By Abel Akeni, Vahyala Kwaga, and Iniobong Usen, BudgIT, Nigeria
Every year, anticipation accompanies the Federal Government’s annual budget presentation to Nigeria’s National Assembly. The budget outlines the government’s promises and spending plans to improve citizens’ quality of life. There is much to be done. With a Human Development Index score of 0.539 in 2019, Nigeria is positioned in the low human development category, ranking 161 out of 189 countries. According to Nigeria’s National Development Plan (2021-2025), universal health coverage is only 5%, life expectancy is 53.4 years, about 10.5m children do not attend school, and 61% of Nigerians do not have access to basic sanitation services. In addition, an estimated 88.4m people live in extreme poverty.
In the 2021 budget, proposed as the country began to recover from economic shocks related to the COVID-19 pandemic, the Federal Government promised to invest N13.6trn in the “Budget of Economic Recovery”. This built on the N10.8trn investment promised in 2020 in the “Budget of Economic Resilience”, which included a N500bn spending plan for COVID-19 interventions.
The budget preparation and presentation is an annual ritual required by Nigeria’s constitution. However, to what extent do the appropriated funds positively impact the life of the average Nigerian? Have the successive annual budgets improved service delivery in critical social sectors like health, education, and WASH (water, sanitation, and hygiene)?
For example, what happened to the N56.6bn budgetary allocations for the government’s famous “Jobs and Food for All” program launched in 2020? What about the N75bn Survival Fund for micro, small, and medium-scale enterprises launched in the same year to help entrepreneurs survive the COVID-19 crisis?
Source: BudgIT, 2022
Many Nigerians assume that the funds allocated in the annual budget will be spent; but this is not necessarily true. There is often a sizable gap between what the government’s annual budget promises on paper and the actual funds made available for spending; larger gaps mean weaker credibility and reliability of the budget.
Figure 1: Five-year budget expenditure trend
Source: BudgIT, 2022
The public discussion about government budgets in Nigeria focuses on corruption, for example the risks of embezzlement of public funds by civil and public servants, unscrupulous contractors, and other vested interests. These are valid concerns, and yet, weak budget credibility can also undermine service delivery. Underspending or overestimating budgets starves critical projects of much-needed funds, resulting in abandoned public projects, poor service delivery, and inadequate social infrastructure.
Why does a budget credibility chasm exist in Nigeria? When these challenges persist year after year, does this risk turning the annual budget into an empty promise on paper? Some of the reasons for why we see continued weak credibility can be found in what happens between the time the budget is approved, and funds are made available for project implementation. Prior to starting any project, the implementing ministries, departments, and agencies (MDAs) make requests for cash to be released in line with the budget approval. After approving the “cash release” for each project, the government provides funds in cash or an authority to incur expenditure (AIE) to embark on the project. Once an implementing agency has either the cash or AIE for a project, this starts the procurement process and, eventually, results in “utilization” or actual disbursed cash. Administrative, political, and technical bottlenecks during the stages of cash release and utilization can reduce the amount of funding that projects receive and, ultimately, lead to service delivery failures.
Budget data from 2021 for six sectors affected by the COVID-19 pandemic (see figure 2 below) shows that halfway through the year, the government was already falling behind on cash release and utilization.
Figure 2: Q2 2021 capital budget implementation, as a percentage of total capital budget allocation for 2021
A well-researched cause for low cash releases to MDAs is that the government does not collect enough revenue each year to finance planned expenditures. Revenue targets are regularly missed because of over-ambitious and unrealistic revenue projections. Low revenues lead to low cash releases, undermining project and program implementation. As with previous years, the Federal Government is projecting to raise N10.7trn in revenues in 2022, despite never collecting more than N6trn in years past.
Figure 3: Five-year budget revenue trend
Source: BudgIT, 2022
Even when funds are available, government agencies, including subnational governments, still cannot fully implement their budgets. For example, despite exceeding its 2020 revenue target by 0.07%, Anambra State underspent its budget to the tune of N4.64bn (4% of the budget) in the same year. Less is known about the causes of these bottlenecks at the federal and sub-national levels, and more work needs to be done to identify and address the causes of these deviations.
One step the Federal Government can take is to improve budget data availability and explain the low utilization of released public funds. Disaggregated information on the spending from the N500bn COVID-19 Intervention Fund is neither available on the Budget Office’s website nor in reports from the Office of the Accountant General or Open Treasury websites. Furthermore, the Open Treasury portal, which houses data on government expenditures, has experienced persistent downtime since November 2020 to date.
