Economists generally criticize road funds on the grounds that they constitute earmarking and hence introduce fiscal inflexibility and undermine the principle of unified budget management, this paper focuses on the operational objections to road funds. The main operational objection to road funds is that they simply do not work. Assuming that a decision has been made to establish a road fund, this review examines how to design a fund to ensure that it works. These usual criticisms rarely go beyond superficial symptoms and make little effort to find out why road funds have problems and what might be done to overcome them. Are such problems inherent in any road fund, or were ineffective road funds badly designed? results of the review suggest that road funds can work successfully if some institutional arrangements are made. This paper reviews experience with the operation of selected African road funds. Although most African road fund suffer from systematic problems, this review identifies examples of best practice and provides guidance on how to design a road fund that works. The paper has mainly been written for a technical audience and is directed toward officials in developing countries, Bank Task Managers, and officials in other development agencies working to improve the operation of road funds. It is also written for consultants involved in setting up new road funds, or restructuring existing ones. The road funds reviewed in the paper here mainly set up with the objective of providing a stable flow of funds to support operation and maintenance of roads. Some of them were set up to also finance transport studies, road safety programs, road rehabilitation, and new investment. The road funds selected for review are special accounts, held either at a Central Bank or at a commercial bank, and derive most of their revenues from road user charges. The revenues paid into these special accounts are usually (but not always) collected under the government's tax setting powers and may consist of a fuel levy, road user charges and an earmarked portion of other taxes and service fees. The review does not cover road funds which consist of little more than a separate line item in the Ministry of Finance (MOF) accounts, and/or special accounts which derive all their revenues through transfers from the government's general budget (as in South Africa). The review covers road funds in Benin, Central African Republic, Chad, Ghana, Mozambique, Rwanda (where operations have been suspended by the civil war), Sierra Leone, South Africa (only up to 1988 when the fuel levy was abolished), Tanzania, and Zambia. A companion volume, published as an SSATP Working Paper, provides a detailed description of each road fund (see de Richecour, 1995). The earliest road fund was established in South Africa in 1935, Benin established one in 1984 and Ghana in 1985, and the remainder were established during the late 1980s and early 1990s. Some of these road funds - like those in Benin, Ghana, and South Africa - have been operating for some time and have a wealth of experience to share. Some offer good examples of best practice, while others provide valuable lessons on important mistakes to avoid. (A)
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