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

68 Salvatore Schiavo-Campo
BOX 2.1 Ghana: A First-Generation Road Fund
The road fund in Ghana was established in 1985, as part of a program of road
maintenance and rehabilitation supported by the World Bank. Twelve years
later, the country still had not been able to create the basis for sustainable
road maintenance financing.
Financing from the fund has been unstable, generating unpredictability
in funding that has made it difficult to plan properly and issue contracts on
a timely basis. In turn, some have used the lack of funding predictability
as an excuse for inaction or as a way to short-circuit the procurement procedures
for various vested interests. As a result, significant portions of the
road network in Ghana remained in very poor condition at the end of the
past century.
In the mid-1990s, the government decided to increase the fuel tax sufficiently
to fully finance the road fund. Overcoming the internal difficulties,including
getting the treasury to agree to this graduated path of sustainable financing,
was a significant accomplishment. Thus, to avoid passing all the proposed
increase in the fuel levy directly and immediately on to consumers, the treasury
agreed to cede some of its other excise tax revenues to the road fund, thereby
keeping fuel taxes at basically the same level even though the proportion earmarked
for the road fund increased.
A key lesson from the Ghanaian experience—shared by many other
African countries—is that setting up a fund is insufficient in itself to ensure
financing for road maintenance. It is essential to create a board of directors
with enough authority and independence to resist raids on the fund by other
government entities. Moreover, when contrasted with experiences in some
other African developing countries, Ghana’s road fund experience seems even
more disappointing. For example, Burkina Faso was able to finance virtually
the entirety of its road maintenance requirements through the regular budget
processes, without a dedicated road fund. It appears that when the budget
system works reasonably well, it can meet priority expenditures without the
need for EBFs to finance them.
Source: Adapted from Mwale 1997.
the rules are observed in practice. So far, the simulation of market discipline
in second-generation road funds appears to have improved the management
and maintenance of African roads, albeit not uniformly in every country.
Boxes 2.2 and 2.3 contrast recent experience in two African countries.
Revenue Earmarking and User Fees
Although EBFs can be funded in a variety of ways, tax earmarking and user
fees are the most common sources of financing, as discussed in turn below.