Audit institutions can also investigate and report on budget credibility issues. However, the COVID-19 Audit Report, promised as a condition for the $3.4bn loan from the IMF, has not been made public. An interim report on COVID-19 expenditure presented to the National Assembly in January 2021 has not been made public. Available information suggests that N288bn, representing 57.6% of the N500bn COVID-19 Intervention fund, was released.
To ensure value for money, the government needs to enforce existing laws on fiscal responsibility and discipline. Likewise, accountability actors, including citizens, civil society, and the media must continue to demand improved transparency and accountability from the government on the deployment of scarce public resources.
Each month, we shine a spotlight on partners who are using budget advocacy to bring transformational change to their communities. This month, we talked with Romulo Emmanuel Miral, Jr. PhD, Director General of the Philippines Congressional Policy and Budget Research Department.
Q: What is the role of the Congressional Policy and Budget Research Department (CPBRD) in strengthening accountability in public spending, and who have been its key allies in these efforts?
A: All legislation on appropriations emanates from the House of Representatives, as it holds the purse strings. That said, ultimately, the House and the Senate jointly enact all such legislation. In addition to legislation, Congress is also vested with the oversight function over the implementation of legislation, the national budget included.
As the socioeconomic think tank of the House, CPBRD provides technical assistance to the legislation and oversight processes involved in the national budget and other appropriations through research and information support. The department’s main budget-related outputs are Budget Briefs; Agency Budget Notes; the Legislative Agenda, which is formulated for each Regular Session and with the support of the Committee Affairs Bureau; and occasional research monographs, such as the Legislator’s Guide in Analyzing the National Budget. Underlying all research and information support are the principles of transparency and accountability in public spending.
We also provide context for budget and appropriation legislation and oversight. In the area of the national budget and other appropriations, CPBRD articulates this context in its research outputs by:
Elaborating on the goals of public spending, namely, macroeconomic stability; redistribution; sustainable and inclusive development; and efficient, effective and predictable allocation of limited public funds through correspondence between national priorities and long-term spending plans; and alignment with strategic national and sectoral priorities, and
Discussing and illustrating the underlying principles of transparency, accountability, fiscal discipline, and evidence-based decision making.
CPBRD works with the Committee on Appropriations and other House Committees in providing support for the legislation of the national budget and other appropriations. It is also tapped by the Speaker’s Office for information support. Externally, CPBRD worked with the Commission on Audit and Social Watch Philippines, a civil society organization working towards the creation of the House Committee on Public Accounts. For purposes of knowledge sharing, policy dialogue, and capacity building, occasional collaborations have been pursued with multilateral institutions, such as the United Nations Children’s Fund (UNICEF) and the World Bank; other government institutions, such as the Philippine Institute for Development Studies; and civil society organizations, such as the Institute for Autonomy and Governance.
Of late, CPBRD has explored the institutionalization of public participation in the preparation of the national budget, which will allow the public more avenues to strengthen transparency, accountability, and efficiency in the use of public funds.
We also support the state’s oversight function, which increases the probability of success of the legislation of the national budget and other appropriations. It ensures that laws are implemented as they are intended and that outputs and outcomes in public spending are achieved. Our support is articulated in three ways: First, attempting to put forward the policies, parameters, and standards involved in budget implementation by the executive. Second, defining policies on the use of unutilized funds. And third, emphasizing the importance of the executive’s submission of periodic execution reports to Congress.
Recently CPBRD introduced legislative evaluations as an integral component in the implementation of laws.
Q: What are the main PFM challenges you have seen and are trying to address, as far as your role is concerned?
A: CPBRD sees the following as the main problems in public financial management in the country: A lack of efficiency in the allocation and utilization of limited public funds; a lack of fiscal transparency and accountability on the part of government agencies for their outputs and outcomes; and inadequate systems for monitoring budget execution and budget accountability.
Two of the more specific and notable problems include the wide discretion of the executive in budget execution and unavailability of complete and timely monitoring and evaluation information to guide budget legislation and oversight functions.
CPBRD has proposed the following solutions to these challenges:
The establishment of a Government Integrated Financial Management Information System that will generate real-time information on budget execution and results.
Greater access by Congress of the executive’s budget monitoring systems.
Strengthening the institutional capacity of Congress to monitor and evaluate the fiscal performance of national government agencies, such as through the creation of a public accounts committee, enactment of the Budget Reform Act, and the establishment of an independent congressional budget office similar to that of the US Congressional Budget Office that serves both houses of Congress.
