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greatly facil.tates the view of public expenditure as a policy instrument rather than meraly stressing the "good housekeeping" aspect of budgeting. Once a government has formulated a policy framework in the context, for example, of a structural adjustment program, this can then be broken down into constituent parts, some of which will likely involve the establishment of targets and the enactment of reforms in the public sector. An MTEP exercise can illuminate the revenue and expenditure implications of achieving these targets, thereby enabling a sharper focus on the extent and depth of the specific reform measures required. It also facilitates analysis of the projected impact of the policy measures on the rest of the economy through the systematic linkage between the public sector variables and the macroeconomic model.

21. The institutional problems encountered in the establishment and successful operation of such a system of reformed public expenditure planning are formidable. For the Bank to be of greater assistance to developing country governments in overcoming them, it is necessary for staff to be fully aware of the issues involved and how they might be tackled. While not neglecting the traditional concerns such as the composition and size of the public investment program, and whether or not major projects are subjected to cost benefit analysis, this does involve going considerably beyond them into areas which are fraught with political as well as institutional difficulties.

22. Each separate sub-activity of public expenditure planning -- the formulation of the macroeconomic framework, project preparation and investment programming, the link between planning and budgeting, the coverage, preparation and classification of the budget, and budget implemenitation and expenditure control -- has an institutional and political, as well as a technical or economic, dimension. This dimension raises a number of key questions which need to be answered if the potential obstacles to reform are to be more fully understood. The detail with which each issue needs to be addressed will inevitably vary in accordance with each country's circumstances. Frequently, however, it will be found that the linkages between the macroeconomic framework and the investment program, and between both and the budget process, are fragile or non-existent. The demise of compreheisive economic planning is in danger of bringing in its wake a withering of all planning capabilities in many developing countries to the detriment of effective expenditure management. Many governments encounter considerable difficulty in formulating an investment program that is more than an aggregation of wish-lists drawn up by the different spending agencies. Macroeconomic analysis and forecasting, even in the relatively short term, is often so deficient that it leaves the authorities unprepared for major deviations from the program necessitated, for example, by a substantial external shock. Classification of budgetary items does not facilitate a policy or objectives oriented approach to public expenditure plannine. Control over the external borrowings of different government agencies is frequently less than desirable, and even where this exists, donor pressure can at times undermine attempts to exclude significant but economically unjustifiable capital expenditures from the investment program. Phasing of capital spending is often inadequate or non-existent, while the recurrent cost implications of public investments are rarely taken into