Assessment of the impact of budgetary policies : (selected Country Case Studies: Ghana and Sierra Leone)

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ECA/PHSD/Bud/90/5[2~l(d)l

I

UNITED NATIONS

ECONCUIC COMMISSION

F('R AFRICA

Public Administration, Human Resources and Social Development Division

ASSESSMENT OF THE IMPACT

OF

BUDGETARY POLICIES

(Selected Country Case Studies: Ghana and Sierra Leone)

October 1990

Section I A.

B.

CONTENTS

Introduction

Organization of the publication

ECA!PHSD!Bud!90!5[2.1(d»)

PAGE

1

3

Section II:

A.

B.

C.

D.

E.

F.

G.

Issues in the Assessment of Budgetary Outlays and Policies

Need for government intervention

Fiscal instrument

Link between planning and budgeting

Organization of finance ministries

Budget revenues and expenditures Nature of government activities

Categories of government expenditures

3 3 5

7

8

e

9

10

•

Section III: Selected Country Case Studies I. Ghana

II. Sierra Leone

11 3f,

•

ECA/PHsn/Bud!9C/5[2.I(d»)

SECTION I

A.

----.".-"._."

Introrlucrio~

Budgets ~~y be viev~d ~s ~~Rnning in advan~e of reven~es and .expenditures. -They ai e , o~Lcn';lbly~ ~~signed to achieve certain specified relationships between desirable expenditures and certain anticipated revenues, ~~nt£..

Budgets are more than cc-ordinated financial plans in that they attempt to serve as avenues by vhLcb the public could evaluate ita sacrifices vis-a-vis pxpected benefits. Since society cedes some of its resources to the gcvernment, bUGgets attempt to efficiently allocate the ceded r es cu r ce s ~w')'g competing pub H;c .sector interests so as to achieve optimum 1I;.':~'\; of ^f ~~,ci:;'-i.;.;,.:~r.~)fuic obje ctLve s .

Underpinning the above rationale is the. view that the socio-econQmic policy-mix objectives could not be subjected to individual preferences.

ProductLon and consumpt.Lon of ,,..,,..'-' of thc·' ·sO~io·-"conomic goods and services could not be based on the exc Iuc

t

c.i pri.ncfpIe . Satisfaction derived from public. ge,;.;;J:; a:J: se rv I cc s ~..r(',.~ic~ed' u~yip.r the budget could not be divided into individual benefits and. the overall social utility could not be subjected to individual evaluati";'.· . :

In Af ri.can count.r Lec ~ lib:~ ^Hl,JL:t o thc r .evc l.op Ing .... coacnd.e s , some goods and s e rv tcec , albeit, cor.Ld be subjcc ted ^':0 the exclusion pr Lnc iple, are considered s o 1:,~1. ~:::. :,>~,,,,,::,~_,~..; aad \~ital for e conovdc growth and development that they ar e pr ov iIed fo r under the public budget.

To nc et the nce d s ^co sc c^Lrty ill the light o:c the foregoing analysis, the gove rnn.e ut cxac r s ccmpu l s. ry Lev Les _·~·l1~ch, ('0

uor

naces s a ri.Ly

carry

particular benefits to the citiz~nry. Iler c ," the tepi"'-; of )",dgetary capac ...i:.:> .';lJ:~U "'~If:l.l:.iJ.l budgets ::';'CClii:' c rucLal , r';.dsir:0 :r,·-'f"d~'Hr.cntJll issues about the public's dcte rmfnat Lc-i and desire to finance a budgetary size

so that tIle, pUJlic ~r-Ct0= €1ui1:i..brntes t01..1ards optin'lal conditions.

lmplici-tly~ theue c ondi t Lons ar gnc that the, exacted levies are expended in a fas h i.on th.rt Lnc re ase &]grQ-,a!:e s octa l 'C'ielfa:E;;.

The effLc acy of fLs c a L rucc.auxe s to accomplish f Ls c a I ohligations, depends on the tax hase e r c apaci ty relative to the eX'k-cnditure requirements 0: the public sectOY ccon0my~ This fiscnl positiou

defining

the ratio of c.rpaci ty to r cquirec ant s , appr oxf.nat-vs the mar g Lua L benefLt e of public eX;~~lrl-i ~~l1re8 'vis-a-v:':.f mar g i.na I aac r^t fLce s of the ,citizenry (the Cri-:::.,'r~un~_t'.;· ^{c c}s: ,~_,£ Frr."8~2 goods' and se'cv:icc:s). Tha. 14~'gt:....:r the fiscal pe r forraance >lith tax efforts yielding hi!;h service r e curns , the nearer the buc'getequilib",'tes tovard s .9ptJma~ity. This,,, unde,•.s,tandably, derives from the accuracy of r£-Jourcel'"timates on the· one hand, and the con;>rchenf;i~.~en(;_'~3of the expenc Ltu r e !,~~.timates ^{on the other,}

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To achieve high fiscal performance, the various fac ets of resource estimates and expenditure estimates must be meticulously sya t.emstLced and minutely analysed within Lh~ ffi...l.':':'L:ueCOh0i.:ii.c ii:.'an;~\von:. Hence, performing budgets analyse prevailing economic circumstances both internally and externally taking Lnt o ~COOU'lt the mac roeconomi.c projections of economic growth rate, money supply behaviour, inflationary pressures, employment levels and balance of payments positions. Without proper analysis and adequate harmony, the formulation of revenue and expenditure policies that would achieve high fiscal performance and 'optimal conditions could not be guaranteed.

Allied to the macroeconomic pe r spe c ti.ve is the financial planning perspective of budgetary planning. The financial planning emphasizes efficient allocation of resources [within lOC mac r c economv ] and how

;funds, could be raised On favourable terms without disturbing the political equiUbrium against the background of the macroeconomic studies made.

It further projects future financial requirements and the probable effects of these future financial flows on the financial conditions of the macroeconomy. It is, therefore" ne c e s s ar y to take into account; previous and current resource allocations among diffcCI";i.1:: sectors. of the economy and the probable consequences of initiating other new projects. ' I n this way, the financial planners can anticipate. the r e s ou r ce r equtrement s of the various spending units and take ad e qu a re mco s-rr e s to effic{ently

allocate resources. '

Government budget is therefore

0""

way the state Lmp l.cme nt s its class dominated functions. In the ^{m a}j ^{o r} Lt y of Af^r i ^{c c n c o u nc r L es ,} in the recent pa st , there has been a rapid grovth ifl~cvc:rn:r:.ent cxpe nd Ltur es because of the expansion of governmental act ivtt te s or functLons . "The benefits of these expenditures must, therefore, b e evaluatcd F~riodical1y

inorder to see whether government activities arc f03te~i~3 economic growth and development founded on ^3. r-c r e ('~'J5_~'1hle Lnc omc distribution

em~loyment creation and productivity, and enhancing investment.

