Public Spending for Poverty Reduction Sukhwinder Singh, Discussant Policy Development and Review Department International Monetary Fund

Main Points Fully concur with the main elements presented in Jeni Klugman’s presentation Want to take this opportunity to highlight three key issues regarding public spending for poverty reduction –Importance of ranking poverty measures –Problems of tracking poverty spending and Zambia example –Applications of PEM in social impact analysis

Importance of Ranking Poverty Spending Ex-Ante Poverty reduction objective and macroeconomic stability and growth objective need to be integrated into a consistent framework. Need to make decision on aggregate amount of spending that can be accommodated without jeopardizing the macro stability growth objective. As indicated in Jeni’s presentation, governments need to rank proposed poverty spending in order of social/economic priority on basis of objective criteria.

Importance of Ranking Poverty Spending (cont.) If spending assessment/prioritization has been done ex-ante in the context of the PRSP, it makes the decision on which measure cannot be financed in the absence of additional resources less controversial –Less politically/bureaucratically charged –Decided ex ante rather than in the heat of battle –Objective versus subjective or ad hoc decision

Problem of Tracking Poverty Spending Problem: Tracking whether resources released under HIPC or those augmented through the PRSP approach benefit the poor Three critical questions –How do we monitor spending from virtual poverty funds? –How do we know whether such spending is additional? –How do we know whether budgeted expenditure actually reaches the intended beneficiary?

Problem of Tracking Poverty Spending (cont.) Bank/Fund recently carried out preliminary (desk top) assessment on HIPCs ability to track spending. Based on 15 benchmarks –7 on Budget Preparation –4 on budget Execution –4 on Budget Reporting

Problem of Tracking Poverty Spending (cont.) Results (Chart 1) –2 HIPCs with “little need” for upgrading –7 HIPCs with “significant need” of upgrading –9 HIPCs with “substantial need” of upgrading Board discussion raised questions regarding: –Short term versus medium term –Advocacy of “bridging mechanism”

Chart 1. Relative Needs for Upgrading Budgetary Systems

Problem of Tracking Poverty Spending (cont.) Follow up (in-country) Exercise –Government reviews preliminary assessments –Bank/Fund teams identify key weaknesses –Action plans to be developed with authorities Only 4 follow-ups done to date (Benin, Burkina, Honduras, Zambia) but broadly confirmed findings of preliminary assessment

Problem of Tracking Poverty Spending (cont.) Key task for PRSs—improving institutional capacity to track poverty spending

Lessons learned from AAPs so far: Assessments broadly confirmed 3 cases of little or no change 1 case of more changes—but no impact on overall ranking

Assessment and Action Plans Example of Zambia

Zambia For medium term “standard” approach IFMIS, MTEF, ABB—right in principle BUT ….not before 2003

Zambia HIPC sub/Account Classification: i) HIPC sub account ii) general Donor-financed spending Tracking surveys Other

Importance of PEM in Social Impact Analysis Public expenditure and revenue reviews, including incidence and efficiency analysis, are key instruments for ex-ante SIAs. Public expenditure and revenue incidence and efficiency analysis methods are used to assess incidence of expenditure and revenue policies on the poor (for ex-post and during implementation of social impact analyses)