Making spending more productive begins with better allocation, effective implementation, and robust institutions to support this process.
Smarter allocation
When fiscal space tightens, the central question is no longer “how much” governments spend, but “on what” they spend. Empirical evidence consistently shows that the highest long‑term returns come from investments in quality infrastructure, education, health system, and human capital — rather than politically entrenched programmes with limited economic impact.
Generalised fuel subsidies illustrate the challenge. They are among the least targeted expenditures, often producing regressive distributional effects at high fiscal costs. Indonesia’s 2022 fuel price adjustment provides a pragmatic example. By pairing the price reform with targeted cash transfers (BLT BBM) for tens of millions of households, the government mitigated social risks while freeing up fiscal room for more productive priorities.
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Execution matters
Smarter allocation is only the first step. Translating public spending into tangible results requires effective implementation and delivery. Even well-conceived budgets can falter when project appraisal is inconsistent, procurement processes are weak, and maintenance is neglected.
Globally, infrastructure projects suffer chronic delays and cost overruns. One cross‑country study of 480 projects found around 70% experienced delays, typically from gaps in planning, procurement, and project supervision. Such inefficiencies create fiscal risks — cost overruns, contingent liabilities, and stalled assets — while also eroding public trust and making future reforms harder.
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Procurement systems offer significant but under-publicised savings potential. Korea’s e-procurement platform (KONEPS) demonstrates how better systems can shorten processing times, increase competition, and reduce opportunities for leakage. For many Asean+3 economies, expanding e-procurement, publishing tender data, standardising contracts, and improving contract management could significantly contribute to fiscal savings.
Supportive institutions
The third pillar is a robust public financial management framework capable of sustaining reprioritisation and implementation. One‑off spending cuts cannot create lasting fiscal space.
Instead, governments need institutional mechanisms that allow them to shift resources predictably as priorities evolve. Medium‑term expenditure frameworks play a central role, linking annual budgets to multi‑year commitments and helping ensure that reallocations remain aligned with policy priorities over time.
Within this architecture, spending reviews serve as the key mechanism to ensure that reallocation is grounded in solid performance assessments rather than ad hoc adjustments.
Studies find that regular, structured reviews embedded in the budget process improve spending composition without necessarily shrinking government size. For Asean+3, where new priorities emerge annually but legacy programmes rarely shrink, this combination offers a practical way to ask: if a new priority is added, what must shift to fund it?
Technology reinforces all three pillars. While not a prerequisite for productive spending, it greatly facilitates and accelerates the transition. Modern tools — such as integrated financial management information systems, real-time performance dashboards, and automated procurement modules — improve the quality and timelines of data and information underpinning reallocation decisions. They enhance delivery through better monitoring and oversight, while also enabling more spending reviews by providing timely, standardised data on programme costs and outcomes.
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Building momentum
Reforms across these areas are most effective when pursued through a gradual, results‑oriented strategy. Early, tangible gains — fewer stalled projects, cleaner procurement practices, clearer performance reporting — help build public confidence while generating the political momentum needed for more ambitious reforms.
The most successful transitions are those that deliver visible improvements in service delivery and accountability, allowing citizens to see how policy adjustments translate into real outcomes.
In the coming years, sustainably financing expanding policy priorities through timely and sufficient tax increases will become increasingly difficult. As fiscal space narrows, governments will need to shift decisively from “spending more” to “spending better” by reallocating funds away from low-impact uses, prioritising high-return investment, and strengthening the institutions that translate budgets into measurable outcomes. If executed effectively, this shift can help countries enter the next decade with stronger fiscal credibility and greater economic dynamism, raising potential growth, reducing fiscal risks, and rebuilding public trust — thereby reinforcing the state’s long-term financing capacity.
Seung Hyun (Luke) Hong is group head and lead economist at the Asean+3 Macroeconomic Research Office (AMRO)
