Papua New Guinea - Public sector management : an administrative overview

Report No. 4396-PNG Nevv- -dLit Public Sector Management in Papua Newhnea An Administrative Overview June 27, 1983 Regional Programs Department East Asia and Pacific Regional Office FOR OFFICIAL USE ONLY FILE COPY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties Its contents may not otherwise be disclosed without World Bank authorization   FOR OFFICIAL USE ONLY PUBLIC SECTOR MANAGEMENT IN PAPUA NEW GUINEA: AN ADMINISTRATIVE OVERVIEW Table of Contents Page No. 1. SUMMARY AND CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . 1 Introductory Note ..... . . . . . . . . . . . . . . . ... 1 World Bank Work ..... . . . . . . . . . . . . . . . . . . . 3 Conclusions and Recommendations .... . . . . . . . . ... 6 (a) Sectoral Strategy Formulation. . . . . . . . . . . . . . . 6 (b) Budgetary and Financial Management . . . . . . . . . . . . 8 (c) Human Resources Management .... . . ..9... . . . . . 9 2. PLANNING AND SECTORAL STRATEGY FORMULATION . . . . . . . . . . . 10 The PNG Planning System .... . . . . ............ l0 PNG Planning Outcomes . . . . . . . . . . . . . . . . . . . . . 11 System Performance . . . . . . . . . . . . . . . . . . . . . . 12 Another Alternative .... . . . . . . ........... . 14 Provincial Planning .cig... 16 An Integrated Planning Strategy . . . 18 3. FINANCIAL MANAGEMENT AND BUDGETING . . . . . . . . . . . . . . . 21 The Budget Process . . . . . . . . . . . . . . . . . . . . . . 21 Implementation and Monitoring . . . . . . . . . . . . . . . . . 28 Strengthening Program Budgeting ... . . . . . . . . . . . . . 30 Provincial Considerations . .... . . . . . . . . . . . . . 33 4. HUMANRESOURCESMANAGEMENT ... . . . . . . . . . . . . . . . . 34 Introductory Remarks .... . . . . ..... . . . ..... . 34 The Public Services Commission ... . . ..... . . . . . . 35 Personnel Procedures ... ..... . 38 Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Training . . . . . . . . . . . . . . 4 . . . 0 . . . . . . 40 This report reflects the work of a mission studying public administration in Papua New Guinea which took place in September/October 1982. The mission was led by Mr. Philip Berlin (Sr. Economist) and included Messrs. Glynn Cochrane, Leonard Joy and Thomas Schmidt (consultants). It was discussed with the PNG Government on may 23-27, 1983. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ANNEXES 1. The Development of PNG Planning Capacity: A Possible Program 2. Structure of the Budget 3. Functional Management Analysis 4. Procedures and Regulations 5. The Personnel Information Services of the Public Services Commission  1. SUMMARY AND CONCLUSIONS Introductory Note 1.01 This Report has been developed as a part of the ongoing dialogue between the World Bank and the GDvernment of Papua New Guinea over the past year on matters pertaining to public sector management in PNG. It concentrates on certain areas of public administration which reflect a consensus between the Bank and the PNG Government with respect to issues of particular importance. Thus this Report does not purport to provide an exhaustive description of the overall institutional setting and concentrates on descriptive material only when this is necessary for the analysis. It should, moreover, be stressed that the present Report is not meant to be a project identification report; rather, it was prepared in order to permit a better understanding of certain central problems in public sector manage- ment. The Bank is, however, ready to provide more specific proposals for project follow-up in the areas under discussion once the PNG Government has had time to study and analyze the findings herein presented. 1.02 In the following pages a number of observations critical of certain aspects of the public administration system in Papua New Guinea will be found. This does not, however, detract from the fact that PNG now enjoys basically strong public sector management: indeed, a number of institutions and practices which form an important part of the administrative system under examination are lacking in many other developing countries, to their detriment. Thus it must be understood proposals made for improvements in the system already presuppose the generally well-functioning system as it now exists in PNG. 1.03 In particular, strong and carefully controlled budget procedures of the PNG government coexist with well-conceived expenditure categories and generally permit close expenditure controls as well as a good overview of exactly how the Government is deploying its resources and whether these are taking place according to schedule. Papua New Guinea, moreover, is excep- tional among developing countries in having a planning process ensuring that future costs associated With public expenditures can be covered by projected revenues during the four-year planning period. It enjoys virtually the same pre-eminence in subjecting externally financed projects to the same planning procedures even if these are offered on highly concessionary terms, thus giving explicit cognizance to the opportunity cost of these funds. Moreover, there have been few ill-conceived or obviously wasteful projects in the National Public Expenditure Plan (NPEP). Finally - although it has been subject to some criticism because of recruitment delays - the Public  -2- Services Commission (PSC) has kept itself above politics, and appointments to the public service have been largely free of nepotism or inappropriate political influence. 1.04 The strong centralization of administrative systems is perhaps the most fundamental aspect of public management in Papua New Guinea. As suggested above, this has brought substantial benefits to PNG, particularly in assuring an orderly transfer of power and institutions in 1975 from the colonial regime to the newly independent nation. However, as the expanding debate on public administration - culminating in the ToRoberts Report of 1979 and the subsequent Administrative Improvement Program - suggests, the system is being pushed to its limit. The present report analyzes some of the salient features of the system, and proposes certain broad, qualitative changes, particularly in the central areas of planning and budgeting. 1.05 The Papua New Guinea Gbvernment itself has periodically manifested considerable concern about the workings of its public administration system, with numerous commissions, study groups and reports having been commissioned, perhaps the most important of which has been the ToRobert Report, authored by Sir Henry ToRobert, Governor of the Central Bank of PNG. Specific concerns have been many: the land tenure system, public service recruitment procedures, public enterprises, housing for public servants, localization and manpower development, planning, governmental organization, etc. Many of these have become the subject of the Administrative Improvement Programme, as recommended by the TbRobert Report; few, however, have been resolved to the government's satisfaction to this date. 1.06 According to the ToRobert Report, "the main aspects in which overall management of the Public Service is inadequate are: firstly, there is poor coordination of national policy; secondly, too little delegation of responr- sibility to departments; and third, poor management within many departments." Moreover, "manpower development in the Public Service suffers from lack of clear policy and coordination." Some other relevant findings were: (a) there are "inadequate systems for setting priorities and managing programs within most departments;  -3- (b) confusion over the roles of the central agencies of government ... and the role of the NPC [National Planning Council] relative to individual ministries." The ToRobert Report also expressed its concerns about decentralization, noting that many of its recommendations applied equally to the provinces and urging, among others, that technical assistance be supplied (by national departments) to the provinces to develop planning and management systems. The overall conclusions pertaining to public management in PNG which the World Bank has drawn from its several missions over the past year coincide in a number of respects with the ToRobert Report. World Bank Work 1.07 The above represents a selective summary of the ToRobert Report, whose more general findings focussed on the inability of the PNG administra- tive system to respond effectively to national plans and objectives. These observations coincide in large part with the findings of a series of Bank missions culminating in a three-week visit to Port Moresby in October 1982 and which, at the request of the Government of Papua New Guinea, has given rise to this report. In expressing its concerns to the mission, the govern- ment noted particularly that "management services" units of the line departments seemed generally incapable of carrying out their roles effec- tively, which in turn was responsible for much of the poor quality of budgetary management in the line departments, and, more generally, of public administration in PNG. Concern was also expressed about the frustratingly slow pace of public service recruitment. 