A country's overall development finance strategy should provide a clear statement of the country's development priorities, and the overall fiscal strategy that the country intends to pursue to achieve its development objectives. Such a fiscal strategy should not only specify clear macroeconomic objectives such as controlling the government deficit, but also prioritize the government's strategic poverty-reduction objectives.

Although Poverty Reduction Strategy Papers (PRSP) are often used to state the country's development goals, these documents often end up as a wish-list of desired spending, rather than providing a realistic policy framework for prioritizing the public sector's scarce resources. Without clear government priorities, the budget formulation process is often reduced to an exercise of providing all government program with an equal, incremental increase.

The first step in achieving an effective development finance strategy is to analyze the country's long-term fiscal architecture and to determine the fiscal space available in the medium-term to direct resources to priority spending programs. Within these parameters, the prioritization of government expenditures should be guided by careful analyses that show the incidence and economic impact of different government spending programs.