The Participation and Civic Engagement Team works to promote poverty reduction and sustainable development by empowering the poor to set their own priorities, control resources and influence the government, market and civil society institutions; and influencing governmental and private institutions to be responsive, inclusive, and accountable. Note No. 81 March 2003 Making Services Work for Poor People -The Role of Participatory Public Expenditure Management (PPEM) I. Introduction The need for making services work for poor people is therefore immense, and has provided the theme for The public sector of most developing countries the World Bank's World Development Report is often the target of numerous criticisms - lack (WDR) for 2004. As part of its preliminary thinking of or no infrastructure, absenteeism of service on the topic, the WDR has highlighted at least four providers like teachers and doctors, poor quality roots of the service delivery problem: of services, corruption, non-transparency, (i) Either the government is misallocating resources favoritism, discrimination, etc. While several of ­ that is, spending on the `wrong' goods or the these criticisms are usually attributed to lack of `wrong' people. This effectively is a budgeting or resources and the conflict between the needs of resource allocation problem. equity and those of efficiency, research has (ii) Or, the resources never reach frontline service shown in general that the correlation between providers ­ thus even if resource allocations are increased public expenditure and actual correct, expenditure `leakages' mean that money outcomes or improvements in service delivery is weak1. doesn't reach its ultimate destination. This is an expenditure-tracking problem. (iii) Even when the money reaches the service This gap between spending and development provider, the incentives to provide the service outcomes reflects more serious deficiencies of may be weak. This lack of incentives can be `voice' and `accountability' for citizens in attributed to the problem of accountability and general, and the poor in particular. monitoring. (iv) Finally, there may be a demand side failure ­ that is, people may not avail of the services 1See for instance - Filmer, D., Hammer, J.S., and provided to them. This is to a large extent a Pritchett, L. (2000): "Weak Links in the Chain: A problem of awareness and participation. Diagnosis of Health Policy in Poor Countries," World Bank Research Observer 15(2). This note was prepared by Janmejay Singh and Parmesh Shah of the Participation & Civic Engagement Group of the World Bank, as a summary of a contribution paper made to team preparing the World Development Report for 2004. The full version of the paper can be obtained by contacting the authors at jsingh1@worldbank.org and pshah@worldbank.org respectively. To understand these problems analytically, the II. What is PPEM? framework chosen by the WDR 2004 is one that unbundles the service delivery chain into a set of PPEM can be defined quite simply as the voice, contract and service relationships introduction of civic engagement into the general between three agents: (a) policy makers, (b) process of public expenditure management. Thus service providers, and (c) citizen-clients2. users, clients and citizens are able to get involved in the process of allocating, reviewing, tracking, and Figure-1: Unbundling the Service Delivery Chain3 monitoring public expenditures. PPEM, therefore, has four components as depicted below. Figure-2: The Four Stages of the PPEM Cycle Voice Relationships Policy- Clients makers Contract Service Relations Relations Providers Each of the four stages is described below. As with any principal agent set-up the key 1. Participatory Budget Formulation (PBF) problem of informational asymmetry between Participatory Budget Formulation (PBF) can be the principal and the agent characterizes the undertaken in two main forms. The first, and more above relationships as well. However, they are prominent method is that of participatory budgeting. further plagued with the problem of having to The other is that of formulating alternative budgets. deal simultaneously with multiple principals The former of these is mainly a supply-side or state and/or agents who have numerous and "responsiveness" initiative, while the latter is in the sometimes conflicting objectives. This results in nature of a demand-side or citizen "voice" type huge difficulties of monitoring, defining initiative. objectives clearly, and ensuring accountability Participatory Budgeting (PB) involves getting civil The way to improve upon public service society to actually partake in the making of a public delivery, especially for the poor, is thus to find budget ­ citizens and CSOs propose spending mechanisms by which to surmount these projects, set priorities and decide which projects get difficulties. This note argues that participatory funded. The quintessential example of PB is that of public expenditure management (PPEM) provides a set of such mechanisms4. the Porto Alegre Municipality in Brazil5. The power of participatory budgeting is that it removes all agency costs and information barriers between the state and society in making a budget, thus yields (theoretically at least) the most efficient and 2A fourth, more exogenous, agent in the service transparent possible budget allocation. delivery chain is the `donor'. 