Government Budgets, Aid and Development Outcomes

1
Government Budgets, Aid and Development Outcomes

• Anand Rajaram and Bill Dorotinsky, PRMPS
• Public Expenditure Perspectives for HD,
• Session 1, November 12, 2003
• HD week, 2003

2
A Question

• If a key MDG objective is to be achieved in a
  country (say100 primary enrollment), should we
• Insist that the goal is included in the PRSP of
  the country?
• Develop conditionality to increase public
  spending on that sector?
• Design and implement a multi-year Bank
  project/program to achieve the outcome?
• Ensure coordination with donors to achieve the
  outcome?

3
Emerging development consensus

• Developing countries will have to strengthen
  policies and governance so as to ensure that
  domestic resources, private inflows and aid can
  be used effectively in spurring growth, improving
  service delivery and reducing poverty.
• Developed countries will need to move vigorously
  in supporting these efforts with more and better
  aid, debt relief and improved market access.
• Dev.Committee Communique, Sept.2003

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Aid can have perverse effects

• Governments are besieged by demands from interest
  groups including diverse donors with financial
  influence and agendas
• Such pressures often contribute to sub-optimal
  outcomes where capacity is weak
• Policy steering by aid agencies (undermines
  ownership and weakens internal policy debate)
• Competitive donor promotion of projects,
  corruption
• Capacity diminution - donors poach limited
  capacity to staff PIUs
• Little attention to budgeting, public
  administration or service delivery
• In this scenario, countries develop in spite of,
  not because of, development assistance

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What must change to implement this consensus?

• Home grown policy from PRSP or other process,
  responsive to country priorities
• Effective resource management by country to
  implement policy
• Support from donors to help strengthen, not
  undermine, govt. capacity to manage resources
• This requires a better understanding of govt.
  institutions, systems and processes and medium to
  long term strategies to improve them (no quick
  fixes)

6
Key institutional factors for effective service
delivery

• Recent WDR highlighted the following
• Budget Management
• Formulating and implementing budgets in line with
  policy objectives and fiscal constraints
• Organization of tiers of government
• Appropriate assignment of responsibilities and
  fiscal resources to different levels of
  government
• Public Administration
• Motivating and managing public employees for
  effective service delivery

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What are implications for work?

• Country teams will have to
• Incorporate a medium term program of analytical
  work on public expenditure policy and management,
  
• Ensure corresponding work on issues of public
  administration and tiers of government and its
  impact on service delivery in each sector
• Assist government in defining their strategy to
  address policy and management weaknesses
• Coordinate donor support to government strategy
  to strengthen institutions and govt. capabilities

8
Implications continued

•  All sectors to pay more attention to the chain
  of links between broad policy objectives and the
  capabilities needed for resource management and
  service delivery
•  Country teams to form a collective view on the
  cross and intra-sectoral choices in the annual
  government budget and include it in sector and
  PRSP dialogue
• Increasing support to PRSPs via PRSCs that
  provide predictable resource inflows to
  government

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Implications for project work

• Integrate the PE system perspective into project
  level work
• Feed project insights into broader assessment of
  system performance (incentives and staff
  motivation, corruption, etc.)

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Key Messages

• The government budget is a key instrument for
  linking policies, resources and outcomes
• Channeling development assistance through the
  government budget can reduce transactions costs
  and strengthen domestic capacity
• International goals such as the MDGs require
  donors and aid receiving governments to match
  resources with better policies and institutions
• Donor (including Bank) assistance strategies must
  be based on a good understanding of public
  expenditure policies and institutions of resource
  management

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Thank You