In many countries, the practice of public expenditure management is an obstacle to achieving poverty reduction objectives. Fragmented budgets and an exclusive focus on inputs are among the factors that have undermined the ability of budget systems to discipline policymaking and to facilitate performance feedback that would improve outcomes. This chapter outlines good practices in budgeting and public financial management in the context of implementing affordable pro-poor policies. It considers the influence of institutional arrangements on public spending outcomes at the national, sector, and local levels, and the impact of budget design on the distributional and economic impact of public spending. The discussion also highlights possible solutions to common challenges faced by managers, budget analysts, and ministers when devising ways to finance policies, programs, and service delivery for reducing poverty. Moreover, it provides some guidance on getting started on key issues in the context of preparing a Poverty Reduction Strategy (PRS). The chapter is organized around three themes in public financial management: - understanding the budget system, including the actors involved, associated political processes, and budget coverage and structure;
- learning how to rigorously assess alternative spending options and re-evaluate the role of government in service delivery at different levels; and
- improving resource management and public sector performance.
Achieving poverty reduction goals will require adapting domestic budgeting and financial management systems to the needs of the PRS. Countries are at different stages in this process, and capacity building could take time. Developing a system to compile reliable fiscal data is obviously important. More generally, strengthening the country database on poverty and social indicators is critical to building national capacity to determine appropriate policies for poverty reduction and monitoring their impact over time (see chapter 3, Monitoring and Evaluation, and chapter 5, Strengthening Statistical Systems). A number of measures are particularly important when developing and implementing poverty reduction strategies: - Improving the quality of expenditure analysis;
- Developing a medium-term perspective to budget making;
- Complying with minimum standards of public financial management;
- Focusing on performance;
- Promoting broad participation.
Successfully moving the budget system to support the development and ownership of PRSs will require commitment and determination at every level of the system. There is a strong case for supporting those agencies that show a willingness to innovate and reform to meet national poverty reduction objectives. The active support of the Ministry of Finance is essential throughout the process, since it determines the incentive framework in which other agencies prepare their budgets. This chapter does not analyze the substance of poverty reduction programs (for example, the types of programs that are most effective in addressing poverty reduction goals), since this is done in the sectoral and cross-cutting chapters of the book. This chapter analyzes the challenges and best practices inherent in public expenditure management, with a particular focus on integrating PRS goals into budgeting systems and institutional practices. Budget systems and institutions influence outcomes through (a) their impact on aggregate fiscal policy, (b) the particular policies and programs funded in the budget, and (c) the resources allocated to and the effectiveness of service delivery agencies. PREVIOUS CHAPTER | NEXT CHAPTER
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