Governments that budget transparently are more likely to spend as they promise
by Chloe Cho & Guillermo Herrera, International Budget Partnership— Jun 22, 2020
As part of their COVID-19 response, governments everywhere are reprioritizing resources and implementing new fiscal measures. Throughout this process, we expect them to inform the public by reporting on and justifying changes made to the budget. But do we have reason to be concerned that this may not happen? Probably.
The recently released Open Budget Survey (OBS) 2019 finds, as previous rounds have, that budget transparency tends to be weaker during the execution phase of the budget process. While 86% of countries publish their draft budget, only 74% publish the annual report on the execution of that budget. Moreover, of the three documents that should typically be published to track budget execution – the In-Year Reports, Mid-Year Review, and the Year-End Report – at least one is missing for 84 of the 117 surveyed countries. Of course, OBS 2019 examined practices prior to the pandemic, but these results do not bode well for the disclosure of information during the emergency environment in which most governments are now operating.
Such lack of transparency undermines the public’s efforts to monitor actual spending and revenue collection, as well as to evaluate budget credibility – the extent to which budget execution follows what was planned and approved. Evidence suggests that many countries fail to meet their expenditure targets, particularly by spending less than planned. Not only does this imply that important public services may be shortchanged, but it also risks undermining public trust in government.
Accurate and timely information about budget execution is necessary to fully understand the extent and nature of implementation challenges, including their impact on service delivery. Greater transparency can also incentivize government officials to improve their performance by increasing the visibility and public awareness of budget deviations. In other words, by holding governments to account for their budgetary commitments, the public can stimulate greater credibility. For example, PlanAct in South Africa is working with communities to regularly monitor their access to basic sanitation and water during the pandemic and sharing findings with government officials to address service gaps.
A recent paper from the International Budget Partnership (IBP) suggests that budget transparency and credibility positively reinforce one another. The study, using data from Public Expenditure and Financial Accountability (PEFA) reports for 94 countries and controlling for various political and macroeconomic factors, finds a positive and statistically significant relationship between fiscal transparency and budget credibility at the aggregate level. More comprehensive and transparent budget systems are associated with better credibility at the administrative or sectoral level, as well.
The latest data from OBS 2019, paired with available expenditure data from the World Bank’s BOOST initiative for 23 countries, support these findings. On average, these countries scored 46 out of 100 on the Open Budget Index (OBI) and underspent their budgets by 8%. Those that provided minimal, scant or no budget information (i.e., received OBI or execution scores of 0 to 40), however, underspent their budgets by an average of 13%. Similarly, the extent of aggregate budget deviations in absolute terms (i.e. regardless of direction) averaged 18% across low transparency countries, 11% across limited transparency countries and 7% across sufficiently transparent countries. Those with higher OBI scores deviated less from their original budget plans in major sectors such as education and health, as well.
Moreover, countries that publish more information on their spending tend to have smaller deviations at the end of a given budget year. Among the 23 countries we looked at, five provided sufficient information on expenditure execution and all but one showed execution rates between 95% and 105%. Thus, the publication of budget implementation documents may be particularly relevant for establishing a link between fiscal transparency and credibility.
The cause of this relationship is unclear. It is possible that countries with higher credibility find it easier to publish comprehensive budget information, or countries with greater fiscal transparency are better able to execute their budgets. Furthermore, there may be other factors that help explain varying levels of budget credibility across countries. For instance, lower-income countries tend to both publish less budget information and have less credible budgets. In our sample of 23 countries, 8 of the 10 low transparency countries were low- or lower-middle-income, while none of the 6 high transparency countries were in this category. Countries with low OBI scores also tend to have weak oversight institutions, which may have a negative impact on budget execution.
Regardless, data and theory both suggest a strong connection between budget transparency and credibility. Even if transparent budget execution data does not automatically lead to improved credibility, it is obvious that poor quality data and limited access to information constrain civil society and legislators from following government spending, making it difficult for them to identify areas that are affected by budget deviations, understand their causes and consequences and hold the government accountable. Providing more budget information may not be sufficient, but it is surely necessary for improving credibility over time.
Adopting good transparency practices is especially important now when governments are charged with quickly mobilizing huge sums of money to tackle the pandemic. Producing key implementation reports in a timely manner, improving public access to financial and nonfinancial information, disclosing the likely deviations from previously approved budgets and explaining why they occurred are all important steps that governments can take to maintain open, credible budgets. Oversight actors – like legislators, auditors, and civil society – can also support this effort by leveraging this information to monitor budget execution and promote greater accountability.