Q: Has your agency benefitted from IBP and what we do? How has IBP influenced your work?
A: CPBRD monitors the Open Budget Survey because it provides an independent assessment of the extent that the country exercises transparency and accountability at each stage of the budget cycle. Through the OBS, we are able to monitor whether the Philippines has made improvements over the years in comparison with other countries. Highlights of the survey are featured in CPBRD’s Facts in Figures.
The OBS also provides assessments of Congress’ exercise of its oversight function. Where oversight is perceived to be low, CPBRD is prompted to produce outputs that underscore the importance of mainstreaming oversight in the work of the legislative and to provide our principals with the basis to initiate reviews of executive agency or program performance.
CPBRD also produces and distributes the Agency Budget Notes annually during the budget season. The Notes present analyses of the budget utilization performance or absorptive capacities of agencies. Indicators on the achievement of targets and relevant findings by the Commission on Audit are also given. We intend to improve on these outputs because they are widely used even outside the House of Representatives.
Q: How crucial was CPBRD’s role in providing oversight functions for COVID funds? Can you share about specific steps your office took to ensure accountability of COVID spending by the government?
A: As a research and information support unit, CPBRD provided House Members with a total of 40 weekly monitoring reports on the Republic Act No. 11469, which declared COVID a national emergency and gave the president the powers necessary to carry out the declared national policy. The reports were organized along the four areas covered in the law, namely, social amelioration, economic stimulus, health and COVID-19, and peace and order.
After the expiration of said law, CPBRD published ‘A Results-based Assessment of the Bayanihan to Heal as One Act’. The report summarized the results of the implementation of the law, identified factors that affected implementation results, and offered recommendations for improving the design and implementation of COVID-19 measures.
With the extraordinary budgetary powers given to the president under RA 11469, it was important that Congress was apprised with the extent to which agencies/departments and their respective programs were affected by discontinuances and reallocations for COVID-19 Initiatives. During the deliberations of the national budget in 2020 and 2021, CPBRD incorporated in the Agency Budget Notes updates on discontinuances and the status of COVID-19 releases, thereby highlighting the utilization performance of COVID-19 releases by the recipient agency.
Lastly, Special Issues of CPBRD Budget Briefs analyzed executive issuances affecting the agency budgets and the implementation of COVID-19 measures. Financial reports by the executive were examined and in a more simplified manner, fund releases were reported by expenditure purpose and recipient agency. Other fund sources were also covered, such as pooled savings from discontinued agency programs and unprogrammed appropriations, particularly from loan proceeds for foreign-assisted projects and Treasury-certified additional revenues. The budget briefs identified challenges to budget accountability, such as downscaled, postponed, or abandoned projects authorized in the General Appropriations Act, weak compliance by agencies to the reportorial requirements on utilization of COVID-19 releases, and proper accounting and audit of donations for COVID-19.
Q: What specific impact has your office achieved in the last two years?
A: During the pandemic, CPBRD temporarily stopped the production of our publications in hard copy and made considerable improvements to our website for online publications. Notably, there was increased demand for the Agency Budget Notes from House Members. CPBRD will resume printing of limited hard copies because of requests from the staff of House Members.
Congressional review of the budget has taken up more issues relating to operational efficiency of agencies and the overall efficiency in allocating limited public resources. It was observed that during recent budget deliberations, House Members asked executive agencies about their budget utilization performance or absorptive capacities. Also, budget proposals for the creation of new positions were also reviewed against unfilled positions of the agencies.
Online fora on the formulation of a national evaluation policy conducted by CPBRD in partnership with the Senate Economic Planning Office and the United Nations Children Fund UNICEF were well attended. The need for a culture of evaluation is now better appreciated.
As governments continue to implement COVID-19 response and recovery programs, many civil society groups are asking how the crisis will impact governments’ ability to spend money effectively and deliver essential services. For civil society groups that are following the COVID-19 money trail, there are critical questions about budget credibility, or whether governments will actually spend the money allocated in their budget during their fiscal year.
The unpredictable impact of the COVID-19 crisis on government revenues and expenditures could create understandable reasons why governments may deviate from their planned or adjusted budgets in the coming months and years. At the same time, a lack of budget credibility can increase the risk that shifts in spending priorities may also result in cuts to essential funding for non-emergency services that people need—such as for education and routine health services.
