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Working Paper Summaries (WP/94/1 - WP/94/76)
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Working Paper Summaries 94/28: Changing Patterns in Public Expenditure Management: An Overview

Author(s):
International Monetary Fund
Published Date:
August 1994
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Radical departures from previous practice have been made in the systems and approaches of public expenditure management in recent years. Most of these changes have occurred or are being implemented in a few industrial countries. Their experience is, however, likely to be emulated by other industrial and developing countries in the future.

The changes cover a wide area but are analyzed here in six categories: (i) new management philosophy: largely drawn from the experience of the corporate sector, it envisages the establishment of agencies to be managed by chief executives who are expected to provide an assured delivery of goods and services of a specified quality within a fixed budget; (ii) extended application of commercial accounting: each agency is required to prepare annual balance sheets, income and expenditure statements, and cash flow statements with particular attention to liabilities that may have to be redeemed later by the government; (iii) greater application of market principles: these are to be extended to the traditional internal monopolies within governments, in addition to the usual area of procurement. Internal monopolies are required to compete with the private sector; (iv) improved sectoral controls: in contrast to the traditional controls that tended to have uniform applicability, these sectoral controls, in particular those applicable to the medical care sector, have been designed to contain the growth of costs; (v) deficit reduction packages: legislatures have passed legislation that enforced a process of self-denial through the imposition of ceilings on spending and the invocation of trigger provisions necessitating policy changes; and (vi) extended application of electronic processing technology that, although contributing to the quick compilation of accounts, has also contributed to an overhaul of payments systems that were efficient and less expensive.

These changes, while different strands of thought awaiting integration, have, however, their own limitations. They are criticized for their alleged failure to distinguish between corporate and government sectors, and related concerns. They are, therefore, evaluated against five criteria: (i) impact on the rate of growth of expenditure; (ii) efficiency in spending; (iii) reduced cost of control; (iv) greater accountability; and (v) transferability. The evaluation shows, predictably, that the application of market principles has, the greatest impact on the rate of growth of expenditure, as well as promoting efficiency. All the changes have a positive impact on accountability.

The changes, however, do not exhaust the problems currently being experienced by governments. Improvements in the system of public expenditure management should also address governments’ capacity to identify and abandon programs that have ceased to be useful, promote flexibility in the management of mandatory and transfer payments and prevent fraud, and to monitor the lower levels of government. They should also seek to prevent the circumvention of laws and, more important, to forge a balance between the policy and micro - controls administered respectively by the legislature and the executive.

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