ASi" kUCTURE FlOR DEVELOPMENT

the high rates of return for maintenance, among the
highest in the public sector. As long as poor budgetary
practices and policies lead to preferences for invest-
ment over maintenance, and as long as the rates of re-
turn on maintenance remain high, earmarking will
avoid the underfunding of maintenance and improve
theallocation of resources in theshortrun. But thismay
be a short-term solution to a long-termn problem and
needs to be reviewsed periodically-
The establishment of new road funds involves more
-than just eannarikng revenues to road maintenance It
also indudes reforms to improve the efficiencY of road
agencies and the establishnnt of road boardswith tech-
nical experts and representatives of the user commutity
who oversee the allocation of revenues and the setting of
priorities Countries in Africa are starting to adopt a
promising -commercialization" approach to making
road fund operations more economically based and
more user-responsive; Tanzania provides a noteorthy
example of best practice. Moreover, the automatic rev-
enue flows have been designed to avoid building up a
fund surplus and hence to discourage wasteful spend-
ing. These additional reforms are necessary because ex-
perience shows, that the mere existence of earmarked
road funds does not mean tiat a government is commit-
ted tomnaintenancea Nordoes it ensure that naintenance
wvill beefficienL Colombia hada rDad fund for more than
twentv years, but abandoned it in 1991 because the re-
sources were going to sectors other than roads in many
cases.
Box 2.8 Can earmarking improve highways?
When budgetary processes work vell ,they assign funds
to activities with high economic rehtrns or high prioritvy
In such cases, earmarking-the assignment Df revenue
from a specific fee or tax tD a specific activity or expenditun
such as road maintenance-should be avoided because
it impedes the ability of the budget process to
move funds from one activity to another In times of
budgetary stringency, earmarking shields expenditures
in protected sectors and focuses budget reductions on
unprotected activities. In countries with narrow tax
bases, earmarking can encumber a large share of tax
revenues.
In many countries, however, budgetary processes do
not systematically assign funds to activities with high returis.
In the road sectok, high-return maintenance activities
are often underfunded because budgetary resources
are assigned one year at a time. Underfunding happens
in spite of the commitment to fund maintenance for multiple
consecutive years tiat is implicit in the assessment
of the investment decision. Rate-of-return calculations
assume a pattern of maintenance that requies nunhnurn
funding year after year. The failure to assign appropriate
prority to road maintenance explains, to a great extent,
the deterioration of many national road systems. Earmarking
can ensure that needed road maintenance will
be reliably funded.
Far the past few years, road fumds have been enoouraged
by the Bank in many African countries where
underfunding and inconsistent flows of funds disrupt
maintenance The case for earmarking there is based on
such a dear link between resources and perfor- pose on roads- In Ghana heaivy trucks use four to
mance, and many public works departnents have five times more fuel than cars, but their axde loadbeen
tying to increase their own sources of rev- ings, often ten times higher than those of cars, cause
enue. Doing so is easier for local public works agen- road damage many times higher than cars. The way
des than for highway authorities because the bene- to handle this difference is through such suppleficiaries
of local services are more easily identified. mentary taxes as annual licensing fees that vary bv
vehide weight. In the case of articulated trucks, ap-
FINANcAL INDEPENDENCE OF ECHWAY DEPART- propriate licensing fees based on weight have been
mENfs In principle, departnents can increase their calculated at $2,550 in Tanzania and $3,000 in
share of own-revenue sources by making beneficia- Tunisia. But road users resist paying such high road
ries pay, directly or indirectly, for road use. Users taxes where roads are in poor conditionpay
many road-related fees on vehide ownership, Some counties have taken to financing road
such as license charges and taxes on vehicle acquisi- funds through the allocation of specfic user fees
tion, registration, and inspection. They also pay (such as tolls or fuel tax revenue) for specific activicharges
for use, such as fuel taxes, tolls, or parking ties such as maintenance- This narrow earmarking
taxes. Such road-user charges usually fall far short of specific taxes and fees that are closely related to
of costs, however. In Zambia in 1991, road-user use of facilities helps overcome resistance to taxes
charges (mainly license fees and road tolls) financed The practice is common in Latin America, the
only 10 percent of the total spending on roads, with United States (for woads), and some Asian countries
general budgetary revenue making up the shortfalL (special accounts in Japan, Korea, and the Philip-
The gap between user payments and expendi- pines). The desirability of such earmarling hinges
tures arises because road-user charges often do not on practical rather than theoretical issues in mrost
cover the costs that different types of vehicles im- developing countries. In general, if the budgetary
so