Assessing the Public Budget A Framework Public Expenditure Clinic for Benin’s Finance Committee of the Parliament Vinaya Swaroop World Bank, Washington, DC December 13th, 1999
Public Budget Assessment... …should be done on the basis of two complementary themes: ! Getting budgetary allocations right; " Helping to build well-functioning institutions . 2 2
Public Expenditure Evaluation: A Framework Level (size) of Spending Composition of Spending Efficient [Aggregate Fiscal Discipline] [Strategic Priority Setting] Public Service Delivery (Reforming Incetives through...) Evaluation of public resources allocatio n 1. Performance-based budgeting 2. Performance-based rewards (within and across sectors) 3. Client surveys 4. Retention of user fees
I. Level (Size) of Public Spending & Deficit Issues # Public spending level needs to be # consistent with the country’s long-run financing ability; $ Persistently large deficits pose threats to stability & growth of the economy; % Experience suggests, deficit reduction % usually requires a cut in public spending.
I. Level (Size) of Public Spending & Deficit Issues (contd.) A deficit reduction strategy should analyze the following questions... & How is the deficit measured? & What is the composition of deficit financing? & What is the sustainable amount of fiscal deficits?
I. Level (Size) of Public Spending & Deficit Issues (contd.) More questions... & When and how can the user charges be introduced (or increased) ? & Is it less costly to reduce public spending than raising revenue?
II. Resource Allocation Exercise How to? A couple of points to remember... & Budgetary allocation process is foremost a political decision; & In practice, there is no optimal allocation of the public budget.
II. Resource Allocation Exercise The technical part should be based on… & What is the rationale for government intervention? • Market failure (public goods, externalities) • Redistribution & What is the appropriate instrument? & What is the fiscal cost?
Decision Tree for Evaluating Public Programs What is the rationale for public intervention? Market failure (externalities, public good) Redistribution No rationale There is a rationale (Market Failure and Public Goods) & (Distributional Considerations) 1. telecommunications What is the right instrument ? 2. fertilizer subsidy 3. hospitals ? 4. tertiary education ?? Outsourcing Subsidy Regulation Public provision Government Building Maintenance Clinical Health Consumer, Workers, Envirnment Primary Education Community Development Programs School Vouchers Securities and Exchange Safety Nets Electricity & Telecommunications Security (internal & external) Basic Health Education What are the fiscal costs? (tradeoffs based on costs) 9 9
Example 1: Determinants of infant mortality in Malaysia An econometric research shows that... Safe water -.147* Immunization -.113* Public medical 1.03 personnel per capita Income -1.06 2 Adjusted R .55 *significant at 5%
Example 2. Public Spending on Education Indonesia -- Who are the Beneficiaries? Subsidy per capita of decile Primary Tertiary 1 3 5 7 9 (poorest) Deciles
Example 3. Fiscal Cost Comparison: An Example from Morocco 1989 67 20% 1990 76 of basic education 1991 90 160% 1992 107 of preventive Average 85 health 0 60 120 Farm subsidy, millions of dollars
III. Efficient Delivery of Public Services A key requirement is to reform the incentives in the public sector... • Merit based recruitment and promotion in public sector; • Performance-based budgeting and rewards; • Assessment of public service delivery through client surveys; • Retention of user fees.
III. Efficient Delivery of Public Services (contd.) Experience suggests... & Several countries--developed and developing--have initiated such reforms (New Zealand and Malaysia); & But such reforms take time, and the success is based upon initial conditions in the country including existing capacity and political readiness.
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