Encouraging public investment in sustainable development

Public spending plays a critical role in development. Through spending, governments preserve and promote national identity, supply infrastructure for development, influence both the course of economic growth and the distribution of its benefits, and provide social services to meet the basic needs of the population. Yet rapid growth in public spending unmatched by domestic revenue has led many developing countries into fiscal crisis, and in many cases spending has been ineffective in promoting growth and equity. Governments throughout the developing world face the need to trim expenditure and improve its allocation. The effectiveness of each item of spending is critical in determining its effect on development. Each major project should be carefully appraised, not only for economic viability (using cost-benefit or cost-effectiveness analysis), but also for technical, administrative, and financial feasibility. A distorted policy environment may cause even the best projects to fail. They need the support of appropriate pricing, trade and credit policies.