1 Report on activities carried out during the reporting period 10
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Annex 10 Briefing note on discussion of possibilities of joint implementation and financing
Cooperation with CIDA in the sphere of rural development (Volodymyr Seniuk)
- The situation regarding CIDA funding in this sphere is currently uncertain - Rural Development and Future of Ukrainian Communities which have relation to 4 regions in Western Ukraine is not officially adopted and its too early to talk about its implementation;
- At the beginning of March there will be work mission which possibly will determinate strategic directions of the future projects;
- Possible cooperation should be discussed in the near future after the strategic planning mission.
Cooperation with SIDA in the sphere of Market Infrastructure – Swedish Embassy (Kristina Salmonsson)
- SIDA is in principle interested in co-financing within the framework of its strategy;
- SIDA has a SWAP co financing agreement with WB – when loan is agreed, grant agreement is signed within framework agreement;
- SIDA also uses IFC as implementing agency through direct agreement.
Cooperation with IFC in the sphere of market infrastructure - IFC Oksana Varodi
- IFC has standard approach to cooperation with donors;
- IFC studies carefully strategies of donors in the sector;
- Identifies areas where they have competence and capacity;
- IFC prepares the Technical Proposal;
- Then, internal donor's procedures for approval of funds and, IFC becomes the Contractor for particular project.
Cooperation with World Bank in the sphere of food safety - Alexander Kaliberda and Matthias Grueninger
- The World Bank finances national projects with loans through the Ministry of Finance;
- WB must go through complicated and lengthy process for approval of loans by the board and by the national authorities;
- The national process in particular is unpredictable in its length and therefore linking the EU and WB projects have risks for timing;
- It is therefore most effective to parallel finance and closely coordinate activities (in particular food safety and laboratory issues which will be in the first phase) by regulator bilateral and donor coordination meetings;
- The modalities proposed by the project are considered appropriate.
Conclusion
There is a willingness to jointly implement and finance projects to improve synergies and that further discussions are required on precise modalities at the management level.
Annex 11 Briefing note on Review of WB public expenditures study (medium term expenditure framework MTEF25)
The following briefing notes deals with 1) The WB Review of public expenditures study and 2) with the issue of MFEF and Public Finance Management.
1) The following is a analysis of the key conclusions and recommendations of the World Bank report “Ukraine Creating Fiscal Space for Growth: A Public Finance Review dated September 14, 2006”26 in respect of donor financed projects and investments. Each conclusion and recommendation will be commented
Conclusions in respect of donor financed projects and investments
- Donor funding is a potentially important source of financing for Ukraine, both for investment and for technical assistance to lay the institutional foundations of a well-functioning market economy.
Official development assistance (ODA) received (net disbursements) by Ukraine in 2004 totalled 360.1 (US$ millions), 27 and continues to rise as Ukraine demonstrates commitment to Market and political reforms. If used effectively there is no doubt it can make a substantial contribution to the development process.
- While overall the effect of external development assistance has been positive in Ukraine, the cost of preparing and implementing projects is high and delays are widespread.
Whilst the cost of preparing aid is an important factor, it should not be the overriding criterion but rather a focus on cost effectiveness. The EU is making efforts to reduce preparation costs but these should not be made at the expense of the quality of assistance provided.
- Only a portion of development assistance operates within the country’s public financial management (PFM) system.
With a move towards the SWAP approach they EU is committed to integrating the assistance within the PFM system when the prerequisites are met.
- Information on external development assistance flows is sketchy and incomplete.
Information on donor activity is provided to the government and to other donors but it is incumbent on the Government to gather, process and use this information for coordination purposes. The capacity building component of the proposed project would address this issue in the Agriculture Sector.
- The procedures of project approval in Ukraine are complicated and time consuming
This comment is made primarily from the perspective of the WB where amongst others parliamentary approval is required. The EU has its own system for approval through the NCU which functions relatively effectively. Clearly efforts should be made where possible to harmonise and simplify approval procedures whilst acknowledging the sovereign right of the state to consider what support is appropriate for its needs.
- Donor financed projects and investments are not well integrated into the capital budgeting process.
Through initiating the SWAP approach the EU is encouraging a move towards integration. Again this comment is more relevant to loans than to TA projects as it refers to undispersed funds and delays in disbursement incurring costs which is not the case for EU Grants.
- Despite recent efforts to improve donor coordination, there is still considerable overlap and a tendency for supply driven initiatives with only weak integration into the strategic priorities of
the government.
Again this has been a common criticism on the past. The EU’s move towards the SWAP approach indicates an initiative to address this issue but it will require a huge input from the Government and in particular the Sectoral ministries and bodies. The capacity building component of the proposed programme will address thee issues in the Agricultural sector.