1.08 The October mission concentrated on three basic areas: human resources development (manpower planning); (b) budgetary management, particularly but not solely in the context of program budgeting; and (c) sectoral strategy formulation (in coordination with the provinces) ultimately culminating in some perhaps loosely defined national plan where the process of formulating, refining and amending would play a central role. The mission felt that each element of this triad of tasks reinforced the other, and that the success of reforms or changes in one element could be compromised by failure to act on the others. Thus budgetary management and in effect the day-to-day management of the line departments - needs to have a greater focus on what the Government hopes to accomplish in the sectors for which these Departments are responsible, and manpower planning (especially for localization) needs to be integrated into the process. Finally, the development process in PNG needs itself to be more goal-oriented, an aim which cannot easily be implemented without budgeting and manpower development systems designed to this end.  -4- 1.09 The manpower development, budgeting 'and planning systems as they currently exist in Papua New Guinea are, as suggested in the ToRobert Report, highly centralized, with the Public Services Commission (PSC) dominating the Government's manpower picture and the Department of Finance (DOF) and the National Planning Office (NPO) together dominating budgeting and strategy formulation/planning. While a certain degree of control by the center of these functions is desirable (and indeed, in most developing countries the weakness of the central departments has been the major source of management problems), in the view of the mission these Departments exercise too much control over the line Departments in PNG. In large part the process which has led to this state of affairs has been a self-fulfilling one. As line departments have shown deficiencies in planning, budgeting or personnel management, the Central Departments have strengthened their controls in compensation, leading to a further weakening of these capabilities as key agents in line departments leave, or lose interest and cede these powers to the Center. The mission believed that it was necessary to take measures to restore some of these capabilities for the management of their own sectors to the line departments in order to maximize the quantity and quality of administrative, experiential and conceptual inputs into the development process that these should ultimately provide. 1.10 Planning in PNG tends to focus on expenditure control rather than on the formulation and implementation of a long-term development strategy. This approach to planning has been highly successful in restraining public expenditure projects which are either ill-conceived or for which foreseeable revenues are insufficient to cover all start-up costs. However, because it does not take a longer-term view of the development process, it is less successful in allowing domestic budgetary and manpower resources to be effectively mobilized for the attainment of longer-term development objectives. 1.11 Capital expenditures - both of foreign and domestic resources - are embodied in the National Public Expenditure Plan (NPEP), which seeks also to program project-related recurrent costs (as well as certain other noncapital expenditures such as the Administrative Improvement Program). These are projected forward for four years to ensure that expected budgetary resources will be sufficient to pay for them. Procedures, however, rarely permit the inclusion of new capital projects into the NPEP beyond the current budget year. These projects are selected by the NPO on an annual basis according to the criteria of the National Development Strategy (NDS), which represents a set of unprioritized social objectives (e.g., "improvement of rural welfare," "improvement of general welfare," etc.) which are neither framed in a long term, multi-year context (i.e., what will we have to do over the next x years to increase rural welfare, and how will we do it?); nor do they target growth as such. Perhaps most importantly, the year-to-year orientation of the NDS does not lend itself to the  -5- formulation of guidelines for administrative or'managerial action. It is this circumstance, perhaps more than any other, which contributes to the sense of drift and lack of direction which many in the line departments complain of. 1.12 Because the NPEP and the NDS are not formulated with respect to particular targets, they do not repose on, or encompass, any form of under- lying sectoral strategies. Thus except for the submission of discrete project proposals the line departments only infrequently participate in the formulation of sectoral (or national) strategies. As a result, central departments, and the NPO in particular, do not enjoy much real, grass roots information from those most intimately acquainted with the terrain, and the line departments gain little experience in formulating strategies indicating where they should expect to be within a given period of time, why, and how to get there. In the absence of any such strategy (whether growth-oriented or not), line departments lose the potential benefit of related policy directions formulated by themselves but subject to approval by the 'Government, for internal manpower and budgetary planning. 1.13 Without such internal planning objectives, for example, it is very difficult for line departments to frame longer term decisions relating to future manpower and training needs (and thus all the more so on a national basis), based on program targets reflecting government-approved sectoral strategies. It is equally difficult to set meaningful performance standards relative to given objectives decomposed into relevant activities against which performance might be measured. In a broader sense it is also difficult to carry out localization objectives, for in order to train local manpower to take over expatriate jobs it is necessary to have some idea what aggregate future needs are going to be. Finally, to the extent that many decisions of this nature rest in the hands of the PSC, it will likely continue to be difficult to develop manpower planning capacities at departmental level. 1.14 The same strictures apply to budgetary management. Neither line nor central departments have a way of determining whether budgetary resources are well deployed in achieving given goals, whether defined by the NDS or otherwise. Nor is it easily possible to know how a reallocation of budgetary resources might improve the chances of attaining such goals. The problem basically rests on the fact that there are no departmental programs which are associated with given, long-term goals, and thus no way to allocate funds between successful and unsuccessful programs. 