Budgetary Processes and Public Expenditure Management Core Course

1
Budgetary Processes and Public Expenditure
Management Core Course

• Promoting Allocative Efficiency (Strategic
  Prioritization)
• David Shand
• World Bank
• May 22, 2000

2

• Addressing the big issues of public expenditure
• Level 2 is always the hardest!
• The big issues have major political elements
• But a technocratic approach looking at
  objectives, alternatives, costs and benefits can
  assist in this political decision making.

3

• Principles
• Expenditures should be affordable in the medium
  term, be based on government priorities and on
  the effectiveness of public programs. The budget
  system should create conditions and incentives
  that facilitate reallocation from lesser to
  higher priorities and from less to more effective
  programs.

4

• Affordability,
• Expected Results
• Relative Priority
• Basic Elements
• The capacity and willingness to reallocate
• Priority-setting process in government
• Information on program outcomes and
  effectiveness

5
Requirements

• Willingness to think about why we are spending
  money on particular purposes and what we are
  actually getting for it.
• Recognition that resources are limited and that
  therefore we need to think about alternatives and
  opportunity cost.
• Objectives to be determined or specified. But are
  governments willing to be explicit?
• Relevant information on costs, outputs, and
  outcomes? (Is all this information useful?)

6
Requirements (contd)

• A linkage between the analysis/evaluation and the
  decision-making processes
• A hard medium-term budget constraint
• Ability and incentives to reallocate resources

7
Allocative Efficiency at What Level?

• Between broad objectives - economic growth,
  poverty reduction, regional development
• Between sectors - education versus health versus
  defense
• Within sectors -
• primary/secondary/tertiary/vocational
  education/university education
• public health/primary care/hospitals/family
  planning
• army/air force/navy

8
Allocative Efficiency at What Level?

• Between programs - what is a program?
• Within sub-sectors - spending on teachers,
  schools or textbooks? Quality versus quantity.

9
Some Prior Questions

• Is this a function of government? Is the
  activity delivering a public or a private good?
• Is it aligned with government objectives?
• Or is it historical, dictated by interest groups
  (client capture), result of drift, inaction and
  lack of information?
• Are there alternative mechanisms apart from
  direct government expenditure? e.g. regulating
  the private sector, providing government
  guarantees.

10
Some Prior Questions (contd)

• Also a need to consider tax expenditures
• Who legitimizes organizational/program
  objectives? Need for cabinet/ ministerial
  involvement?
• New Zealand 2010. Attempting to link strategic
  and operational objectives (SRAs and KRAs)

11
Some Examples of Major Expenditure
re-allocations?

• Achieving quality fiscal adjustment
• Reductions in civil service number and/or cost,
  wage and/or recruitment freezes
• Streamlining of the public service (technical
  efficiency)
• Across the board cuts in administrative costs
• Procurement reforms
• Reform/reduction in cost of public enterprises
• Reductions in transfers to sub-national
  governments

12
Some Examples of Major Expenditure
re-allocations? (contd)

• Reductions in capital works (which ones?)
• Reduction or abolition of subsidy/assistance
  programs to industry, agriculture etc.
• Redesign or re-targeting of social transfer
  programs - particularly public pension reforms
• Reductions in defense expenditure
• To what extent are such reallocations based on
  any systematic consideration of priorities?

13
Problems in Strategic Prioritization

• Lack of linkage between the plan and the budget -
  promise in the plan what you cant deliver in
  the budget
• Investment led priorities, rather that program
  priorities
• Donor driven priorities
• Priorities determined by other levels of
  government
• Protected enclaves of government spending

14
Mechanisms which Promote Strategic Prioritization

• Aggregate medium-term fiscal targets
• Hard budget constraint - no add ons without
  corresponding reductions
• Consideration of alternative mechanisms - does
  this have to involve public expenditure?
• Sectoral strategies (strategic plans?) - costed
  over the medium-term

15
Mechanisms which Promote Strategic Prioritization
(contd)

• A medium-term expenditure framework (MTEF)
• Arena within which policies compete and
  coordinate - cabinet, budget office and
  ministries internal budget preparation
  processes focus on strategic matters, not process
  or details.

16
Mechanisms which Promote Strategic Prioritization
(contd)

• Ex-ante and ex-post evaluation
• Creating capacity and willingness to reprioritize
  and reallocate
• Spending ministries having greater ownership of
  their budget
• Encouraging ministers/ministries to reprioritize
  within budget envelopes