The assessment of costs and benefits of focus on analysis' of both government revenues only on the tax side of the budget seeking question_t "who bears the tax burden^lt•

budgetary out Lays should end cn:penclitures and not

LO answer the perennial

Government actions_t today, exercise an extensive and decisive influence over the course of economic affairs. Because of its consequencest there is need for analysing the eff~cts

or

government activities on the rest of the economy and [.0)." p:Co'/.l.Jing H~[,-,l~I.:.:':ion

about them 'to those responsible for deciding how Lc at the i"fluence of government should be exerted in the general Lnte r est of the communf ty , Covernments now find themselves in the po's Lt Lon that the decisions they make can be crucial for the stabtl Lt y of their countr Le s I e~onomy in

the present and for its growth in the fucuro ,

•

not

Governments only for the

have come to accept balance and growth of

new and \4 1.lJ.,J"r:

their economys

rcsp~~l~~~ilities

but also for the

ECA/PHSD/Bud/90/5[2.1(d)]

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social welfare of their people. In accepting these responsibilities, they must also accept the need to improve their knowledge about the economic and social effects of' their actions and to equip themselves with adequate means for taking informed and well-concerned decisions on policy. Because of these implied effects, ways and means have to be found for analysing the effects of government activ'lties. There is no single system' or technique for collecting and analysing' information about government transactions. In some cases, economic and functional classifications of government expenditures and receipts are found to be of significance for analysing' the short-run effects of government transactions on the working of the rest of the economy.

This publication' is not intended to propose, ready-made solutions for assessment of costs or benefits of government budgetary expenditures which has been the concern of avalanche of fiscal impset studies focussing on different approaches.!.! which have been adopted for such analysis.

The report aims rather at drawing attention to issues to consider in assessing the impact of government budgetary policies and outlays and its revealed implications for general economic development and growth of a country. the issues are drawn from the lessons of experience of the two country case studies, Ghana and Sierra Leone in Section III of this publication.

B.

Organization of the Publication

The publication, after the introduction, outlines issues involved in assessing the impect of government budgetary policies and expenditures.

The next section presents selected country case studies, ,Ghana and Sierra Leone (successes' or failures) with suggested measures put forward in each case study from which lessons are drawn for the issues discussed in Section II.

.- .."'1.

SECTION II. ISSUES IN THE ASSESSMENT OF BUDGETARY OUTLAYS A. Reed for goverument intervention

It is a truism that government intervention in societies of African countries is indispensable in the management of their national economip.s.

The contention, however, rests on the extent of such intervention and with what instruments to attain the best socially and economically desirable results. In the context' of underdevelopment epitomized

Y

Luc De Wulf, Inc fdence of Budgetary Outlays, Where do we go from' here? Public Finance, Vol. XXVI/XXXVI, No. 1/1981.

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particularly 'by the structure of African economies

,1/ .

there are many grounds',' in addition to welfare economies for mistrusting reliance on market signals as a mesns of achieving'sustained development.

The multiplicity of goals and the limits placed on resources availahility both in qnant.um and the range of instruments available dictate' that "t'rade~offs" must be made and "second-best" solutions must be, viewed in terms of how these policy measures affect the attainment ofceconomic and social development goals and at what costs.

<, .

Among the more important reasons which justify government intervention the follouing broa" headings,l/ can be mentioned.

'(a) Lower efficacy of the market machinism

The market forces operate less effectively in African developing countries than in developed economies. The response of factors 'of production to market signals in African countries tends to he' not only

s

l ov

and s

Iuggish but also uncertain in magndtude ,

(b) Unequal distribution of income

This is largely explained by the heavy concentration of wealth in the form of land and industrial enterpri.ses in the, hands of a small number of the population, by a wide disparity in the level of education an<l· sldlls between the rich and the·

poor as well as by the absence of an effective system of progressive taxation on incomes and wealth.

(c) divergence between private and social costs and benefits

The private entrepreneur is quite naturally coor-erned only with the cost-incurred by him on a project and with the in~o~~

received in his decision "hetper or, not to, embark on it. ' 'The private entrepreneur is not'expected to, nor does he in practice attach any "eight to "hat ave commonly, known as' the

"extern.::lities" of his activities, namely, the side-effects (positive or negative) of his operations on the rest of the, economy.

L/

^UNECA

Programmes Section

2.

,African Alternative Frame,wrk to Structural Adjua tme nt;

for Socio-Economic Recovery and Tzans fo rmatLon , Chapter one ,

1/

^{Eprimg Eshag,}

developing countries.

Fi9cal and monetary policies and problems Cambridge University Press, Cambridge, 19S3.

in

ECA/PHSD/Bud/9C/5[2.l(d») Page 5

(d)

Long-term dynamic consideration

It is argued that even an investment policy that may maximise

social as distinct from pri.vate benefits in the short run

. may not necessarily be the best policy to follOl<

f

rom a long- run dynamic point of ,view

and

that this provides atiotherreason

for government involvement or intervention in the management

of the national economy.

B. Fiscal instrument

The most important instrument in the hands of government

fo~

influencing economic

manageme

nt is the fiscal·· instrument, the budget.

consisting of tax revenues and

expen~itures.

Taxation reduces real resources available to households, and expenditure increases real income.

The net

effect of the budget could thus he analyse" to show

what

groups of the population receive a net benefit from the

budget ,

and .,hat groups are net contributors to the budget.

llO\lever» the government c an also influence economic management

through the institutional

frame~ork

that it sanctions, particularly through the set of laws and regulations tl-at

af

fe c

t;

economic behaviour.

It is obvious that property laws, 'lage legislation, price anrl uage

cont

ro l.s , import quotas and a host of other operations have a major impact on the national economy. These activities of government, however, are not considered in this publication.

In any economy, the use of the fiscal instrument can impact directly or indirectly on a

vart

e

ty

of targets

and

the simultaneous achievement of several targets will require varying simultaneously a number of fiscal or other instruments.

There is no generally

co

r rec

t

assignnenr: of targets and instruments.

The correct assignment in each case

depends

on the

e

ccnomi c structure of the economy at the time it is heing

cons

Lder ed , nor

;.0

there· any unique assignment of inGtruments to targets. The assignment may not only change as

be

tween countries

with

differing economic characteristics hut may also change uith;.n a single economy

be

tween time periods as

changes in economic structure occur.

Some iaea of objectives

used to achieve the objectives

an« fiscal and other :i.nstruments to

is sho"n in the following simple matrix.

be

ECA!PHSD!Buc!90!5[2.l(d)]

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Table I

o B

J

E C T I V E S

Instruments

A.

TAXES

i. Personal income taltes

ii. Corporate income tax

iii. Social security taltes

iV. lJealth taltes v. Sales t.altes

vi.