1.15 The budgetary situation is complicated by the NPEP, which divides recurrent costs between developmental (NPEP) and other (non-NPEP; implicitly, but not necessarily non-developmental). At present, management services units in the line departments are given the responsibility for  -6- non-NPEP expenditures, which until recently have been implicitly regarded as relatively less important and treated as such, while the Department of Finance has the responsibility for NPEP-associated costs. Non-NPEP expendi- tures have been frequently gotten short shrift, both in planning and in allocation even though still comprising about three-quarters of the total recurrent budget. Moreover, at a time of budgetary stringency, NPEP expenditures have tended to be protected, leaving non-NPEP expenditures to bear the brunt of budget-cutting, even though they may be as closely related to developmental goals as items associated with the NPEP. 1.16 A serious problem for long-range policy implementation in PNG is that the geographical decentralization of many administrative functions to the provinces has tended to weaken further the already weak line depart- ments, particularly the Department of Primary Industry (DPI). While mechan- isms for administering the fiscal aspects of geographical decentralization have, for the most part, been well managed, there are no well-functioning administrative mechanisms for the transmission of national policy directions from center to periphery. The effective communication and translation into action of new research findings to "decentralized" agricultural extension workers responsible to provincial Secretariats rather than national adminis- trators is difficult at best (provincial industrial development officers were only rarely in contact direct or indirect - with the (now abolished) Department of Commerce), and it remains unclear what mechanisms exist, or may be developed, to translate policy objectives that may emanate from the new Department of Industrial Deve,lopment to the level of the provinces. Flows of information from the periphery to the center are also generally weak, particularly reporting on physical project implementation through the Department of Works and Supply. However, perhaps the greatest problem in the context of periphery-Center information flows is in the area of planning, even in the limited sense of the word in PNG. While the provinces have direct access to development funding through the so-called sectoral programs, as well as through the NPEP, project preparation capabilities, especially in the poorer provinces, are extremely limited, which has the practical consequence of limiting their access to NPEP resources. Conclusions and Recommendations 1.17 As noted above, Bank conclusions pertaining to public management in PNG echo a number of those of the ToRobert Report. In other respects, however, they take the arguments in that Report somewhat further, particularly with respect to planning, budgeting and manpower development. The major elements - amplified in the body of this report - are as follows: (a) Sectoral Strategy Formulation 1.18 Manpower development and the rationalization of the budget process (including a greater degree of responsibility of line departments for the  -7- management of their own budgets) cannot be accomplished without reference to a forward plan, i.e., an NPEP which includes an indicative four-year capital expenditure cycle, which at present does not exist in PNG. Such a plan, moreover, would have to be closely linked with sectoral strategies reflecting long-term objectives and the policies, programs and projects which would be necessary to achieve these objectives. 1.19 The NPO would be involved in the formulation of the methodology for sectoral strategies, but the latter should be drawn up by the policy planning offices of the line departments. Sectoral strategies need to be drawn up in conjunction with provincial plans, the latter of which would, with inputs from the National Departments and the NPO, incorporate objectives of the provinces in the major sectors, in particular, agriculture, transport, (small-scale) industry and social services. These would be used as inputs into the national plan. 1.20 Finally, in drawing up the national plan, the NPO should ensure that departmental submissions - i.e., the NPEP recurrent, non-NPEP recurrent, and new projects - are reconciled to guarantee physical and financial compatibility. An important part of the NPO's work would be to examine alternative scenarios for financial resources, both domestic and external. Here, it would work together with representative bodies to prioritize the capital expenditure program to ensure that overall developmental objectives are appropriately tailored to available resources and that the coherence of the national plan were not disrupted by a shortfall (or surplus) of resources. An important part of NPO's task would be to carry out collateral macroeconomic studies to determine international borrowing constraints and maintain balance of payments stability consistent therewith, ensure that borrowings financing private investments were not .croxded out," and that factor markets were not overstrained. 1.21 It should be emphasized here, however, that what is envisaged is not a comprehensive quantitative plan based upon a full-scale macroeconomic model encompassing real and financial variables. While for a number of reasons suggested above a somewhat more formalized view of long-range development strategy seems desirable, this does not mean that PNG should subject its investment planning to a full-scale modelling exercise. Full-scale macroeconomic models - while possibly a useful adjunct to development planning - have generally shown themselves to be an impracticable basis for planning under the best of circumstances, and in PNG data weaknesses would make the exercise even more problematic./l What is, however, being suggested is that Gbvernment-wide questions be asked /1 On the other hand, single equation models of the type now used by the NPO to forecast revenues are clearly useful.  -8- systematically as to what the country hopes to achieve in its future economic status and how it hopes to get there, with answers being framed in terms of programs and policies necessary to that end and sulmmarized in a rolling, indicative investment plan. (b) Budgetary and Financial Management 1.22 The budget process has tended to be overcentralized, particularly in that line departments are allowed little or no control over budgetary allocations for functions, activities or line items. The problem here lies not so much in the fact that management services departments are too weak, but rather in that departmental officers in charge of functions are not personally involved in or accountable for budget work covering recurrent and ongoing NPEP activities or for performance. If realistic performance standards are to be adopted, then program budgeting - already partially introduced into the system, should be strengthened by establishing clearer objectives and procedures for evaluating performance. 1.23 Distinctions made for management purposes between the NPEP budget (and recurrent costs associated with projects inscribed under the NPEP) and ordinary recurrent costs are inappropriate and often confusing, and have not lent themselves to good financial management. This has been especially clear where there has been a division of responsibilities for monitoring NPEP and non-NPEP budgets. Moreover, during periods of financial strin- gency, budget cuts tend to be applied almost entirely to non-NPEP recurrent costs, although with at least two years of such stringency the government is now taking measures to remedy this situation. This has had the effect of cutting very heavily one category of expenditures associated with develop- ment while leaving intact the NPEP category which has no obvious superiority over the former. 