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

404 Salvatore Schiavo-Campo
programming of the largest single category of expenditure. In industrial
economies, the largest public expenditures are in pensions and health insurance.
In almost all African countries, the largest category of government
expenditure is public investment.
Investment programming
Investment is a source of growth and at the same time of future debt service
and recurrent expenditure commitments—and thus potential fiscal risk.
The quality and efficiency of investment determine whether its growth
impact is greater than the fiscal costs. In turn, investment quality and efficiency
demand realistic programming. Without good programming of investments,
including sound preparation of investment projects, neither the
growth potential nor fiscal discipline can materialize. In the 1980s and early
1990s, PIPs in most African developing countries were “first-generation
PIPs,” largely consisting of wish lists and project-pushing devices to attract
foreign aid. By contrast, in a “second-generation PIP,” the strategic decisions
and the good project choices come first, and only then is the right financing
sought. This inversion of priorities puts the recipient government back in
the driver’s seat and ensures that the growth and social effect of public
investment will far outweigh the resulting debt service and justify the future
recurrent costs. Thus, a second-generation PIP (a) raises investment efficiency
by improving project quality; (b) brings investment allocation in line with
country policies and sectoral priorities; (c) ensures consistency between
investment programs and available financing at favorable terms; and, as
noted, (d) leads, in time, to a more comprehensive MTEF.
The following are PIP priorities:
First, design ironclad procedures against the birth of “white elephant”
projects. Once a project of large size is on the drawing board, the bureaucratic
dynamics from both donor and recipient sides make the project
very difficult to stop.Among these procedures, the involvement of high-level
policy makers (and, for very large projects, the cabinet) must be built in
at a very early stage.
Also basic is the need for reasonably sound economic appraisal of projects.
Because of the need to economize on scarce capacity (and to minimize
reliance on expatriate expertise), in developing countries simple appraisal
methods are preferable to sophisticated ones. Also, selectivity is needed:
only projects of significant size should be analyzed in detail, with smaller
projects bundled and the bundles evaluated only for their general correspondence
with sectoral policies and common sense.