Excises

vii. Customs duties viii. Stamp duties B. EXPENDITURES

Income

and Allocation \Jealth

Di5tri- hut ion

Employ- ment

Balance Gro"tt. of

Payments

Deman"

and Income Gtabil1.ty

i. Government

expendft

ure s on goods and

services

ii. Government

transfers iii. Govternment

Lnves tment

expenditure

iv. Government borrowing

c. ^OTHERS

i. Interest rate policy ii. Money supply iii. Exchange rate

policy

iv. Income policy

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The simple matrix in Table t shows hOH anyone fiscal or other instrument may have impact on all objectives. For instance, a decision to le'vy a multi-rate sales tax "ill aff'ect the ohjectives of allocation, equity, employment, price stability and may affect demand and income stability and g rowt h , Himilarly, government decLs Lons on transfers under expenditure can affect all the objectives s11011n in the nat r i.x, I t is t'>is complex

t

nt e r-relat

t

onshtp and interdependence of 'o!'jectivl's

"hich makes the assessmert of the impact of government budgetary policy a",-!'outlays complex than the convenient abstractions of fiscal incidence or tmpact theories an(1 approaches 'h'hich are 8C'r,let imes used.

rl,,,

particularthoice of tar-ge ticetcgor t.es or ohjectives as shown in the matrix and target impact anr' values shou l.d , therefore, emerge from the political choices of a government and should reflect its priorities for the planninr. period over ,qhich the target. or objectives are to be achLeved , together «ith economic and other constraints ",hich determine the range of feasible target sets from the choices .~de.

C. Link between planning and budgeting

One of the most crucial. mechanisms for acbLev Lng the desired impect of budgetary cut lays or expenditures centres on the parmonization bet",een annual budgeting and pl.anning. Governmen~ buogets are the most important instruments t~:rough lIhich pub l

t

c expenditures or programmes are transformed into tangible ?chievements. Budgeting serves to focus 4evelopment objectives an? strater,y ~,"en it acts in a supportIve role to development planning. Uithout careful synchronization of planning and budgeting excerciscs, the realization of objectives of each operation fails and structural inbalances in the economy tends to amplify. llithout the harmonio\ls coexistence, there is the tendency in the national economtc management to pursue divergent ang Iea, The benefits or positive impact of the allocative an~ distributive f\lnctions of the budget operations breadkown anrl the net result is usually the increasing mismanagement of a country's resources, (material, buman and financial),

increasing rates of inflation, conflicting policy responses, stagnation and general failure of economic and social developncnt.

In Sierra Leone~ according to the c as e study in Sect Lon III for example, although the draft national development plan, 19f1/02 -

1ge5/116,

recognises the Lnportance of "streamlining the entire budgetary process and at r eng cbenfng financial control", implementation through the annual budget «as left much to be desired. The overall goals of the plan sectoral objectives or inter-industry relations have not been taken into account in preparing the yearly development expenditure budget anc! in selecting projects for the sectoral investment programmes. In several cases, i n the majority of Af rLcan count r Ie s , public expenditures are approved for political reasons in disregard of consideration for their im;>act on economt c and social development and the development plan.

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In an effort to Lmp r ov e the positive impact of budgetary policies

and programmes~ the link be tve en planning and budgeting needs to be

strengthene<l. This should not only he the issue of location but proper decision-making authority, trained staff and adequate flo" of information

between the ministries of planning anti finance for the formulation

of the consolidated

publi~

sector budget.

D. Organization of finance ministries

"I'he or'gan Lxat Lon of the finance ministries to determine 'Nhether they aid or impede the use

or

the budget; as an effeetive policy instrument has to l-e looked into. It is of little use emphasizing

the positive

mpact

to be reali7.ed

t

nrough budgetary allocations if

there is no of.fice in the ministry of, finance which is familiar with

analysing or assessing tbe impact of government budgetary outlays.

At

times~

the finance ministry

May

not be

aBare

of the number of civil

ser'rants!±..! in each spendi.ng ministry let alone the actLvi tLes ,...,hich they are supposed to be acccnp Lt sh Lng , I~~ is~ therefore, necessary~

to carry out or gam aat Lona I reform of the finance ministry from the viciJ point of objectives - oriented budgetLng . Some finance ninistries

have~ for exampl~J some sort of inspectorate of finances which is supposed to fulfill internal audi tLng func^t i.ons and , therefore, focus

all the opeations of e pend Ing min Lstr Les yagenc Las , These inspectorates could be strengthened to exarnLne the desirability ann ef f

tc t

ency of

government operations for their impact on

develop~ent.

E. Budget revenues and expenditures

The revenue and expenditure sices of the

governrne~t

budgetary

operations affect the national e~onony in various ways. tn1ether fiscal action l'Jill be expansives contractive or neutr a I depends upon a variety of circumstances. Fundamentally~ any net influence upon the national

economy c1ep'.,nr's upon the overall effect of fiscal practice upon aggregrate

demand

for. goods and services. Part of this overall effect

is the direct result of government demand for goods and services through the expenctiture side of the ~udget.

Hi th cege rd to r r-e impact of budget; cxpend Lcuee s , there a r e complications wh~ch are partly ~ue to tr.e ~xtensivc number of programmes and. the variety of the objectives fo r ch Lcb auchvpr og r ammes are de s Lgned , Expend.itures arc more varLe-l than taxes and inJ.ividual classes of expend1.teres are more nume rou s . The pattern of government expenditure On goods a1H.; s e r-vice s determines to a significant extent the pattern

of production and th€ allocation of national resources. The expenditure

at the t;;~I11e time generates income, 'phich in turn "Jill be spent and llill increase the 'pressure of demand. on the national output.

4/ See

t

he

^{P '}.,lerra

L

eone case worke r s!".

study in gection III regarding "ghost

ECP'/i':,:D!Bud!90!5[2. H~)J Page ':

Lxpeno::J,l.tUYZ'. Ly gov~'o:*,ent ir: pr,,:·vj'~]_n[~ Sf;~r'rj':es free (or for a nOT':!i1'lal charr.e) s avc s e xpe ndi.tu rc ~I'r J'~_l"'7vs. ,.-,-~ 2,l=fect is to mal-e either the costF of

?rOdtlCers

or t~ie ~xpenditur'cs of private consuners less tb.an t':;~y Hcul!~ otIY't"\·rise be. Eut t:',p ~';-:rer'Jr-\itnre Lns to re pai0' E<)'i" in one "'l~-Y or ·::!.1~')ther and , if not hy ;.'>f!opl,.. paying for ",11.:a t they use, i t Las to he by taxes. 'I'}'ere is t~-d.JS, a tranc;ferc of income f',~o~

~h;)f,e paying taxes to those 'bene.~i,::_i.ng b ..<nrJ f:overrtrnen~ e xne ndi.t.u r e .