1.24 In consequence: (a) the Government should seek to efface the sharp distinction between ongoing NPEP, recurrent budgets, and new projects, at least for purposes of budgetary management (as opposed to expenditure planning); (b) management of the budget should gradually incorporate performance criteria under a general program budgeting framework designed to emphasize the results of public expenditures and which would reflect the strategic objectives for the sector; and (c) through the process of administrative decentralization officers in charge of specific functions should have more discretion over these budgets once these have been approved, and once managers are  -9- given resources and discretion the personnel management system should be used to emphasize accountability for program performance. (c) Human Resources Management (Manpower Planning) 1.25 While the PSC is near completion of the Personnel Information System (i.e., job analysis, description and classification, development of individual offices records, etc.), Departmental and Provincial personnel procedures remain rudimentary. Career development paths are virtually unknown, public service laws and regulations remain unrationalized and uncodified (and thus allow for a good deal of arbitrariness in decision- making in this area), training programs are carried out practically disso- ciated from any long-term evaluation of needs of the civil service, or its localization. With respect to these matters, the strengthening of human resource management capabilities in departments and provinces in order to permit greater managerial autonomy in these areas is consistent with the general thrust of strengthening public management and reducing the burden on the PSC. In any event: (a) the coherent development of a manpower planning capability which is integrated with any system involving management by objectives and performance requires the completion of the personnel infor- mation system as a sine qua non; (b) personnel procedures - consistent both internally and across-the-board should be established in Departments and Provinces, codified and set forth in manual form allowing some congruence of expectations among managers, employees and the PSC. Job standards should be set, career development paths indicated, and performance criteria established. Management service units should be upgraded from levels emphasizing clerical tasks, and emphasis should be given to the identification, training, and ultimately the accountability of managers; and (c) within selected Departments and Provinces a consistent training program should be set up, increasing the quality and quantity of training available within manpower needs as identified by the forward planning exercise described above. In particular, training needs for provincial staff in drawing up provincial plans as inputs into national plans should be identified and met as rapidly as possible.  - 10 - 2. PLANNING AND SECTORAL STRATEGY FORMULATION (a) The PNG Planning System 2.01 Broad Outline of National Planning. The selection of Papua New 'Guinea's public investments takes place under the direct oversight of the National Planning Committee (NPC), a Committee of senior ministers under the Chairmanship of the Prime Minister which determines the orientation of Government investments according to the nine Strategic Objectives:/l (a) increasing rural welfare; (b) helping less developed areas; (c) improving general welfare; (d) increasing economic production; (e) improving food production and nutrition; (f) improving training and PNG participation in the economy; (g) urban management; (h) effective administration and law; and (i) environmental protection. The NPC establishes "request ceilings" for each national department and province by strategic objective. These are, however, basically meant to provide indicative guidelines for NPEP submissions rather than rigid expenditure ceilings. 2.02 Government agencies - including provincial departments - are invited on a continuing basis to submit new expenditure proposals for the coming year's National Public Expenditure Plan (NPEP), whose horizon is the four-year period following the submission. Expenditure proposals will include both project capital costs as they are expected to be implemented over the four-year period as well as associated start-up costs./2 Other new /1 Since the October mission, "rural economic development" has been added as a separate objective, and environmental protection has been merged with urban management. /2 These start-up costs will include many of the recurrent expenditures associated with the project. For a more complete discussion, see Chapter 3.  - 11 - expenditure proposals of a "recurrent" nature not associated with any capital project (such as a new university position) must be subjected to the NPEP selection system as well. 2.03 After NPEP expenditure requests are submitted to the National Planning Office (NPO), the latter, advised by the Technical Evaluation Committee (TEC), assigns a design status to the project proposals in question. Approval of these proposals allows projects to be placed on the NPEP "standing design list," after which projects are prepared in further detail. 2.04 It is important to note that the NPEP includes few new projects for years beyond the first year of the four year plan./l Although projects not accepted at the time of their first submission may be accepted in the following year, there is no guarantee of this, and basically the other three years of the NPEP only include the financial repercussions of expenditures beginning in the first year of the Plan. While project selection is undertaken according to the list of criteria as embodied in the NDS, the longer-term development strategy element embodied in most planning systems is largely absent in PNG. In effect, efforts to direct PNG government activities to strategic objectives focus on the "wedge" of new expenditure (capital and associated recurrent) which are processed through the NPEP system. With ordinary recurrent cost being held constant in real terms, as a deliberate policy decision (an assuming real growth in government revenues),/2 an increasing part of the total government budget - now about one quarter of the total - by this wedge reflecting the investment selection criteria of the NDS. (b) PNG Planning Outcomes 2.05 The final outcome of this process is contained in the annual National Public Expenditure Plan. In many ways, the NPEP is comparable to conventional development plan documents in providing a background statement which sets the plan in historical perspective and analyzes the outlook for the Papua New Guinea economy and society to which the plan is directed. 2.06 However, whereas development plans of most developing countries commonly reflect sectoral analysis, strategies and policies, the PNG planning document, while discussing outlook and strategy for the economy as a whole, provides little detailed rationale of the public expenditure plan itself. Instead, there is an explanation of government policies in relation to each of the Strategic Objectives and guidelines to these policies with /A Some provision for this in fact exists, but it should be further developed. /2 As the following chapter indicates, the failure of this assumption to hold true has caused some major problems in the system.  - 12 - regard to specific aspects. Accordingly, interpretation of "Economic Production" as a Strategic Cbjective is followed by guidelines relating to various categories of projects considered under this heading (Agriculture, Resource Projects, Transport, Electricity, Energy Management, Industrial Development). 2.07 An analysis of NPEP projects is then provided in the annual NPEP document which cross-classifies projects by objective, agency, and location. An analysis of manpower requirements and financial provision under different headings is also given. Projected recurrent expenditure is presented in summary (there is no breakdown between departments) and revenue, budget and financing forecasts are provided. 