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second, whenever the earmarked revenues account for a larg proportion of sector expenditures, an authority outside the sector should be appointed to review the generation and use of such funds.

Link to Public Exgenditure Reviews 128. The slight consideration given to fiscal constraints in SARs is surprising in view of the increased attention devoted in country economic work to public expenditure reviews. Many country economists consider the scarcity of public sector funds the dominant medium-term constraint to growth. When economies are only partially monetized, the scope for expanding tax revenues in an efficient way is limited. At the same time, the demand for public sector services **is** growing rapidly, while the productivity of public investment is often low.

129. The analytical linkages between public sector investment strategies and public sector pricing policies **have** long been recognized. Under uncomplicated conditions, setting prices at economically efficient levels and aiming for full (marginal) cost recovery will ensure that the right level of investment is **demanded and** that the beneficiaries--rather than government revenues--foot the bulk of the bill. Thus proper pricing of public sector services can go a long way toward relaxing fiscal constraints to development, as well as improving macroeconomic and budgetary balances.

130. In practice, however, the link between sectoral pricing policies and macroeconomic investment objectives seens rarely to be the focus of Bank policy advice at either the country or the project level. This may be because better pricing in a single sector--or project--does not have a large enough fiscal impact to be important. It may also be that country economists generally have neither the time nor the mandate to delve into "micro" issues such as pricing. The widespread economic distinction-mirrored in the Bank's organization--between macroeconomic and project issues seems to have obscured the fiscal/public sector pricing link.

131. To see how public sector pricing policies are treated from the macroeconomic side, we reviewed a set of eight Public Investment Review (PIR) reports produced recently by Bank economists.2A/ A shortage of domestic savings was identified as a major constraint to growth in five of the eight cases, and the implementation capabilities of the public sector were singled out in four. Five of the PIRs made some mention of the need to change tariff policies in at least one public sector. Agricultural prices were mentioned in two cases, public enterprise prices generally in two and port tariffs in one. The PIR for Ghana contained uhe most farreaching set of tariff recommendations, including changes in health, education, roads, communications and water prices.

132. None of the PIRs attempted a quantitative analysis of the impact that efficiency pricing (or the recommended, but generally unspecified, price increases) would have on the fiscal or monetary aggregates or on growth prospects. This is an important next step. In order to make a convvincing case for a change in the philosophy of-public sector pricing--or even for changes that extend beyond project boundaries in a few key sectors--it is necessary to quantify the expected fiscal and macroeconomic