Module 7: Identification and formulation of a BS contract programmes 1.

Module 7: Identification and formulation of a BS contract programmes

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Outline of module 7

1. Overview of the BS Cycle Management.

2. Identification of a BS programme.

3. Formulation of a BS programme.

4. Base tranches and variable tranches.

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BS Cycle of Operations

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Programming

Identi-

fication

Formulation

Implementation

Evaluation and Follow-up

Evaluation: focus on joint evaluations

Decision process for tranche release:

Monitoring and dialogue, assessment of payment conditions

oQSG2 - Action Fiche:

focus on eligibility + context+ conditions. Supporting documents, financing agreement and TAPs

oQSG1 - Identification Fiche: Validation of choice for BS

focus on eligibility criteria + next steps

EC Development Policy

Partner Government Policy

National Indicative Programme:

identify sectors of engagement

BSSC: assessment of fundamental values

Budget Support Steering Committee (BSSC): Continuous political and policy steer of BS programmes. May review budget support financing and disbursement proposals wherever there are substantial or high political and policy implications.

Risk Management Framework

Outline of module 7

1. Overview of the programming cycle.




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Whether or not providing BS (1)

GGDC: commitment to the three fundamental values (FV) is a

precondition; assessed during programming phase. SRC and SBC: assessment of fundamental values done during

identification and formulation (use Risk Management Framework)

and use the Human Right Base Approach.

SRC (and no eligibility for GGDC) → commitment to FV needs to

be “carefully balanced with the need to provide and protect the

provision of vital services”. SBC → commitment to FV as well as “political response to address

them”, accompanied by a “reinforced political and BS dialogue

are aspects to be considered (looking forward approach)”. SRC and SBC: In case of high political risks: involve BSSC.

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Whether or not providing BS (2)

Assessment of the four eligibility criteria during identification

and formulation. During identification, countries categorised in three groups:

Strong candidates expected to meet and maintain eligibility Potential candidates: eligibility is less certainWeak candidates: eligibility is highly unlikely

Assessment of risks, mitigating measures and benefits during

identification and formulation

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How much budget support? (1)Decision to be based on broad qualitative assessment of:Financing needs of the partner country (PC): see MTFF and

national/sector development strategiesPreference of the partner country as regards aid modality Commitment of PC to allocate budget resources in line with

development strategies and objectivesEffectiveness and added value of BS as regards enhancing the

achievement of PC’s policy objectivesTrack record and absorption capacity of previous

tranches/disbursements: achievement of objectives, rate and

timeliness of disbursements Existence of a results oriented monitoring system. 7

How much budget support? (2)

Each criterion (see previous slide) may be assessed as high,

medium or low Overall score is also high, medium or low No mechanistic translation of sub-scores into final score,

because significance of criteria may differ and risks and

benefits need to be taken into account High overall score: >2/3 of EU-aid may be BS Medium overall score: between 1/3 to 2/3 of EU-aid may be BS Low overall score: less than 1/3 of EU-aid may be BS

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Identification fiche to be discussed at oQSG1

Delegation prepares an Identification Fiche setting out:Proposed type of contract and amount;proposed objectives and expected results; likelihood of meeting and maintaining the eligibility criteria;Needed prior actions;Needed supporting measures (capacity/domestic

accountability development) ;Preliminary proposals for design (formulation) and

implementation;Main risks.

First rough draft of the Risk Management Framework should

be attached. 9

Outline of module 7





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Preparation of Action Fiche and draft TAP (1)

Action fiche should include the following sections: Rationale, objectives and expected benefits and results of BS

programme;Assessment of country context and four BS eligibility criteria;Description of major risks and mitigating measures, based on

Risk Management Framework;Design and implementation issues: performance monitoring, ,

policy dialogue, donor coordination, disbursement criteria, fixed

and variable tranches, targeted or untargeted BS, budget and

calendar, capacity development, evaluation and audit,

communication/visibility.11

Preparation of Action Fiche and draft TAP (2).

Action fiche should be accompanied by: Supplementary documents covering each of the four eligibility

criteria;The Risk Management Framework;The draft TAP;The Capacity development quality grid.

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From the Approval of the Action Fiche to a BS Financing Agreement.

•After oQSG2 and approval of Geographical Director (possible

involvement of BSSC when substantial /high political/policy

implications), the AF is submitted to the relevant Committee of EU

Member States to allow the EC to take the related financing

decision.

•Then the Financing Agreement (including TAP) has to be signed

with partner country.

•A BS financing agreement is a legal commitment and the related

future BS payments (installments/tranches) do not need

conclusion of additional legal commitments.

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Outline of module 7




4. Performance Assessment/Monitoring Framework,

Base tranches (BT) and variable tranches (VT).

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Main issues regarding Performance Assessment/Monitoring

Frameworks/Indicators (1)

Indicators, benchmark and system to be used to measure

progress in implementation and achievement of objectives are

crucial Ensure respect of aid effectiveness principles: to use (when

available) partner country’s established performance

assessment/monitoring framework, avoid selecting indicators

outside that framework, propose capacity development in

case data collection system and performance monitoring

system need to be strengthened.15

Main issues regarding Performance Assessment/Monitoring

Frameworks/Indicators (2)

Selection of indicators/benchmarks is an important part of the

policy dialogue and may sometimes require strong

negotiations with the partner countries.

Public policy assessment/existence of a common

performance assessment framework (PAF) to monitor/measure policy

implementation, existence of baseline/ targets/performance

objectives with SMART/RACER/CREAM performance indicators...

