PFR Fundamentals - Estimating Potential fiscal savings

Overview & Synopsis

This Note describes methods for estimating potential fiscal savings across five spending categories—the wage bill, pension payments, capital spending, purchases of goods and services, and social protection spending. The primary methodology compares a country’s spending levels to specific benchmarks derived from cross-country data, highlighting areas in which the country in question deviates from the norm. Each expenditure category has its own benchmark, which can be interpreted as the amount of spending that would be expected for a given country based on its development level, the composition of its workforce, the productivity of capital, and other structural factors. This top-down macroeconomic approach should be complemented by a cost-benefit analysis at the project level, a cost estimate for specific public services at the activity level, or another bottom-up approach, with the combined results broadly indicating an efficient level of spending.