Despite its high economic growth, Chinaspublic expenditure management faces profound challenges: 1)The retrenchment of the Plan puts more of the burden for themacro and microeconomic policy on the budget. 2)Extra-budgetary funds and quasi-fiscal operations of thebanking system undermine fiscal discipline, whichcontributed to the repeated bouts of inflation. 3) Shiftingspending to the Governments priorities is slow, and is inpart undone during budget implementation. Over time, thiscould threaten sustainable growth and equitable growth. 4)While overall social indicators are high, regionaldisparities remain large. Government services seemoverstaffed, which could escalate costs if wages continue torise. To address these challenges, China needs to reform itspublic expenditure management. Chinas first priority isrestoring fiscal discipline - to delineate a clear budgetconstraint for every line ministry and unit, and break downthe sectoral budgets into organizational budgets. To forge astronger link between the State Councils policy prioritiesand the budget, China needs to revamp its budget process.The State should focus on articulating the governmentsstrategic priorities, but leave detailed planning forachieving these priorities to line ministries. Decentralizedadministration can be a major asset for cost-effectiveservice delivery, if accountability for performance is improved.
PDF
download
878987797
028-85220240