3We are grateful to Dr. Shekhar Shah of the Public Sector Group of the PREM network in the World The other important feature of PB, is the almost Bank for providing us with this schematic. complete transparency it gives to the budget 4A clarification on terminology can be made here. formulation process, thus making it more acceptable The notion of `PPEM' involves looking at things to the public. from the lens of public expenditure or financial management. The mechanisms involved in PPEM are, however, also powerful mechanisms for promoting accountability, good governance, 5For more details see the Action Learning Program case transparency, and contributing towards study (#2) on PB in Porto Alegre at decentralization and empowerment. www.worldbank.org/participation Alternative Budgets influence budget 3. Participatory Budget Expenditure Tracking formulation indirectly. They present the (PBET): priorities and preferences of citizen groups, PBET involves the use of civil society to track how which will hopefully influence the government's the public sector spends the money that was actual budget. allocated to it. The tools for PBET include the `input- Participatory Budget Formulation (PBF): tracking scorecard' or the social audit6. Strengths: Ø PBpassesthebudgetconstraintofthepublic Traditionally the review of expenditures of the public sector directly to citizens sector is a technical exercise undertaken via formal Ø PBFentailscapacitybuildingascitizens surveys. What makes PBET different and powerful is acquire knowledge on budget-making, that there is continuous public involvement in the Ø PBalsoservesasastrongpoliticalplankfor exercise. It is the actual users or beneficiaries of progressive parties, services (like parents of school-going children) that Limitations: collect data on inputs and expenditures, rather than · Short-term and project/local level focus due some technical agency, bureaucrat or external to capacity constraints · Dependence on government and risk of consultant. The results of the exercise are manipulation immediately disseminated to the public either via the media, or through publications in the local language. The public opinion generated by the exercise 2. Participatory Budget Analysis (PBA): becomes a weapon for directly soliciting greater The goal of Participator Budget accountability and lowering corruption in the use of Analysis/Review is to review the impact and public funds. implications of the allocations made in a budget Participatory Budget Expenditure Tracking once it is prepared. However, what makes it (PBET) different from simple budget review, is that civil Strengths: society is involved here with the specific focus Ø PBETcanprovideconcreteevidenceof of demystifying the technical content of the mismanagement or leakage of funds by the budget for common people as well as their government. elected representatives to understand. PBA also Ø Theprocessofscrutinizingserviceproviders,is involves budget training to citizens and elected in itself a great empowering tool for the poor, representatives, thus building their capacity to giving them both confidence and self-respect. analyze the budget themselves. Ø PBEThasasignificantroleinlowering Examples of PBA include the review of budget corruption and leakage of public expenditure. Limitations: implications for tribal populations done by · No legal guarantee/binding for punishing the DISHA (Development Initiatives for Social & perpetrators of corrupt practices. Human Action), an NGO in the Indian state of · No safeguard for whistleblowers Gujarat and the Gender and Child Budget Projects by the Institute for Democracy in South Africa (IDASA). 4. Participatory Performance Monitoring (PPM): Participatory Budget Analysis (PBA) Performance monitoring of public services and Strengths: Ø PBAopensatraditionallyelitistpolitical projects actually involves both monitoring & exercise to ordinary citizens, especially poor evaluation. On the one hand, the aim is to oversee the ones implementation or delivery of public projects and Ø Itpromotesbudgetdebatesthathaveledto services as they happen at ground level. This is the greater transparency and accountability, supervisory or managerial process of monitoring. Ø PBAleadstomorepowerfulcivilsociety Impact evaluation aims to reveal whether the money advocacy based on research and data. spent under various government policies had their Limitations: intended outcomes or not. · Dependence on technical capacity of citizen groups 6 · Divergence of NGO resources - from other These track inputs rather than actual expenditures, since programs with direct impact on the poor. the most readily available data is often on inventory records. Despite being extremely useful, performance benefits help us to make our first argument in favor monitoring is not commonly undertaken. Even of PPEM as follows: when it is, the traditional approach to both monitoring & evaluation has been "top-down" - Argument 1: PPEM has a great potential in that is, it has largely been dictated by the needs lowering the agency costs involved in the of the policy maker or project-funding agency, different P-A relationships of the service which decided what and how to measure. These delivery chain. It thus leads to more traditional techniques do not, however, have the accountable, transparent, efficient and kind of impact that PPM can have, which equitable resource allocation and improved involves monitoring and evaluation by citizens public service delivery. and for citizens. The assertion above basically states that PPEM works Two important tools of participatory as a strategy for PEM and for making services work performance monitoring are the community for the poor. But we can go further to argue that scorecard and the citizen report card. The first PPEM is a cost-effective strategy. What we mean by entails communities choosing the performance