One way of identifying potential risks for budget implementation in the current context is to look at the impact of previous health emergencies, such as the Ebola crisis that impacted several West African countries in 2014 and 2015. Reviewing lessons from two of the most impacted countries—Sierra Leone and Liberia—can help understand how government budgets change in response to a crisis and how these changes can impact budget credibility. Drawing on available budget documents and PEFA assessments that cover the Ebola crisis years, here are three key lessons about what we see—or do not see—in terms of government budget credibility during that crisis.
1. Transparency is needed to understand budget credibility during a health emergency.
During the Ebola emergency, governments were making critical decisions about where to spend and where to cut. But what were those decisions and how did they impact government services?
These questions should be answered in government budget documents that provide an official account of how public resources were raised, allocated and spent, along with explanations of changes and deviations in the budget during the year. Unfortunately, good practices on budget transparency were not in place for the countries impacted by the Ebola crisis. The Open Budget Survey (OBS) assessment covering this period in Liberia and Sierra Leone found that both countries’ transparency scores declined as compared to the previous assessment. Moreover, critical budget execution documents were not published online or were published late. In Liberia, the government was producing these documents but released them only years later, far too late to be of use to civil society organizations (CSOs) that were monitoring the government response.
Availability of budget execution documents assessed in OBS 2017
Even published budget documents had significant gaps in information, such that they did not allow comparisons between actual spending and budgeted allocations. For example, Sierra Leone’s In-Year Reports, the monthly Statement of Fiscal Operations, showed expenditures by overall sectors (functional classification) and type of spending (economic classification), neither of which is comparable to the initial budget, which is approved by each ministry (administrative classification).
One area with stronger accountability during the Ebola crisis was the rapid auditing of emergency spending. The supreme audit institutions (SAIs) in both Sierra Leone and Liberia conducted and published rigorous audits of emergency funds, which uncovered waste and mismanagement of spending during the crisis and led to governments addressing some of the problems identified. In contrast, regular audits of government spending did not fully investigate impact of the crisis. Neither of the audit reports for government financial statements in Sierra Leone or Liberia explained changes made to budgets, in part because the SAIs did not receive this information from the government. In Liberia’s case, the regular audit report for 2014/2015 was also delayed in publication, undermining transparency for the rest of government spending – released only four years later.
2. Credibility is an ongoing issue during a crisis.
As governments responded to the Ebola health emergency, they adjusted their budgets in similar ways to what we see in recent months in response to COVID-19, prioritizing the emergency response and economic stimulus efforts. Even with these revised priorities, budget implementation practices followed similar trends as in earlier years.
Budget execution data for the years of the Ebola crisis can be found in in the PEFA reports for Sierra Leone (2018) and Liberia (2016). PEFA assessments examine budget credibility in terms of aggregate expenditures and the composition of the budget (spending by ministries) from the central government: in Liberia, this included on-budget donor expenditures, while in Sierra Leone donor expenditure data was not available.
The PEFA report shows that the government in Liberia struggled with accurate revenue forecasts before the crisis that led to underspending, but budget credibility trends varied by sector. In spite of more pronounced underspending in the health ministry when compared to education or defense, the overall execution rate in Liberia actually improved during this period.
For Sierra Leone, the PEFA report shows that overspending was the norm before the crisis, and this continued to a lesser degree during the Ebola response years. Like Liberia, deviations varied by sector – for example, despite overspending in health and defense sectors in Sierra Leone, the budget for the education ministry was underspent.
At a more detailed level, budget variances can become extreme. For example, official data indicates that an administrative unit known as “Miscellaneous Services,” which includes contingency expenditures, was significantly overspent during the crisis, but no explanations were provided to explain why this happened or how the money was spent.
Sierra Leone PEFA: Actual spending in key sector ministries as a share of the initial approved budget
Liberia PEFA: Actual spending in key sector ministries as a share of the initial approved budget
Thus, on an aggregate level, the Ebola crisis for Sierra Leone and Liberia resulted in slight improvements in budget execution rates, rather than increased fluctuations, as might be expected.
However, these aggregate values can mask large shifts within budgets that potentially can undermine credibility. For example, In Sierra Leone, official data indicates that an administrative unit known as “Miscellaneous Services,” which includes contingency expenditures, was significantly overspent during the crisis, but no explanations were provided to explain why this happened or how the money was spent.
