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Capital and recurrent expenditures Tajikistan’s capital investment needs are enormous, especially when it comes to public service provision, and are faced with inefficiencies in allocation and justification given competing priorities. Success with any sectoral expenditure improvement is contingent on the fact (or ability) to merge a number of parallel processes managed by various ministries without due overlap. The capital budget is managed by Ministry of Economy and Trade through CSIP (state funded) and PIP (donor funded); while Ministry of Finance manages current budgeting. Government spending is heavily skewed toward capital investments especially in energy with other sectors “given” for donor funding External funding (including capital investments) both multilateral and bilateral are focused on transport, social sectors and infrastructure State-owned enterprises and quasi-fiscal debts The quasi fiscal activities of the SOEs or SUEs (State Unitary Enterprises) undermines the fiscal health and pose a major risk which is especially relevant in water sectors given the nature of services being provided From National to local level, challenge of decentralization There is great regional variation in quality, coverage and cost of delivering services. CHAPTER - 2 34 2.2. D EVELOPING MTEF FOR THE WATER SECTOR – ANALYSIS AND RECOMMENDATIONS The analysis and recommendation of this section are derived from the review of experience of introducing MTEF in Tajikistan covering 6 sectors, international experience with introduction and implementation of the MTEFs; and water sector specific sector budget planning as well as initial observations related to water sector management in Tajikistan. Getting water sector MTEF roll-out basics right is paramount Successful sectoral MTEF development almost universally has one common feature - existence of the nationally endorsed water policy/development strategy as part of the broader national development strategy. Tajikistan’s water sector is on the second round of its national development strategy formulation/adoption and has approved an overarching water sector report program in December 2015. Both documents are synched to cover 2016-2025. In addition, given the complexity of the sector in general (water, sanitation, irrigation) and many government/non- government stakeholders involved, one ministry - Ministry of Energy and Water Resources has been appointed as the overall coordinator for the water reform program that clearly identified the lead agency to be responsible for the implementation of the Water Sector Development Strategy adopted in December 2015. Tajikistan is now well positioned in this regards. Having clear objectives for the sectoral MTEF is key to ensure buy-in from all stakeholders involved. While the main purpose of any MTEF is to link budget allocations to strategic sector policy objectives, a deeper understanding of sub-objectives will be instrumental to help better plan for MTEF and focus on streamlining existing systems and processes in place or introducing new ones. In this regards, the MTEF development plan would need to be prioritized based on such objectives in mind. Some specific examples of such objectives could include: Improving data availability and related allocative efficiency in the water sectors and general trends (i.e. how much is spent and where); Understanding links between budget allocation and performance (i.e. how budget is allocated and translation into actual service delivery); overall improvement of fiscal management of the sector and identifying sources of fiscal stress/gap; developing planning/monitoring sector capacity to absorb additional investment (internal and/or external) funding (i.e. fund raising), i.e. what are these expenditures for? Focusing on efficiency and equity implications of public expenditure or even as far as how water supply expenditures compare (sufficient/linked enough) with other public expenditures i.e. health etc. i.e. what the public expenditures are trying to achieve? The importance of sequencing and timing of sectoral MTEF roll-out should not be underestimated (i.e. when to start and how long it will take). Public sector involvement in the water sector covers a range of stakeholders and functions including policy, strategy, fixing of priorities, resource allocation and budgeting, systems analysis, funding and management, research and data collection. This can involve a number of different activities including consultation, regulation, monitoring and enforcement, public awareness/information and conflict resolution and arbitration. MTEF is often undertaken when a certain overall PFM reforms (treasury, budget classification, data automation etc.) to reinforce PFM reform. As a result, linking the introduction