In many countries, public spending processes are managed inefficiently, and act as an obstacle to reducing poverty. This chapter of the World Bank’s Poverty Reduction Strategy Paper (PRSP) Sourcebook sets out how budgeting and public financial management can be improved to support affordable pro-poor policies.
In order to meet poverty reduction goals, governments must adapt their budgeting and financial management systems. Currently, countries are at different stages in this process, and building capacity may take time. Key requirements are developing a system to compile reliable fiscal data, and strengthening national databases on poverty and social indicators. Once a country has implemented basic reforms, it should aim to develop a medium-term perspective for public spending. This allows a more realistic approach to poverty reduction, and should be a priority. Before such a strategy is in place, however, there are steps governments can take to secure short-term improvements.
The chapter outlines the various actors and processes involved in drawing up budgets. It also provides guidance on how governments should assess their spending options when designing and implementing poverty reduction strategies. Important measures include:
- Improving the quality of expenditure analysis. Spending decisions must be subject to scrutiny and their effect on poverty measured and analysed.
- Developing a medium-term approach to budget-making. Where such a framework already exists, it must be reflected in policy and used as a tool for debate.
- Complying with basic standards of financial management. This will help channel resources towards priority goals, and when possible, efforts must be made to improve accounting systems and other procedures.
- Focusing on performance. In the short term, measures should be devised to monitor progress on poverty reduction. Targets should be clear and consistent.
- Promoting wider participation. Budget systems should be opened up to public scrutiny with the aim of stimulating policy debate and making government agencies more accountable to citizens.
The guidelines also cover the management of external assistance. In aid-dependent countries, improving the delivery and co-ordination of donor support is essential to increasing the impact of public spending on poverty reduction. Specific recommendations are that:
- The management of both external and internal resources should be integrated into the budget process, allowing governments to allocate all resources according to their policy priorities.
- In the short term, donors and governments should agree on a strategy that identifies sectors and projects central to poverty reduction. This can form a basis for a more detailed sector-wide approach.
- Donors and governments should define individual financing priorities within the framework of an overall external assistance strategy, rather than through bilateral agreements.
- Government-led sector programmes tend to channel assistance more effectively than a project-based approach. Where stand-alone projects exist, they should be screened to ensure their consistency with targets.
- Codes of conduct developed by donors may play a useful role.
- Donors should comply with governments’ aid management systems by providing timely and comprehensive information on their commitments and disbursements.
