Understanding international constraints on the national budget
The national budget is often compared to a pie – with different sections of the pie allocated to different activities and sectors. The total size of the pie depends on the revenue (i.e. the amount of money the government is able to collect through various taxes as well as income from services, grants or aid money and loans). It also depends on the government’s macro- economic policy – that is the preferences and policies relating to inflation and government expenditure.
Each government will face different constraints, due to its national context (for example its ability to collect taxes) as well as the international arena and any agreements which it has signed.
Common jargon and acronyms
Caps: In this context, these are limits placed on the PSWB (see below). The caps often explicitly limit the numbers of teachers a government is able to hire.
Fast Track Initiative (FTI): A global partnership between donor and developing countries, providing a platform for donors from over 30 agencies and banks to coordinate their efforts. It supports countries to develop quality education plans, and then helps them raise the resources to fund them.
Fiscal policy: This relates to the level of public expenditure – it includes how money is raised (generally through taxes and national and international borrowing) and levels of expenditure vs. income. Some believe that income and expenditure should be balanced, whereas others believe that you can spend more than your income (and develop a deficit) if there is good reason to do this (for example to invest more in education).
Gross domestic product (GDP): This is the total value of goods and services produced in a country; it is used to measure the country’s overall economic activity – a growth in GDP means that the country’s economy is growing.
Inflation: This relates to the increase in prices, hyper-inflation describes a context where prices are rising very very quickly; disinflation refers to a decrease in the level of inflation, whereas deflation describes a decrease in the level of prices.
International Monetary Fund (IMF): Established in 1944 to encourage international cooperation in around monetary policy and practice. The IMF is charged with the ensuring the health of international macro-economic system, and it uses loans to help members balance their economy and hence stabilise the international system. This gives the IMF immense power in the developing world where it provides many loans.
Macro-economics: This describes the behaviour of the whole (national) economy (whereas microeconomics focuses on individuals). Governments use monetary and fiscal policies to manage their economy.