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Albania: Poverty Reduction Strategy Paper—Annual Progress Report

International Monetary Fund
Published Date:
January 2006
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1 The NSSED and strategic planning in Albania

Albania has made enormous strides in recent years with greatly improved economic performance and sustained growth. The NSSED established a multi-year plan to combat poverty and strengthen governance. A permanent organisation was established in the Ministry of Finance, a deputy ministers’ network was created to ensure coordination, consultations with civil society were undertaken, ministries compiled detailed 4-year plans, and attempts were made to link these plans to higher level goals and objectives. Two annual progress reports have been approved and publicly distributed that offered the opportunity for debate on policy issues.

However, the policy challenges over the next decade will intensify as Albania pursues European and NATO membership, enhances its economic competitiveness, and moves steadily towards the Millennium Development Goals. The pace, scope and complexity of demands on decision makers and the public administration will continue to increase.

To address necessary improvements and in the framework of its own objective to modernise, the government established in April 2004, by order of the Prime Minister, a Technical Secretariat for donor coordination to develop a strategic, integrated, and accountable planning architecture for Albania. The objectives of the Secretariat are to:

  • better enable the Council of Ministers to provide strategic policy direction within a sound fiscal framework;
  • harmonise and streamline existing systems within a new, integrated planning system;
  • ensure that external assistance effectively supports the Government’s strategic priorities;
  • realign organisational structures to deliver the new system; and
  • identify implementation requirements to phase in the proposed changes.

The Technical Secretariat consists of six members representing the Prime Minister’s Office, the Ministry of Finance, the Ministry of Economy, the Ministry of European Integration and the Department of Policy Development and Coordination at the Council of Ministers. In collaboration with international experts, the Secretariat developed a functional organisational structure to guarantee a long-term institutional solution of aid coordination and government planning. A final proposal was prepared in January 2005. This was reviewed and approved by the Economic Policies Committee in March 2005 and by the government in April 2005. In May 2005, a joint conference was organised by the Government and Donor Technical Secretariats to launch the document. An action plan for the implementation will be prepared and approved in June 2005.

The proposal presents a new planning architecture for decision makers. Its proposals are wideranging and with significant implications for government decision making, strategic planning, medium-term budgeting, public investment management, external assistance management, European Union integration planning, government programme planning, sector and crosscutting strategies, legislation planning, monitoring and database support, reporting of results and accountability, the organisation and the role of affected departments in central institutions and line ministries.

As Figure 1.1 suggests, the pillars for a new planning architecture already exist. The challenge is not in building up a new system but in reshaping, harmonising and connecting existing fragments that are currently not fully connected.

Figure 1.1.Albania’s proposed planning architecture

If the planning system is to be more strategic:

  • decision makers must be more actively engaged at the outset rather than the conclusion of the planning process and be provided with high quality policy options that clearly identify the fiscal impacts of various choices;
  • the NSSED must shift its focus from short- to medium-term ministry action plans to medium to long-term planning for all national priorities without losing its poverty reduction emphasis;
  • the NSSED must create a policy-driven system in which a medium-term policy framework, comprising mutually consistent sector and crosscutting strategies, supports long-term national goals and advises the government on strategic priority options;
  • the government must annually establish strategic policy priorities within the context of the government’s macroeconomic framework; this will, in turn, guide the setting of ministry medium-term budget ceilings;
  • the NSSED and Medium-Term Budget Programme (MTBP) priority planning process should be formulated within the programme budget structure; programme expenditure decisions accordingly will depend on related policy goals/objectives and expected results;
  • public investment (domestic and foreign-funded) and technical assistance projects must be identified in advance of specific planning exercises and be derived from sector strategies;
  • an annual external assistance priorities document must be developed, as a product of the planning process, to enable informed deliberations with donors that link external assistance needs to government priorities; and
  • the Council of Ministers’ annual legislative and decision-making programme must similarly derive from the strategic planning process delivered through the NSSED and the MTBP

If the planning system is to be integrated:

  • policy and financial planning must be presented as components of a single planning system;
  • public investment and external assistance must be recognised as key contributors to policy goals and objectives within the NSSED and MTBP frameworks;
  • European Union integration planning must be reflected in all phases of the planning process;
  • the Government Programme and cross-cutting strategies (e.g. decentralisation, anticorruption) must similarly be incorporated within the planning architecture; and
  • monitoring must be designed to track performance against major priorities of all frameworks

If the planning system is to be accountable:

  • the roles of decision makers, central institutions, and line ministries in overseeing and delivering the new architecture need to be clarified;
  • clear, meaningful statements of expected results must be provided for each programme;
  • sufficient resources must be allocated to approved legal commitments; unfunded legislative mandates will not proceed to Parliament;
  • accurate, timely information on achieved versus expected results must be provided in an annual report made available to Parliament and the public;
  • consultations undertaken through NSSED with civil society and expert external groups must be adapted and strengthened as an essential component of policy development;
  • active monitoring by the centre must focus only on the significant commitments; and
  • line ministries must be delegated sufficient authority and resources to manage effectively

These design parameters establish the framework for the proposed integrated planning system. The next section reviews the key implication of the new system for the operation of the NSSED.

