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Governance and Sustainable Development

Guest post by: International Monetary Fund

Article Overview: Poor governance poses a number of obstacles to human development.

Governance and Sustainable Development

Poor governance poses a number of obstacles to human development.52
Corruption results in the allocation of budgetary resources for unproductive
programs and inefficiencies in public spending, which reduces the
effectiveness of outlays on social and poverty-reducing programs in fostering
social development. Poor governance results in budgetary allocations
tilted in favor of less-productive investment projects and defense-related spending and against nonwage operations and maintenance expenditures,
which reduces the quality and productivity of existing infrastructure. Corruption
also reduces revenue and therefore the ability of the government to
mobilize the resources needed to finance critical poverty-reducing programs.
Corruption results in the poor capturing a smaller share of the benefits
from public spending and, more generally, in higher poverty and
income inequality.
Good governance is essential to ensuring that higher social spending
translates into better social outcomes. Even if spending is allocated to propoor
activities, public funds must be used for their intended purposes to
ensure that these outlays have a positive impact on human development.
As such, a sound public expenditure management (PEM) system and
transparency in government operations are pivotal not only for good
macroeconomic management but also for good governance.
Good governance is also essential for promoting environmental sustainability.
Progress in alleviating environmental problems in developing
countries has been slow, often owing to ill-defined property rights
regimes, corruption, and a general lack of capacity and political will at the
national level.53 The IMF’s general emphasis on improving the quality and
transparency of spending decisions has improved the effectiveness of developing
countries’ environmental and other spending. In Brazil, for example,
federal spending on environmental protection programs grew during
an IMF-supported program. The IMF has also explicitly addressed
environmental governance issues in a number of countries (for example,
Cambodia and Indonesia) where these were important to overall macroeconomic
performance.
Almost all PRGF-supported programs incorporate measures to
strengthen PEM systems. Each program, on average, incorporates four to
five measures, which generally include steps to improve budget formulation,
budget execution (to keep spending within budgeted amounts), and
budget reporting (including auditing). Both the IMF and the World Bank
have provided countries with substantial technical assistance to strengthen
their budget systems. For 24 of the heavily indebted poor countries
(HIPCs) that have qualified for debt relief under the enhanced HIPC Initiative,
the World Bank and the IMF, together with country authorities, have drawn up action plans to strengthen budget systems. These action plans are
being implemented in the context of the countries’World Bank- and IMFsupported
programs. Despite recent progress, PEM systems remain deficient
in many of these countries, and rigorous implementation of these
action plans will be essential for achieving sustainable development.
Increasing the transparency of government operations will be essential
to ensure that governments are accountable for their use of public funds.
In this regard, transparency can be enhanced if governments adhere to the
IMF’s Code of Good Practices on Fiscal Transparency. The participation
of governments in reports on the observance of standards and codes
(ROSCs)—which assess a government’s practices on transparency against
this benchmark—can provide a useful step in this regard. Thus far, 36 developed
and developing countries have participated in fiscal ROSCs, with
another 15–20 per year expected in the near future.

Fiscal Dimensions of Sustainable Development
Prepared for
World Summit on Sustainable Development
Johannesburg, August 26–September 4, 2002

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Article Tags: budgetary allocations, budgetary resources, environmental problems, environmental protection programs, environmental sustainability, federal spending, good governance, government operations, imf, income inequality, inefficiencies, investment projects, macroeconomic management, maintenance expenditures, operations and maintenance, outlays, productive investment, public expenditure management, public spending, social outcomes



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