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December 20, 2012

Following the Money: Examining the Evidence on Pro-poor Budgeting

Posted by Rebecca Simson[1]

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ODI’s Centre for Aid and Public Expenditure has recently initiated a work stream on pro-poor budgeting to investigate how governments choose to spend public funds and what this tells us about allocative efficiency.  In 2001 Adrian Fozzard published a paper on this topic, which presented approaches to resource allocation in the public sector and their implications for pro-poor budgeting. A decade on, and after billions of dollars spent to further pro-poor priorities in developing countries, have we learnt anything new about how to allocate public funds?

Our first background paper, Following the money: examining the evidence on pro-poor budgeting, explores what we do know about the influence of the poverty reduction agenda on resource allocation in developing countries. The paper goes on to propose some possible research topics that could begin to evaluate whether spending patterns have in fact changed in systematic ways in response to the high growth and falling poverty experienced over the past 15 years.

Revisiting assumptions about public spending and poverty reduction

With a focus on the Heavily Indebted Poor Country (HIPC) initiative, the paper revisits debates about what constitutes pro-poor spending. This reveals a complex and contested set of theories about how a global poverty reduction agenda should be put into practice.

The paper argues that concerns about inequality in the 1980s and 90s led development organisations to stress redistributive expenditure policy. To do so they emphasized spending on services disproportionately consumed by the poor, such as primary education and basic healthcare. Critics of this approach have since argued that social spending risks crowding out investments in for instance infrastructure and energy that are important for long-term growth and development. A third perspective in this debate calls for the avoidance of prescriptions altogether and instead focuses on increasing the voices of poor people in the budget process. In other words instead of arguing over how country governments should spend public money,  the focus should be on building and improving budget institutions that allow citizens greater influence over spending decisions.

PRSPs to the rescue…

The pro-poor agenda is perhaps best epitomized by the roll-out of Poverty Reduction Strategies Papers (PRSPs) which have, since the late 1990s, been a condition for Heavily Indebted Poor Country (HIPC) debt relief. PRSP processes rest somewhat uneasily on the various conceptual frameworks for poverty reduction. They seek to reorient public policy in low-income countries towards poverty reduction by combining rigorous research and analysis about the causes of poverty with a consultative process of prioritization that it is hoped will lead to more equitable spending.

The PRSP approach has been controversial amongst development experts. Some question its intrinsic value while others criticise the way development organisations chose to promote it through prescriptive solutions and a top-down approach to taking decisions on resource allocation.

A call for more budget data

Despite the debate on how budgets can be used to fight poverty, there is little evidence on the extent to which expenditure composition has changed in developing countries over the past 15 years. Countries participating in the HIPC initiative were required to track poverty reducing expenditure, but the lack of criteria for determining what constitutes such spending, and lack of transparency around how it is measured, has resulted in a dataset of questionable value. And, although most governments publish a range of budget documentation, it remains surprisingly difficult to access and use such reports for either time series or cross-country analysis.

Although studies of budget allocations do not reveal the effectiveness of such spending, they remain a crucial link in the causality chain. Unless we trace the money we cannot even begin to untangle the impact of public policy on development outcomes.

How can we do this? More investment is needed into budget data that will allow policymakers, researchers and advocacy groups to analyse public expenditure trends over time and across countries.  New initiatives such as the World Bank BOOST and the International Budget Partnership’s Open Budget Survey may, with time, help to rectify this data deficiency – but will require sustained attention and investment.

If the development community is serious about measuring development results, it is time to move beyond the theory and begin to examine broader trends in public spending over time and across countries.



[1] Overseas Development Institute, London, U.K.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy. 

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Comments

Personally speaking I do not think that the third perspective i.e. "increasing the voices of poor people in the budget process" is really a step towards any solution. The poverty and lack of education has a strong positive correlation and any decision making towards any policy matters and lack of education would generally have a stronger negative correlation. Please note that this comment should not be taken as undermining the capabilities of people with lack of money or resources but just as a practical point. The objective is to fight against the poverty for not only the growth of individuals but the society and countries and hence overall global economic health.

The ending of this post hits the bulls eye and that is transparency about the planning process and actual spending. How much percentage of the amount actually goes towards serving the objective and how effectively?

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