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Sector budget support in practice: Agriculture sector in Mozambique
November 2009

Acknowledgements: FANRPAN acknowledges Overseas Development Institute (ODI) as the source of this document.

This report summarises the findings of a desk study on the experience with sector budget support (SBS) in the agriculture sector in Mozambique. The desk study forms part of a broader study commissioned by the Strategic Partnership with Africa Task Team on Sector Budget Support which covers ten sector case studies from six different countries. The purpose of the study is to draw together experience of SBS to guide future improvements in policy and practice by partner countries and donors.

Sector Context

Agriculture sector performance for the last decade has been mixed. Since the end of the civil war agricultural production has been recovering but pre-Independence production per capita levels are still far from being restored. Some crops have recently experienced high rates of production growth and productivity has been gradually improving although it is still significantly below Southern Africa regional averages. Moreover, and despite progress, more than half of the rural population remains poor and food insecure.

By the end of the 1990s Mozambique was a major recipient of development cooperation and was battling with problems of aid coordination and absorption. Institutional capacity weaknesses in the public sector were significant, particularly in an area like agriculture which had throughout the 1990s suffered from a major disinvestment, fruit of structural adjustment policies which demanded privatisation of state functions and a reduced role for the state in the productive sectors. Mozambique’s National Programme for Agricultural Development (PROAGRI) was developed in the mid-to-late 1990s as an attempt to address this coordination failure, and develop a common vision for national agricultural development. Under the first and second phase of PROAGRI there has been a significant increase in aid to the sector. A disproportionate share of these resources has been allocated to institutional development activities and not service delivery. Whilst progress has been made in strengthening institutions in the sector, there has been little or no expansion in service delivery as a result of this increase in public resources. MINAG has been through periods of significant instability and has suffered considerable losses in terms of qualified human resources. These have had an impact in terms of capacity to generate good policies and sustain the quality of policy dialogue with sector stakeholders. More recently, the GoM has started to make ad hoc, and more interventionist, policy pronouncements.

It is reasonable to conclude that public sector interventions in the agriculture sector have done little to address the challenges facing the sector. Little has been done to assist the development of input and output markets. Inadequate extension services have been some of the causes of low productivity, the low level of agricultural input use and limited access to technology. Weak progress on establishing and promoting inter-sectoral linkages, have contributed towards the lack of rural infrastructure and associated high transactions costs, absence of formal financial services in rural areas and a weak regulatory framework. This underlies poor market development in the sector.

Yet, over this period, the agriculture sector in Mozambique has benefited from forms of budgetary support to the sector ministry. A common funding mechanism was developed and adopted by a number of donors to support of PROAGRI, and various dialogue mechanisms were established alongside the common fund. This was largely effective in addressing the challenge of fragmentation and lack of coordination of development cooperation in the sector, but has not yet contributed to improving agriculture sector outcomes. Since 2005, however the aid environment has begun to become more fragmented.

The Nature of Sector Budget Support

The PROAGRI basket fund, which meets this study’s definition of sector budget support, was introduced in 1999. It mobilised a significant amount of discretionary external assistance to support MINAG in pursuing its development policy for the sector. A total of US$ 207 million had been disbursed by donors by 2006 and an additional US$ 126 million were committed for the period 2007-09. The main objective of this funding arrangement was to improve the effectiveness of public agricultural programmes and institutions in order to promote equitable growth in rural areas, reduce poverty and improve food security. Most of this was to be achieved, initially, through a significant investment in improving institutional capacities of the Ministry of Agriculture and putting it in the driver’s seat of development interventions in the sector. A reformed and streamlined ministry with a reduced set of core functions was expected to emerge from this capacity building process.

The development of the common funding arrangement has been through three main phases, marked by the signature of Memoranda of Understanding between GoM and its external funding partners: (i) an initial phase, between 1999 and 2000, when the mechanism was introduced and started being developed; (ii) a second phase, between 2001 and 2006, when the Common Flow of Funds Mechanism (CFFM) was consolidated and a number of additional donors joined the arrangement; and (iii) a third phase, which started in 2007, when the concept of sector budget support was first introduced and alignment with country systems was further strengthened. Two types of modalities have been provided – the first was called a common basket fund, and the second sector budget support. In practice both are forms of sector budget support, and main differences concern the degree of earmarking and the focus of policy dialogue and conditions built into the funding arrangement. One modality is budgetary support earmarked broadly to MINAG to support its policies and systems. The other one corresponded to specifically earmarked funding provided by a reduced number of donors to strengthen support to specific sub-sectoral areas or activities. Despite this specific earmarking, which is related to the focus of the agencies’ country programmes, these funds have been disbursed into the common basket fund and followed the commonly agreed financial management procedures.