of the MTEF to a particular sector has to be sequenced with overall PFM reforms. In addition, sufficient time needs to be allocated for the roll-out and implementation of the sectoral MTEF and including all stakeholders will only benefit the process (central and local authorities), service delivery agencies and line ministries, WUA etc. While the overall sequence of MTEF roll out is given in Figure 2.16 below, a more specific recommended sequence applicable for Tajikistan is presented further in the chapter. CHAPTER - 2 35 Finally, the success of any MTEF rollout is highly dependent on the solid evidence base and should take into account capacity to implement required actions. While the water sector in Tajikistan lacks an extensive evidence base compared to other sectors, nonetheless, there is a growing body of solid research and analytical work to support reforms in this sector. What has been lacking profoundly, however, is a thorough political economy analysis of the water sector. Meetings held by the water PER team have clearly indicated substantial competing personalities, agencies, institutions, governance structures that may potentially impede success of the METF. Water is a highly politicized sector, in part because water meets a basic need and is a human right. Political economy issues are typically evident in interference from local governments and mayors in utility operations, the role of water in political campaigns, and patronage, which diminishes the accountability of utility managers to consumers. Figure 2.16 Sequence of Mid Term Expenditure Framework Source: World Bank. Tajikistan: Programmatic Public Expenditure Review, 2007 It is important, therefore, to clearly map out institutional structure and incentives for institutions and service providers to change. As a result, an understanding of the processes that drive public expenditure allocations, and an assessment of the efficiency of such expenditures are critical to ensuring equitable and sustainable water sector service delivery. Last but not least, accounting for capacity to understand and implement MTEF across water sector is another important pre- condition to MTEF roll-out. Many concepts, systems and processes required for MTEF are rather unique and complex for a country like Tajikistan with its history of water sector management and funding. As result, proper investment in building capacity to understand MTEF basis and underlying principle at the central level and local level will determine how quick water sector in Tajikistan could move towards integrated MTEF. Need to take into account water sector specific challenges Similar to other “social” sectors in developing countries and countries in transition, water sector needs are enormous and is heavily underfunded. This is especially evident in a country like Tajikistan that was merely able to afford maintenance budgets, especially given heavy infrastructure losses resulting from the civil conflict in early and mid-90s. Very limited capital expenditures were made in Tajikistan since its independence apart from a number of donor- supported projects (emergency projects, drinking water projects in main urban areas and irrigation projects in rural areas). With new SDG goals in place [that also include comprehensive updated CHAPTER - 2 36 water goal, and a number of other goals that directly and indirectly involve water] (see Box 2), the country needs to undertake cost estimation exercise as to what Tajikistan’s dollar needs are to tackle SDG goals that at least directly involve water. Ideally, one need to factor in costs of reaching food security, hunger and promoting sustainable agriculture and energy, - something that Tajikistan will not be able to achieve on its own given it fiscal space. Defining the water sector is more challenging than it looks. Specific water sector challenges stem from four factors. Countries define water and sanitation differently (e.g., drainage may or may not be included, rural services may be considered separately). Responsibilities for water/ sanitation policy, irrigation are often divided horizontally across government ministries and agencies, vertically between national and local governments and functionally among the public, private/semi-private, and non-governmental sectors. Roles of these multiple actors (directly involved) may be unclear or overlapping and the move towards Integrated Water Resource Management may complicate such interconnections even further with additional structures being put in place. A number of indirect actors that do not manage water sector budget directly, but impact performance or activities such as research institutes, agencies involved in consultation, regulation, monitoring and enforcement, public awareness/information and conflict resolution and arbitration related to water