Public expenditure productivity is critically important for fiscal adjustment and sustainability, particularly when resources for supporting public services are limited. Focusing exclusively on the revenue side is not advisable, as increasing the productivity of public expenditures can provide a viable option for reducing the deficit or expanding critical expenditure programs.

The purpose of this pamphlet is to analyze the issue of public expenditure productivity and present some pragmatic suggestions for its improvement. An earlier version was discussed in a seminar by the IMF's Executive Board.

The pamphlet is the product of a collaborative effort of the staff of the Fiscal Affairs Department's Expenditure Policy Division. The authors would like to thank Zuliu Hu, Edgardo Ruggiero, and Caroline Van Rijckeghem for extensive discussions and comments, and Helga Hessenius for assisting in the final revision of the pamphlet. Tarja Papavassiliou provided statistical and computational assistance. Other colleagues in the Fiscal Affairs Department, other IMF departments, and the World Bank provided many valuable comments on, and contributions to, earlier drafts. The pamphlet was edited by Thomas Walter of the External Relations Department. The authors bear the sole responsibility for any remaining errors.

Finally, the authors are grateful to Vito Tanzi, Director of the Fiscal Affairs Department, for guidance and comments on earlier drafts of this pamphlet.