Business Challenges

In transition following the end of the Soviet Union, poverty remains a deeply-entrenched problem in Armenia. In 2006, nearly a million of its 3.2 million citizens remained below the poverty line. In this situation, the need for optimal use of limited public resources is critical. Armenia developed an initial Poverty Reduction Strategy Paper in 2002, and a key challenge was to ensure that PFM systems could support the essential linkage between policy and budget - enabling scarce resources to be best used to implement that strategy successfully.

Solutions

Atos Consulting led two major PFM projects to meet this challenge: from 2002-2005 supporting introduction and operation of a Medium Term Expenditure Framework (MTEF) approach, and from 2005-2008 building on this foundation to introduce programme budgeting concepts and approaches.

Using an integrated team of international experts in budgeting good practice and national consultants operating embedded within the Ministry of Finance and State Budget Agencies, we assisted in the development of practical approaches tailored to the Armenian context. After establishing the annual MTEF as a routine and effective activity, the programme budgeting initiative developed new documentation for preparation, presentation / agreement and monitoring of the Budget.

The newly-introduced programme budgeting approach allowed State Budget Agencies (line ministries, other national agencies and regional administrations) to re-classify and then plan and monitor their activities on a programmatic basis – enabling a focus on the outputs achieved in parallel with the inputs consumed. This supported increased transparency in decision-making and accountability for performance.

The successful operation of these new approaches with a progressively expanding number of agencies led the Government to adopt this programme budgeting solution on a whole-of-government basis during the project’s life, along with a commitment to switchover fully to a programmatic basis for budgeting within the following two years.

Benefits

The ultimate test of the success of these reforms is how effectively they have enabled Armenia to be in implementing its Poverty Reduction Strategy. In developing its second PRSP in 2008, the Government assessed that most of the target indicators in the first PRSP had been achieved – in some cases by up to 10 years in advance of expectations. Allocation of Budget funds to, and within, the social sector was identified as a major contributory factor in this success.

In assigning it a 94% effectiveness score, DFID’s end of project assessment concluded that, “The project fully succeeded in establishing the technical framework for Programme Based Budgeting in Armenia … By introducing the Programme Based Budgeting framework in Armenia the project created a sound basis for policy oriented public spending. This will be helpful to better achieve strategic national policy objectives.”