The economics of the private finance initiative

This article outlines and assesses the private finance initiativein the UK. The initiative has been slow to develop despite pressurefrom governments (anxious to limit the PSBR) and several revampsto facilitate the PFI approach. Within a PFI project there arebeneficial incentives to avoid cost over-runs but not to reducecosts where they affect long-run services. These incentivesand the limits to their effectiveness are explored. Such contractsrequire the transfer of risk from the public to the privatesector. the role and pricing of risk in the PFI is analysed.It is argued that the PFI does not value risk correctly andthat the value for money test is biased against private-sectorprovision. Policy implications are discussed, including a revampof the value for money test and the introduction of explicitassessment of the impact of potential renegotiation and othercontractual difficulties.     

Financial improvement planning in local governments in Southern Africa,with special reference to Zambia

Continuing decentralisation in most developing countries increases pressure on local governments to manage more functions and services and larger budgets. In this context, financial improvement planning (FIP) is a strategy that can be used by local governments wishing to improve or ‘fine‐tune’ their financial performance, and especially by those facing serious financial difficulties. This article examines the application of FIP in the town of Kitwe, Zambia, which faces financial difficulties within a national decentralisation framework characterised by several policy and fiscal deficiencies. The article covers how an FIP framework was developed, undertaken and the resultant interventions structured. Implications regarding the role, design and techniques of FIP in local governments within a decentralisation policy framework are elaborated upon. Effective decentralisation in southern African countries requires local governments to undertake sound financial management. In turn, this requires local governments to embrace challenging local policy processes. Development of FIP techniques, and strengthening local capacity and policy to support them in local governments, should be ingredients of any country's decentralisation programme.