Although some progress has been achieved, the use of country systems for donor finance investments is very limited.
Recording and monitoring donor assistance and finance through national systems requires and initiative from the Government side. The capacity building component of the proposed programme will address thee issues in the Agricultural sector.
Recommendations to Facilitate (and Improve Effectiveness of) Donor-financed Investments Record (and report) all external development assistance flows to the public sector in the budget.
- Designate a single office to coordinate external development assistance activities and establish a comprehensive information system on external development assistance.
The Ministry of Economy has undertaken numerous reforms in recent years to attempt to make the donor coordination at the National level more efficient and continues to do so. It is incumbent on donors and IFIs to support this process where necessary with TA. Under the SWAP approach, the sectoral bodies will take more responsibility at the sector level and the proposed project capacity building component is targeted to address this issue.
- Integrate the planning of donor financed investments (and assistance) to the core capital budgeting process (and to the overall budget process).
Whilst the potential efficiencies of doing so are clear and the ownership and integration into national strategic policies is highly beneficial, there is a clear need to ensure that adequate financial reporting and supervision mechanism are in place. Planned EU assistance is being programmed to address this issue.
- Simplify processing and approval of donor financed investments.
This recommendation is mainly addressed at loan approval procedures.
- Synchronizing the Project Cycle with the Budget Process and Streamlining the Project Cycle:
This would of course greatly facilitate planning and programming processes for both donors and the government. The reality however is that most programming processes i.e. the project cycle beings with the allocation of budgets and national donor governments international donor organisations and IFIs cannot adjust their budgeting systems to individual country budget processes. Clearly where it is feasible, the programming processes should be harmonised to ensure where possible that key milestones coincide with national processes. It would also be very beneficial for donors amongst themselves to begin this process by seeing where harmonisation may be undertaken.
- Plan donor funding aligned with the country’s strategy and on multi-year basis.
Where strategies are in place and agreed or coincide with donor priorities this is a very desirable objective. Indeed it is fundamental to the SWAP approach which is being initiated by the EU. The multi annual budgeting is also vital for strategic planning and is also a core element of the SWAP approach.
- Continue improving PFM systems to allow donor funding, in the near future, to be channelled and executed fully through budgetary institutions and controls.
The PFM system modernisation process is currently being and will be supported by EU assistance. The progress will need to be monitored very closely and on the basis of very clear criteria in order for a decision by individual donors to decide that it is possible and desirable for funding to be channelled in this way.
- Facilitate more direct involvement of staff and management of the beneficiary agencies in
project preparation and implementation in order to improve ownership and implementation
This is the key to relevance and ownership issues. The SWAP approach promotes this process and the proposed project component on capacity building in the MAP would support this process.
- Donors could phase-in the use of the country’s (PFM) system, but supplemented, as needed, by additional arrangements in those areas where weaknesses in the country’s PFM system pose fiduciary risks.
The move towards use of the national PFM system to channel donor funds is a process. It may be more appropriate to support the modernisation of the system to an acceptable level and then making the transfer rather than putting in parallel systems which raise costs and necessarily reduce efficiency.
2) Medium Term Expenditure Framework and Public Finance Management.
As of writing this report, there is no Ukrainian national MTEF and no current mechanism for producing one. As stated in the EC financed Macroeconomic policy assessment Ukraine “While the concept of MTEF and sufficient capacity for formulating it exists at both the Ministry of Finance and Ministry of Economy, the practice of Mid Term Expenditure Framework is not generally in place (and often confused with the medium term forecasting)…..
At the Ministry of Finance, the Department of Strategic Planning deals with political aspects and forecasting, and not with actual budgeting. The Department of Budget Planning does the forecasting, plus the annual budgeting. Although there is a 3-year Budget Planning in place, it is far from strategic planning similar to MTEF, and its formulation constitutes rather a formality during the budget process than a real input for strategic planning. The Budget Code determines the text, and the figures can be amended or changed by the Local authorities.”28
There is however a recognition by the Ukrainian government that it is required and there efforts being made to prepare one. A number of donors and IFI’s are active in the sphere of PFM including the IMF, WB, UNDP and the EU to varying degrees addressing the issue of the preparation of an MTEF.
Public Finance Management
There has been an continues to be a great deal of donor activity in the sphere of PFM as evidenced by the documents referred to above as well as the Sigma produced Governance Assessment29 which also deals, although with less detail, with PFM issues and the weaknesses of the current system are clearly identified.
