• Référence: P-LS-KA0-001
• Date d’approbation: 17/11/2009
• Date de début: 21/10/2010
• Date d'évaluation: 06/03/2009
• Statut: En coursOnGo
• Agence d'implémentation: MINISTRY OF FINANCE
• Emplacement: Lesotho

To ensure that Poverty Reduction Support Grant is aligned with result matrix as presented in the CSP 2008-2012, the operation will focus on the second objective of the PAF, which emphasizes Governance and PFM. More specifically, this will be undertaken through the following four components (see results matrix): 1.Improve poverty reduction responsiveness, credibility, comprehensiveness and transparency of the budget. The aim of this c omponent is to ensure that the policy priority of reducing poverty is translated into reality. The baseline situation is that budget execution reports are prepared but not published, although some work has been carried as part of introducing the MTEF in some line ministries. The outcome is that the budget is linked to Poverty Reduction Strategy as well as the publication of budget execution reports. 2.More efficient and professional procurement systems that ensures transparency, equity and economy in procurement. By focusing on increasing the efficiency of procurement, the GoL would strengthen capacity, efficiency and accountability of the public sector. This would result in better delivery of services by public institutions as well as more efficient use of public as well as donor resources. The baseline situation is that regulations were introduced in 2007, although some deficiencies in procurement systems and practices still remain as identified in the CPAR. The outcome is the adherence to procurement regulations of the GoL. 3. Lesotho has a backlog of financial accounts due to inadequate record keeping, weak legal framework and financial management as well as the inadequacy of the GOLFIS. The proposed programme will address these inadequacies by supporting the reform programmes aimed at improving financial management, control and record keeping. The poverty reduction support programme will support improvements in the financial management in line with the PEFA recommendations. The expected outcome is improved internal control, cash management and accounting leading to transparent analysis of the financial performance and easy preparation of public accounts. The outcome indicator for this activity is implementation of the IFMIS by April 2009 while targets to be monitored during the programme life period include installation of IFMIS to all ministries and initial core team and end users training completed, presentation of the Public Financial Management and Accountability Act to Parliament for implementation in 2010; presentation of the draft Public Accounts for 2007/2008 to Auditor General; and presentation of 2008/09 accounts to Auditor General in 2010.

4.Effective external auditing and scrutiny. Effective external audit would strengthen the capacity of the GoL to ensure that public resources are used adequately as well as that decisions are made in a transparent manner. This is key to improved accountability of the GoL. The baseline situation is that the auditing of public accounts is being undertaken but that there are weakness in terms of undertaking IT auditing and performance auditing. The outcome is the timely completion of audits of accounts.

The targets for these three components are derived from the PAF. The assessment and progress of the PAF targets will be undertaken together with other donors. By emphasizing budget formulation and execution, external audit and procurement, the Bank will add-value to the overall reform process in the PAF. More specifically, the World Bank focuses on creating a conductive environment for private sector led growth, improving public expenditure management and fiduciary framework and improving access to basic services. The spreading of development partners areas of focus, ensures that GoL will have the incentive and resources to undertaken necessary reforms that will lead to broad based economic growth and poverty reduction. Other partners especially the bilaterals focus their support through budget support to social sectors including decentralization

The programme objective is to support the implementation of the first pillar of the CSP 2008-2012, which is to improve governance and transparency and accountability in Management and use of Public Resources. The secondary objective is to strengthen the second pillar of the CSP 2008-2012, which is to promote economic growth and diversification (see annex III). With these objectives, the Poverty Reduction Support Grant seeks to support both the economic growth and good governance agenda as laid-out in the PRSW, which in turn are underpinned by the PAF. This requires a continuing process of improvement in the effectiveness and efficiency of government institutions.

The overall aim of the Poverty Reduction Support Grant is to support poverty reduction which is widespread in Lesotho. Despite the relatively good growth performance, Lesotho remains a poor country and there has been little if any improvement in its social indicators. Although evidence from the 2002/03 Household Budget Survey shows an overall decline in poverty compared to 1994/95, over half of the population of Lesotho still remains below the national poverty line of about US$1.50 per day. The overall Human Development Index (HDI) for Lesotho also saw a significant decline from 0.57 in 1995 to 0.49 in 2004 (2006 Human Development Report). Combined with an increase in per capita GDP (PPP terms), the overall HDI index improved to 0.55 in 2005. The budget support will provide the extended PRS, with predictable flow of resources as fiscal balance will decline in the near future. The advantage of providing budget support is that it will limit domestic lending by the GoL from the banking sector. This would avoid a "crowding-out" effect and ensure that the private sector can expand by having access to credits. This would support economic growth and diversification, which is the second pillar of the CSP-2008-2010. The PRS pillars are:

(i) Accelerating shared and sustainable economic growth;

(ii) Human development;

(iii) Protecting and enabling disadvantaged groups; and

(iv) Good governance. The Government has complemented the PRS by:

(i) introducing budget framework papers in all line ministries for 2009/10-2011/12 period;

(ii) finalized a Growth Strategy Paper (GSP) that identifies potential drivers of growth;

(iii) completed an Issues Paper for the NDP (2008/09-2009/10 as a strategic budgeting document for the intervening fiscal years; and

(iv) finalized a PRS Progress Report. Both the PRS and GSP will inform development of the National Development Plan (NDP).

