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Fiscal Policy in Developing Countries : A Framework and Some QuestionsThis paper surveys fiscal policy in
 developing countries from the point of view of long-run
 growth. The first section reviews existing methodologies to
 estimate the effects of fiscal policy shocks and of
 systematic fiscal policy, with time series or with
 cross-sectional methods, and their applicability to
 developing countries. The second section surveys optimal
 fiscal policy in developing countries, by considering the
 role of the intertemporal government budget, and
 sustainability and solvency. It also reviews the fuzzy
 debate on "fiscal space" and "macroeconomic
 space" - and the usefulness (or lack thereof) of these
 terms for policy analysis. The third section asks what
 theory tells us about the optimal cyclical behavior of
 fiscal policy in developing countries. It shows that it very
 much depends on the assumptions about the interactions
 between credit market imperfections at the individual,
 firms, or government level, and on the supply of external
 funds to the country. Different sets of assumptions lead to
 different implications about optimal cyclical behavior. The
 available evidence on the cyclical behavior of fiscal
 policy, and possible reasons for the observed prevalence of
 a procyclical behavior in developing countries, is also
 reviewed. If one agrees that fiscal policy is indeed less
 countercyclical than we think is optimal, the issue is how
 to correct the problem. One obvious question is why
 government do not self-insure, i.e. why they do not
 accumulate assets in upturns and decumulate them in
 downturns. This leads to the analysis of fiscal rules and
 stabilization funds, in the fourth section. The last
 section concludes with what the author considers important
 research and policy questions in each part.
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Uganda - Fiscal Policy for Growth : Public Expenditure Review 2007, Volume 1. Executive SummaryUganda needs to increase infrastructure investments if impressive growth is to continue. But the Budget is showing increasing signs of stress from expenditure pressures and fiscal tightening. Recent increases in employee costs in central Government functions of public administration, justice law and order, defense, prisons and police have deteriorated the composition of the Budget from the perspective of growth. In common with global experience in tight fiscal circumstances, public infrastructure spending is getting squeezed. These expenditure trends suggest a further squeeze on infrastructure and maintenance is inevitable, in which case growth could slow down. This report concerns how should Uganda respond to these fiscal challenges? Whereas there is scope for prudent new concessional borrowing for infrastructure, disbursement rates in infrastructure projects are too low, making it a priority to address constraints to effective spending. As part of a fiscal strategy for growth, Uganda needs in the short to medium-term to rapidly improve revenue performance without taxing key growth sectors, and to shift the composition of spending towards infrastructure. A compositional shift will require deep public sector reforms, early action on postponed reforms to public administration, and a working program to reduce waste and increase the efficiency of public expenditures, including in Poverty Alleviation Fund (PAF) priority sectors and agencies. A reduction in waste and an increase in public sector efficiency will ultimately require more accountability for the delivery of quality public services than is evident in Uganda today. It will also require a much more systematic effort by spending ministries and agencies: a more structured and a much more strategic approach to public service efficiency from the ministry of finance could be built into budget framework papers as well as preparation of the next Poverty Eradication Action Plan (PEAP).
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Uganda - Fiscal Policy for Growth : Public Expenditure Review 2007, Volume 2. Main ReportUganda needs to increase infrastructure investments if impressive growth is to continue. But the Budget is showing increasing signs of stress from expenditure pressures and fiscal tightening. Recent increases in employee costs in central Government functions of public administration, justice law and order, defense, prisons and police have deteriorated the composition of the Budget from the perspective of growth. In common with global experience in tight fiscal circumstances, public infrastructure spending is getting squeezed. These expenditure trends suggest a further squeeze on infrastructure and maintenance is inevitable, in which case growth could slow down. This report concerns how should Uganda respond to these fiscal challenges? Whereas there is scope for prudent new concessional borrowing for infrastructure, disbursement rates in infrastructure projects are too low, making it a priority to address constraints to effective spending. As part of a fiscal strategy for growth, Uganda needs in the short to medium-term to rapidly improve revenue performance without taxing key growth sectors, and to shift the composition of spending towards infrastructure. A compositional shift will require deep public sector reforms, early action on postponed reforms to public administration, and a working program to reduce waste and increase the efficiency of public expenditures, including in Poverty Alleviation Fund (PAF) priority sectors and agencies. A reduction in waste and an increase in public sector efficiency will ultimately require more accountability for the delivery of quality public services than is evident in Uganda today. It will also require a much more systematic effort by spending ministries and agencies: a more structured and a much more strategic approach to public service efficiency from the ministry of finance could be built into budget framework papers as well as preparation of the next Poverty Eradication Action Plan (PEAP).