Although the funding modalities have remained essentially unchanged over the years, there has been an evolution on several fronts. Procedures for managing the basket fund have become increasingly aligned with country systems – for example, the planning and budget calendar was progressively aligned with that of the State Budget and the PROAGRI procurement manual was replaced by the government procurement code in 2007. Performance assessment was introduced and a matrix of indicators and target developed to track government performance in agriculture. The link between the sector budget support arrangement and general budget support has been reinforced, through coordination in performance assessments and dialogue with government.

The Effects of Sector Budget Support

What were the main effects of SBS?
  • Sector policy, planning, budgeting and M&E processes: channels for policy dialogue between GoM and donors were established as a result of the move to SBS. This led to strong ownership of PROAGRI and some improvements in agricultural laws and regulations (e.g. land management), although a clear role for the public sector in service delivery was never established and widely agreed. Dialogue, and technical assistance associated with SBS supported the establishment of integrated planning and budgeting framework (PAAO) with a bottom-up methodology. SBS funding contributed towards the mobilisation of a considerable amount of external funding to the sector, although a major share of this was allocated to institutional development, and not the delivery of services. Recently, the ownership of PROAGRI has waned on both the government and donor side, and the GoM has taken policy decisions with little consultation, taking agriculture policy in a more interventionist direction.
  • Procurement, expenditure control, accounting and audit processes: the establishment of SBS contributed to the establishment of the Common Fund Flow Mechanism in 2001. This established a set of common procedures (for procurement, accounting and auditing) covering a significant share of sector resources, thereby reducing GoM’s transaction costs in managing external funds. These common procedures were progressively aligned with those of the whole of government. Another achievement has been support to the development of systems which allow the generation of detailed information about public spending and some improvements in systems and capacities in the areas of procurement and auditing. A key question is whether the concentration of resources on building internal management systems is justifiable in a sector where there are huge challenges to be addressed at the service delivery level.
  • Capacity of sector institutions and systems for service delivery: PROAGRI resulted in both a decentralisation of sector resources and a significant concentration of resources on capacity building activities. Decentralised levels had an increased role in sector planning. There were improvements in staff capacities and systems in the areas of planning and financial management. However the focus was on building the capacity of existing staff, rather than expanding the capacity of institutions to deliver increased volumes of services.
  • Domestic ownership, incentives and accountability in the sector: The role of Ministry of Agriculture as sector coordinator and regulator was significantly strengthened, relative to the situation of the mid 1990s. Early on there was improved government ownership (not only by the MoA but also by Ministry of Finance) as a result of achievements in alignment of aid management with country systems (CFFM). However later on ownership was eroded as PROAGRI failed to deliver results in the agriculture sector.
In terms of outcomes in the sector, there is little or no evidence that public service provision at field level has improved as result of the investments made in building institutional capacity of the sector ministry. Nor is there evidence that public sector actions in the agricultural sector have improved sector outcomes. It is reasonable to conclude that SBS in the agriculture sector has therefore not contributed towards improvements in agriculture sector outcomes.

Conclusions and Recommendations

The current dominant perception is one of disappointment, by both government and donors, about the experience with the funding arrangement developed to support the agriculture sector in Mozambique. Government has expressed disappointment over the lack of concrete outcomes from the significant investments made over the years in improving capacity of the Ministry of Agriculture. Donors have expressed disappointment over the fragility of the relationship with GoM and the fact that they are being left out of key policy processes, as illustrated by the recent policy directions taken by Government on agriculture policy matters.

Despite the high degree of scepticism and uncertainty about the future of the PROAGRI funding mechanism it is undeniable that budgetary support provided to MADER/MINAG over the past 10 years has had an impact in sector policies and processes. Through the provision of discretionary funding, dialogue, technical assistance and strengthened donor coordination, the funding mechanism has produced important effects on the relationship of external assistance and sector processes which have led to changes in sector policy, spending and management systems. The mechanism has created the conditions for the Ministry of Agriculture to carry out a number of improvements to internal management systems and capacity. For example, it has, through the establishment of integrated planning and joint funding, improved the comprehensiveness of planning and budgeting processes at sector level, increasing GoM’s control over the use of external resources flowing to the sector.

Outstanding outputs include improvements in financial management systems at sector level and strengthened government ownership and leadership of the sector which became clearly reinforced in comparison to the situation in the mid-1990s. It also needs to be recognised that the PROAGRI funding arrangement and the processes associated with it pioneered important changes in the ways of working within government - namely the relationship between the sector and the Ministry of Finance on planning, budgeting and financial management - and these have had an impact beyond the agriculture sector.