2.08 Conspicuously missing is the common emphasis on targets (for incomes, production, employment, exports, investment, etc.) There is little evidence of arguments of the form: "if we are to achieve x, it will be necessary to do a, b and c"; or of its corollary, "and the expenditures for projects, A, B and C are designed for this." Nor is there much evidence of conclusions in the form of: "having undertaken these expenditures, it is expected that they will have the following impact on ... and that this will be regarded as a significant measure of achievement of objective ..." The plan as presented is, in fact, a plan for national public expenditures (or some rather small part of these) which are intended to move the economy and society in certain directions: it is not a plan which specifies particular intended achievements other than the expenditures themselves, or which assesses how far the country will move in the intended directions as a result of the plan. 2.09 While there are commentaries in the NPEP statments which are pertinent to sectoral strategies, and although the presentation of project expenditure plans allows some analysis by sector, there are no detailed and comprehensive sectoral strategy statements as such and hence, no explanations of expenditure plans by sector according to defined sectoral strategies. The Plan itself also lacks information and analysis of sectoral activities other than NPEP activities. 2.10 Much the same is true of provincial expenditures: there are no provincial strategy statements, no overall presentation of provincial activities and no strategic rationale for the provincial plans listed, other than the fact that each project is identified with respect to the Strategic Objective which it is intended to promote. (c) System Performance 2.11 It is possible to judge the performance of investment plans, in Papua New Guinea as well as elsewhere by the following criteria:  - 13 - (a) How well are ultimate goals articulatOd? (b) How effectively are action programs designed to meet objectives? (c) How effectively can these action programs be carried out? (d) How well are they structured to learn from experience and adapt to events? 2.12 The PNG government has been consistent in its statements of its broad development goals. The Strategic objectives quoted earlier provide a, basis for planning. However, for these statements to be truly useful for meaningful development planning they need to indicate the criteria by which progress toward these goals might be measured: it is necessary to know more precisely what is to be changed. 2.13 For example, the first specific objective of the National Develop- ment Strategy is to increase rural welfare. This objective, when used as guidance in planning investment expenditures, should direct the attention of those proposing projects as well as those making decisions about them to a generalized social concern for rural welfare. In order to determine how to structure proposals, however, or to accept or reject them, they would need to know in what ways an increase in rural welfare might be brought about or indeed, how "rural welfare" would be defined. As an example of this, the fifth NDS objective is: "improving food production, subsistence, and nutrition." But, taking one of these only, what is meant by improving nutrition? What is wrong with nutrition? Whose nutrition especially? By what criteria will it be possible to assess whether improvement has taken place and whether the improvement reflected a deliberate policy action. Each of the objectives poses questions such as these which must be answered before even the problem is defined. 2.14 In practice, what is likely to happen is that the specification of the objective of a project proposal is made after the project is conceived. Accordingly, the objective becomes a rationalization after the fact rather than a guide to action. Although there are NPC targets for the proportion of funds allocated by strategic objective, the categories are so broad that they have in fact little more than general relevance. Thus in the 1983 NPEP three-quarters of new project expenditures are categorized under the very general rubric of "economic production". The usefulness of NDS strategic objectives categories is further diminished when projects fit more than one objective, as is likely with the generally overlapping objectives of the NDS.  - 14 - (d) Another Alternative 2.15 Perhaps because of the construction of the NPEP, focussing as it does on year-to-year decisions with respect to strategic objectives which cut across sectors and line departments, the PNG expenditure planning process has tended not to give enough emphasis to sectoral strategy formu- lation by the individual line departments. Inputs into the planning process by provinces have been limited as well, in part because of the lack of project identification capabilities, but perhaps more importantly, because of problems of coordination with provincial and national line departments. 2.16 It is properly a national concern as to whether PNG wishes to concentrate on a growth strategy constrained by the social equity considerations implicit in the NDS or to concentrate on social equity issues themselves, irrespective of their consequences for economic growth. However, apart from the familiar refrain that it is easier to redistribute income from a growing pie, the NDS, in reflecting largely social concerns (mixed with some more purely economic objectives such as "increasing economic production") does not - as noted above - permit a programmatic approach to the achievement of these goals. Nor does it easily allow for the development of policies which may be necessary for the implementation of a given program. Finally, the single-year project planning horizon does not lend itself a forward-looking programming of Departmental activities, which must, by virtual necessity, be a multi-annual undertaking. 2.17 All of the above suggests that some systematic approach to longer term planning may be required if PNG's national goals are to be attained to a degree permitted by available budgetary and manpower resources. Some attempt in this direction has been made through the drawing up of sectoral strategies, particularly by the Department of Transport and Civil Aviation and the Department of Education. Especially in the case of the former, however, sectoral strategies came virtually to nought because no effective review mechanism existed to incorporate these incipient sector strategies into government-wide programs with NPEP funding. Another reason for the lack of success of these sectoral strategies has been the departments' failure to consider resource constraints and to work out a prioritization within a set of such constraints. But the NPO bears some responsibility for not having set the parameters for the formulation of sectoral strategies in advance. 2.18 It is generally agreed that sector strategies should be initially formulated by the line departments who are most closely concerned: it is they who have the first-hand information and experience, and it is they who must determine whether forseeable staff resources and institutional endow- ments are sufficient to carry out given programs emanating from their sectoral strategies. However, and this point is crucial, no workable sectoral strategy can be defined for that sector alone; nor can it be conceived in uniquely technocratic terms. Thus if growth in agricultural sector output is selected as a primary target one needs to consider among  - 15 - others, whether transport facilities or trained manpower required are available; another consideration could be (in PNG) does this have a positive impact on nutrition, population migration, the rural/urban income mix, etc.? 2.19 What is being suggested is that planning become centered about an ongoing process engaging multiple concerns through continuous review. Thus, line departments, before undertaking to produce a sectoral strategy, might obtain support on the appropriate methodology from the NPO; using inputs from the provinces (discussed further below) they might develop an initial strategy paper which may or may not provide an indicative forward investment plan. The initial document would in turn, be reviewed not only by the Central Departments (i.e., the BPC), but by all interested government agen- cies which might be directly affected; subsequent versions would reflect and