The NSSED in the Integrated Planning System

The main implication of the Integrated Planning System for the NSSED is that it will evolve into a comprehensive strategic planning framework. Its focus will accordingly shift towards medium to long-term planning, ensuring that coherent, costed, mutually consistent sector and cross-cutting strategies are developed and that these support the national vision and serve as the policy basis for the annual MTBP process. The position of the NSSED in the annual budget calendar and the links between institutions are further elaborated in Annex 4.

While retaining responsibility for the poverty reduction strategy, the primary mandate of the NSSED Department will be to ensure that all national goals, including EU and NATO membership, the MDGs, good governance and decentralisation, are appropriately reflected. Rather than monitoring ministry action plans, the NSSED will identify high-level indicators and use specialised research to determine how well Albania is progressing towards its medium- and long-term goals.

The key process improvements for NSSED will be to clarify its own planning architecture, focusing on medium to long-term planning, and to expand its scope to cover all national and government priorities. In addition, it will develop a transition plan whereby the existing sector and crosscutting strategies (see Annex 3) approved by the government are reviewed for ongoing relevance and adherence to newly-developed standards. Attempts will be made to cost these strategies to ensure that each one reflects internal tradeoffs and to assist the government make choices between competing strategies. It should be emphasised that indicative costing at this level is far from precise and that only through the MTBP process will detailed tradeoffs emerge.

Sector strategies will be the linchpin of the new system, integrating policy and financial planning and connecting medium- and long-term planning with budget formulation. They will need to be frequently reviewed to ensure they reflect the current policy influences exerted on that sector. As sector strategies do not yet exist in all sectors, the NSSED Department will be mandated to initiate a multi-year process to assess and adapt existing sector strategies and work directly with ministries on developing new ones.

To summarise, in making this shift to a policy-based, strategic planning framework, the NSSED Department will be:

  • identifying linkages to national goals
  • developing and monitoring high-level indicators
  • overseeing indicative costing of medium- and long-term strategies
  • overseeing cross-cutting strategies
  • overseeing sector strategies
  • developing poverty reduction policy directions
  • integrating coherent regional and decentralisation strategies
  • advising on policy implications of MTBP expenditure ceilings

A process to revise the NSSED is expected to begin in late 2005 and run throughout 2006. The NSSED Department will coordinate the government’s participation in the exercise and will ensure coherence between the 3- to 5-year medium-term strategy and the national goals. The extent to which all of these functions can be fully carried out will also depend on institutional changes to build the capacity of the NSSED Department.

Structure of the Progress Report

In the 4th Review Under the Poverty Reduction and Growth Facility (July 2004), the government committed itself to a new NSSED progress report, “taking into account the recommendations of the joint staff assessment of the 2004 progress report”. The envisaged reform of the planning system is the key government response to fulfil its commitment. These changes will take place over the next few years. This Progress Report takes a number of steps in this direction.

Chapter 2 reviews the macroeconomic developments: economic growth and the structure of the gross domestic product, the balance of payments, exchange rate movements, the structure of exports, public finance, revenue collection, monetary policy, inflation and the labour market. The macroeconomic projections of the Ministry of Finance are presented at the end of the chapter along with a brief discussion of current thoughts within government to build capacity in developing alternative macroeconomic scenarios for policy purposes.

Chapter 3 provides an overview of socioeconomic conditions. The findings are primarily based on the 2002 and 2003 waves of the Living Standards Measurement Survey, which is the foundation of the poverty monitoring system. The update on the poverty profile is based on an analysis by a research team at the FAO. It suggests that high rates of economic growth over recent years have a positive impact on living standards. Other aspects of living conditions, such as education, health, employment, water and electricity, are also discussed. This analysis was conducted using skills developed within the NSSED Department.

Chapter 4 presents the line ministry responses with respect to the implementation of NSSED activities. A number of line ministries received a special response form with questions focusing explicitly on policy issues. An extended discussion of issues related to the decentralisation and European integration strategies is included. The NSSED Department also initiated two studies that used statistical data to inform policy questions; their results are summarised. The findings of numerous other studies that have touched upon policy issues are presented throughout the chapter to inform policy discussions.

Chapter 5 summarises the progress in the implementation of the NSSED in terms of the key indicators and the Millennium Development Goals. This year, the NSSED Progress Report also doubles as the MDG Progress Report. This is part of the attempt to shift the focus to outcome and impact indicators, a process that will be completed during the revision of the NSSED. Annex 1 includes a supplementary list of indicators that provide a basis for discussions on monitoring that will take place over the next few months.

On the basis of the progress achieved and the remaining challenges, Chapter 6 provides a set of recommendations to inform this year’s Medium-Term Budget Programme process. In response to calls for closer links between the two processes, the NSSED and Budget Departments have worked closely together in the preparation of this year’s Progress Report. In previous years, line ministries were almost simultaneously requested to submit matrices of mid-term policy priorities for the two planning processes. To avoid duplication of effort and to minimise the possibility that priorities are not embedded in the public expenditure management process, this year’s NSSED Progress Report priority matrices constitute the ministries’ contribution to the first planning stage of the MTBP process, namely the Programme Policy Review / Sector Expenditure Strategy. This was decided in view of the fact that over the coming years the NSSED Department will gradually assume the responsibility for the coordination of precisely these sector strategies. The matrices are presented in Annex 2. Although the process is incomplete, it represents a marked improvement in terms of a critical process that aims to link policies to the budget.

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