".., a,ddition to expenditure on f-(C8 :.~ervicct;', government make a free graut e o-r t r ansfe r of Lnc orce , S(¥~mc are paid to pr oduce r s in the fo)"1"" of. subsidies; others a re p:,'ir~ tc', c on sune rs if'. tl:'.€; fo rrv of family a l.Lowauc e s and henefits fOt" tl.e vnempi oyerl, Thf~ powc r to tel'. uniquely is e p::1Her of govei-nment. and its e xa rc ise J.G [1 ~QtrC1:' of v

t

taI interest ,,:.In,'j ir::?ort.auce to the economic ::ind s oc

t

o l li£e of a nari.c.r. The bu-iget

~?Vf':nt'f,~~ thetefore~ can influence ,':~7.st:(·~hution

ct

Lnc orvi througJ'; the

C'1P of vari ous taxes. For instance.~ Lnc ome .AlH: wc a Lr.h taxes a re ge ne r al Ly as sumer' to reduce tl1c -ltc poa ar-Le j.ncof1.e of taxpayers. Taxes on pi.:'oduction ane' expenditure, or l')"~ i)H~el:" r.anr", reduce t.'h,e r e a I v.nluF_

of the Lnc onc left at tJ-reir ~";.sposa~. s Lnc e the.y cnzer the prices of ub,q,t t~'1/i";Y buy ,

'i'lier e ar e a variety of dif'i:(~rcnt vays tn ~'Thic:-" to?xes end other

(:ompulB{.Jr~l contributions can 1.'.B Levier' , eFl.ct' nit:'b, its 0,17; .'3pecial if!lpB.ct.

Thf';:'!2 .1""e concept ua l

Iy

three br oad cate go rtec. caxe s and social security c orrtr Lhut Lons , 1-·ih~.ch the paver ~.r('lul{! tend to regal~d as a ckduction r:rcr: },:"J.s inor.omei taxex such ;J."J CUeStoms dut;ies and s a Le s taxer, uhich e rte r into costs of prcductI.o ....~ ann the p r i.ce a at uhich tbing s can be honp-ht; at<,d taxes uhich th:.= ,?ayel~ ':·,'01... 1d ;:e.n~~ to L'er,f1.r::-1 as a coropu Lao ry tranefe r of his savings rathBr U.c.';!n;:,f 58 i.ncoT:,f'.. T;,";"~ relative tr-po rtance nncJ Lmpact; of the three ::ypef: of taxati.on vHry fro1"\ country to c(''l"ntr:y.

The r::rm-Jth in the vcl"T1P Clf burJp,~t2t"'y ope r ar tons involving t·3.X revc nues ~1r.;,! exper.c'i tu re pr og r anmeo C''4 efEect t.i'.e economic and social Cl,evclvpmcnt of a country fOT goort Or' rn!: il?:. and th st _'b~,' intelligent:

dir€ctioL ~r,-,;'~ mal'aee~~nt of hudeetary ope rar.Lons can offset. tendcI'cies tOlla't·('r. in2ta!-,:tlity arid foster. s\!sta~_n0.:[ ~('r,r.cr.,:i.c A.ndr;oc.ic?l development.

F. Nature of govermnent activities

The s e r v Lc e c provir'cd ~jY g0vernT!'enf: l,1hict: ar e most c IaarIy of 0, ZOV'.'l.';~!"":~,;nt: nature [Ire t1'Wf;fl! connecter' t'J".t·h l~eepir~,' order within tbe

n.::~~ion an.;~ pr otect i.ng it fr om out'L~de attack. :.:JtE;:<- .:~er"'7ices invo 1ve the uo e 0:: cotapuLsor-y powe r s and: t.he r cFor e , have no 1'ounte!'part outsi.dc of th0. gove rnment sector. T;,,:ey n;:e _h,~sic in tte ae ns e of Le Lng nene s si tie s of peaceful l:i.vi!"(;:; :~ut they 60 net in the.mselves impr.ove the stan::.1Ari:s of liv^4.ng of tr·? peaple. GovcrrmlBnt underte:h:es, bo",ev~r, ii ui::? r:"nge or. other serv1.;:;es bA-Cb,IJSe of t~-l~ .~Gr-~plex.ity aH(~ importance vf eC;1t:oHir: and soc'i.al f.1evelopc.ent. Th.eEe _c,~:rvlces ayp.- those for reglJIFting (~~onomic affair~ CCP.tiDl OVf.;>r ~~;';portE- ^C1;1.. exports^I etc. s

ECJ\JFESD/BUI~_i90/5 [2.1(d)

J

Pege 1.(\

JC:L'i,'":;r.Cf, l"~,::de,~ for' commun aty li.ving • By nctut-e , t'-";ey are c-("i,:l':'l.una se rv :.. ':':cs ',,_~{lCG_ eire fo r tb •.=- :.PLC[:'.. •. 01 .:11..;., rez i.e r t~1.J.r. for the f'2nefit of ;'; part icrlar Lndust ry 0'( (:10.-8,; of tLe '.';()~71lmitv~ e duc atLon , social s e cc ri cv eIv1 ot ne r s0~ir1. 3P·~vi('2.S r:.:'~'''~''~:;:"': to rte et; s oc

ta

l detwnds.

They a rc mainly fo r the tenef tr C~: irl<:::Jividual persons and contribute ::I1rec':ly r c s::,:;t.n:::a ...cc cf Li.v i.ng, "rnere a"l':''?: fllso~lirc:,ct econor-f c e e r vi c e s . ~lypical c..l:3(~S ai.e agricultux-. in0UGtry" "aLU>1ays; postal an" ::eL~ph(Jn~ e e rvicc s ~:~c. Thes8 ~ove:::'nmenr activities. could be

~f~~cte~ post~ive:y 0: negatively by !~utgetary outlays.

G. Categories of gov~r~~nt expenditures

There ar ,': t\:m ,---'Tunc!. ";[egori,eG of gover.nment expenditures. Those for l,rhich ({iy.'ect beneficia::-'ieG can be i dent Lfied an« those for llhich they C2n not. J:h~ fIrst B':::,ov-p of exp"?n;~'~tl-lreS wb.Lch includes transfer

pr,y~en.tE anr' sp2cUfii..', p r og rarmne s , su ch t,~, l:j.'2altl~ ~ cduc at Lon , agriculture e r c • , ts re Lat i vcIy easy 1:0 as s e s s itn i.P0act e i.nc e h,e;nefits are as sume d to ac c rue tc vc l I ' eftne d ~"';CtCT5 of L;l.f"': 0.,::onor~y. The second group of ,-;ypendi.tu!'fCS ".,17:'ich usually lnr.lu,~-:,,'" ,..;efenG-e~:. police pr-ot.ect Lon , ju st Lce anrl. g ene z-aI a'~ministt'at:op c oo srtr.ut cs H"hat· are usually ~-:nOl;!n

as pub l.Lc 0"': co Llec c s ve Goo:--is. ""~-;"".":' L.'!ipl"t.:-,ticn of b~nefitB or iMpact foY thi~ group is an interactal·l~ probl~m.

