Efficiency of Public Spending in Resource-Rich Post-Soviet States

Public spending can be a powerful tool for resource rich countries to improve development and the delivery of public services. However, a growing body of literature documents inept and inefficient government spending decisions and execution of public sector projects—particularly in developing nations where poor capacity and weakened institutions exacerbate the situation. In these countries, new revenue windfalls from resource exploitation risk being squandered on inefficient spending and projects that do little to improve public services. Revenue Watch Senior Economist Akram Esanov probes these questions in a new report, "Efficiency of Public Spending in Resource-Rich Post-Soviet States."

After the demise of the Soviet Union in 1991, its fifteen member republics emerged as independent states and made strides towards a market economy. The transformation that followed was turbulent and uneven, and today, many post-Soviet states' public services infrastructure is in disarray. Despite these challenges, the economies of Azerbaijan, Kazakhstan and Russia have all registered strong growth since the turn of the century, in large part due to high energy prices which brought new revenues into the countries. However, while public spending has risen in all three countries in tandem with their booming economic growth, subsequent fiscal relaxation in budgets has led to widespread concerns that without public sector reform, increasing government expenditures will have a limited impact on development.

A key to improving the efficiency of public spending, Esanov writes, is evaluating not just the cost efficiency of projects undertaken with resource revenues, but considering the systemic efficiency of the projects themselves: a measure which gauges efficiency of the institutions in transforming outputs into final outcomes, or how well spending addresses the development needs of the community. One of the contributions of this study is to illustrate several types of efficiency measures in order to glean policy recommendations that improve public spending in health, education and social security sectors in these countries.

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