Budgeting in Postconflict Countries

Anwar Shah
2007

Summary

How should public expenditure management be approached in post-conflict countries? What are the differences between budgeting in post-conflict and in stable developing countries? This book chapter from the World Bank recommends making post-conflict reforms simple and adapted to critical capacity lack in transitional governments.

Immediate reconstruction needs should be balanced with medium term peace-building goals. Violent conflict does more than kill people and destroy physical facilities. It short-circuits the rules that keep human interaction constructive and predictable, targets individuals and organisations who administer those rules, and wipes out positive social capital.

Post-conflict reconstruction is an institutional challenge requiring the balance of immediate priorities with longer-term policy and institutional development. Budgeting in post-conflict environments is difficult because most aid is offered immediately after cessation of conflict, when there is minimal capacity to manage it.

Lessons from budgeting experience in stable developing countries cannot be applied in their ordinary form to war-torn states. Key areas of difference are:

  • The government is extremely weak post-conflict. Establishing an Aid Management Agency (AMA) that formulates reconstruction policies and directly implements activities is necessary.
  • Issues of transparency and openness have heightened relevance in post-war climates of reciprocal suspicion and paranoia.
  • In stable countries the obligatory starting point for budgeting is forecast of revenue. Post-conflict domestic revenue is wholly uncertain and budget must be based on an assessment of immediate reconstruction needs funded by aid.
  • Budget allocation is harder in post-conflict than in stable countries. For example it is difficult to choose on the grounds of efficiency between rebuilding a destroyed primary school in district A or a rural road in district B.
  • Post-conflict reconstruction is inherently top-down, and donor aid can smother existing local structures and NGO activity.
  • Establishing and maintaining security is the main priority. Good policies, investments, budgeting procedures, financing arrangements and capacity building will be worthless if there is a general lack of physical security.

Policy pointers include:

  • An absolute need for an agreed programme between donors and the transition government, with donor commitment to channel their funds in accordance with it and full transparency.
  • A realistic, public, and reasonably comprehensive budget, with an open and consultative budget process to foster participation and allay suspicion.
  • A focus on ‘unbalanced growth’ with sequential and progressive investment in strategic projects. The investment programme needs to be simple, selective, realistic, and accountable.
  • Medium Term Expenditure Frameworks (MTEFs) are not a luxury in post-conflict budgeting. A credible MTEF can resolve the perverse pattern in reconstruction financing by providing economic and political justification for external assistance over a number of years. It should be simple and realistic not complex and detailed.
  • Multi-Donor Trust Funds (MDTF) are effective means of channelling aid to post-conflict states. Corruption minimisation measures are critical.
  • Expenditure proposals should be carefully screened. Post-war, ministries may exist only on paper in which case it will be necessary to use the AMA temporarily as the screening entity.
  • AMA and other transitional arrangements should have a sunset clause to avoid the problem of lasting parallel structures.

Source

Schiavo-Campo, S., 2007, 'Budgeting in Postconflict Countries' in Budgeting and Budgetary Institutions, ed. A. Shah, The World Bank, Washington, DC, pp. 435-460