In the late 1990s, the first generation of poverty reduction strategies focused almost exclusively on increasing government spending in so-called ‘pro-poor’ sectors. While in some cases this meant that greater financial resources were made available for the provision of key government services such as basic education or basic health services, this approach did not guarantee that resources within each sector were spent on activities that resulted in poverty alleviation.

As part of a broader performance-based budget approach, sectoral finance strategies should be introduced in order to assure that increases in sectoral spending translate into improved performance of the public sector. Such sectoral strategies should further assure that the right balance is achieved between spending on wages, non-wage expenditures, and capital infrastructure.

As such, sector-specific fiscal analyses should be conducted to determine the impact of marginal spending on different inputs or programs, and how to achieve the greatest ‘value-for-money’ from the limited financial resources available to the sector.