'.'fhese ^tUG groups

cI1dracteri~tics; 8u~h ~G

c.ons urrpt Lon~ on c apital

ass~ss t~eir impact.

cvp..~:-:,::-'itures on

goo~]s transfer

t~ c Las s Lf Le d 800cts and services

payme~ts etc. to

hy economic for r.u rre nt

be at: l.e to

'i"l;e e Lm of

r

he econor-Lc car e gc r i.e c is to r,:revide the data required for. e xamfnLrig ,J',(' (:'lr.OiY'F',ic e E:fect of gove rnmcnt ac tivity. This scheme r.a s t~';C,t0&f'-'':~: t f t.:" ;0rs:i.r1::"'":~e,:l_ c':; ;'1 r~rt of a l.·!i~.e-r system for r ec o r ci.ng the ^tr ansrctJons of £"\11 pa rts of thc e conomy , not just

?,-ov2r.m~er,t l-oc Lea . -"::~:d:; 60C:3 not [,'2;Jn rhat r b e us e fu Lne s a of such

.:1 cl.:'l.~sif.i(:'Gtion d~pen(;f: on the existence of simi.lar statistics for tbr:' tr ans act ionn of ot\e:- Gocies; i t only neans that , for pur pos e s o I ana lvs

ing

tr"e effec.ts of fove~nme.n:: t

r

ans actLons on the

rest

of the e c onomy. it i.e ne'::essHry to ;-ji:Y'~ie in t:-jin"~9 at least conceptually, a sys,f:f:.f1. in. It'hich r e cor-tLng of p;overnmep-t transactions can be visun l Lzed cs par c 0:': a consistent r ec oro .' ., '3,]1 2coL0mir.. tr c ne s ctLons ,

•

ECA/PHsn/Bud/90/5[2.1(d)]

Page 11

SECTION III: SELECTED COUlITRY CASE STUDIES 1. Ghana

A. Introduction

In a study of this nacure , much cannot be done without a brief historical exposition of fiscal management in Ghana since indpenrlence in 1957. Between 1957 an'" 19&1, the country's budget report centred around what is officially referred to as a structure of "l!ead&", "Sub- Heads", "Items" and " s u b - dte m s " of p u b L i . c sector expenditures with correspondingly designated account numbers. Traditionally, the budget report featured "Annual Expenditure Estimates" as a planning document aimed at achieving conventional accountabtLtty and controls of expenditures. To wit, this procedure is devoid of vivid economic analysis for effective macroeconomic management for achieving desirable policy objectives.

To forestall some of the inherent ueaknesses of the system, the budgetary authorities decided in the 1900/61 financial year to restructure the fiscal system, consequently, some programme and Performance Budgetting Principles ",ere "dabbled" with. In this context, Expenditure Estimates "ere to be supportee' by "Project Analysis and Salient Points" that showed functional and economt.c cLaas LfLcotLon of public sector expenditures.

Fu rtne r changes ",ere effected in the 1966-67 fLs c a I year with expenditures now depicted by broad economf,c sector s , By this arrangement, individual prog r ararae s wer e linked "lith each sector, and each sector showed an identifiable economic activity.

\lith the asaistance of Canadian expe rts , more budgetary reforms were introduced in 1972. The changes introduced expenditures and receipts, and below the line budgetary principles.

By

1903, the fiscal year was changed and zero-bas~d budgeting ",as supposedly introduced.

Laudable as the professed principles of these budgetary reforms are) the operational practices have not been satisfactory. That despite restructuring efforts, some eight years ago, fiscal management in Chana is still inefficient may be found in the P.r1.D.C Secretary for Finance and Economic Planning's utterances on

1l.

.June 1990 at a Public Lecture at Legan. The Secretary observed, inter alia, that the key tasks of

• economic management in the continuing national recovery effort pould be (a) to improve the system's capacity to anticipate expenditure demands of the user ministries and (h) to improve the capacity of the existing expenditure prograr.ming and monitoring system to obtain "value for money.^II Obviously, if all these finetunings are at the background before budgetary allocations are current ly made monthly, then one begins to vonder i f budget documents have not become putative to warrant a serious study.

ECA!PHsn!Bud!90!5[2.l(d)

J

Page 12

The functions of public sector budgeting in Ghana are the preserve of the Hinistry of Finance and Economic P'l arradng as the name connotes.

The Planning Division emphasises the economic studies whi l st the Finance Division stresses the financial management. In this arrangement~

developments in the macroeconomic framework constitute the baseD on which fiscal policies are erectea.

Unfortunately~ the Ghanaian experience with fiscal measureE has been quite unsuccessful. Uacroeconomic analysis and projections have not been exhausitiveiy undertaken as basi.s for decent policies. Not surprLs Lng

Iy ,

the economy has been s addLed with negative g rowt h rate, high inflationary rates, high levels of unemployment and unfavourable balance of payments. Appe ndix 13 shot's hot] the real GDP at 1':'11(1 p rLces behaved in rLlation to the rate of inflation.

Similarly, projections on resource mobilization ane government expenditures have been faulty leading to poor financial planning (see table on Summary of Governmer.t Accounts in Appendix I).

For a detailed assessment of the poor performance of fiscal measures, the budget has to be broken i:1to it" respective constituents.

Suffice to mention here that the budgetary authority, Ministry of Finance and Economic Planning is suffering from a dearth of treinee and experienced personnel as ~lell as protracted economic mismanagement ane political pressures.

The apparent ineffectiveness of the fiscal system may, therefore,

~e traced to the dearth of experienced and well trained staff, limitations of manasement systems an1 resort to crisis management styles.

Budget provisions are no guarantee t^{h a}t payments ^{w o ul . d} he met or that

they wouLd not be drastically cut down in due course. It is against

this perspective that the present study is set.

B. Budget structure and coverage

Ghana's budget document covers all governmental functions and activities at l1ational~ regional and local levels. All governnent money belong to the Consvlidated Fund from which all Jisbursements are Il1ac£. On the revenue side are three broad categories including tax revenues⁹ non-tax revenues and grants, IJhilst the expenditure side comprises current and capital or development expenrlitures.

Concerning the revenue side~ taxes are fivided into indirect taxes on both domestic and foreign transactions [re fe r ren to in statistical publications as taxes on domestic goo~s and services, nnd taxes on international transactions], and direct taxes on income and property.

Indirect tax estimates are arrive" at by adjusting for the expected rate of growth in dcme stLc demand as we I I as changes in the volume and composition of this domestic atsorption. Similarly, direct taxes on income and prope rty are adjusted in accordnace "ith expected rate

ECA/PllSP/BuM9~/5[2. H,l)

1

Page 13

of gro'vth of Lnccr-e s , profits and employment.

to s Lng l.e out the r o Le of the cocoa e e cto r as

ea~ner antl vit~J revenue sour~e to government.

Here,

hoth

i t is :LmrorttJ.nt fo r e Lgn exchange

Von-ta~:. revenues consists of fee s , Lnte r sst , profits and fLries , pena Lt.Le s c,na fo r fei.tur e s and rent from government Crants~ l,;Li.ch are essentially c apit a l receipts_~ Lnc Lude horrowing from a l r cad and Loc a I sou rce s ,

rlividends

i

property.

