This article addresses issues relating to the establishment and financial management of extrabudgetary funds (EBFs), a large group of government entities and accounts. The article develops a typology of EBFs and argues that they are frequently created because of budget system failures and political economy factors. The article recommends that data on EBFs be consolidated within a unified system of fiscalreporting and proposes an analytical framework that governments might use to evaluate the effectiveness and utility of their EBFs.
This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper discusses the role of fiscal policy and fiscal institutions in managing scaled-up aid. In an environment of volatile scaled-up aid, fiscal policy formulation should be anchored in medium-term frameworks, incorporating a longer-term view of potential resource availability and spending plans. There is merit in smoothing expenditures over time so that all programs are adequately funded. The paper argues that wage-bill ceilings should be used in Fund-supported programs only in exceptional cases. The paper also discusses basic reforms for strengthening public financial management systems for effective utilization of scaled-up aid flows. JEL Classification Numbers: F35, H50, H61,O10
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