that is that the "bang for your buck" or marginal indicators for a set of services themselves, rating return to investments in PPEM are large and hence a their performance and analyzing their scores. case for including PPEM components in various The feedback of the community monitoring Bank lending instruments can be made. exercise is then presented immediately through an interface meeting to the relevant government Although no formal cost-benefit study has been done agencies in the hope of a response. to match the savings or benefits of a PPEM exercise with its costs, we can list at least four reasons why The most commonly used instrument for one would assume that an investment in PPEM participatory impact evaluation at the more would more than pay for itself. These reasons are: macro level is the citizen report card. This is a · Greater efficiency in allocation of resources - survey instrument used to tap information on There is less chance of wastage because of unmet users' awareness, access to, and satisfaction with demand or supply that was not needed, publicly provided services. It has information · Less corruption and leakage from the system, about the key constraints the poor face in leading to direct savings, assessing public services, their views about the · Increased tax collection ­ Since PPEM shows the quality of services, and details of their link between taxes and outcomes, people in general experience in interacting with public officials. are more ready to pay taxes and finally, · Stimulus to private business - because they now Participatory Performance Monitoring face less corruption, better infrastructure service (PPM): delivery, and more confidence in the financial Strengths: Ø PPMbringsdirectsupervisionofcitizen- health of the public sector. clients on basic services provided to them On the basis of these reasons, we can make our Ø Thechancetovoicegrievancesand second argument: preferences directly to policy-makers has a Argument 2: Not only is PPEM effective as a great empowering effect. Ø Citizenreportcardsprovidequantitative public expenditure management strategy, it also demand side to inform policy. has high marginal returns to investment. That is, Limitations: it is cost effective enough to be invested in, and · Depends on critical mass of mobilization incorporated in different Bank lending · Risk of government resistance, manipulation instruments. or indifference The role of PPEM extends beyond the purely III. Why do PPEM? ­ Six Arguments economic advantages of efficiency in service The case for PPEM derives from its power in delivery. This is because the elements of the PPEM overcoming the informational barriers and strategy lead to an increase in voice of disadvantaged agency costs involved in the different and vulnerable groups like the poor, and this relationships of the service delivery chain. These enhanced voice invokes greater responsiveness on the part of the state to the needs of the poor. Activities like PBA or PBET give the power to hold Performance monitoring is the one component, unscrupulous public officials accountable. These however, which can cater to both the national and process or institutional outcomes of PPEM that local level. This is because one can have community influence the social and political choices of the scorecards at the facility level, but at the same time poor are as important, if not more so, than the conduct a citizen report card on an entire sector at the economic benefits that PPEM yields. This draws national level. us to our third argument: This qualification to the rationale for PPEM provides Argument 3: PPEM is an integral our fifth argument for its use: mechanism for good governance and for deepening democracy and democratic rights Argument 5: Different components of PPEM - identified by the HDR 2002 as a have different optimal levels of development goal in itself, as well as a decentralization at which they should be means for furthering human development in implemented to be most effective. Thus general. In this manner it tackles the social PPEM can ensure accountability ad and political facets of poverty by promoting transparency at all levels of service delivery empowerment, security and opportunity - ­ macro, micro and meso. identified as the three strategic pillars for poverty reduction by the WDR 2001. Our final assertion is related to the practical implementation of PPEM. Although each of the The rationale for PPEM also stems from its role components of PPEM that we have described above in decentralization. The ease and success of seem distinct and are capable of being implemented PPEM can be expected to be higher in a individually, our belief is that the maximum benefit decentralized set up. The converse is also true - can be derived when they are put into effect together the success of decentralization is also more as a package. These forward and backward linkages likely, and perhaps even continent upon, the of the different stages in the cycle can significantly accountability mechanisms involved in different enhance their impact since they all complement and PPEM components. Based on this we can make reinforce each other. Thus our sixth and final our fourth argument as follows: argument is: Argument 4: The accountability mechanisms Argument 6: Our belief is that to be sustainable involved in PPEM are a critical ingredient to and to become institutionalized all 4 components the success and long-term impact of any of PPEM should eventually be introduced decentralization initiative by the government. together, since the complimentary and reinforcing forward and backward linkages they As the