2.3.2. Improve Government Financial Management Systems and Record Keeping
While USAID is no longer heavily engaged in macroeconomic policy, it continues to be deeply involved in fiscal policy and practice. Domestic resource mobilization and public financial management are considered key parts of the journey to self-reliance for USAID partner countries. Poor fiscal policy and systems can impact the cost of funds, pushing up interest rates due to governments borrowing to cover deficits. Areas of intervention include advisory support for tax policies, collection, and working with municipalities to establish better financial management systems (Source: Mobilizing Private Finance for Development Training).
- Ability to have commercial disputes resolved in a timely manner
- Access to reliable credit information on borrowers
- Burden of banking/finance regulations and supervision
- Quality of accounting and auditing standards and qualified accountants/auditors in target sector/region
Augments record-keeping, improving access to finance and information
MUST HAVE’S, CRITICAL POINTS, OR QUESTIONS TO CONSIDER
VIGNETTE: AGRICULTURAL INPUT VOUCHERS IN HAITI
The market for fertilizer in Haiti has been severely distorted by over 30 years of public subsidies given to private importers. The subsidies would lower the costs of imported fertilizer, which was then released at below-market prices through controlled market channels. This system, which ended in 2016, suffered from widespread fraud and collusion as actors in the chain diverted subsidized fertilizer from controlled-price circuits to buyers willing to pay full market prices. As a result, actors in the agro-input supply chain did not sell fertilizer to small farmers outside of the subsidized channel, leading to fertilizer shortages, under-application of fertilizer in major food crop systems and low farm productivity.
USAID’s AVANSE project developed a fertilizer voucher program designed to mimic open-market incentives for all actors in the fertilizer supply chain to order and supply fertilizer outside of the public subsidy mechanism. Under the program, project staff prepare for each planting season by working with fertilizer importers and local agro-dealer retailers in the region, using a competitive bidding process to set benchmark prices based on international market prices. The project sets a subsidy percentage of the total delivered cost of fertilizer at the local agro-dealers. Farmers then deposit cash representing their non-subsidized contribution share at a nearby MFI, who gives them an electronic voucher card that is loaded with the farmer’s identity. Importers, seeing concrete evidence of farmer demand, are confident enough to import and distribute the fertilizer to local agro-dealers who pay cash for the products. The voucher cards are then redeemed by the farmers with the agro-dealers. The agro-dealers then invoice AVANSE for the total agreed-upon total price of the fertilizer, which is paid after verification of the transaction and identity records in the voucher management data base.
The AVANSE voucher system has created a functional market mechanism bringing small farmers, agro- dealers and importers together to conduct seasonal fertilizer supply campaigns driven by small farmer demand with no direct project procurement. Through this mechanism, 5,200 rice farmers have been able to access fertilizer based on their own planning needs with private agro-chemical suppliers, in a context where the market had been completely shut. Over the life of the program, the fertilizer subsidy was gradually reduced – starting with 75% subsidy, reduced to 60% in 2016, and currently at 50%. AVANSE will continually reduce the subsidy until the end of the project to ensure sustainability.