[1.',rgcly

J

On the expenditure side is the r ecu r cerrt oxpcnd Lt.ur e and development.

buriget , TIle ~~ecurlent expenddcure comprises expen::~iture£\ on all gove rnmen t.a I acttv

t

ti.es viz r;eneral tv1ministration_s Lav ~n(j or'de r , c.cfe.nse, community and social services as uell as direct govcrnrnetlt economic act f.vi tIe s . It- further Lnc Iudcs interest payments on publ.Lc debt a.s '-Jell as tr ans fers or subvenr Lons to pe.ra stata L organ Lse.tLons , On the o the r hand , the development eXj1enditur-e consists of outlays on acquisiticn of new capital as set s [includiT\8 the gove rnment s contr:i.bution to erip Love e s social se cv rLty fund.] s purchase of existLng capital !jooos and t·::ansre7.s to state-o-;,rne,J cnterprices.

U'ith i.n t he accounting frarneucrk , pub Lf,c sector expend Lt urus are classifiec scctoral1y, functionally and hy objects. ,-~ctoral

Classification corresponds Fith the type of economic activity engaged in by the government. This Hayi the budgetary expenditures are ~~i.vi(~ecl

into twenty··fou:c (2/,·) sectors namely:

1.

2.

3.

4.

5.

6.

7.

\...

fl' •

10.

11.

12..

13.

14.

15.

• 16.

17.

lB.

19.

20.

21.

22.

23.

24.

J.gri.('.uItu~,;:e

Lands an;' ~,~o1tural Iie s ou r ce a Fue 1 and PCI'\-Jer

'l'rarie

InrlGstrie5~ Science and Technology Uork s art,." L.ousing

r.oa': sand EighNays

T:-.onspo rt and Communf cet ions

Erlucation

Youth anr' :iportG

H~alth

Labour a.r,t~ Social llelfare

rur a I Development and Co^e ope r et Lve a Interior

Local Government' Office of' t~ii Ftl:JC Culture and Tour.iEID Infomatiott

arlministration of Justice Foreign Affa Lrs

~inanC8

anrl F.conomic

Pla~ning

Defense

Extra

I,,~:tni8terial Depart1.lent.s

Financial

?ervices.

ECA!PHSD!Butl!90!5 [2.H<1)

1

Page 1.1>

Sectors 23 and 2!~ :l.nr~lu(l.c expenc t.tu re a en the Commts s Lon , _,AlH~~;t~ Ju;,~i~i.fl.ry~ Pa r Li ame nt , C:budrmen Ccmmis s Lons , an« cxpe n.u.r.uro s on penai.ons~ g r at ui tLes payments on bot~i. donestic and foreign debts respectively.

Public Di;>,rvice as 'Hell as and b~t-erest

Fu rtbe rmo re , e acb sector cor re spond Ing \-li.th the func ricna I c Las si fIc.stior; i.g br oken dovm into EeEJi.s or Pr og rammes and 8ublrea~5 or :,;ubProe'!'ar::mes ant: then into _Ohje~t.s. The !-!ea<I!Fy"ogramme ident:ifies

ltit~ a r.J£ljor divis10n of the sector such as the coc.nc

t

l for highe.r education and GhanF Education fervice l~nd~r Ministry of Educ.;ition;

and Fish€riet; Division~ ar.« Animal I~usbandary unde r Agriculture. The Su'b:::·:C&.:1S 01' 8nbFl'ogl"arnrneE', ^8Te identified nith further breal~. dOl.lnS of tl·.e Eeads/Pror:ramljle~ v'i::: General Administl'ation anc' Cpe r atfon s hr anch , Harine Fisr"ing rranc~:,~ Inl.anrJ Fd sb Lnr; I\~'anch~ and Re sea r ch and Utilizati.cn ~~r.~r;rh unde r the 1":i.sr~rj.es Prc[':r:-8ror.te of the ',:gricultural

~cctor.

the

The Objects c Las ci ficeti.on (>3.te?crlJ'.alIy expendi ru re made and is itself ~ivi(;E"'~ into

includes r.Lne items

the natu:re

as foLloos ,

of

Item l.

Item 2.

Item 3.

Item

4.

Item

5.

Item 6.

Item 7.

I te!.~ ^ry

'"

Yr era

s,.•

Ba~eE! anti Sal;;'1rj.es

'I'r.::.vc1 arid 'I'r ans pc rtat Lcn genera l ExpenditurE:

1-la~tnt£nanc.e⁹ U2pairfO .and Itenewa Ls

(:t~}~:r t:!.~rr2nt Expe n.ii tu:cc nuL-VE'I:,t i.ons

Cone r ruct~_onJl lIor!,:s

PIBnt; Equtpme nt , Furritt;re 3n,~ V;f,:hicles Other Capital Expenditures.

VGn:lal1y~ fterrs Y. to

J

are s:_an~~ar(lj.ze~j, e xpendLtures ::hat do nat di.ffer M.2.rkecly. ntt\'i the remaining: six ~.t'E'.ss) houe"er.. no scan(!ard fo rmar exists and. is tbcr-e fo re left to the spe nd Lng uni ts initiati-ve tic b0 dc t.e rmd rre d , In ge ne r-a I t c rrr.e , j.~2mD 4J (~ and [' axe r-eLet L'veLy

0 e f · j . n e d . tn'at ne~~3 ^{e x}pL a n a r . L o n lr, t.t-..~~ trnd^e f Lrieel ^c h e r - e cte r o f L r e m

5 l'7hich i~ ^(I generic t e rc- fo::- 2xpp.ndi::LTcS -U'.f'.t cannot be c cnve n Lent.Ly and i!'1Inef3iat·::-ly categor-ise,J. Examp Le s inel;;rle outlays on text books , education marerta l s ,3.nd dr ugs and chessi.!lgs:; just to cien c i.on af(~~T.

Items 7 throuf!:::-'

r:

^to '£" consti tute tI.e c api ta l budget or Deve Lc.pme nr Expenditures. It doe s not :"'eally mst te r ^:tfJ!' ~,ihich sector this kinr.', of. exnendf.ture is narle once it fo l l s un-ie r the construction p~oi:ects

like

~ll

^{huildings, roads , bridges;}

(~OCkS

machf nary , (expensive) office equipnent and. furniture. mc to r c ar s , eql;1_cy contributions and loans to state ins r Ltut t.ons as 'pell as ~mclu.J.eU'::s

in

the so calJ.clJ capital sectoZ'.

Technically) therefore9 public eecto^r expenditure policies emphasize object c las si.fic aticr. ant: not Pr cg r amme Classification. This arrangement

ECA/PR~D/&uc/gC/5[2.1(d)J

p.

.>ge

15

has implications for policy decisions in that Cbject Classificationn

"an be v i.eucd as projects to he undertaken and therefore '''ould call for feasil-,ility studies llhere8.G Pr ogr errme classifications vrcu Ld emphasize consistenc.y of such Programmes taking into account a sources and uses approar-h to resources ~anagement.

