Addressing Budget Credibility

Addressing Budget Credibility

What do we mean by ‘budget credibility’?

Whether a government meets its targets for collecting and spending funds during the fiscal year. When actual spending deviates from the approved budget, we describe it as either underspent (less than the allocation) or overspent (greater than the allocation). A country’s national budget may be underspent or overspent in aggregate as well as within a specific area of the budget.

Normally, when the government enacts a budget, we expect it to function as a comprehensive roadmap that guides funds toward effective delivery of public services and progress on sustainable development. However, governments do not always collect or spend money according to their budgets. Consider that:

  • In Argentina, only a third of children had access to early childhood services. However, a program designed to close this gap has consistently spent less than its approved budget by as much as 70 percent.
  • In Nigeria, despite high occurrences of out-of-school children, the Ministry of Education consistently underspent its budget by 12% to 37% between 2013 and 2017.
  • In Sri Lanka, the agricultural sector employs 26% of the country’s labor force but suffers from declining productivity. Regardless, the government budget for agriculture and irrigation was underspent from 10 to 40% annually from 2011 to 2017, except in 2015, an election year.

If the budget veers off course, it raises concerns around the causes and the consequences. Moreover, repeated deviations from this roadmap can diminish public confidence in the government and create mistrust around its commitments.

In 2018, we began an initiative to deepen knowledge and address issues around budget credibility. So far, we have learned that:

  • Governments often deviate from their budget, particularly by spending less than planned. On average, national budgets in aggregate are underspent by almost 10 percent, according to our study of 35 countries. Moreover, this problem was worse among low-income countries, which underspent by 14 percent.
  • Multiple factors drive poor credibility. The major ones we have identified include:
    • Lower revenue collections than planned, which can result from political motivations, faulty forecasting models or unpredictable revenue flows.
    • Weaknesses in public finance management systems, an absence of transparent budgets, and poor accounting and reporting systems can limit control of how public resources are being used.
  • Governments do a poor job of explaining deviations. Changes in spending or budget deviations are sometimes unavoidable but governments often do an inadequate job of providing detailed explanations for deviations. This makes it difficult to assess whether deviations are justified and what the root causes are. It also makes robust dialogues between government and civil society difficult.

Download the Budget Credibility fact sheet.

In addition to research, IBP has collaborated with and convened diverse stakeholders to reduce deviations from budget and enhance transparency on budget execution. For instance, in 2019, IBP and UNICEF co-hosted two panel discussions during the UN General Assembly on the importance of budget credibility to achieving the Sustainable Development Goals (SDGs). In Nigeria, IBP and the Budget Office of the Federation held a joint forum on the country’s budget credibility issues.

IBP has also supported multiple CSOs in researching and campaigning for solutions budget credibility challenges in their countries, including:

  • In Ukraine, IBP’s civil society partner, Centre Eidos, advocated to reform the procurement appeals process as it was being abused by some firms that were filing numerous bogus or trivial complaints to delay the procedure and prevent other bids from winning. These efforts led to the government including a provision in a recent package of reforms to the procurement law that would dissuade companies from misusing the right to appeal. Closing this bottleneck should improve the credibility of road infrastructure budgets in the country, which have been underspent.
  • In Serbia, IBP’s partner Transparency Serbia examined the ad hoc transfers of contingency funds from the national budget – widely believed to be used for political patronage to mayors in various municipalities. Transparency Serbia presented its analysis to the national audit office and the national fiscal council that oversees budgets and requested an investigation and stricter rules to guide the use of the contingency funds. The issue generated substantial media interest and engagement from the fiscal council that committed to examining the issue.

From the Open Budgets Blog:

Read more budget credibility blog posts.

Meeting Notes:

  • Community of Practice: In 2019, IBP twice convened a Community of Practice including government, civil society, and international organizations to share knowledge and identify solutions to budget credibility challenges. These meetings culminated in the development of four priorities to mutually work towards: (1) strengthening public financial management systems, (2) empowering citizens, (3) including oversight actors, and (4) building powerful narratives on credibility. Summaries on these meetings can be found here: February 2019 and December 2019.
  • 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 LectureDownload the Presentation

Global Research

June 2020 – In this paper, the authors examine potential drivers of budget deviations using data from 120 Public Expenditure and Financial Accountability (PEFA) assessments conducted in 94 countries. Read more.

Sept. 20, 2019 – 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. Read more.

Dec. 17, 2019 – Significant progress has been made in the accessibility and coverage of vaccination globally, but challenges remain. Lack of coordination, conflicting priorities and poor public financial management systems can undermine the impact of investments and benefits of immunization. Accordingly, one of the critical questions in immunization financing is how much is being spent. Read more.

March 2019 – 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. Read more.

In this report, we review a few rules and practices in select countries that tend to enhance executive discretion over budget implementation. Read more.

Reasons in Government Budget Documents

This paper offers a set of criteria for judging both retrospective and prospective reasons governments give for budget choices and deviations in public budget documents. Read more.

Budget Credibility: What Can We Learn from PEFA Reports?

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. Read more.

This 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. Read more.

Country Case Studies

Jan. 6, 2020 – In order to better understand the causes of poor budget credibility in the Philippines health sector, this paper analyzes five regions with different spending patterns. Read more.

Dec. 4, 2019 – To what extent do county governments in Kenya deliver on their budget promises? Which sectors of the budget tend to be spent as budgeted, and which tend to receive more or less than what was allocated? What patterns do we observe across different counties, and to what extent can we identify common factors that relate to credibility? This paper dives deep into these questions, mainly with respect to the composition of the budget, though also examining overall revenue and expenditure. Read more.

Dec. 3, 2019 – This paper investigates the link between underspending and performance in the irrigation sector, focusing on five countries. Lack of transparency makes it difficult to establish this relationship, but available evidence suggests that failure to spend budgets can impede the execution of irrigation projects. Read more.

Sept. 30, 2019 – 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. Read more.

April 1, 2019 – These budget credibility country snapshot reports summarize the research of 24 partners who identified a budget credibility challenge in their country. Read More.