It is also undeniable, however, that with PROAGRI a significant volume of public resources to agriculture ended up being diverted towards MADER/MINAG internal management processes doing little to address constraints at service delivery level, transform the ministry or indeed improve analytical capacities and the ability to generate evidence-based policies. Evidence of impact at the outcomes level is scarce and the various evaluations carried out on PROAGRI are consistent in concluding that PROAGRI has been all about processes and procedures and very little about development results on the ground.

In judging the experience and the suitability of the SBS mechanism, it needs to be recognised however that agriculture is a peculiar sector within the public sector machinery. Foster et al. (2001) warned about the dangers of providing budgetary support to a sector like agriculture where: the state and the line ministry should in principle have a smaller and different role than in other sectors, government and donors disagree on the state role in the sector, the most important government roles in supporting agriculture are not about public expenditure at all but about policy making and regulation, and the most important public expenditures for supporting agriculture may not be in the agricultural sector (e.g. investments in rural roads).

The main implication from this analysis is to advise caution in applying SBS to support a sector like agriculture. Funding mechanisms, such as the form of SBS in use in Mozambique, can help to address problems of aid fragmentation and be an important source of revenue to overcome institutional capacity constraints. But to what extent is budgetary support earmarked to the agriculture sector a useful instrument to address 21st century challenges in developing countries’ agricultures – namely, streamlining the state, promoting sector coordination, improving policy and regulatory frameworks, removing distorting state interventions? The volumes of funding involved with the basket and sector funding PROAGRI were arguable far in excess of what was needed to address these challenges. If there had been a clear drive to expand and improve service delivery – for example extension services – then the funding levels would have been appropriate. This was not the case.

In the absence of a consensus over the need to expand government services in agriculture, it is important to question the suitability of budgetary support mechanisms to the development cooperation purpose in the Mozambique Agriculture sector. As Foster et al. suggested back in 2001, the core message should be to ensure a good diagnosis of the nature of the challenges in the sector, as well as in the aid relationship, and develop a development cooperation approach which is locally appropriate.

The future of PROAGRI is uncertain. Many donor agencies are committed to increasing the proportion of programmatic forms of aid and there is also a strong interest in maintaining support to the agriculture sector. GoM is on its part keen to receive increasing proportions of discretionary funding through budgetary support but it has also shown signs of less openness to discuss policy options with donors (or indeed other players). This has left many donors apprehensive and, in the agriculture sector, is starting to raise questions about the sustainability of the sector budget support modality. Some donors are already thinking in risk spreading alternatives, including increasing earmarking of funding, working with other parts of government or even reverting to more traditional forms of development cooperation (i.e. project assistance).

In moving forward it is essential that the experience to date is carefully reviewed and that success conditions are identified and discussed. There are at least five key success conditions to bear in mind:
  • Partners need to work towards the establishment a unified agriculture sector policy framework, embracing the new policy directions which have political backing from key government counterparts. At the moment is seems that the Presidency and the duo MoFMPD are important drivers of agricultural policy processes, including resource allocation to the sector. It is therefore essential to secure these actors’ engagement in the arrangement. Even if donors are unhappy with the policy direction and feel they are unable to support it financially, it is important that they play a constructive role and support such a process. This will ensure an entry point into key decision-making processes in the sector.
  • Consensus on basic principles/philosophy underlying the financing agreement in support of any new agriculture policy should be established, particularly on the roles of the state vis-àvis other sector stakeholders. This is especially important if donors feel they cannot support the overall agriculture policy that emerges. For example, if donors feel they can support the expansion of extension services in the sector, then this should be explicit. If there is no clear agreement on the role of the sector in service delivery, then the funding should be scaled back to levels commensurate with institutional development objectives. Such issues need to be resolved or at least discussed openly if the arrangement is to be sustained in the future. Unlike the previous ones, the current MoU is vague in relation to underlying philosophy of the financing arrangement.
  • Involvement of all major sources of funding. In order for policy dialogue to be meaningful and to ensure the integrity of the planning and budgeting processes, all major sources of funding (donors) need to be involved in the sector programme, irrespective of the funding modalities used. It is therefore essential that donors providing sectoral budget support create the incentives for other donors (particularly those providing a large proportion of external funding to the sector) to be involved in the PROAGRI policy fora.
  • Resolving capacity limitations in the critical area of monitoring and evaluation. The performance of the funding arrangement can not be tracked and assessed properly without a reliable M&E system in place, particularly one which links SBS with government performance (service delivery and investments) and sector performance. This is a crucial area which can not be left unattended for any longer.
  • Reaching out to the sector. One of the main limitations of PROAGRI to date has been the inability to reach out to sector operators at field level (NGOs, the private sector and farmers). The lack of sector level outcomes is partly the consequence of failing to involve these key sector players.

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