To arrive at the expenditure extimates^s the Hinistry of Finance and Economic Planning is supposed to send out budget circulars to the

Ministrie5~ departMents and other parastatal agencies catered for under the hurlget. The budget circular, putatively, focuses attention on developments in all segment c of the economy basing pcojectLons on ec oncmi c gr osrth , money supply~ LnfLatLon and occurrences .n the external balance s . It is further expe ctcd to contain guidelines and principles on methodology of preparing the expenditure estimates.

From the ^{a n gl , e} of ^{t h e} user minis tr.ies and agenciesⁱ eat^{t m a te e}

of expenditure are prepared in a ste p-wLs e fashion starting from the district Leve I thr ough the regional level to the national level. After thorough analysis at the Ninisterial level the estimate is foruareten to the budgeta ry authorities in the l1inistry of Finance ani) Economic P'l

a-m

Ing ,

The Ministry of Finance and Economic Planning has schedule officers who scrutinize the proposals submt^tted hy the user agencies. The rletailed analysis of '-.',e proposals is cupposedly based on the schedule office.rs inti.mate know Ledge of the wor k i.ng of that mt nietry , the pre cedLng years budgetary pe r fc rmanc e and any neu variables or information that ^Ill;}.y be introduced to ju st Lfy the proposal.

After the detail",) studies by the llinistry of Finance and Economic Planning, cabinet meetings (comprising the Co~nittee of se~retaries

meetings) are ;leld "here all po s s fb Le expenditures are appraised and approved on .ner!t , The budget total ^1S, there fo r e , the end of a s eries of micro p r oce s se s s c.al led variable budgc r cett

t

ng . The budget malting proce s s is summarised in diag ramme one. The heavy conr Inuous lines r ep re se nt; tasks \-Jh.i:Ist the broken lines shm'1 the organ Ls ations .

Ags^{L n e}t; thi'S b e c . k gr - o u n c tJ .i.t is apparent that: there exists a well

documented format for the fo rmu Lat Lon cf budgetary expenditures. In r ec ent years~ hooeve r^J these prfnciples have not been adhered to.

Expenrt i tu re planning is now fraught nUh irregulariticr. that are not

conducive to achieving positive results. Firstly, the user agencies

~apecially the major ones like health, agriculture an~ education, claim that budgetary guidelines are no longer comprehensive enough. The budget cir cuLar s do not contain sufficient information and practical guidelines on re source avai lability. And since the user-agencies do not have adequate knov l edge about r e source r ea Li,tics, they cannot plan

their expenditures effectively.

"'M

f~ ... ~

"'g;

'-

1:

Q.

:<;1

~

'"

~

"'"'

.

~

~

Q.

,,",,

Respective

-

budget demands Departments

.. I

^!-

---'1

I

f - - - - i

Approval of

l~

^Budget

bUdget by

I

^announce-

Cabinet

I

^{men 1}

\ I

~,

KEY

r t Organisation

L-.J

D

^Tasks

I I

I

! t I I I

I I

Budget circular of

MFEP

BUDGET-MAKING PROCESS

(~~ - - ~~l

I·l ¹ _~

I

Miniwies

I

I I

I I .

I i I I • I

^Parastatal

I-l I I !

organisations

I

! ^{1 I '-_ _}

^{- - - - I}

+ i f

I

f

I ^{I .1}

Siale-o,,;,ne,d

I !

I

entarpriaes

I

I

^{! !}

Diagram 1

Budqet Circular

Consolidated budgets of

ministries

Restricted - Finalisauon of

budget budget allocation

hearings leading to

Approval for Iresh employment

Allocations for projects

,,-~-,

Ministry

f I

of

I

\ Finance &

I

!

Economic

I

I

PlaMing

I )

, (MfEP} l......_-\

\ I

"- I .

.'

.

..

r.cA/pr·~pIBu<'

I

~;(j5 [2.l (<,) ) Page 1.7

"~~I!}~l .-r<?~,. (:': ':1f:~- ,,:;,1. r C " ' l ' . ' c os ~~rir'- ^{c - :. '} f-::" ..--;~-~~ ~'T0T! the ^{r c c o u r c e} r cs l Lt i.e s (evf::n 1:~ their e}~pf:'n(!it'\.)r€'s CO,1J,rl not he so ldp'}":)) it ~s

clea- ;-;-',,;~ I.:·:er(' pre DC r-e antnoful 3"'-' efsccrtve c omnnn i.c attor-s 1:etueen them. rot surp ri einrLy ,

rr.e

user ~!.f~encj.es d-rCll l quite ovcr amb

t

t i.oua

"'L~d3et!:l "r-owiro ::'1,-::( the hur~et.?\r:l authorities vrouLd cut them (~Ol'nj

arv: t-t.e j-'u,-lz,etary rl1lt!"oritiez over-cut the bude,cts knoning that trw

~fnistries J^la v e t~e }·8i·~t cf exaPBcrating their estimates.

Contro r v to VEl';:--Llhle ~u0p:et s e r ctng procecures enunciated in the

~Hy1p;ct .r:r)rIT!.'3t;; t.be pr acrtce l.sc. "bee') 0ecrernental budget tng 1"rit1:': lump-

Sl11: e xp encLt-u r e s especially iT"' te rr-s of p r o ie cts . Expenditure totals

are s et fOT t:¹' e vser,1G£~r'(>ies 2';"!.~~ i.r if: out 0 ; r.bi s total that allocations drf. r::;11.:~ t.n accor-carice H~t:~-' til.e nf nist rfe e ovn priorities.

FU!'f~S couI-. he t.ve>..-te-" {~'on one project to anotl-e r 0epenAing on changtng circumr,.tanr.es.

t'cspitc 1:hB compr e her-stve cove r ag^> of governmenta.l activities

;... v fhe i-uctg et, :t is in p o r t 8n t to note rhct; certain expe nci t.ure s of l.oc a I 8overnr~ents ar-.' t-cve nue s f:ror< local r ar e s and fees are not ~,ncludec1

in the naticnal 'j.~V~7('t. 1';"1.5 is in tune u:;t~·, rhe f.J:overnments objective of ,-~ec:enl:'·.91izatj.on m~·~ mak.Lnc; ^SOI"le state "ne ri tutLcns s e Lf^e ftnenc

t

og .

I Z;."l.in~ fo r e '..,?n Loans contr acte-t by other gove r-nc-enta I a~'0.nci.es lih~ t1-'e ::'·tate-C"'i\me^d En^te r nrss e s , an(~ their financial r e suLts arc ('l!".itted fr ort t'!\C l,.'ut1r:~t. '(:d..c is inspite of th.e national [:·u.4get's provi.sion of t r ans Je r paymenrs ';;!i1(~ subve nt-Loo s to thef'€ pa r astat a l organisations.