reconcile these positions. They might also, at a given stage in the pro- cess, be reviewed by a secretariat of the Cabinet in order to reflect broad political concerns. Final reconciliation of the various sectoral strategies - and presumably some notion of a forward capital as well as recurrent budget - would be drawn up by the NPO for approval by the NPC and NEC, as is now the case. 2.20 In this it is not how the review process is conducted in mechanical terms which is important, but rather that it be an iterative process reflecting a wide range of technical and social concerns, by which final government priorities emerge./l Given these priorities, policies can be developed in their support, and departments can proceed to a more coherent and directed internal programming than is now the case. 2.21 Agriculture as a Case in Point. Previous Bank missions have noted the lack of effective sectoral strategies and the seriousness of this deficiency, especially for the agricultural sector. There can be no doubt that the lack of careful analysis of agricultural sector trends, and of policies reflecting appraisal of alternative strategies for pursuing development aims, (and adequate consensus for the compromises adopted), is a serious problem insofar as it allows matters to drift without direction towards unknown or unappraised situations. 2.22 It is neither essential, nor realistic, to expect a comprehensive agricultural strategy to be developed and matured within a matter of months. What is essential is: /1 The outcome can be as quantified as the NPO cares to make it given data availabilities. Some quantified macro-economic model might be useful as a backup or to provide a consistency check, but this should not be the principal goal.  - 16 - (a) to be able to identify specific issues of critical concern, define the problems and the nature of the choices to be made; and (b) to address the general question of how to develop the agricultural potential of PNG in specific, concrete terms with reference to particular areas and people. 2.23 With regard to the first of these, a number of such issues have been identified. Some require political resolution (decline of copra production and uncertainty over land tenure); others require analytical resolution (what to do about imports of rice and canned mackerel). But, while a clear policy framework is essential for planning, the major planning concerns focus on the second heading: the development of agricultural potential. And here the problem is not so much one of defining planning priorities for ecological zones or crops so as to maximize the growth in output but, rather, one of defining the terms in which development is to be measured. How much is it to be expressed in terms of growth in the national product, or increase in incomes accruing to smallholders, or to particular areas, or in export earnings, or import substitution, or rural job creation? Agricultural development will not be held up by a failure to resolve these questions per se. Rather it is likely to be held up through the failure to pursue any clearly defined objective at all. (e) Provincial Planning 2.24 The inadequacy of provincial planning objectives as a basis for project identification is apparent from a review of provincial plan documents. What emerges is that the project plans produced by the departmental offices are directed at developing the legislated functions of these departments. Thus, department plans for Primary Industry will cover the improvement of extension programs for (the division of) subsistence gardening, nutrition, commercial vegetable production, coffee, poultry, pigs, etc., and the provision of marketing, credit and other complementary programs. These activities may be thoroughly desirable, and each can be shown to relate to a Strategic Objective, but they do not refiect a broad strategic view, developed for each province, of problems, trends, and growth opportunities which gives direction or priority ranking to these activities. 2.25 The lack of any clear direction for provincial planning is recognized in the following quotation (from the North Solomons Provincial Government 1982 Activity Program): "The Department of North Solomons finds it extremely difficult to effectively measure and evaluate its operations each year, as it has been operating without any conformity and/or set  - 17 - of identified Departmental Priorities ... There is a need to have divisional objectives and priorities during 1982 fiscal year to enable the Divisions to effectively plan their programmes and activities towards achieving the overall Department objectives ... We hope that more well defined Provincial Government development guidelines will be formulated to guide the Department in its operations 2.26 What is also clear from this statement, and from other statements in this report, is that the task of formulating provincial development planning objectives is seen as that of the Provincial Government and the task of the division is to draw up divisional objectives and priorities with regard to their activities, roles and functions. However, unless the process of formulating provincial objectives is linked to the process of formulating division objectives there is a danger that the provincial objectives will not provide clear enough guidance to divisions proposing projects and that they will continue to be used as a means of justifying divisions in supporting those activities that they wish to develop. 2.27 Further evidence of lack of clarity of objectives at the provincial level is given in a report of a "Workshop on Provincial Planning System," November 1981, which, in characterizing the current situation of planning in Papua New 'Guinea, expressed concern about: (a) vague and unclear objectives; (b) the lack of any clear statement of policies; (c) conflicting priorities; (d) arbitrary funding decisions unrelated to developmental needs; and (e) lack of commitment to planning in the provinces. 2.28 These shortcomings were attributed, especially, to a failure to integrate the political process into the administrative planning process which resulted also in conflicts in political and administrative viewpoints. The same source reports conflict in national and provincial priorities even with sectoral programs "expected to meet both national and provincial objectives together." "Provincial divisions' it was said, "were not adequately involved in the (planning) process." Partly due to lack of proper guidelines and partly because of close professional and technical links with national departments, the divisions prepared projects which did not reflect provincial priorities.  - 18 - 2.29 The absence of a planning system at the provincial level is a critical weakness of the system overall. While the NPEP process is crucial, and should be maintained and strengthened, it cannot of itself achieve effective planning. In particular, it should be noted that the NPO cannot conceivably bring coherence to provincial and national planning simply by providing sound appraisal of individual projects nor by improving on the design of, and conformity to, pro forma procedures; nor can it take over provincial planning; nor can it effectively play its role as national plan orchestrator and coordinator while provincial plans are weak. Even the development of strong sectoral strategies will be insufficient, by itself, to result in coherent provincial and national planning. On the other hand, the development of strong, provincial planning will sharpen the issues and help lay the basis for giving improved direction to sectoral strategies. (f) An Integrated Planning Strategy 2.30 It is clear that a national planning strategy cannot succeed if the provinces remain poorly integrated into the system. As noted, provincial Departments are rarely able to mobilize the support of the National Departments (i.e., DPI, Education) in their own provincial planning processes. Moreover, because the provinces do not even mobilize their own divisions the counterparts of the national department - in this process, the latter are not even indirectly linked to any comprehensive provincial planning. This weakens the national departments as well, for any planning they may do for provincial projects is done largely without the inputs and responses from other local political, technical and administrative expertise. 