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DFID Economists' Manual: Chapter on Aid and Public Expenditure

Book/book chapter

The quality of the budget process and of Government expenditure programmes is central to economic development and to the aid relationship. This is true even in situations where the main emphasis is rightly on private sector development. Government actions set the environment in which private sector actors operate, and the Government budget and the way in which it is financed may either facilitate or squeeze out private sector development. Most concessional flows are transmitted to the economy via the public sector, either directly or indirectly, owing to the fungibility of public financial operations. Development economists therefore need to understand the budget process, and how to make judgements as to the quality of the process and of the budget outputs which it generates.

This chapter aims to do two things. Sections 2 and 3 aim to equip economists to make intelligent assessments of the quality of public expenditure planning and management. This is an enormous subject area, in which a number of major guidance manuals are available. The main emphasis will be placed on diagnosis, and on drawing the implications for the appropriate form of financial support. Section 4 will include brief lessons of experience from integrating poverty elimination, gender sensitivity and participation into the budgetary process. Comprehensive treatment of these issues, each a chapter in themselves, can not be attempted, but the chapter will provide diagnostic advice, and signposts to further material.

Sections 5-8 discuss the relationship between public expenditure and forms of aid which support it, directly or indirectly. It discusses the experience with attempts to coordinate aid flows and debt relief with the budget process. It aims to equip economists to make judgements on when different types of aid are appropriate, including the choice between interventions at macro, sectoral or project level. It also provides more detailed guidance on issues to consider in the design and appraisal of programme aid, sector support, and support to budget reform.

The Chapter covers an enormous amount of material, and the depth of treatment reflects that: it is not sufficient in isolation, and readers are encouraged to also consult the sources of additional material and advice which are referenced. For Budget appraisal, the World Bank Public Expenditure Management Handbook should definitely be on the bookshelf.

Mick Foster and Adrian Fozzard