Contingency expenditure in Sierra Leone (in millions, PEFA)
In the same time period, Sierra Leone also increased their accumulation of payment arrears from one percent of expenditures before the crisis to 17 percent of expenditures in 2016. These arrears, which are obligations where the government is late or delayed on payment, are often not reported in budgets and can potentially hide overspending practices. Such changes make it hard to track in government reports where the money goes and how it is being used and can mask credibility problems in the overall budget or specific programs.
3. Altered systems for emergency spending make it harder to track budget credibility.
The need for a rapid response in the Ebola crisis led governments to use different public financial management arrangements during their response. In both countries, the PEFA reports document shifts that governments made in their budgets during the emergency response, but with varying degrees of accountability and transparency. In the case of Liberia, these shifts were discussed with the legislature before being implemented and were not large enough to warrant a formal supplemental budget. In Sierra Leone, overspending was large enough to require a supplemental budget from the legislature, but after 2014 no supplemental budgets were submitted or approved.
In addition to revising public spending, governments were also setting up extra-budgetary funds to manage emergency spending. Extra-budgetary funds promised rapid delivery of services that could circumvent the slower machinery of government systems, including normal oversight practices. In many cases, new extra-budgetary funds were created due to the demand of donors. However, such funds also obscure the total amount of public resources directed to the crisis. By the end of the crisis, only 23 percent of donor financing was disbursed directly to all affected countries public finance systems, with the majority channeled either in extra-budgetary funds or implemented directly through development partners. Off-budget donor funding also has the additional challenge that government auditors in Sierra Leone and Liberia either did not have the mandate or access to donor accounts to audit where and how donor funding was spent.
How should lessons from the Ebola emergency inform the COVID-19 response?
As governments begin implementing their COVID-19 response efforts, often using similar tactics to those used during the Ebola response, we should watch out for similar pitfalls. These include:
Lesson 1: Transparency can regress. Lack of transparency makes it very challenging for CSOs and other stakeholders to conduct timely analysis of emergency spending practices and thereby seek remedial actions from the government during the period of the crisis. CSOs and other stakeholders must insist that governments prioritize transparency and the timely publication of data—transparency and accountability build the trust that is needed to combat the virus.
Lesson 2: Governments tend to use new instruments and PFM arrangements during a crisis. These include supplemental budgets, extra-budgetary funds, contingency reserves or funds and increases in expenditure arrears. Civil society should track these changes and monitor potential risks in these new systems. A special series of notes on COVID-19 from the IMF is a good resource for learning about how PFM systems are changing and what good practices should be adopted.
Lesson 3: Prioritized audits of emergency spending measures can come at the cost of routine audits of government spending. Auditors should formulate audit plans that ensure that all public funds are assessed. Routine audits of government financial statements—which will still account for most government spending—should look at spending deviations during the crisis. Additional support and funding to SAIs will allow them to take on this expanded mandate. CSOs and other stakeholders that are demanding that SAIs conduct expedited audits should also insist that regular audits continue, especially for programs at risk of mismanagement.
Lesson 4: Trends in deviations can continue during times of crises. Importantly, these trends hold true not just for aggregate budgets but also for the budgets of individual ministries and sectors. CSOs can use evidence of previous spending patterns to push back against unjustified claims made by government that budget deviations are only due to the crisis.
This is a first in a series of articles and webinars about how to follow the money, which highlights the work of organizations and activists around the world.
“Follow the money” became popular after its use in the 1976 Hollywood blockbuster All the President’s Men. In development circles, the phrase is widely used by international agencies and civil society organizations (CSOs) to demand transparency and accountability in government spending. Never before has this been more necessary.
In the past few months, governments have announced billions of dollars in emergency spending to mitigate the health and economic impacts of the COVID-19 crisis. The International Monetary Fund (IMF) has called on governments to “do whatever it takes but keep your receipts” and encouraged CSOs to be involved in monitoring government spending. Many international and national CSOs are looking to do just that.
How can CSOs follow the money?
While there is undoubtedly a need for enhanced oversight to ensure that emergency spending measures are serving their objectives and reaching their intended beneficiaries, it is not an easy task for CSOs to conduct such oversight. As our Open Budget Survey 2019 shows, three out of every four of the 117 countries surveyed failed to reach the minimum threshold for adequate budget transparency. CSOs will find it challenging to follow the money expended to respond to the effects of COVID-19 because budget and spending data are either not published or are not even produced. The challenge is exacerbated during emergencies such as the current one as several governments are channeling their relief efforts through special funds that are managed outside of the routine budget process, and these off-budget funds are typically even more opaque than the routine budget.
