In its projects, the IDG Team emphasizes the poverty effects of macroeconomic policy, and how all the resources of government can be marshaled across disciplines towards broader poverty reduction goals. Similarly, a major priority of our approach is donor coordination, in order to ensure that the international donor community is helping to move countries along a sustainable path on a broad front.
A key way in which IDG supports USAID in economic governance areas is through the LEAP-II Project. Through this project IDG provides economic analysis, monitoring and evaluation support services to USAID Missions and Bureaus globally in EG issues of top priority to USAID.
The IDG Team can advise governments at the highest levels, including the offices of prime ministers and presidents, or ministries of finance or economy, on conceptualizing and leading broad-based macroeconomic reform efforts. Such reform programs can be tailored to each country's political context - post-conflict, transition, new government, etc.
Real and meaningful progress has been made in most donor beneficiary countries in rationalizing macro policy, to a considerable extent thanks to previous donor programming. The criticality of low inflation and stable exchange rates is universally recognized. Consequently, there is much less work to be done in these policy areas than once was the case. Nonetheless, some issues remain. Particularly in post-conflict and post-disaster countries, where a central bank may be newly created or significant staff levels may be new to their jobs, assistance will be needed in several areas: monetary policy during rapidly changing economic conditions; introduction of a new currency (policy and logistics); revenue management (ensuring that revenues are safely and efficiently invested); and cash management (physical maintenance and safeguarding of cash in vaults).
Tax Policy and Tax Administration
Improving tax policy and strengthening tax administration will remain core fiscal areas for donor assistance in many countries. For many countries, the value-added tax (VAT), particularly as applied to domestic production, will be the most significant source of increasing revenues in coming years, as emphasis on border and income taxes declines. Tax burden on labor is high in developing countries given income levels causing unemployment, informality, and distorted labor markets. Reforms in countries with large informal sectors will aim to simplify business taxes for small firms so as to broaden the tax base without placing an onerous compliance burden. Beyond these policies, tax administration efforts funded by donors may focus on procedures and systems (IT and otherwise) within tax administrations to make them more efficient as well as on public outreach to broadly educate taxpayers to encourage voluntary compliance. IDG can provide assistance in addressing these important tax issues, drawing on our extensive experience improving tax policy and strengthening tax administration.
Budget Formulation Processes
We offer assistance to improve budget formulation processes for host countries in recurrent budgets, as well as planning for capital budgets through sectoral policies. We focus on measures that will improve budgeting and will be sustainable in the conditions a country likely will have over a several-year horizon, tailored to the capacity of the country; for example, low-capacity countries will focus on the basics, while higher capacity countries will be assisted in cutting-edge and innovative planning techniques such as dynamic fiscal policy. We can also provide assistance in donor coordination, especially as it regards to budget planning.
Assistance in this area seeks to harmonize tax policies across levels of government, examination of fee-setting and revenue collection at a sub-national level, and incorporating fiscal federalism plans into the budget process. IDG can provide assistance at national and local levels to equip national and local governments with analytical decision-making tools necessary for fiscal decentralization.
IDG can provide assistance on public procurement reforms to promote improvement of appropriate laws, regulations, and codes of conduct (conflict of interest, tender processes and handling, information security), implementation of procurement systems, assistance with procurement agencies/committees/institutions, and safeguards for oversight after awarding contracts. Additionally, e-procurement can form an important means for making the procurement process more efficient and less corruptible. The IDG Team can provide assistance in these areas.
Custom Duties and Customs Administration
IDG can assist countries to reform customs duties, to broaden revenue, comply with WTO and other trade integration objectives, and improve the business environment. Customs administration assistance will focus primarily on supply chain security, increasing speed of customs clearance, reduction of number of procedures and burdens (including opportunities for rent-seeking), customs reporting, and the ICT necessary to support (including ASYCUDA and other internationally-accepted customs software), risk management, anti-corruption procedures and training, and better integration with Ministries of Revenue and Finance, and with international trade policy.
With respect to natural resources, a major source of non-tax revenues, IDG can assist governments in several areas: analyzing and planning for long-term revenue and expenditure streams related to natural resource exploitation; fiscal and financial control issues related to creating carefully-managed petroleum or other funds (like in Norway, Alaska, or the Middle East) and the institutions associated with these funds; negotiating terms of concessions or production sharing agreements; and maximizing spin-off investment and job creation opportunities from related foreign investments. Particularly important is advising countries on how to avoid Dutch Disease - the negative macro effects that natural resource wealth can bring.
