Developing Economic Stabilization
Posted by Bill Dorotinsky
"The reconstruction of fiscal institutions can contribute to macroeconomic stabilisation and create a conducive environment for further institution building." That's the central idea of a recent note on "Rebuilding Fiscal Institutions in Post-Conflict Settings" by Sanjeev Gupta, Senior Adviser in the IMF's Fiscal Affairs Division, published in Capacity.org (Issue 32, December 2007) -- the on-line publication of the European Centre for Development Policy Management (ECDPM), SNV Netherlands Development Organisation, and the United Nations Development Programme (UNDP). The publication, including this article, is available in English, French, and Spanish.
The note highlights three key elements for rebuilding fiscal institutions:
- creation of a proper legal and regulatory framework for fiscal policy
- establishment or strengthening of a central fiscal authority (the ministry of finance) and a mechanism for coordinating foreign assistance
- reform revenue and expenditure policies, as well as the associated administrative arrangements, and to ensure the most effective use of scarce human resources
- The note observes that the sequence of these three steps may vary depending on country circumstances, but each is important.
The note also observes that there are two additional dimensions that need to be considered.
- In post-conflict countries, fiscal decentralization may be an important part of the peace process, and in these cases, subnational government fiscal institutions also need to be strengthened.
- Rebuilding fiscal institutions need to take into account the weak state of administrative capacity in post-conflict environments, and start with simple procedures and policies. As capacity develops, these can be scaled-up.
This note draws from S. Gupta, S. Tareq, B. Clements, A. Segura-Ubiergo, R. Bhattacharya, and T. Mattina (2005) Rebuilding Fiscal Institutions in Postconflict Countries, Occasional Paper 247, IMF.