There is currently no PFM reform strategy or reform action plan although the WB is planning to prepare such a strategy and to finance its implementation with a 65 million USD loan.30 Therefore whilst there is currently no such MTEF it is to be expected that there will be one in place in the foreseeable future.
In the absence of an MTEF, the question is whether there is currently something that could perform its function.
The “Introduction to Sector and Budget support Manual31 makes it clear that MTEF cannot always be expected to be at national level (although clearly it is desirable) but that sectoral medium term action plans presenting proposed multi annual spending should be considered as well
The core features of an MTEF are as follows:
- Explicit aggregate fiscal ceiling and hard, sustainable sector ceilings;
- Forward medium-term (baseline) estimates of the costs of existing policies;
- Integrating recurrent and capital spending;
- Estimates rolled over each year (3-5 years);
- Medium-term estimates of the cost of policy changes;
- Mechanisms for tradeoffs among competing programmes.
And the core performance criteria of national or sectoral MTEF are as follows:
- Medium term allocations focus on strategic priorities;
- Medium-term allocations are Predictable;
- Comprehensive & Integrated Coverage;
- Clear Action Plan with defined, feasible Outputs & Outcomes.
The key strategic document in the agriculture and rural development sphere prepared by the MAP and its institutions and currently being considered for approval is the “Complex Support Programme to the development of Ukrainian village -2015”.
This is an indication of a strategic approach to development in this sphere which whilst it is flawed has been produced by the MAP and its implementation is being considered a priority. It is also the reference point to which all donors and IFI activity in the sphere is to be referred.
Attached to the programme is a multi annual financing proposal (see the attached document which represents a translation of annex 9 to the programme) which refers directly to the priorities as stated in the text of the document. Whilst it is along way from it and as it has not yet been approved by the Government and is thereof not biding it shows some of the hallmarks of a sectoral medium term multi annual expenditure plan.
Whilst it may be concluded that the preconditions for full budget support SWAP are not in place32, there is evidence of Government movement in the direction which if appropriately supported through envisaged TA will allow this approach to be implemented in the medium term.
Budget support to the development of agrarian production, infrastructure and mechanisms of agrarian market
| Directions of the support | Years, million UAH | |||||
|---|---|---|---|---|---|---|
| 2007 | 2008 | 2009 | 2010 | 2011-2015 | Total for 2007-2015 | |
| Support to the incomes of crop producers | 1 194 | 1 225 | 1 000 | 900 | 4 500 | 8 819 |
| Support to the incomes of animal husbandry producers | 1 497 | 5 500 | 5 870 | 5 970 | 30 000 | 48 837 |
| Measures on land improvement and environmental protection | 155 | 600 | 1 000 | 1 200 | 6 000 | 8 955 |
| Technical support to the agrarian sector | 402 | 800 | 1 000 | 1 200 | 6 000 | 9 402 |
| Creation of state reserves for ensuring food security of the | 685 | 400 | 300 | 200 | 500 | 2 085 |
| Development of agricultural risks insurance and guarantees for the incomes of agricultural producers | 50 | 300 | 600 | 1 000 | 5 200 | 7 150 |
| Development of credit system of agrarian sector | 730 | 1 000 | 1 200 | 1 200 | 6 000 | 10 130 |
| Improvements of the inspection system and control of the agricultural produce in accordance with health norms, safety, quality and standards | 1 071 | 1 250 | 1 450 | 1 650 | 8 250 | 13 671 |
| Development of advisory services, enlargement of experience and consulting services | 10 | 80 | 80 | 80 | 450 | 700 |
| Development of cooperative organizations in rural areas | 0 | 100 | 200 | 300 | 1 500 | 2 100 |
| Locust control and control of crops and animal health | 170 | 200 | 250 | 300 | 1 500 | 2 420 |
| Support of agricultural production in difficult climate conditions and compensation of losses due to bad weather conditions, cataclysms; regional support programmes | 40 | 200 | 400 | 600 | 3 500 | 4 740 |
| Measures on land melioration | 35 | 200 | 300 | 400 | 2 500 | 3 435 |
| Support of exhibitions, marketing and movement of goods to the market measures | 25 | 45 | 100 | 150 | 800 | 1 120 |
| Support to the introduction of bio-fuel | 15 | 50 | 100 | 150 | 800 | 1 115 |
| Introduction of organic agriculture, energy-saving and ecologically safe technologies of agricultural production | 0 | 50 | 150 | 300 | 1 500 | 2 000 |
| Support of agriculture on special tax regimes (VAT) | 4 500 | 0 | 0 | 0 | 0 | 4 500 |
| Total (all direction) | 10 579 | 12 000 | 14 000 | 15 600 | 79 000 | 131 179 |