IDG can provide a comprehensive range of assistance in the area of pension reform, addressing fiscal, social, legal, regulatory, institutional, and political issues. IDG's approach includes assisting governments with both aspects of a successful pension reform - getting the policy directions theoretically correct, and then addressing all the details of implementation so that the theory is achieved in practice. IDG's CEO David Snelbecker led a comprehensive pension reform assistance effort in Kosovo for USAID, replacing the old Yugoslav-era, fiscally unsustainable pension system with a new three-tiered system that includes a uniform benefit paid to all elderly funded from general revenues, and creation of the Kosovo Pension Savings Trust to invest contributors' assets in international markets. The reform reined in near- and long-term public fiscal imbalances, introduced a total tax rate on labor (personal income tax plus pension contributions) that is the lowest in all Europe (East and West), and established a soundly operating funded pension institution that offers the lowest administrative cost of any such universally mandated system in Europe (costing now only 65 basis points as a share of assets, compared to 150-200 or more basis points in much of Europe). The Kosovo system is one of few that were not substantially rolled back after the recent world financial crisis.
Cost Benefit Analysis/ Public Investments for Capital Budgets
Government counterparts have shown an increased interest in cost-benefit analysis and other rigorous techniques to assess the relative merit of public investment opportunities. Such analysis is used by Government agencies to choose from among potential investment projects those that will produce the most benefits for society. IDG can develop cost-benefit and project appraisal skills within government entities responsible for overseeing public investment and developing project proposals. IDG can provide assistance on the following topics: financial modeling (a model future cash flows, compared to alternatives); economic analysis (a measurement of the costs and benefits of a project for the company as a whole); stakeholder impact assessment (which helps identify stakeholders who might be expected to be unhappy with the project because they will lose out as compared to the status quo); risk analysis (to estimate costs even when estimates made in planning projects underestimate costs and construction times); and project finance (assessing the cash flow that will be accessible to creditors).
Leadership, Evaluation and Analysis Project - II (LEAP-II): Through LEAP-II, IDG provides economic analysis, monitoring and evaluation support services to USAID’s Bureau for Economic Growth, Education and Environment (E3). The objective of the project is to provide a mechanism for the Office of Economic Policy in E3 (E3/EP) and for Missions and Bureaus to increase access to rigorous, independent technical evaluation and analysis within and beyond USAID. Analysis under this Activity may include, but will not be limited to, cost-benefit analysis, cost-effectiveness analysis, randomized controlled trials, quantitative and qualitative evaluations, domestic resource cost analysis, inclusive growth diagnostics and other types of analysis as needed. This Activity also provides for the presentation and dissemination of analysis findings and lessons, which can in turn be used by USAID operating units to help guide the design, implementation, and subsequent evaluation of economic growth and other sectors’ activities.
Azerbaijan Competitiveness and Trade Project: In Azerbaijan, the IDG Team addressed tax policy framework including VAT, corporate tax, personal income tax and high payroll taxes that discourage SME employment generation. The team also prepared a comprehensive analysis of tax issues, with recommendations and action plan, which are expected to lead to proposed revisions other Tax Code. These activities include presenting recommended amendments to the Tax Code and the design of a comprehensive program of reforms in tax administration for the Ministry of Taxes.
Tunisia ICT Competitiveness Project: IDG provided support to the Tunisian Tax Authority (under the Ministry of Finance) in data analysis and guidance in the areas of personal income tax and IT tax law. In addition, the project was among the key co-sponsors of "Enterprise Days," a large-scale event organized annually by the Institut Arabe des Chefs d'Enterprises (IACE), a leading think tank. The conference focused on outlining the vision for a new investment framework for the country. IDG contributed three speakers who shared their views on business enabling environment, tax policy, innovative sector strategies, and budgetary planning and fiscal governance.
Liberia Corridors Development Project: IDG's work on this project is a prime example of the IDG approach, which emphasizes the poverty effects of macroeconomic policy and how all resources of government and the international donor community can be marshaled towards broader sustainable poverty reduction goals. IDG identified agricultural and non-agricultural investment opportunities along two of Liberia's growth corridors, which formed the basis for the Ministry of Planning 2011 Economic Forum which attracted international economists, policy makers, urban planners, infrastructure experts and bi-lateral and multi-lateral donors to discuss opportunities and challenges to Liberia's rapid economic development. As a part of its poverty reduction strategy, the Government of Liberia strives to become a middle-income country by 2030 and the Corridors Development Project study is tied to this overarching national goal.