Following the money: Examining the evidence on 'pro-poor' budgeting - ODI Background Notes - Discussion papers

T he global development community made the reduction of poverty its primary objective in the late 1990s. Advocacy campaigns in both the global North and South had drawn international attention to the decline in public service provision and the rise in inequality in the world’s poorest countries as a result of structural adjustment policies and crippling debt burdens. This explicit focus on poverty was a watershed: by adopting the discourse of poverty reduction, development institutions re-acknowledged the importance of public expenditure for poverty alleviation. The development debate shifted from how much (or rather how little) to spend to balance the budget, to what it should be spent on to improve public welfare and promote growth. Governments, whose role had been cut back in the 1980s and 1990s, gradually found themselves back in business – the business of poverty reduction. The international community rallied around the need to increase the volume of aid and government spending on ‘pro-poor’ services, notably basic social services such as health and education. Creditor countries agreed to cancel low-income country debt on the condition that savings were channelled to services for the poor. Yet, while the intent of the poverty reduction agenda was to ensure that public resources were allocated equitably, global monitoring efforts have reported primarily on the volume of resource mobilised or have assessed spending in particular sectors in isolation. There have been few attempts to evaluate whether the global poverty reduction effort reoriented public spending in the way intended, or whether these changes to the composition of the budget were drivers of poverty reduction. This Background Note revisits the history of the pro-poor expenditure movement and reviews what we currently know about its effectiveness. After more than a decade of international attention to poverty reduction, this Note calls for a stronger focus on the empirical evidence of public expenditure effectiveness: evaluations of poverty reduction policies must move beyond the processes that shape budgets to consider whether the composition of expenditure has become more oriented towards poverty reduction. While the poverty reduction agenda has coloured the development discourse in broad terms, this Note will focus on the Heavily Indebted Poor Country (HIPC) Initiative, which links debt relief explicitly to a reallocation of resources to poverty-reducing expenditure in low-income countries. First, we discuss what we know about expenditure composition in HIPCs and how so-called povertyreducing expenditure has been tracked to date, before outlining the conceptual frameworks that have shaped the poverty reduction agenda. We show that while development agencies have been quick to jump on the poverty reduction bandwagon, there is still considerable disagreement about what constitutes pro-poor policies and how these should be promoted. The Note then discusses the various ways in which development agencies have implemented the poverty reduction agenda. It considers how the World Bank and IMF-promoted Poverty Reduction Strategy Papers (PRSPs) sought to bring together the theoretical justifications for poverty-reducing expenditure with a political process that would ensure greater accountability between state and citizens. We conclude with a brief discussion of approaches to the evaluation of the pro-poor expenditure agenda and a call to reinvigorate expenditure policy research to Following the money: Examining the evidence on ‘pro-poor’ budgeting