Public Sector Governance and Accountability Series: Budgeting and ...

252 Salvatore Schiavo-Campo
Generate an incentive to spend up to the target—regardless of
whether the activities being financed are well designed—and even
serve to create new corruption opportunities.“White elephant”projects
are not necessarily confined to economic infrastructure and can
emerge in social sectors generally associated with pro-poor activities.
(Large and underutilized urban hospitals are a case in point.) Especially
counterproductive is the donor practice to set given percentages
of spending on specific categories as conditions for eligibility for debt
relief or other special favorable treatment, thereby turning an expenditure
target into a floor. Most appropriate, instead, is the requirement
to conduct expenditure tracking to ascertain that the budgeted
expenditure reaches the intended beneficiaries. Indeed, donors should
insist on and governments should perform more robust tracking
of expenditure.
Alternative approaches to pro-poor targeting within the HIPC process
were identified in a comparative study of five African heavily indebted poor
countries commissioned by the European Commission, as described in
chapter 2 in box 2.4.
The Budget Preparation Process
In both logical and chronological sequence, the main stages in the budget
preparation process proceed from the elaboration of the macroeconomic
and fiscal framework to the issue of budget instructions, preparation of
budget proposals, negotiations on those proposals, and finally presentation
to and approval by the legislature.
The Macroeconomic Framework
The starting points for expenditure programming are (a) a realistic assessment
of resources likely to be available to the government and (b) the establishment
of fiscal objectives. (Iteration follows between the two until the desired
relationship between resources and expenditures is reached.) Both starting
points depend in large part on a sound and consistent macroeconomic framework
in pursuit of economic growth, employment, poverty reduction, and low
inflation, by means of fiscal policy, exchange rate and trade policy, external
debt policy, and policies affecting the real economy. For example, the policy
objective of low inflation is influenced by the level of the fiscal deficit, and
the specific instruments can include tax measures and credit policy measures,