The good news is that organizations do not have to start from scratch. Over the past two decades, CSOs have developed a suite of innovative ways to follow the money.
1. Understand the budget implementation process and its place within national budget cycles.
The budget implementation process begins with monies being released by the national treasury (or finance ministry) to spending ministries (like health or education) in line with the budgets authorized by national legislatures. These ministries incur expenditures directly through their payrolls (on teachers, doctors, etc.) or by procuring goods and services (such as school supplies and medicines).
Procurement systems followed by governments typically begin with the solicitation of bids and then the award of contracts to vendors who ideally offer the best value for money. Later, payments are made to the vendors to pay for the goods and services they have provided. The actual expenditures incurred are recorded in national accounting books and budget reports. These records are audited for accuracy by supreme audit institutions (SAIs), who submit their audit reports to national legislatures. Legislatures then use audit reports to demand remedial measures and accountability from officials responsible for spending decisions.
Off-budget funds processes differ from country to country. IBP has created a useful resource on issues surrounding the governance and transparency of public spending that occurs outside of the regular budget. The IMF is also in the process of issuing a special note on special funds established by countries to channel COVID-19-related funds and the risks that can be associated with such funds.
A. Social Audits: These are participatory processes through which local communities directly scrutinize public programs and projects and hold governments to account in public hearings attended by officials responsible for overseeing the programs and projects that are the subjects of the audits. Social audits are widely used by both governments and CSOs. In India, state governments use the tool to monitor the implementation of a wide range of social sector programs, including the multi-billion-dollar rural employment guarantee program. Social audits have also been widely used by CSOs in South Africa, Kenya, and Indonesia. The tool is most appropriate for grassroots organizations or networks that have deep roots in local communities. Read this story on how Beatrice, a resident of a poor township in South Africa, used social audits to improve sanitation services in her community.
B. Open Contracting: CSOs have developed multiple tools to monitor government procurements. One such tool developed in the Philippines is the Differential Expenditure Efficiency Measurement (DEEM) tool. Using this tool, Procurement Watch Inc. uncovered inconsistencies in records produced at different stages of the procurement process (such as between the purchase request form, purchase order, and the payment disbursement order), which in turn highlighted mismanagement and corrupt practices being followed by government agencies. However, the use of tools like DEEM require CSOs to possess a degree of expertise on complex government procurement processes. More recently, the Open Contracting Data Standard developed by the Open Contracting Partnership offers governments and CSOs opportunities to more easily analyze government contracts.
C. Citizen Report Cards: This tool is used to obtain public feedback regarding the quality and adequacy of essential services. The report cards evaluate user satisfaction in such areas as staff behavior, the number of visits required to complete a task, and the ease with which problems are resolved. Citizen report cards have been widely used around the world, including in India, Philippines, Ukraine, and Vietnam. Read this story on how CSO use of citizen report cards led to improving public services in Bangalore, India. CSOs that conduct a citizen report card exercise may need specialization on survey techniques and survey fieldwork. Universities and private companies can be good places to find people with skills in these technical areas.
D. Audit Scorecards: CSOs use this tool to evaluate and publicize key findings contained in audit reports issued by SAIs. Scorecards typically focus on revenues and expenditures flagged by auditors as being in some way improper or irregular, or for which there is insufficient documentation. View these short videos produced by IBP’s civil society partner in Sierra Leone—the Budget Advocacy Network—that highlight the amounts of funds in different national ministries that have been questioned by the national SAI due to improper management. CSOs do not need to be financial or accounting specialists in order to use this tool although they would benefit from some experience in government audits. Fortunately, SAIs are increasingly receptive to collaborating with CSOs on holding governments to account on public spending and could be strong resources for CSOs in implementing this tool.
3. Analyze and research your results carefully
Governments’ actual expenditures often deviate from planned or budgeted expenditure. For this reason, in a recent blog article, we cautioned CSOs about prematurely celebrating government spending announcements as these plans may not be fully implemented. But planned and actual expenditures can diverge for many reasons, some of which are legitimate while others are improper or even downright illegal. Through our pilot project on addressing budget credibility, we identified many reasons for deviations in government budgets across dozens of countries that were studied, including the following:
Flawed financial management systems;
Diversion of funds to other programs;
Poor revenue collections;
Unpredictable donor aid flows; and
Inefficient procurement systems.
Identifying expenditure deviations in a project to follow the money is insufficient. The reasons underlying these problems can be complex, and the solutions even more so. The most difficult part of the project is often to understand this complexity and propose appropriate solutions.