2.31 Although the lack of project identification expertise at the provincial level has been established as critical, it is not clear that a better provincial endowment of this talent would overcome organizational and programmatic deficiencies. 2.32 What is required is not so much to change what is being done but rather to build on what already exists, making some critical additions to current processes and strengthening some key planning stages, especially at the provincial level. Since, as it has been argued, neither the NPO nor the departments can of themselves bring coherence to PNG planning, a major effort needs to he focused on the strengthening of provincial planning - especially on strengthening the processes which lead to project and program identification and to the adaptive management of existing programs. This latter particularly will require, also, the strengthening of the data support provision for monitoring plan implementation. A possible program leading to an integrated planning strategy might begin with a review, by the various provincial and national entities of the overall government planning system, of the planning process in which they were engaged. An initial step might be a pilot project focussing on a few selected provinces and national departments.  - 19 - 2.33 This review and the following planning cycle - which would adopt the new pattern and develop improved strategies and plans - might be assisted through the provision of onr-the-job training both to those from the National Planning Office (NPO) and national departments who would act as consultants in their planning suppoxt roles to provincial governments as well as to provincial planners in need of specific skills training. In this general manner, and starting with a few (two to four) provinces and national departments, the whole of the provincial, sectoral and national planning structure would be assisted in building its own management capacities and its capability for the continuing development and strengthening of its planning system. 2.34 A pilot project of developing planning capacities, involving among others, on-the-job training of planning skills appears to be one that could be undertaken by PNG, with consulting assistance as required. In this context, some attention might also be given to budgetary and financial management, and personnel management and planning, which would be comple- mentary to any improved planning process and be a necessary adjunct in the strengthening of overall economic management. Chapter 3 and 4 elaborate needs in these areas. 2.35 The proposed undertaking could be characterized by: (a) beginning the process of sectoral strategy formulation through clarification of the roles of the departmental policy units, of the involved national committees and of the procedures for relating political and administrative inputs and by identifying and carrying out priority tasks in sectoral strategy analysis and formulation; and (b) initial concentration on two to four provinces - appraising their existing planning procedures, identifying present shortcomings and proposing remedies. This would be followed by the successive involvement of other provinces, first as observers, later engaging them in their own review and planning. Ultimately PNG capability would be developed to take over the roles initially played by outside consultants in assisting in planning process review and in onr-the-job training of team and individual planning skills. At an initial stage, however, consultants might assist departments and provinces in drawing up initial strategy statements so that associated work on budgetary and manpower management could proceed: the building of management capacities is likely to require some time and earn more time would be required to produce, e.g. sectoral strategies de novo. 2.36 The critical outputs of the program would be expected to be: (a) the development of a management system which effectively mobilizes political and administrative resources in order to produce  - 20 - forward-looking and coherent plans based on well articulated and concretely expressed goals - national, sectoral and provincial - and translated into feasible and well considered programs and projects; and (b) the ability, institutionalized within PNG, for further strengthening management capability. 2.37 These same outputs would result in: (a) improved articulation of sectoral strategies and of their expression in planning; (b) improved project identification and preparation; (c) improved coordination in planning and implementation (between departments, between the center and the provinces, between political and administrative entities); (d) improved feedback from performance monitoring to planning and the management of implementation; and 2.38 Annex 1 provides details as to how a possible program for the development of PNG planning capacity might be structured.  - 21 - 3. FINANCIAL MANAGEMENT AN]) BUDGETING 3.01 In Papua New Guinea there already has been some budgetary reform which has taken place over the last ten years. This has emphasized the idea of program budgeting, which was begun with the introduction of "Activities" and "Functions' into the budget format. The budget is potentially one of the most important management tools available to the Government, and as a quantitative expression of planning within the Government at the Departmental level it should contain information on objectives, resources, strategies and measures to monitor and evaluate performance for both National Public Expenditure Plan (NPEP) and non-NPEP expenditures, for the future as well as for the present. 3.02 Reforms to the budget process which have thus far taken place have tended to concentrate on inputs or expenditure control. With respect to such control, the Papua New'Guinea budget system has, compared to many other LDC's, an impressive record of success, particularly since the introduction of the NPEP. Through a high degree of centralization it has been possible to avoid excessive expenditures at a time when revenues have been disappointing due to low prices for copper and agricultural exports. However, under current circumstances increased efficiency in budgetary management over time as well as a greater degree of flexibility and responsiveness to sectoral requirements is only likely to take place through an increased degree of departmental responsibility for their own programs. 3.03 The next step in the evolving budget process of Papua New Guinea should be to concentrate on outputs, i.e., the results achieved by public expenditures. Managers are not at present required by the system to ask themselves where they want to be in a few years time and thereby to focus on objectives which can be communicated clearly and convincingly to subordinates. They are thus unused to considering longer term goals or the results they wish to achieve in terms of the time these results will take to appear, what resources will be required, and how progress is to be measured. (a) The Budget Process 3.04 In Papua New'Guinea the financial year is the same as the calendar year. Budgeting begins in January and the Estimates are usually presented to Parliament in November. For example, on January 2, 1982, the Secretary for Finance issued Finance Circular Memorandum No. 1 calling for the submission of recurrent expenditures and NPEP expenditures for FY83 and asking Departments to submit their budget proposals by May 28, 1982. Appendix C of the memorandum indicated target figures for total government expenditures for both the recurrent and NPEP process. It was pointed out that the Departmental Recurrent (non-NPEP) budget for 1983 would be K 214 million as opposed to K 223 million for FY1982. This was consistent with the NPEP process, which calls for an increasing proportion of the total  - 22 - budget to be allocated to capital projects and the recurrent costs associated with these capital projects. 