How optimistic should we be about government commitments to invest the funds necessary to realize the Sustainable Development Goals (SDGs)?
According to Public Expenditure and Financial Accountability (PEFA) data recently submitted to the United Nations, we should be worried. Government underspending of budgets is a global challenge that may impede the realization of the SDGs.
SDG indicator 16.6.1 measures whether government spending is in line with the country’s approved budget. This is an important overall measure of government commitment to sustainable development, but it is also critical to the achievement of most of the other SDGs: key goals in health, education, or water and sanitation cannot be achieved if government budgets are not executed. The data on SDG 16.6.1 is thus a leading indicator of whether or not governments are likely to meet their overall SDG commitments.
The new PEFA data show that, globally, countries tend to underspend their budgets. On average, the 108 countries in the dataset underspent their budgets by 2% over the period 2004-2017. That might sound like a modest underspend, but lack of budget credibility is a particular challenge in low income countries, which underspend their budgets by an average of 5%.
This data is consistent with a recent IBP analysis using the World Bank’s BOOST data, which also found widespread underspending of overall budgets globally. In a smaller sample of 35 countries, average underspending over 2009-2017 in low income countries was 14%.
One thing that is clearly missing from the data provided to the UN, though, is information about what happens to sector spending. Even if a country’s budget is spent in the aggregate as planned, there may be major shifts between different types of spending. This is known as “compositional credibility.”
Our analysis found that on average, economic affairs budgets tend to be underspent, even as defense spending tends to rise beyond the budget during budget execution. Within economic affairs, one-sixth of agriculture budgets were not spent in our sample, with underspending of irrigation projects being especially prevalent in many countries.
While the data provided to the UN does not assess compositional credibility across countries, we are able to add other existing PEFA data on compositional credibility for 75 of the countries in their sample. When we do this, we can see that several countries with high overall budget credibility have low compositional credibility. Under the 2016 framework, of the 34 countries that would receive an A on overall budget credibility, half of them would receive a C or D on compositional credibility.
For example, Papua New Guinea received an A on indicator PI-1 in its 2015 PEFA report, as the overall budget deviated by less than 5% in all three years. Yet, it received a D on compositional credibility, as its compositional variance was greater than 15%. Relative to the overall budget, several administrative units related to education and health were consistently and often substantially underspent. For example, in 2011, the Department of Health and the National AIDS Council were underspent significantly — by 16% and 44%, respectively — even as the overall budget was spent. The Department of Education was also underspent by 18%. In contrast, the Department of Police was overspent by almost 30%.
Some deviations in planned budgets are inevitable, and when they happen, governments should explain why. However, other IBP research shows that governments typically provide only generic reasons. To enhance budget credibility, governments should instead provide specific reasons for at least the most important deviations in each sector and discuss the impact that they are likely to have on other priorities in the budget.
In addition to providing adequate reasons for budget deviations when they happen, governments should strive to develop more realistic revenue and spending plans in the first place. Governments should empower and hold to account those agencies responsible for collecting revenues and spending on areas that have historically suffered from budget deviations, such as certain health and education programs and infrastructure projects.
Civil society, of course, also plays a role in effecting good practices. Civil society organizations should shine a spotlight on government budget programs that suffer from lack of credibility, and engage formal budget oversight bodies, including legislatures and supreme audit institutions, in demanding that governments act on the budget credibility issues that they have identified.
We all need to focus not just on overall budget credibility, but also the composition of actual spending against the budget. Otherwise, we may find that even governments who appear to have credible budgets have nothing to show when it comes to achieving the other SDGs.
By prioritizing budget credibility, including providing meaningful explanations for budget deviations, leaders and government agencies can build trust among citizens, donors, and the private sector. Now is the time to act, as more and more attention is being paid to this issue, a fact illustrated by budget credibility’s inclusion as an indicator in the SDGs. The UN and its members should draw appropriate lessons from and take corrective actions based on the budget credibility indicator to ensure that budgets for programs that are meant to support the achievement of the SDGs are fully used and thereby achieve their intended objectives.