sectors. Country context is important Tajikistan has already accumulated almost a decade of MTEF experience but with little impact on overall budgetary processes and many processes simply remaining unchanged. With 6 pilot sectors undergoing budgeting following MTEF principles, Tajikistan has made some progress towards building enough knowledge and institutional memory to successfully roll-out MTEF into waster sectors. However, despite this progress, many underlying MTEF processes (i.e. integration of capital expenditures and recurrent budgets, development of mid/long term plans and costing of such plans, expenditure prioritization, funding of approved programs/strategies, and integration of public procurement) remain, at best, weak. Despite this experience and pilots, Tajikistan is still lacking capacity to undertake fully-fledged sector MTEF. In fact, during the last 5-6 years, MTEF has experienced major setbacks given resource and time intensity of the process. Tajikistan still ranks second weakest in PEFA rating in Europe and Central Asia complicating aspirations for proper integration of policy and budgets given evident lack of progress of critical indicators related to credibility, comprehensiveness, predictability and external scrutiny. Historical institutional structures and management practices inherited from the Soviet Union, despite major reform initiatives, largely remain unchanged, if not becoming more complex. Despite obvious improvements in the PFM arena, Tajikistan is only on the verge of fully adopting critical policy and technical aspects of fully operational PFM system conducive for fully fledged MTEF. Non-existent institutional relations (or often competing or fragmented) but so instrumental for MTEF are in their early stages of development, mainly thanks to a number of initiatives supported by the donors aimed at improving coordination of water-related policy and decision making. Time needed to implement and adopt even basic improvements to existing budgeting processes proved to require longer lead time. CHAPTER - 2 37 On the technical side, some of the key issues facing Tajikistan include lack of alignment between current and capital expenditures, with the latter being further decoupled as centralized state capital investment program (CSIP is funded by the state), and the Public Investment Program (PIP, driven by donors). Both of these programs (and processes behind them) are de-facto managed by different ministries, Ministry of Finance and Ministry of Economic Development and Trade respectively and with various degrees of analytical rigor and transparency. Transfer to new budget classification (and relevant difficulties in tracking and correlating historical public expenditure data and lack of electronic records) presents another technical difficulty for water sector MTEF (confirm if water sector is part of GFS training under WB project). The number of MABAs in Tajikistan water sector in general is smaller compared with other sectors (say education) yet fragmentation (for water management sector) remains large enough that could potentially complicate introduction of MTEF. Sub-sector enjoys a smaller number of MABAs yet with ongoing reforms (decentralization) and the role played by the local government/municipalities, this fragmentation still presents a challenge. Norm-based budget allocation is still very much prevalent in Tajikistan’s water related sectors. While major efforts are being undertaken to delink norm based budgeting with consumption- related metrics (with metering in water and energy), in many cases actual revenues or billing (beyond urban cities) continues to be norm-based. Coupled with gradual increases in tariffs and deteriorating quality/access does not yield trust/incentive to actually pay for services. Policy formulation in water sectors is often divorced from actual budgetary processes. The drinking water sector presents a particular challenge as the key service provider (KMK) is not actually a MABA. In fact, KMK is being treated as a private entity with consequent tax, regulatory and monitoring implications and costs associated with it and inability to at least cost-recovery for socially important service like drinking water supply. Irrigation sector is better off in this respect but complicated by the fact that water user associations, acting as non-for-profit agencies face, a myriad of financial/legal complications to effectively undertake their duties and contributing to sector vices. In cases where MABAs do actually have capacity to properly budget for expenditure, actual allocations are often lower, leading to chronic underfunding, given the fact that the Ministry of Finance tends to favor only certain expenditure when fiscally restrained, i.e. recurrent costs and not development costs. Ongoing decentralizations