3.05 The memorandum then went on to give detailed instructions on the preparation of the estimates, and concluded with the timetable of important dates which departments should try to adhere to. The instructions contained with the National Planning Office's separate request for projects dealt in some detail with ongoing and new NPEP projects. The NPO paper went step by step through the NPEP procedures explaining the purpose of the process and what was required. It also gave examples of all the forms that would be required and how these should be filled out. 3.06 When these documents are received in departments the recurrent budget advice (and responsibility for ongoing NPEP projects) goes to management services units while the NPEP budget advice on new projects is handled by policy units and senior officers. The first task, handled by management services in the light of the advice from the Department of Finance on available monies for the new year, is to draw up ceiling pro- posals for recurrent and ongoing NPEP projects, getting these to Finance by the end of February. Although there is a requirement to look closely at travel costs and special services the preparers of the non-NPEP recurrent estimates usually take the previous year's figure, adding on a little in those areas where they feel Finance may be less strict. The budget pre- parers in management services are usually left to themselves for this task. With respect to the so-called recurrent cost of NPEP capital projects, funding of these expenditures is usually assured when the projects are approved. Starting in 1984, however, departments will be requested to reexamine and justify all activities, NPEP and non-NPEP, for which they are responsible. There remains, howver, some question as to their ability to do this properly, and indeed, it is this capability which must be strengthened ./1 3.07 In arriving at ceiling proposals, management services units face a number of problems. With respect to the recurrent budget they must first ask the officers of different units in the department for their estimates. But management services has no way of evaluating those responses because they do not know what role those units are going to play in the future and they have no information on past performance. There is no consideration of priorities. The Circular that the preparer of the recurrent budget receives from Finance is the only budget advice that he gets during the year. 3.08 The work force is not growing by much since there are few new posts and indeed cuts have been made in staff ceilings. So each year the /1 The Department of Education is regarded by the Government as a model worthy of emulation in this respect.  - 23 - same manpower may have to do more. Management services strategy is therefore logical given the powerful position of Finance and their own position within the Department: they spread the cuts around evenly, with little consideration given to results and priorities. 3.09 Because of the overriding concern within Departments for new NPEP projects, and given strict controls by Finance, there is neither incentive nor opportunity to identify savings or shift resources within the recurrent budget. Control exercised by Finance is detailed. Management services units have little time to familiarize themselves with operations, and it is difficult for these units to know what adjustments could be made or what the impact on operations would be of specific cuts. Of course it is equally true that management services does not know where they would apply any incremental funding. 3.10 NPEP project preparation (Fig.l ) is proceeding at the same time within Departments. Departmental NPEP preparers do not start from scratch, but begin with the approved list of projects that were submitted the pre- vious year but were unfunded. To this they add new projects that are suggested by their own work, knowledge-of the bureaucracy or political sensitivities. At this stage they do not have to do the detailed design work on new budgets. What is required from them is a list of projects in rough form together with an idea of their rough cost and contribution to the objectives of the National Development Strategy. 3.11 Preparing a project list presents difficulties not all of which can be overcome. The absence of settled Departmental policy reflecting government approved sectoral strategies can be an important constraint. Departments must furthermore trust Works and Supply to undertake construc- tion work in the absence of information as to what other demands are being made on this Department, which often results in overly optimistic estimates of when NPEP projects with a construction component can be completed. It also represents a severe problem in a country which has limited private construction capacity. Review of Budget Submissions 3.12 Although the Finance Department has copies of both the ongoing NPEP, recurrent and new NPEP submissions, the review of NPEP ongoing and recurrent expenditures is undertaken by a specially constituted subcommit- tee of the BPC. This process really begins at the end of March when the ceilings for all expenditures for the following year are announced. 3.13 The ongoing NPEP and non-NPEP recurrent estimates are first examined within the Department of Finance to ensure that they have complied with the requirements of Financial Memorandum No 1. Within the budget office there is a rough division of labor among examiners based on the size  24 igure 1: THE NPEP PROCESS A DESIGN STAGE EXECUTION Pollcy DlrecttV Formulate & Design EXECUTIVE AG~~~~ENCIES I. L COUNCIL, & Guidelines the ProJects TECHNICAL AcMoe on Technical NATIONAL Evaluates the Projects EVALUATION t PLANNING & Recommends on Design COMMrITEE Aspects OFRCE Stotus (NPO. Finance. PSC & j Tecnical Departments As Necessary) BUDGET Discusses with Agencies PRIORIES & Makes Rnal COMMlrrEE Recommendatlons NAONAL PLANNING Makes Design Decisions COMMITTEE B. RJNDING STAGE Submlt Full Costings AGENCIES on Design Usted Projects NATIONAL Integrates Project Costings PLANNING wlth Rest of Budget & Makes OFFICE/FINANCE FundIng Recommendations BUDGET Makes Final Recommendations PRIORmES on Projects As Part of COMMIMEE Total Budget NATIONAL EXECUTIVE Makes FundIng DecIsions COUNCIL World Bank-24800  - 25 - and importance of departments. However, because of manpower constraints the budget office is not able to undertake detailed analysis and, in any case, the items do not lend themselves easily to such work. The criteria used in reviewing departmental submissions are not published or given to the Department submitting the estimates. 3.14 The review of the new NPEP project proposals involves a large number of committees including the Budget Priorities Committee (BPC) and the National Executive Council (NEC). Here important political considerations enter: politicians naturally want funding for projects in their area, and the leadership must keep an eye on the distribution of projects to ensure that all areas of the country receive a share. Table 1 shows NPEP Project allocations broken down by the strategic objectives of the National Development strategy. 3.15 The use of strategic objectives categories with ideal percentage targets entails some difficulties, because choice of projects to fill up these boxes seems to take place more on the basis of what ought to happen rather than on the basis of what has happened. Selection of good candidates for the NPEP depends very heavily on the ability of those in the various review committees to assess conditions in the provinces and the administra- tive capacity of departments to respond to new initiatives. With a fairly rapid staff turnover in Finance and the NPO it is difficult for reviewers to make these assessments. At the same time, staff turnover in line depart- ments may lead to sharply changed orientations in project proposals. Table 1: 1983 NPEP PROJECT ALLOCATIONS BY STRATEGIC OBJECTIVES Project expenditure Project expenditure (%) - ( 0