Erosion of Expenditure Management System: An Unintended Consequence of Donor Approaches

IMF Working Papers, September 1, 1996

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Erosion of Expenditure Management System: An Unintended Consequence of Donor Approaches

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Bibliographic details

• Authors: A. Premchand
• Published: September 1, 1996
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451948400.001

Summary

• The paper examines procedures and practices relating to budgeting and accounting of foreign aid.
• It identifies that a high degree of ringfencing associated with aid has produced a functional dyarchy with serious implications for expenditure management in recipient countries.
• Concluding view: more structured negotiations, improved information systems, and performance agreements can potentially avoid the problems now encountered.

Key findings and analysis

• High degree of ringfencing of foreign aid creates parallel decision and control structures ("functional dyarchy") that undermine unified expenditure management.
• The emergence of donor-driven procedures and donor-insisted procedures weakens central government spending oversight and expenditure control.
• Information shortfalls and fragmented budgeting/accounting practices exacerbate the erosion of coherent expenditure management.

Policy recommendations and remedies

• More structured negotiations between donors and recipient governments to align procedures and reduce damaging ringfencing.
• Improved information systems to integrate donor-funded activities into government budgeting and accounting frameworks.
• Adoption of performance agreements to clarify responsibilities, incentives, and accountability for expenditure outcomes.