issue of decentralization has been brought entail would significantly increase their up, it is important to note that the different effectiveness and yield the best results. components of PPEM operate at different levels of decentralization ­ indeed there is an optimal level at which each can and should be applied. IV. The Critical Success Factors These optimal levels are determined by Success of the PPEM does not follow automatically balancing the trade-off between the efficiency from implementation of the mechanisms we have gains of PPEM with the scale economies of described. Instead, it depends very heavily for it's decision making or information gathering at a success on factors, which if absent may yield no or at central, and non-participatory level. best modest results from these programs. For PB and PBET the optimal level of At a broad level, the process of PPEM as a whole is implementation would probably be at a more determined by factors that originate from three local level. Other components of PPEM, like sources: PBA and alternative budget formulation make sense only at a more macro level ­ and this has 1. Citizen action - the relative strength of the been the level at which they have tended to client lobby in civil society - e.g., how broad it's emerge in practice. membership is, whether it offers incentives for participation, how effectively it uses the media or protests for its rights, whether it captures reduce the agency costs in each of the principal-agent people's demands, etc... relationships in the service delivery chain. 2. Political action - the nature of political competition in the country - what party We presented the case for PPEM in the form of six structure is there, the level of arguments that were given above. The experiences decentralization, how democratic are with PPEM initiatives in practice seem to validate institutions, is their ideological diversity in these arguments. However, they have also brought to politics, etc., and light a number of areas in which our knowledge is 3. Bureaucratic action - the nature and lacking, and indeed some limitations7 and effectiveness of state institutions - how qualifications that provide a reality check to our accessible and accountable are they to start advocacy in the light of practical evidence. with, is there room for consultation, what level of outreach is there, are there One major realization is that the combined efforts of performance based incentives in place, etc.. civic, bureaucratic, and political action are critical for the success of each of the components of PPEM. A positive mix of civil, political and bureaucratic action can therefore form a Another realization is that the applicability of PPEM reinforcing virtuous cycle that can make PPEM projects is quite diverse. This greatly enhances the work effectively. But equally easily, an case for including these tools in different Bank unfavorable combination can lead to a vicious lending instruments and incorporating them officially cycle that would make the initiatives impotent. in major Bank strategies like the PRSPs, CASs, and This suggests that the use of PPEM may well perhaps even structural adjustment. require complementary initiatives to support it, such as capacity building exercises for NGOs, The history of PPEM processes has revealed their new legislation in parliament, or a change in the evolution to be quite chaotic. They have tended to incentive structures or implementation start as small opportunistic endeavors, often in arrangements that exist in the public sector. localized environments, which have then magnified to a larger and more forceful movement. The Figure-3: The 3 Critical Pillars for PPEM scalability and sustainability of these measures, is still to be properly tested since they are young and Bureaucratic Action have yet to reach a level of maturity through which they get institutionalized in the form of say legal changes. But this chaotic evolution presents several windows of opportunity for using PPEM mechanisms to bring social and public accountability and transparency into the delivery of public services. To take advantage of Political Citizen the opportunities that are waiting, institutions like the Action Action World Bank will have to play a major part. If we come true to this task, we would most certainly have taken a step in the direction of making services work for poor people. V. Concluding Remarks The need for innovative reforms to make services work for the poor is urgent. It is this need that motivates the WDR 2004, and this note on participatory public expenditure 7 management or PPEM. It must be said, however, that most of PPEM experiments are young, and so it is As we have described above, PPEM involves quite possible that with time strategies for implementing getting civil society into the business of PPEM and its different components will get refined managing public expenditure. Our contention enough to overcome these limitations in the future. Some of these limitations are in fact intrinsic to any participatory has been that these activities can significantly exercise. REFERENCES 1) Devarajan, S. and Reinikka, R. (2002): 8) UNDP (2002): Human Development Report: "Making Services Work for Poor People - Deepening Democracy in a Fragmented World," Initial Ideas About Motivation and UNDP, New York, 2002. Framework from the Director & Co- Director of the WDR," The World Bank, 9) Wagle, S. and Shah, P. (2002): "Participation in August 2002. Public Expenditure Systems ­ An Issue Paper," Participation and Civic Engagement Group, 2) Estrella, M. & Gaventa, J. 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