Government Arrears in Fiscal Adjustment Programs

Expenditure arrears, signifying prolonged delays in the government meeting its financial obligations to suppliers and creditors, have become an increasingly common feature of government operations in many developing countries. This paper indicates the significance of arrears in distorting typical measures of fiscal stance as well as their potential role in facilitating the delay of desired fiscal adjustment measures. Following a discussion of the issues involved in defining and measuring different types of arrears, an approach to incorporating arrears into the presentation of government accounts is described. After a brief discussion of the macroeconomic effects of government arrears, the paper concludes with a discussion of the treatment of arrears in programs of fiscal adjustment. A strategy of combining a program of arrears reduction with an appropriate monitoring system for broad aggregates of government expenditure is recommended, with the objective of preventing the emergence of further arrears