Budgetary Processes and Public
Expenditure Management Core
Course
Promoting Allocative Efficiency
(Strategic Prioritization)
David Shand
World Bank
May 22, 2000
Addressing the “big issues” of public
expenditure
Level 2 is always the hardest!
The “big issues” have major “political”
elements
But a “technocratic” approach looking
at objectives, alternatives, costs and
benefits can assist in this political
decision making.
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Principles
Expenditures should be affordable in the
medium term, be based on government
priorities and on the effectiveness of public
programs. The budget system should create
conditions and incentives that facilitate
reallocation from lesser to higher priorities
and from less to more effective programs.
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Affordability,
Expected Results
Relative Priority
Basic Elements:
 The capacity and willingness to reallocate
 Priority-setting process in government
 Information on program outcomes and
effectiveness
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Requirements
Willingness to think about why we are spending
money on particular purposes and what we are
actually getting for it.
Recognition that resources are limited and that
therefore we need to think about alternatives
and opportunity cost.
Objectives to be determined or specified. But
are governments willing to be explicit?
Relevant information on costs, outputs, and
outcomes? (Is all this information useful?)
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Requirements (cont’d)
A linkage between the analysis/evaluation
and the decision-making processes
A “hard” medium-term budget constraint
Ability and incentives to reallocate
resources
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Allocative Efficiency at What
Level?
Between broad objectives - economic growth,
poverty reduction, regional development
Between sectors - education versus health
versus defense
Within sectors primary/secondary/tertiary/vocational
education/university education
public health/primary care/hospitals/family
planning
army/air force/navy
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Allocative Efficiency at What
Level?
Between programs - what is a “program”?
Within sub-sectors - spending on teachers,
schools or textbooks? Quality versus
quantity.
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Some Prior Questions
Is this a function of government? Is the
activity delivering a public or a private good?
Is it aligned with government objectives?
Or is it historical, dictated by interest groups
(client capture), result of drift, inaction and
lack of information?
Are there alternative mechanisms apart from
direct government expenditure? e.g.
regulating the private sector, providing
government guarantees.
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Some Prior Questions
(cont’d)
Also a need to consider tax expenditures
Who legitimizes organizational/program
objectives? Need for cabinet/ ministerial
involvement?
New Zealand 2010. Attempting to link
strategic and operational objectives (SRAs
and KRAs)
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Expenditure “reallocations”?
Achieving “quality fiscal adjustment”
Reductions in civil service number and/or cost,
wage and/or recruitment freezes
“Streamlining” of the public service (technical
efficiency)
Across the board cuts in administrative costs
Procurement reforms
Reform/reduction in cost of public enterprises
Reductions in transfers to sub-national
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governments
Some Examples of Major
Expenditure “re-allocations?
(cont’d)
Reductions in capital works (which ones?)
Reduction or abolition of subsidy/assistance
programs to industry, agriculture etc.
Redesign or re-targeting of social transfer
programs - particularly public pension
reforms
Reductions in defense expenditure
To what extent are such reallocations based
on any systematic consideration of priorities?
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Problems in Strategic
Prioritization
Lack of linkage between the plan and the
budget - “promise in the plan what you can’t
deliver in the budget”
Investment led priorities, rather that program
priorities
Donor driven priorities
Priorities determined by other levels of
government
Protected enclaves of government spending
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Mechanisms which Promote
Strategic Prioritization
Aggregate medium-term fiscal targets
Hard budget constraint - no “add ons”
without corresponding reductions
Consideration of alternative mechanisms does this have to involve public
expenditure?
Sectoral strategies (strategic plans?) costed over the medium-term
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Mechanisms which Promote
Strategic Prioritization (cont’d)
A medium-term expenditure framework
(MTEF)
Arena within which policies compete and
coordinate - cabinet, budget office and
ministries’ internal budget preparation
processes focus on strategic matters, not
process or details.
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Mechanisms which Promote
Strategic Prioritization
(cont’d)
Ex-ante and ex-post evaluation
Creating capacity and willingness to
reprioritize and reallocate
Spending ministries having greater
“ownership” of their budget
Encouraging ministers/ministries to
reprioritize within budget envelopes
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