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

Budget Preparation and Approval 277
also increased the fragmentation of the budget system. For example, at the recommendation
of international finance institutions, Romania attempted in 1993 to
1997 to implement an investment coordination unit outside the Ministry of Finance
to prepare the capital budget and screen projects through its own investment
department. “A frequently debated issue in the World Bank is the tendency to
‘enclave’ . . . inherent in any project-centered approach to lending. But they reduce
the pressure on government to reform, and they may weaken domestic systems by
replacing them with donor-mandated procedures” (World Bank 1997: 54).
4. Only the substance is provided here, leaving out various organizational recommendations
and other purely internal considerations.
5. For a brief and readable summary, see the article on the subject by the main architect
of the model, Jacques Polak (1997). For a fuller description of the technical aspects of
a macroeconomic framework, see Davis (1992) and Martin and others (1996).
6. For an early definition of the issue, see Kopits and Symansky (1998).
7. In January 2007, the U.S. Congress approved new rules to require, among other
things, identification of the members of Congress sponsoring each “earmark.” If
these rules come into effect and are enforced, they will make a major contribution to
restraining this fiscally and economically wasteful practice.
8. The U.S. Congress attempts to restrict its own power through the annual budget
resolution, which contains an overall spending cap as well as spending targets for
congressional committees. Among other things, the pay-as-you-go (or PAYGO) rule
prescribed that new expenditures or tax reductions could be made only to the extent
that expenditures were cut or revenues raised elsewhere. (This budget rule should not
be confused with the pay-as-you-go system of funding pensions or health funds, as
contrasted to a fully funded system, whereby funds are set aside in advance to meet 100
percent of all foreseeable obligations.) These restrictions, however, are self-imposed
and can be lifted at any time by legislative action; they are thus different from a restriction
imposed from outside the legislature. Indeed, the PAYGO rule was not applied in
the United States after 2001, a fact that was partly responsible for the historic levels of
fiscal deficit in the country (see also the discussion of fiscal responsibility). As of early
2007, prospects are good for a restoration of the rule.
References
Alesina, Alberto, and Roberto Perotti. 1996. “Budget Deficits and Budget Institutions.”
NBER Working Paper 5556, National Bureau of Economic Research, Cambridge, MA.
Blejer, Mario, and Adrienne Cheasty. 1993. “The Deficit as an Indicator of Government
Solvency: Changes in the Public Sector Net Worth.” In How to Measure the Fiscal
Deficit: Analytical and Methodological Issues, ed. Mario Blejer and Adrienne Cheasty,
279–96. Washington, DC: International Monetary Fund.
Davis, Jeffrey J., ed. 1992. Macroeconomic Adjustment: Policy Instruments and Issues.
Washington, DC: International Monetary Fund.
Fölscher, Alta, and Neil Cole. 2004. “South Africa: Transition to Democracy Offers
Opportunity for Whole System Reform.” In Budget Reform Seminar: Country Case
Studies, ed. Alta Fölscher, 109–46. Pretoria: National Treasury of South Africa.
Holmes, Malcolm. n.d. “Ghana, Issues in MTEF.” World Bank, Washington, DC.
http://www.worldbank.org/publicsector/pe/GH.doc.