This public expenditure review reports on the Government's efforts to use its budget to implement its Poverty Reduction Strategy Paper (PRSP). Part 1 reports on basic diagnostics: the macroeconomic situation and the budget performance over the PRSP period. It also summarizes the conclusions of the Country Economic Memorandum and other recent studies on the equity and efficiency of social sector spending. Part 2 takes up the institutional aspects of making the budget a better instrument for implementing the PRSP. A chapter written by Government presents the Government's public expenditure reform program that has begun receiving coordinated support from multiple donors, including the Bank through its planned PRSC. Part 2 also evaluates these plans by examining the effectiveness of the budget system in achieving well-defined government objectives. In particular, it examines reforms needed to enable Government to reach its goals in fiscal decentralization.