Addressing Budget Credibility
What do we mean by ‘budget credibility’?
Whether a government meets its revenue and expenditure targets during the fiscal year. When actual spending deviates from the approved budget, we describe it as either underspent (if spending is less than what was allocated) or overspent (if spending is greater than the allocation). The national budget may be underspent or overspent in aggregate and / or within a specific area of the budget.
Why is budget credibility important?
Once approved, we expect the government’s budget to function as a roadmap, guiding spending toward effective delivery of public services and progress on sustainable development. If the budget veers off course, it raises concerns around why this happened and what the consequences will be. Repeated deviations from this roadmap can diminish confidence in government and elicit skepticism about the seriousness of the development commitments made.
What are we learning?
Governments often face serious obstacles to sticking to their plans during budget execution. In our recent study of 35 countries spanning various regions and income levels, we found national budgets were being underspent in aggregate, on average, by almost 10 percent; and the problem was worse in the low-income countries in our sample where 14 percent was underspent, on average.
Aggregate figures summing up national budget deviations often belie large shifts in spending between sectors and programs. Underspending is much more severe for capital spending than for recurrent spending; capital spending is more easily reduced, delayed, or cancelled than spending on items like civil servant wages. This means that progress in important areas targeted for socioeconomic development like agriculture, especially investments in irrigation; infrastructure improvements, including construction of schools and hospitals; and environmental protection may be hampered.
Changes in spending are sometimes unavoidable, but governments need to do a better job of providing adequate justifications for these deviations, including reporting on the related impacts on specific priorities such as agriculture and health.
Our work in this area
In 2018, the International Budget Partnership launched a two-year pilot to deepen global understanding of the nature of the budget credibility challenge, with a particular focus on understanding when, where and why budget credibility is a problem, how well budget deviations are justified and explained by governments, and what their implications are for resource allocation and performance in priority sectors. We also aim to convene diverse stakeholders, including government, civil society and international organizations, to share our learning and identify solutions to these challenges.
We invite you to explore our work. For more information or to share your insights on budget credibility, please contact Guillermo Herrera at firstname.lastname@example.org.
The study of budget credibility examines the extent and nature of deviations from planned budgets, and of their causes and consequences.
In 2018, the International Budget Partnership began a two year pilot to examine deviations from approved government budgets, or budget credibility, with specific concern for the impact on vulnerable populations. This fact sheet provides a succinct and informative summary of the project.
Nigeria has long had severe budget credibility issues, and recent evidence suggests that the problem has not improved. This paper probes the various factors that that may be contributing to the low credibility of the budget in Nigeria and presents an analysis structured around an assessment of eight different hypotheses for what could be driving the problem.
As countries increasingly focus on meeting the SDGs, attention should be paid not only to the financing gap governments face but also to the “credibility” of their budgets – which measures governments’ capacity to effectively manage and spend the resources that they already have (or say they have). New IBP analysis using the World Bank BOOST dataset suggests that the lack of budget credibility is an important challenge that may undermine the pursuit of the SDGs in many countries.
As part of the International Budget Partnership’s Assessing Budget Credibility Project, 24 civil society partners in 23 countries identified a budget credibility challenge in their country and scrutinized a case where the government consistently failed to raise or spend funds as it said it would at the start of the fiscal year. Partners looked for explanations for deviations in published documents and then sought interviews with public officials to further understand the deviations. These budget credibility country snapshot reports summarize their research.
This report summarizes budget credibility research undertaken in partnership with 24 civil society organizations in 23 countries between October 2018 and January 2019. Each partner organization identified a budget credibility challenge in their country and scrutinized a case where the government consistently failed to raise or spend funds as it said it would at the start of the fiscal year.
Reasons that inform public policy must have certain qualities that make them intelligible to others. This paper, part of the International Budget Partnership’s Assessing Budget Credibility project, offers a set of criteria for judging both retrospective and prospective reasons governments give for budget choices and deviations in public budget documents.
This paper compiles raw expenditure and revenue outturn data for 74 countries using the most recent publicly available Public Expenditure and Financial Accountability (PEFA) reports. The analysis finds that, on average, aggregate spending projections are more credible than aggregate revenue projections; however, the average results hide great variation among countries. The analysis also examines explanations provided for budget deviations in PEFA reports and finds many explanations given are not sufficient.
This paper approaches the issue of budget credibility from a transparency perspective, looking at the extent to which budget execution reports (In-Year Reports, Mid-Year Reviews and Year-End Reports) include detailed information comparing final outturns to original budgeted amounts for expenditure and revenue, and explanations for any significant deviations. The analysis focuses on publicly available budget documents collected through the Open Budget Survey for 24 countries. The majority of countries analyzed do provide budget credibility data – in particular in Year-End Reports – but analysis and explanations of deviations are a lot less common.
Making, Keeping, and Breaking Promises: a global review of government budget credibility
In May 2019, Jason Lakin delivered a lecture at Strathmore University in Kenya on government budget credibility. The presentation provided an overview of why credible budgets matter and shared the results from a global study on budget credibility.
Learn more: Download the Lecture | Download the Presentation
Budget Credibility Community of Practice Meeting
On 7-8 February 2019, the International Budget Partnership convened 45 representatives from government, civil society, international organizations, and the donor community to deliberate on the challenges of budget credibility. The event was designed as a brainstorming workshop to encourage the greatest possible exchange of perspectives and experiences by a wide range of participants.