Governments deserve much credit for channeling unprecedented levels of funding to combat the COVID-19 crisis. But taking a longer view, public spending on social support programs needs to continue well into the future—even after the immediate threats posed by the COVID-19 pandemic fade. For this to happen, policy makers and the broader public need to be assured that scarce resources will not be mismanaged or line the pockets of corrupt officials. By serving as watchdogs of public expenditures during the COVID-19 pandemic, CSOs can provide a valuable service that can help improve government accountability surrounding the delivery of critical services. They can also help bolster the case for a fiscal future in which governments commit additional resources their populations will need to recover from the profound social and economic consequences of the COVID-19 pandemic.
This blog post is co-published with the Open Government Partnership here.
A societal imperative
The magnitudes are staggering. To tackle the unprecedented healthcare emergency and lockdowns necessitated by COVID-19, governments are mobilizing the biggest stimulus and safety net packages we have seen since World War II. Governments and international institutions have announced at least $20 trillion in spending thus far in response to COVID-19. In the G20 countries, $6.3 trillion has been provided in fiscal support so far, representing 9.3 percent of G20 GDP. Germany’s fiscal and monetary stimulus is in excess of 40 percent of GDP! South Africa’s first round fiscal stimulus package is 10 percent of GDP. In Africa, over $114 billion in aid is needed to finance governments’ COVID-19 stimulus packages, of which half has been mobilized. These efforts dwarf the response to the 2008 global financial crisis.
Millions of lives and livelihoods are at stake. Rescue packages in each country have a different mix of fiscal, monetary and regulatory measures. Across countries they include massive procurements of life-saving medical supplies and medicines that touch the lives of all citizens; safety nets for millions of vulnerable people; subsidies and credits to protect jobs for thousands of micro, small and medium enterprises (MSME); and major infrastructure investments, tax and regulatory incentives to provide employment for millions. For instance, Nigeria’s $6 billion package aims to provide a safety net for 30-60 million vulnerable households, job protection for half a million in 50,000 MSMEs, and employment for over a million through rural roads projects. Effectiveness of these surpluses is not just of profound economic and social significance – it is a moral imperative. It is also a vital opportunity for governments to build back and sustain citizen trust, which had plummeted to historic lows prior to the pandemic.
But history also tells us that when money moves as fast as in the COVID-19 response there is a risk of corruption, capture, and failure to reach those who need help the most. And we have already seen early signs of these with COVID-19 funds in developed and developing countries alike. In Brazil, federal prosecutors have launched more than 400 investigations into suspected cases involving COVID-19 funds. In Colombia, 14 of the country’s 32 governors are suspected of corruption involving emergency COVID-19 funds. In the U.S., the incredibly wealthy L.A. Lakers franchise valued at $4.4 billion received $4.6 million from the payroll protection program targeted to small businesses.
Even prior to the pandemic, the track record of many countries is that public spending does not reach many of the intended beneficiaries; the funds “leak”. For instance, 70 percent of the recipients of Sri Lanka’s Samurdhi program for the poor were in fact not poor. Simply scaling up existing safety net programs may not ensure that vulnerable groups receive vital COVID-19 assistance.
The open government approach
To mitigate these risks and achieve their vital goals, an open governance of these massive stimulus and safety nets is essential. Openness, which enables citizens, civil society, businesses to shape programs and “follow the money.” This offers a unique approach by combining government transparency with the active participation of citizens, civil society and oversight institutions to ensure that funds achieve their intended purposes.
This is a central thrust of what government reformers and civil society activists have sought to accomplish through the Open Government Partnership (OGP) over the past decade. The reforms they have co-created and implemented provide excellent innovations and learning which can be applied to COVID-19 stimulus and safety net packages. For instance:
Through Italy’s Open Coesione Platform, the government disclosed details of one million projects supported by 100 billion euro of EU financing and then launched a massive public information campaign to empower citizens, including high-school students, to be on-the-ground monitors of projects.
Through the Philippines’ Open Roads Initiative in 2014, the government disclosed details of road expenditures, often geo-coded. Citizens and civil society carried out social audits on the existence and condition of roads, and the formal audit institution used the citizens’ social audits to mandate a government response, saving $300,000 per ghost road identified.
Through the Citizen Eyes and Ears mobile app in Kaduna, Nigeria, the government discloses the geo-location of publicly funded projects and citizens upload photos and feedback on these projects which go directly to the Governor’s office and State Legislature for corrective action.
