India is the fastest-growing major economy in the world with significant Government investments in infrastructure. According to estimates by WTO and OECD, as quoted in a report from the United Nations Office on Drugs and Crime, India: Probity in Public Procurement, the estimated public procurement in India is between 20 and 30 percent of GDP.
This translates to Indian government agencies issuing contracts worth an estimated US$ 419 billion to US$ 628 billion each year for various aspects of infrastructure projects. Ideally, in contractual agreements no disputes would arise and both sides would benefit from the outcome. However, unexpected events occur and many contracts end in dispute. Contractual legal disputes devoid project benefits to the public as time and resources are spent in expensive arbitration and litigation. As a result, India’s development goals are impacted.
Performance budgeting (PB) has a deep and enduring appeal. What government would not want to allocate resources in a way that fosters efficiency, effectiveness, transparency, and accountability? However, such aspirations have proven poor predictors of how performance data are actually used.
The potential benefits of identifying and tracking the goals of public spending are undeniable, but have often justified a default adoption of overly complex systems of questionable use. Faith in PB is sustained by a willingness to forget past negative experiences and assume that this time it will be different. Without a significant re-evaluation, PB’s history of disappointment seems likely also to be its future.
Countries with large nonrenewable resources can benefit significantly from them, but reliance on revenues from these sources poses major challenges for policy makers. If you are a senior ministry of finance official in a resource-rich country, what are the challenges that you would face and Consider some of the issues that you would likely encounter:
For many resource abundant countries, large and unpredictable fluctuations in fiscal revenues are a fact of life. Resource revenues are highly volatile and subject to uncertainty. Fiscal policies will need to be framed to support macroeconomic stability and sustainable growth, while sensibly managing fiscal risks. Also, there is a question of how to decouple public spending (which should be relatively stable) from the short-run volatility of resource prices.
What would you expect in a mineral rich developing country? High Government revenues from the mineral resources? Not always, and definitely not in the case of Zambia - until recently.
Zambia has a considerable wealth of mineral resources and its economy depends heavily on these minerals. Zambia's primary export, copper and copper-related products, account for as much as 77% of the country's exports.
In today’s globalized world, a corporation might have a retail store in one country, a factory in another, and financial services provider in yet a third.
Corporate interconnectedness has brought investment and growth, to be sure, but it has also added complexity to the work of tax authorities. Increasingly, developing-economy governments come face-to-face with corporations that employ sophisticated strategies with the aim of paying fewer taxes. With our recently published handbook, "Transfer Pricing and Developing Economies: A Handbook for Policy Makers and Practitioners,” we hope to support efforts to protect countries’ corporate tax bases.
Editor's note: This blog post is part of a series for the 'Bureaucracy Lab', a World Bank initiative to better understand the world's public officials.
State capacity is clearly fundamental to development, and the motivation and productivity of the personnel working in the state is clearly fundamental to state capacity.
, and 50 to 60 percent of formal sector or salaried workers in developing countries. This fact alone warrants a detailed understanding of the functioning of public sector labor markets and their influence on the broader labor market, particularly as the characteristics of public sector workers—their gender, age, and skills profiles, for instance—can be quite different from their private sector counterparts.
But more importantly, the motivation of government workers and thereby the productivity of government bureaucracies impacts almost everything else in an economy, from business regulations, to infrastructure provision, to the delivery of services.
How can governments ensure that they get their money’s worth when they embrace open government reforms?
Ongoing research suggests that open government reforms—those that promote transparency, participation, and accountability—may lead to better development outcomes if properly implemented by governments. However, governments must navigate the myriad of initiative options as they strive to improve citizens’ quality of life and achieve the ambitious Sustainable Development Goals (SDGs). Without a rough idea of the potential costs and benefits different reforms might offer, how can governments allocate their resources efficiently?
Multiple stakeholders are collaborating to answer this question. The Research Consortium on the Impact of Open Government commissioned a study to determine the financial costs associated with particular open government initiatives.
Photo credit: Dmitry Karyshev
Armenia was faced with a slowing economy, sinking remittances, and inefficient tax administration. At the same time, ordinary taxpayers had to navigate arduous processes when paying taxes. The Armenian government was eager to reform its tax administration. Below is a transcript of what we learned when we spoke to World Bank experts working with Armenian tax officials to make things better.
Julia: I’m Julia Oliver.
Maximilian: I’m Maximilian Mareis.
Julia: And we have been talking with tax experts around the World Bank to find out about what they do.
Maximilian: So, let’s start with this project in Armenia. Why did we get involved?
Julia: Well, the global financial crisis hit Armenia and its three million people pretty hard. In 2012, when the World Bank began working with policymakers to improve the country’s tax administration, the country faced a pretty bleak picture. Foreign remittances were low, and the domestic economy was slowing. In addition the country had high levels of informal employment.
How large is the share of public procurement to GDP in middle-income and low-income countries and how it is evolving? If sizable, can public procurement be used as a policy tool to make markets more competitive, and thus improve the quality of government services? Can it be used to induce innovation in firms? Can it also be a significant way to reduce corruption?
Many Bank-financed projects, especially those implementing large and complex contracts continually face high risk of implementation delays, and procurement is the most frequently used scapegoat.
What has gone wrong in those cases?
At the onset, borrowers are requested to prepare a detailed procurement plan for the first 18 months of project implementation, which is carefully reviewed and approved by the Bank before loan negotiations and the projects are then declared "good to go."
But the reality is almost never that rosy.