Chapter 3

Public Expenditure Review/ Analysis (PER)

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 Chapter Outline

1. Overview on Public Expenditure Review/Analysis

2. Review government expenditure programs

 The need for government expenditure programs

 Impact of transfer program on recipients’ well-beings

 Impact of transfer program on recipients’ working incentives

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 Lecture 6
Public Expenditure Review

at National, Sector and Program levels

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1. Overview on Public
Expenditure
Review/Analysis

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PER: Definition
 Definition:
 A key diagnostics instrument used to evaluate the effectiveness of
public finances.
 A PER typically analyzes government expenditures over a period of
years to assess (i) their consistency with policy priorities; and (ii) what
results were achieved.

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The need for conducting PER (1)
 Why PER is needed?
 Strengthen rationales for government programs
 Make governments and donors better able to assess: (i) the
impact of their investment; and (ii) the effectiveness of
budget planning and execution.
 PERs help diagnose spending problems and help countries
develop more effective and transparent budget allocations.
 Strengthen staff capacity
 Improve knowledge on budget allocation, management and evaluation
 Timely adjust budget allocation regulations and norms to be aligned
with reality.
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 Strengthen citizens’ participation in budget oversight
The need for conducting PER (2)
Why PER is needed?
 Establish a baseline understanding of key
fiscal management and policy challenges
 Highlight priority reform areas for
policymakers, and
 Set the agenda for the next phase of budgetary
planning.
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 Types of PER

◼ Countrywide PER

◼ Sectoral PER

◼ Program based PER

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 Countrywide PER

◼ Design and conduct PER analyzing strategy

◼ Assessing state budget performance based

on three strategic objectives

◼ Strengthening budget process

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Sectoral PER
◼ Reviewing macroeconomic and sectoral context
◼ Assessing size of the sector and its importance in the economy
◼ Assessing priorities within the sector
◼ Evaluating sector performance
◼ Evaluating public expenditure within the sector
◼ Scope and extent of evaluation
◼ Spending composition
◼ Funding sources to finance expenditures
◼ Other issues: The extent to meet four principles (four pillars)

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2. Overview on Program based
PER: Case of transfer programs

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 Why transfer program is needed?

◼ Social Equity is equally important to Economic Efficiency

◼ Positive Externalities: Social cohesion
◼ Increase in disposable incomes of the poorest group of
citizens => promoting consumption => stimulating
growth
◼ Reduction of dependency due to improvement of the ppor’s
health and education
◼ Social security and safety

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Difficulty in program-based PER analysis
◼ Income measuring
◼ Non-cash earnings
◼ Income observation and measurement time period
◼ Disagreement in income measurement unit: individual level
vs. household level vs. community level
◼ Relative price effect: Chain effects
◼ Short-term vs. Long-term effects
◼ Public goods

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Classification of transfer programs
◼ By recipients’ eligibility
◼ Mean-tested
◼ Universal

◼ By transferring modes
◼ Cash transfer
◼ In-kind transfer
◼ Subsidized price
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 Mean-tested program
◼ Spending program whose benefits flow only
to those whose financial resources fall
below a certain level.
◼ Strengths:
◼ Eligibility is easily determined
◼ Administrative cost is saved
◼ Weakness:
◼ Broad beneficiary coverage
◼ Heavy burden for state 1
Universal transfer
◼ Spending program whose eligibility conditions go
beyond income threshold to include other conditions
such as living areas, age, gender and alike.
◼ Strength:
◼ Eligible recipients are more precisely identified
◼ Minimize cheating or fraud motivations
◼ Weakness:
◼ High administrative cost
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 Classification of transfer programs by
transferring modes: Cash transfer
◼ Definition: a direct transfer payment of money to an
eligible person
◼ Classification:
◼ Unconditional cash transfer: program that provides benefits
without any conditions upon the receivers' actions.
◼ Conditional cash transfer: program that makes welfare receipt
conditional upon the receivers' actions.
◼ The government only transfers the money to persons who meet
certain criteria.
◼ These criteria may include enrolling children into public schools,
getting regular check-ups at the doctor's office, receiving
vaccinations, or the 1
In-kind transfer and subsidized price

◼ In-kind transfer: Payment from government

programs to individuals in the form of
commodities or services rather than cash.
◼ Subsidized price: a price for a product that is
reduced because the government has paid
part of the cost of producing it