Annex 1

Scope and Application of the Main Instruments

This annex expands on the summaries in the main text-providing a more complete description of the main instruments that development agencies use to assess public expenditure, procurement, and financial accountability systems in client countries.

WORLD BANK PUBLIC EXPENDITURE REVIEWS

Public Expenditure Reviews (PERs) are the World Banks traditional and best-known public expenditure instrument, and they have a long history. In the 1970s, when the Bank provided only investment lending, Public Investment Reviews were its main analytical instrument. In the early 1980s PERs were introduced, and their use accelerated in the mid-1980s after the Bank began providing nonproject lending. Because this new type of lending was effectively budget support, the Bank considered it mandatory to examine the complete budget in recipient countries.

The first PERs emphasized analyzing the quantity of expenditure and its sectoral and economic allocations. In addition to examining macroeco-nomic issues and the budget, many of these PERs focused on specific sectors (such as education or health) or significant expenditures (such as the civil service wage bill). Recommendations were made about issues such as

the composition of investment spending, the share of education expenditure, and the size of the wage bill.

In the 1990s the emphasis of PERs began to shift to the efficiency of expenditure and to the quality of budgeting and financial management, reflecting the Banks increasing focus on governance and corruption. Campos and Pradhan (1996) and the Banks Public Expenditure Management Handbook (World Bank 1998b) contributed to the incorporation of institutional and governance issues in PERs. Thus PERs began studying whether formal rules and procedures for financial and economic management are actually applied. They also began examining institutional constraints to rigorous, transparent budgeting and financial management. The growing influence of institutional economics and of the so-called new public management played a significant role in this evolution of the Banks thinking (see World Bank 1997a, b).

PERs may address a range of issues and may serve many objectives. The World Banks Website describes them as comprehensive macro reports with a mandate to focus on the efficiency and effectiveness of resource allocation. While they typically review a countrys public expenditure policy and management, they also tend to address macroeconomic issues such as fiscal sus-tainability and may include significant coverage of government revenue.

PERs have two main objectives. The first is to strengthen budget analysis and processes to achieve a better focus on growth and poverty reduction. The second is to assess public expenditure policies and programs to meet donor requirements and provide recipient governments with an external review of their policies. The balance in emphasis on these objectives depends on the country. In addition, PERs may address the efficiency of expenditure in major sectors such as health or education, or issues such as civil service reform, fiscal decentralization, and service delivery.

The Public Sector Governance Board is responsible for the overall development of PERs. In management terms, country directors and PREM sector managers in the Banks regions are responsible for the quality of individual PERs. As with all of the Banks economic and sector work, task managers must make provisions for quality assurance-including peer reviews-when planning PERs. The peer review process has an important influence on the design and coverage of PERs.

PER preparation and approval begins with a concept note describing the reviews substantive focus and content-including how the proposed activity fits into the overall strategy for addressing the quality of the budget and related public resource management issues. This description typically includes a detailed statement of the issues to be reviewed, an outline of the