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Core Reports

Public Expenditure Reviews

As part of the World Bank’s country economic and sector work--which is undertaken to assist the borrowers in understanding their development problems and potential solutions as well as help illuminate the World Bank’s own country assistance strategy--a PER is a major vehicle for analyzing public sector issues in general public expenditure issues in particular. PERs help countries establish effective and transparent mechanisms to allocate and use available public resources in a manner that promotes economic growth and helps in reducing poverty.

Most PERs are essentially comprehensive macro reports with a mandate to focus on the efficiency and efficacy of resource allocation. Topics include--but are not restricted to--analysis and projection of revenue, determination of the level and composition of public spending, inter- and intra-sectoral analysis, financial and non-financial public sector enterprises, structure of governance, and the functioning and efficacy of public institutions.

Some PERs are sector specific; these are called sectoral PERs. These reports provide a framework for project (and increasingly non-project) lending so that the latter is consistent with sectoral priorities as well as with overall macroeconomic policies. Within the specific sector, they analyze the client country’s development problems, existing policies, expenditure priorities and management, and public institutions. However, these sectoral reviews rarely address the issue of resource fungibility across sectors, which in most cases, could only be dealt satisfactorily within a public expenditure review covering the entire government budget.

Given that World Bank lending supplements public spending in the borrower country, a PER is at the heart of the World Bank’s lending process. Recommendations of the PER are used by the World Bank to develop loan conditionalities either through project loans or policy-based loans. One of the major factors contributing to the success of the ensuing lending program is therefore the quality of analysis undertaken in the PER.

In recent years, the World Bank has been carrying out 20 to 25 PERs every year with considerable investment of resources. A majority of PERs are done in the Africa region. Increasingly, the strategy has been to undertake narrowly focused annual reviews with a few special topics, rather than depending on a major review with comprehensive coverage done every three years or so. The Africa Region in the World Bank has begun to shift to annual PERs in several countries which are more focused on specific topics. Increasingly shorter notes are being produced rather than large, omnibus reports.

HIPC Assessments

To assess the capacity to track spending, World Bank Public Sector Group and IMF Fiscal Affairs Department (FAD) staff developed a 36-question diagnostic instrument to assess the capacity of countries to track spending. The instrument was constructed following a general systems theory approach, looking at the entire PEM system and identifying core elements that need to be in place to assure the system can reasonably plan, execute, and report on public spending. From these 36 questions, a set of 15 core indicators -- de minimus, "sentinel" indicators of system performance -- were identified. The notion is that these 15 can provide a general picture of the quality of the PEM system. Far from being a check-list, this represents a focus on fundamental institutions.

For each of the 15 indicators, benchmarks were selected which, based on the professional judgment of World Bank and FAD staff, would be a minimum requirement for accurate tracking of spending and also be achievable by heavily indebted poor countries (HIPCs) in 1-3 years. The selection and formulation of the questions and answers, as well as the benchmarks, were all designed to apply to public expenditure management systems in HIPC's.

As important as the instrument and substance were, the process was equally important. The World Bank and the Fiscal Affairs Department truly sought a collaborative effort, both at central and country levels. Within the World Bank, the concept of country team was encouraged, with Financial Management staff actively engaged. Last but not least, coordination and agreement with the country authorities was essential. The process assured opportunity for participation and agreement among multiple parties.

The HIPC expenditure tracking assessment has been applied in 24 HIPCs over 2000-2002. The results showed that these countries generally have low capacity to track spending. The two Board papers providing the results are available by clicking here. The assessments were accompanied by an action plan to strengthen those elements of a country’s public expenditure management system that are in need of enhancement to allow for tracking of spending, including short and longer term measures. The assessment also included a review of donor activity in support of the action plan. Few gaps in donor assistance were identified.

World Bank and Fiscal Affairs Department staff continue to monitor the intuitional reforms through monitoring action plan implementation. Countries report on actual pro-poor and total spending through normal World Bank and IMF operations.

Revised Guidance for the 15 indicators is under preparation.