The finalization of the PRS in 2004 provided development partners in Lesotho a framework to engage Government in efforts to harmonise aid procedures, align them to country systems and prepare grounds for coordinated assistance. The Government has established a focal point for aid coordination with the assistance of the United Nations Development Programme (UNDP) and has recently signed the Paris Declaration. Currently five donors, namely, ADB, World Bank, DFID, EU and Irish Aid are in discussion with GoL with a view to set up an aid coordination mechanism through budget support programme. The donors have started formulating a Memorandum of Understanding which will guide aid management in Lesotho. A draft Performance Assessment Framework (PAF), which will be the main tool to track results of the budget support is being finalised. The objectives of the PAF cover:

(i) growth and macroeconomic performance;

(ii) governance and PFM (including budget process, financial management, procurement, institutional reforms, decentralisation, anti-corruption and civil service reform);

(iii) human development (including education, health and HIV/AIDS); and

(iv) capacity development (including strengthening of National Monitoring and Evaluation System (NMES), development of national statistics, etc.). These objectives are in line with the pillars of the CSP 2008-2012 which are:

(i) improving transparency and accountability in management and use of public resources; and

(ii) promoting economic growth and diversification. Pillar 1 will address issues raised in the Country Governance Profile (CGP) of Lesotho, which underscored the challenges in terms of budget preparation and execution, internal controls, fiscal reporting, audit and public procurement system.

According to the Bank's Country Governance Profile completed in 2006, Lesotho's Public Financial Management (PFM) systems had shortcomings in budget preparation and execution, internal controls, fiscal reporting and audit. These weaknesses were also underscored by the World Bank's 2007 Public Expenditure and Management Financial Accountability Review (PEMFAR) also corroborated these weaknesses. In an effort to improve PFM, GoL undertook under the Public Sector Improvement and Reform Programme (PSIRP), which includes strengthening budget planning and execution, and public procurement and audit reform. The GoL has prepared a Public Financial Management and Accountability Act, which will codify responsibilities in the preparation and execution of the budget and included the Medium Term Expenditure Framework (MTEF). It is envisaged to be approved by parliament in 2009. Due to capacity limitations in line Ministries, the full MTEF is being piloted in only six Ministries. Another challenge for successful implementation of MTEF is the volatility of fiscal balance as nearly two-thirds of the GoL's budget originates from the South African Customs Union (SACU), which is forecasted to drop from 5.9 % of GDP in 2007 to 0.7 % in 2008 and to 0.2 % in 2009 (see fiscal balance in annex II). This would hamper the predictability of revenues, which is necessary for the implementation of the MTEF. It is within this context that the Poverty Reduction Support Grant could provide a stable source of revenue to successfully implement the extended PRS.

Another important PFM reform issue is the strengthening of the fiduciary functions of the GoL. In this regard, the Country Procurement Assessment Review (CPAR) was successfully completed in 2007 and identified the following areas that should be reformed: the legislative and regulatory framework; institutional framework and management capacity, procurement and market practices; and integrity and transparency. Fiduciary functions are also to be strengthened by building capacity in the Public Accounts Committee and Auditor General's office in order to undertake IT auditing and performance auditing.

Lesotho has started to gradually delegate responsibility from the central government to local authorities. Political and administrative decentralization have progressed with the first local election which took place in April 2005 and the establishment of the Local Government Service Commission. This is being supported by capacity building initiatives for local District and Community Councils. However, a coherent fiscal decentralization strategy is still lacking, which leads to the lack of revenue for decentralized entities. The risk of moving forward on political and administrative decentralization without adequate resources is that this could create expectations at the local level that cannot be fulfilled.

Through these reform efforts the GoL has managed to increase CPIA rating from 3 in 2005 to 3.8 in 2008. This is also reflected in the IMF Article 4 consultations, which were concluded in April 2008, commended "GoL for its continued improvement in the fiscal balance and the external current account position, as well as the prudent use of the SACU windfall revenue". It also notes that external and public debt is sustainable, although there is a moderate risk of debt distress in the medium term.

The PRSP I is designed to assist GoL to implement its PRS. Its indirect beneficiaries are, therefore, the Basotho people through the reforms that will be undertaken during the programme implementation. The direct beneficiaries are all ministries and procurement units in line ministries, which will benefit from a more efficient and professional procurement system that ensures transparency, equity and economy in government procurement following the review of the procurement regulations. MFDP including Accountant General and the Auditor General will benefit from improved financial management and better internal control, cash management and accounting leading to transparent analysis of the financial performance as a result of introduction of IFMIS. The proposed Public Financial Management and Accountability Act will be handy in public resource management. The Auditor General will benefit from an improved public audit system with enhanced transparency and accountability resulting into an effective external auditing and scrutiny. Review of the audit act is expected to improve audit functions and reporting. This will improve service delivery and accountability. Alignment of MTEF to PRS priorities will ensure implementation of programmes to benefit the vulnerable groups. The private sector will also benefit from improved procurement system and financial management.

MATILA Mothobi P.S. - OSGE2

Source	Montant
FAD	UAC 6.380.000
Total	UAC 6.380.000