efforts add another layer of challenges, especially given the role of the local governments in delivering water related services and limited local budgets. This situation almost universally makes achieving cost-recovery and development expenditures difficult. Who pays for uncovered costs remains unanswered in case of Tajikistan, raising concerns about the sustainability of water supply and sanitation projects as seen by the growing arrears and difficult write off decisions that the government has to take. CHAPTER - 2 38 P R E- M TE F P rim ar y M TE F In te rm id ia te M TE F A d va n ce d M TE F 20 16 -2 01 7 20 17 -2 01 8 20 18 -2 02 0 20 20 -2 02 5 FO CU S: G et tin g t h e b as ic s r ig h t FO CU S: T ria l M TE F FO CU S: St re am lin in g M TE F S ys te m s a n d P ro ce ss es FO CU S: Ca p ac ity to a d ju st to n ew c h all en ge s D is se m in at e W at er S ec to r R ef or m s tra te gy to a ll le ve ls o f g ov er nm en t a nd a ge nc ie s Id en tif y & im ple m en t & fu lly to p 2 5% o f p rio rit y ac tio ns fr om th e W at er R ef or m S tra te gy Id en tif y & im ple m en t& f ull y f un d to p 5 0% o f p rio rit y ac tio ns fr om th e W at er R ef or m S tra te gy Im ple m en t a nd fu lly fu nd re m ain in g w at er s ec to r r ef or m a ct io ns C on du ct a n at io na l W at er S ec to r F un din g F or um to d ev elo p i np ut s t o t he W at er S ec to r M TE F str at eg y a nd a cti on p la n D ev elo p a nd F in e- tu ne re vis ed s ec to r f un din g sc he m e b as ed o n R B O s a nd IW R M p rin cip le s Fu ll f le dg ed a do pt io n o f t he re vis ed s ec to r f un din g sc he m e a cro ss th e s ec to r a nd s ub -s ec to rs ad op t a nd fu nd IT in fu str uc tu re fo r im pr ov ed tr ac kin g o f r ev en us a nd ex pe nd itu re s i n w at er s ec to rs Es ta bli sh a n M TE F W G u nd er th e W at er C ou nc il/ M W ER a nd s ta ff w ith p eo ple w ith bu dg et in g b ac kg ro un d Fir st se cto r c eil in g i ss ue d t o t he w at er s ec to r in co ns ult at io n w ith th e M ER M a nd o th er k ey sta ke ho ld er s R ev is ed w at er ta rif f p oli cy s et tin g a nd m an ag em en t p oli cy In co rp or at e a ll s ec to r r ev en ue s a nd e xp en dit ur es (w ith p ro pe r an aly sis a nd m on ito rin g c ap ac ity ) U pd at e a ll e xis tin g d ire ct w at er s tra te gie s a nd as so cia te d f un din g) A dd re ss w at er ro ya lty u se s tra te gy a nd e ns ur e f un ds co lle ct ed g o b ac to th e w at er s ec to r D ev elo p a nd fu nd P PP ty pe w at er p ro je cts a nd e xp an d r ev en ue b as e In te gr at e a ll W at er s ec to r M A B A s i nt o o ng oin g PF M /M TE F c ap ac ity b uil din g i nit ia tiv es (IP SA S, TS A , b ud ge tin g e tc ) B as ic s ec to r-w id e 3 y ea r f in an cia l pr og ra m m in g/ fo re ca st in g ( re ve nu es a nd ex pe nd itu re s) de ve lo p a nd a pp ro ve a fr am ew or k f or in tra -s ec to ra l str at eg ic p rio rit iza tio n f ra m ew or k im ple m en t in tra -s ec to ra l f un din g o f p rio rit y a cti on s b as ed o n f ull y de ve lo pe d c os tin g/ alt er na tiv e o pt io ns fo r w at er in ve stm en t Es ta bli sh W at er S ec to r In fo rm at io n C en te r ( an d co lle ct all re le va nt w at er in fo rm at io n: fu nd in g, m ap pin g, pe rfo rm an ce e tc ) 3 y ea r a te r s ec to r in ve stm en t p ro gr am d ev elo pm ed (c ap ita l a nd re cu rre nt e xp en dit ur es ) D ev elo p a nd a pp ro ve a fr am ew or k f or in te r-s ec to rs str at eg ic p rio rit iza tio n o f p ub lic e xp en dit ur es im ple m en t in te r-s ec to ra l f un din g o f p rio rit y a cti on s b as ed o n f ull y de ve lo pe d c os tin g/ alt er na tiv e o pt io ns fo r w at er in ve stm en t U nd er ta ke ra pid M TE F n ee ds a ss es sm en t in W at er s ec to r D ev elo p k ey c ou nt ry -w id e w at er p er fo rm an ce ta rg et s a nd lin ks to in cre as ed b ud ge tin g Is su e w at er s ec to r w id e g uid an ce o n c os t/b en ef it a na ly sis of w at er in ve st m en t p ro je ct s C om pil e a lis t a nd im ple m en ta tio n p ro gr es s (in cl. fu nd in g) o f a ll w at er re la te d s ec to r/s ub - se ct or s tra te gie s a nd p ro gr am s C re at e a nd m ain ta in W at er In fra str uc tu re C ad as te r an d u pd at e a ss oc ia te d c os ts to m ain ta in th es e in fra str uc tu re (b y s ub -s ec to r; b y r eg io n) , e xis tin g an d p la nn ed Str en th en in g i nt er na l c ap ac ity o f a ll s ta ke ho ld er s a cro ss w at er s ec to r in M TE F D ev elo p a nd fu nd a d ed ic at ed w at er b ud ge tin g ca pa cit y b uil din g p ro gr am (a nd re so ur ce s) dr af t s ec to r/s ub -s ec to r e xp en dit ur e s tra te gie s (p la ns ), a cro ss re gio ns a nd w at er s ta ke ho ld er s Download 0.75 Mb. 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