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What is a BT and what is a VT?

Base tranche = fixed tranche, disbursed when fundamental

values are still respected (GGDC) and eligibility criteria are

(still) met (all contracts).

VT disbursed on basis of additional disbursement conditions.

% of VT that will be disbursed depends on the degree on

satisfying disbursement conditions.

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VT and predictability.

VT should not put into danger the predictability of

disbursements. Respect budgetary and planning cycles of recipient. Performance in year n-1 assessed in year n, determines the

size of the VT in year n+1. Mostly no VT in first year of a BS contract, unless it is a

successor contract. As regards second year: should disbursement be based on

performance in year n or n-1 (before the start of the

contract?

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Share of base and variable tranches (VT)

Standard GGDCs and SRCs cover 3 years and have a

base/variable tranche ratio of 60/40%. VT disbursed on basis of additional disbursement conditions. SBCs will have duration of 1-3 years and VT may be more than

40% in case of high risk. Aid-dependent countries with good track record and low risk

profile can get contracts with longer duration and lower VT

share. No definite rules as regards share BT/VT.

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Considerations for determining the VT share VT meant to have incentive effects and to signal specific

performance issues. Larger VT may have stronger incentive effect, particularly in weak

policy environments and when same indicators are used during

several years. Balance needed between creating incentives and avoiding

unpredictability and volatility of disbursements. VT could be relatively large in countries which:

are not aid dependent, and/or; are weak in implementation of policies and reforms, and/or; are weak in adhering to performance indicators, and/or; have a high risk profile.

See examples on next slides and in annex 8. 20

Initial and successor GGDC or SRC

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Low aid dependency and/or high risks ad/or doubts about performance

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SBCs and variable tranches

High risk profile and limited track record → large VT. High aid dependency and short duration → small VT. For a SBCs of 1 to 2 year → possibly no VT and emphasis on

satisfying eligibility criteria.

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State-building contract

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Profile of annual total disbursements

Profile may vary from country to country. Constant, frontloaded or backloaded. Will depend on:

Desired incentive structure;MTFF and trend of financing gap of recipient;Disbursement plans of other BS donors;Partner country’s preference.

See profiles at the end of chapter 2 of annex 8.

•

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Front and back loading

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Annual performance tranche (APT)

APT = in fact a special VT: 0% or 100% disbursement. APT used to complement BT when there is no VT. APT limited to 10% of total annual envelope. Disbursement based on assessment of selected

performance indicators and other performance information. Used to signal concerns about performance. Could be used for SBC with high risks, or in first year(s) of a

GGDC or SRC when it is difficult to use VT. See profiles in chapter 3 of annex 8.

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Annual Performance Tranche

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VT disbursement indicators (1)

VT disbursement indicators should be selected from the

overall or sector PAF. In absence of PAF: indicators to be derived from the

government’s policy documents. Indicators and targets should be agreed during formulation

phase, but may be adapted during implementation. Number of indicators should not exceed 8. Higher number → less fluctuation in total disbursements. Targets may be disaggregated by gender or region.

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Preference for using outcome indicators, because: they encourage results-focused policy making and

implementation; they allow partner countries to choose appropriate strategies; they promote domestic accountability;

Feasibility of using outcome indicators depends on time lag and

quality of monitoring and evaluation system. Outcome indicators require high quality statistical information

system. Outcome indicators should focus on both quantity and quality.

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Using input, process and output indicators may also be

appropriate, particularly when:there are special concerns at those levels;performance has to be measured in the short term;the BS contract targets improvement of the regulatory

framework;Statistics and information as regards outcomes are not

(yet) available or (still) unreliable. Outcome and impact indicators are not appropriate, because

of time lag and influence of external factors.

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How to judge the quality of an indicator?

Is the indicator clearly defined? Does it have a quantified or well-defined target? Do baseline and trend data/information exist? Is the source of verification mentioned? Is the timing of the availability of the information known? How sensitive is the indicator to exogenous factors and

non-BS aid programmes? What is the statistical quality of the indicator? Can the indicator be disaggregated by gender, region or

population group?

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Targets should neither be too ambitious nor too prudent. Do not modify targets once they have been fixed in the PAF. Instead be either strict or fair in the final assessment of the

VT indicators, if necessary. Indicators, targets and the assessment methodology should

be clearly defined in the TAP. See example of documentation sheet in chapter 4 of annex

8.

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Calculating the VT disbursement (1)

A score has to be attributed to each indicator, e.g.:0 = no or insignificant progress;0.5 = significant but partial progress;1 = target met;Or a pro rata score in case of a quantitative target.

A weight has to be given to each indicator: equal weights

is the option often used. Calculate overall score and translate it into amount to be

disbursed. See chapter 5 of annex 8.

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Calculating the VT disbursement (2)

Two options for final calculation of disbursement: Pro rata payment: overall score x total amount of VT; Staged approach, e.g.: 0-29% no disbursement, 30-49% → 40%

disbursement; 50-79% → 70%, and 80-100% → full disbursement. In principle undisbursed funds will not be recycled to next tranches.

They will be returned to the country’s MIP. In exceptional cases, an indicator can be neutralised and the amount

can be reallocated to the other indicators or to the next year. Floating tranches, without precise decision and disbursement dates,

should be avoided, but may be used in less aid-dependent countries.

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Thank you very much for your attention

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Module 7: Identification and formulation of a BS contract programmes 1.

Documents

bs programme

value of bs

bs dialogue

bs cycle management

bs cycle of operations

identification fiche

bs contract programmes

design formulation