# **1. Introduction**

It has been estimated that more than 800,000 people around the world lose their lives to lethal violence every year. Almost one-third of all developing countries are considered to be at risk of violent conflict or in a state of chronic instability. Private firms report that they pay up to 15% of their sales revenue to protect themselves from insecurity.<sup>2</sup> Over the years, there has been a growing recognition on the part of the development community of the importance of conflict and insecurity, and on the positive side of the linkages between security and development. This is a significant departure from a more traditional approach, where institutions in charge of development (national and international, bilateral and multilateral) refrained from any involvement with security issues. This shift started in the early 1990s, after the end of the Cold War, and reflected the following insights.

First, armed conflicts are a major source of economic downturns, increasing poverty, and human and social distress (World Bank, 2003a, Chapter 1). Security plays a major role in breaking the conflict trap. Second, the rule of law has been repeatedly highlighted as a core driver of economic development (World Bank, 2004). “Securing” property rights is an important driver of development as emphasized by Hernando de Soto (2000). Criminality can be a severe disincentive to entrepreneurship and investment. Conflict and criminality can be linked, as crime can be fostered by conflict and, when pervasive, crime may also fuel wider conflict. As noted in Chalmers (2005, p. 7), “The relationships between socioeconomic governance, conflict, and growth are multi-directional, with poor governance and conflict reinforcing each other, and both phenomena undermining the possibilities for economic development.” Third, a holistic definition of poverty encompasses the notion of empowerment, a basic requirement for which is that citizens feel safe (World Bank, 2000). Poor security reduces the ability of citizens to live freely and to be engaged in their society. These linkages between security and development are explored further in Section 2.

Recent analysis emphasizes the importance of institutions for achieving all key development objectives, including the role of an effective Public Finance Management (PFM) system (Acemoglu et al, 2005, and PEFA, 2005). This paper at its core reflects the view that good public finance management is a necessary condition also for security. For example, Ghani and Lockhart (2006) argue that “a sustained analysis by NATO of the best means of achieving security in Afghanistan showed that credible institutions and public finance would contribute more to security than would the deployment of troops.” Among the important PFM issues considered in this paper is the fact that the security sector needs public resources and hence has to be considered in relation to trade-offs with other development objectives. Also important is the role of due processes, transparency, and accountability, as in other sectors. And the complex relationship between security and governance is discussed.

There is growing research linking security, security sector reform, and development. The World Bank organized its 2005 ABCDE conference around the theme of “securing development in an unstable world” (cf. <u>www.worldbank.org/abcde). The International</u> Peace Academy has had a “Security-Development Nexus Program” conducting research in this area (see Tschirgi, 2005). The United Nations Office on Drugs and Crime released a

> 2 Commission on Human Security (2003) for number of deaths; Tschirgi (2005) for states in conflict or at risk; World Bank (2004) for cost of insecurity.

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