C~ coostdc r ab l e s Lgrt Lf Lc e nc e is the e xc Lus i.on of foreign exchange component of expe nc'tture s .Fror". r.l-e national burle:et. 1.~l";en>. certain

ex.peni~i.tu(Ct involve fo r etg n exc1'angc'j app rova l s are not given s tniutter-eouslv . 'l"t-.is no s e s S(ll'l€ Dr~hlef1s e spe r i.a l.Lv vjth the crawl- peepi.ng of the ce(~i-dollat" rate almost every 'I:"reelf. Py t!-?e time that foreign c xchange is f i na Lly c'"1!,p:""ove0~ the ~e"'H r e a ou r-ce s might become innr'^lequate due t-o tr.e '~cprcci.at5.on in thc exchange rate. Sinilarly~

budgeta rv anp r cve Ls bee ace in::mff:i.ctent in the presence of i.pflp.t~_onary

prc!"sures. Co-is eouen t.Lv , the user agenc:1'.es l-ave 1':0 apply for further

1·u~p:ctary ~pp:o".:~.?s or t-ce-une tOe s

t

z e of the p r ojc cr or sus pe nc' wor!·.

on i t . rt~er~~ise~ tt-e 0rt~inal anprovnl is sufficient to pay fer only

l-1C'ref,~r:Qla!"i.cs Af'.(~ C1.l1ml';lT1Ce~.

These.

-t-erefc.r e fleet'~.on on

orris s Lotrs ni:prJ to 'l-,e

E,..p~~r/';: tu rc

h;,lve ir;pl ications

[\1...~rlre~se..1. Th5.~

l'naJvsis.

I?or

i ..

budgete ry pe rfo rmance

fl'rt!~t"7' "lealt Nit 1" L'n

A.n(~

the

F{,':·/pr:'rfBtH~/,~r/5 2. J(~,~)) Pcq~.(! le.'

c. Fiscal development in recent years

D e f o r e t~:e t^{n ce p}tton or rhe ^{E c}onomi.c tr^{e c o v er} y F r o p n u n m e b a s er.

CTi, :t.sJ:~liz"lt:kr: .Jnn ;':tnv.::tural r.djuarmenr Pol tcie s of the n~F an-!

t~<,e :rr.r.I; G:'.anaIS Il c al vcev: r;H~:t·(,'rr: "~'u.iy to .tcne every year a.no

~'u~gets WQ~·I· pprsietcJ1rly ~eficit hu'!gets financed t~lrough ~eficit

fj,n.:H:cif\f': or in£lat·j.oih;'xy f i na n c i.ng s ct.erto s . For instance, out of

~.. l~udg:et rlef Lci t of C}.i' miLl i.cn i.n tue 1ⁱn 7 / 7;" fin",.nci:~l ve e r , nnul:

of C;-,,:j~·h; .?ln~C' fi.n a nce:' one 1'd.llion cei'ie: 2,DC the ':oI7'rnercil?l banks fino'need the r ena vrtn..f 'balance 'Ttth excess r e serves not e a rmar ke d for use 'pithin the p e rj.o.t . 'l'bi~ ever inc.r e asing :;;'?e. of ~uhlic sector expenfli.tnres in C!-·arw c ou I d '<e att r i.bu r.e," to s r-r ong pressures to spend arisir'l? fr ori rO?t.tlat~o'·' ?,rQTTt-h; _I"J:~ e unho r La r l-at; greeted tn-tependence uitI, coc ial ts r o r Len rati ons , a n-' inflationary pressures. ".PP~1:ently~

ra~~~ increases in _~he population called for increaserl expenditures to ~ater for t\1C De~t~S of rare healtl' an~ ci',catjo~al facilities~ puhlic

~;0ur:)n~1 r oars , ;,rater s uppLy an0 s eve r s ar:< otbe r s ccia I services.

:~ouever1 tl.e C;;-;aPRi.:ln c xpc ricnc;e ^'-1ClS obvi ou-tly rto r e then this Vap;i.1er l s Lav , ....0 ac l.t.eve 2.f1 unp r ece.eenr ed rate of e c oncr-Lc g r owtl. and st ructu r a I

t r ans Eorr-at ion , huge. amounts of pu}:lil. r e s our-c e s -re r e spent not on ly on social "rants but. on directly pr ortuct i.ve eccrc-rdc act fvi t Le s . rettreen

.l~:f·i:' anf1 l~;&f t~lC 30vc;:nr::ent t.r-ve cted '!7:cl.:.:sively in capital formation,

a~~ har' s i.nc e then been rl-e dominant fo r c e in 'hath romestic capital fo rriet ton ant; e c onorn t.c activity (ahl.:ad~ '-;;7;~:, <fori-,',tta, 1~~77; F.illick, 1~~7J ~.-rcrl.r1, Bank )~,:~',S.)

~'Tc evcr~increBs:i.n,p: ~xP'2.n(lj t~lJrCS c;ir~ not tal:e into account the revenue constrain^ts , f:i~!"i fi.canrLy , tne r e fo r e , gove rr-mcnt; fi.nanc e fr-or- lS([; to 19;',5 bas hcen one of pe rs i.at-ent budg et; cleficits hesirles a hwJget su rn l us o£ c·:-,.~', ~-;;illion iD the }(r{:O/~:) fi.rancia I year.

In recent yec;rs~ rcwever, gO'd:~lT.ri:cr~t finances Iave vi tne s aed

:=;ign.'_.f:i.ca.nt: Ch<'1.!"'..c:rES. f.:tnc e

1:.:::7-

~ t.be fi.s c.a L ye?r has been r'~1anged

from July to 31..1,;:<€- to cor-rc s pcn-' ~Tf^t'!-: t~:e c c Lend a-c Y~,'3.r~ January to Dec e-i'oe r . 'i'i~~3 has !::he a-tvo o tage of svncb r ontsLng fiscal nagru tude s

IVi'lli;:;t-lesl ~,,,itb mac r o ec on or-Lc r-ac ni tudc s for effective studie s and po l tcy anclysts . De-fore the n , nati0I131 .i.ne or-e figures, r-onetarv and fLn anc.LeI Li.gui-e s r.e "'ell as er.p Loyme nt fi.gu r c s , just: to mention a

fe~J r':UI from .Jnnua ry to Dec ersbe r H1, ....lsr fLs c a I 1"'13gnitu(~e5 ran fr on .."uLy to June.

lnot}lcr sipnificant chan~e in gover[~ent llrances is the reversal of pe re i.s r ent buz~get ,i.e<icit.s Hith ·<e.f:i.c.it financing to pcr.Lt c s c ctor-

~;.1.rpln8es lJithif! the l ar ge r context of tot.al revenue against total

ezpen,:';!~ture. ~;}orkip8 t,'it1" fis c a l cpcr a r tcr.s tn te rras of t£l.YCS alone, hmvc-ve r the blH~r.f?t5 still s ho-r pu'-Lt c sector def-icit s . By implication"

tr.e llmour:: of private sector r-e s cv r ce s ce('er to the public sector as

'tBX:S :f'; nct e noug! to i)'((wiro::': t:he publt-; ~c:--()."s 8n~ s e rvtce s r e qu Lr er".

Tr·is is docune nre.' _~.r- :'umJ"lary of Govern!'1Cf'!: }\ccounts· in Appendix I an0

rcflectP(~ in bu~get stateMents.