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
A Question
 If a key MDG objective is to be achieved in a
country (say100% primary enrollment),
should we:
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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?
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
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 suboptimal outcomes where capacity is weak
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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
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)
Key institutional factors for
effective service delivery
 Recent WDR highlighted the following
 Budget Management
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Organization of tiers of government
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Formulating and implementing budgets in line with policy
objectives and fiscal constraints
Appropriate assignment of responsibilities and fiscal
resources to different levels of government
Public Administration

Motivating and managing public employees for effective
service delivery
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
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
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.)
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
Thank You