually impossible to align a costed sector or budget agency plan with the relevant sector or
agency budget MTEF.
As a first step, the JLRO sector secretariat worked with three institutions or budget agencies
(RNP, the Supreme Court, the NURC) to develop an addendum to their strategic plan for
2009 – 2013 that aligns the relevant institutions MTEF budget programme structure to its
strategic programme structure, so that there is coherence in the planning and budgeting
system.
However, while there is a common understanding among the sector secretariat and the
relevant planning and budgeting officials in the line ministries, at this stage, the response to
this exercise is rather hesitant. It requires indeed a fundamental change of the routine budget
preparation approach and methodology and the sector secretariat is of the opinion that such
will not happen without clear and compelling instructions from MINECOFIN and strong
support from the institutional leaders and the effort of the institutional staff.
The JRLO sector strategy includes a sector budgeting and funding framework which is an
aggregation of the institutional budget previsions. It is likely that the underlying costing of
the sector plan’s strategic objectives and target outputs draws on the detailed costing exercise
undertaken for the 2007 EDPRS. However, the sector secretariat team was not present during
the 2007 exercise, and there is insufficient institutionalization of the detailed EDPRS costing
exercise in the sector’s line ministries and budget agencies. This means that the costing in the
revised sector plan was most probably drawn together in a more ad hoc manner, rather than
reflecting a robust, rationale update of the EDPRS costing.
At the time of the MINECOFIN sector costing exercise, the JRLO secretariat noted that the
sector lagged behind the other priority sectors in respect of costing of the sector strategic
plan, and towards the end of 2009, in consultation with the MINECOFIN consultant team,
initiated a process to undertake a simplified costing of key outputs in pilot institutions within
the sector. This exercise was recommended as part of the secretariat’s technical support to the
JRLO institutions to develop action plans and budgets for the 2010/11 budget cycle.
The JRLO secretariat drew on the budget programme structure and costing experience of the
South African justice sector in recent years, given the MINEOCFIN consultant team’s links
with the South African treasury. In comparison, weaknesses in the Rwandan JRLO sector
include:
•
Poorly defined programmes and sub programmes (too detailed, too many therefore
difficult or impossible to monitor)
•
The aggregation of employee costs in one sub programme.
The analytical work above provided an insight for the sector to plan a training workshop that
aims to build capacity in the 14 JRLO institutions on budget programming and costing,
addressing planning and budgeting weaknesses in the sector.
37
The intention was that the secretariat would prepare a working document on methods to
improve the current programming and costing practises in the sector that would form the
basis the workshop (planned initially for January 2010).
Given 2010/11 budget preparations, the workshop was postponed to enable the sector to
focus on 2010/11 budget preparation for each of the 14 institutions and the sector itself. The
secretariat finalised, with sector approval, the 2010/11 JRLO strategic issues paper which
formed the basis for sector budget consultations with the MINECOFIN national budget unit
in March 2010.
At last sight, the JRLO budget preparation work for 2010/11 now behind the sector, the
secretariat has started engaging institutions on a programme based costing exercise aimed at
reviewing and improving institutional budget programme structures. The JRLO sector
secretariat planned to review of the programme structure of each institution and select key
activities for which costing needs improvement in discussion with the budget and planning
officers of the sector institutions during May 2010.
The secretariat noted that this is a first step forward in the process and will not immediately
result in a costed JRLO sector strategy but will hopefully contribute to an improved
programme based budgeting and costing practice of its member institutions.
38
Conclusion
So far, where to next?
The four sessions in the Sector Costing Training Manual take participants through a rigorous
1- to 2-day interactive training on sector strategic plan costing as part of the Government’s
key reforms to strengthen and revitalise MTEF budgeting in Rwanda.
After active participation and engagement in the 1- to 2-day training workshop, it is expected
that participants will:
•
Appreciate sector strategic planning as a key step in the annual planning and budgeting
cycle.
•
Draw the links between sector strategies and MTEF budget programme structures.
•
Understand the importance of and the steps involved in costing outputs in sector
strategies and budget agency annual action plans
•
Recognise the role that sector costing plays in enhancing credibility of MTEF
budgeting overall.
But training for the benefit of improved knowledge and awareness is only the first objective.
More important is that each participant assimilates the knowledge and training experience
and applies these in his or her work and operational business every day. It is only when this
step happens, that real improvement in the consistency and quality of plans, budgeting,
spending and reporting will take place, and over time strengthen and revitalise MTEF
budgeting across Rwanda.
Not the last word ...
The Sector Costing Training Manual and the accompanying MTEF Training Manual are not
the last words on linking planning and budgeting and in respect of sector costing in an MTEF
approach. The training manuals represent concise and easy-to-read summaries of information
that are drawn from more comprehensive guidelines and manuals or source documents. Every
participant is encouraged to read and make use of the base or source documents for more
detailed information and guidance.
The materials used in compiling this manual include:
•
The MTEF and Budget Manual: Guide of Processes and Procedures, available at
http://www.minecofin.gov.rw/xxxx
•
The MTEF National Planning
http://www.minecofin.gov.rw/xxxx
and
39
Budgeting
Guidelines,
available
at
Other important documents are:
•
Manual of Government policies and procedures: Financial Management and
Accounting
–
Volume
4:
Financial
reporting,
available
at
http://www.minecofin.gov.rw/xxxx
•
South African National Treasury MTEF Guidelines 2002 to 2010, available at
http://www.treasury.gov.za/publications/guidelines/
•
Dirk-Jan Kraan, 2007. Programme budgeting in OECD countries. OECD Journal on
Budgeting. Volume 7. Number 4. Available at the OECD Development Cooperation
Directorate
http://www.oecd.org/department/0,3355,en_2649_33721_1_1_1_1_1,00.html
•
Kim, John. M. (ed). From line-item to program budgeting: Global lessons and the
Korean case. Korean Institute of Finance and the World Bank.
•
Victoria Department of Treasury and Finance. 1997. Output costing guide.
Further, there is a long list of documents used in reference of the sector costing case studies.
Given the length of the list, these are available on request from the MINECOFIN national
budget unit.
Beyond these documents, the debate and learning still continue and drive ongoing reform and
improvement. To this end, please direct any further queries, comments or suggestions to
strengthen and revitalise the MTEF process to Christophe Nsengiyaremye at the
MINECOFIN
national
budget
unit,
telephone:
+250
xxx,
and
email:
christophe.nsengiyaremye@minecofin.gov.rw
40