Stages of design and implementation of stimulus & safety nets
These open government approaches can be applied to different stages of design and implementation of COVID-19 stimulus and safety nets packages. They offer an unprecedented opportunity to start to rectify societal inequities that have been laid bare by the pandemic and build a more just recovery. This can’t happen without a transparent and inclusive process.
Open decision-making. To begin with there must be total transparency in the decision-making process. Government needs to be open about who gets the money (including tax and regulatory exemptions), how that was decided and where the funds are coming from. It is vital to ensure that the stimulus policy-making process is evidence-based and inclusive, particularly to amplify the voice of historically marginalized groups and others facing added vulnerabilities due to COVID-19. Any interested member of the public should be able to inform those decisions directly, and the lobbying that accompanies policy and budgetary processes should be made open for all to see through transparent registers like those Chile and Ireland have instituted. Transparency in company ownership can provide oversight over whether bailouts, public contracts or regulatory exemptions are getting captured by the politically connected. Any company registered offshore, not paying their taxes, or undermining other social obligations should not receive support, as Denmark and Canada have instituted.
Open aid. The terms of the billions of dollars in grants and loans to finance COVID-19 response and recovery from International Financial Institutions such as the World Bank and IMF, and other incurred debt, should be made open. All financial flows should be disclosed according to aid transparency best practices, along with specific targets of what they are intended to accomplish and who they seek to reach. This will start to balance the necessary focus thus far on mobilizing international aid with now an equally concerted attention on how well the money raised is being used to achieve its intended purposes.
Open budgets. Following an open decision-making process on who the target for support is and where the money is coming from, ministries of finance need to disclose their expenditures, including emergency COVID-19 spending, in regularly updated open data, as the U.S. did for the $800 billion Recovery and Reinvestment Act of 2009. This already poses a challenge because the Open Budget Survey (OBS) for 2020 highlights that three-quarters of the 117 surveyed countries do not have sufficient levels of budget transparency according to the basic minimum standards set in accordance with international norms.
Transparency and oversight of safety nets and MSME support. Beyond overall budget transparency, transparency in safety nets and engagement and oversight by groups representing the least resilient and those hardest hit by the pandemic can ensure that these funds actually reach the intended beneficiaries. For instance, the Philippines government has released a $4 billion “social amelioration package” for COVID-19. But ensuring these precious resources are not siphoned by corruption and actually reach the targeted 18 million vulnerable — senior citizens, people with disabilities, pregnant women, indigent indigenous people, and the unemployed — will require transparency, participation and oversight on who is eligible and a citizens’ grievance redressal mechanism, mediated by the vigilant Filipino civil society and overseen by formal accountability institutions. Similarly, transparency and monitoring by business associations is needed to ensure that support in stimulus packages reach targeted MSMEs. This is a key emerging focus in the design and monitoring of South Africa’s package where smaller MSMEs in distress could not access the initial credit guarantee scheme.
Open contracts. Governments also need to ensure that all procurement processes are open and competitive – from the tender to execution. Yet less than one-third of countries have taken steps to publish contracting data. This poses a particular risk of price gouging and corruption in times of COVID-19, even jeopardizing lives. As New York desperately struggled to acquire ventilators, it paid – through an opaque contract – a whopping $69 million for 1,500 ventilators at triple the retail price; tragically, none were even delivered. Open contracting and open spending empowers citizens, journalists and civil society to follow the money and become the government’s eyes and ears on the ground. For instance, in Paraguay and Colombia, the government publishes emergency contracts as open data that civil society monitors, including by tracking price differences for COVID-19 supplies. For public contracts in stimulus packages more broadly (e.g., for infrastructure projects), open contracting can save money, fight corruption and spur economic activity. Through Ukraine’s open contracting platform over two years, citizens flagged 14,000 violations, the government saved $1 billion, 82% of entrepreneurs reported reduced corruption, and there was a 50% increase in contract bids, including from MSMEs.
Formal oversight institutions. At the heart of an open government approach is a partnership of government with citizens, civil society and accountability institutions. Formal oversight, audit functions and whistleblower protections are essential. All stimulus spending should be audited by independent institutions, and regular reports made to parliament. In this regard, there are important opportunities for audit institutions to collaborate with civil society in value-for-money audits or following the money, such as the Philippines’ Commission of Audit using citizens’ social audits under the Open Roads Initiative. Where corruption is uncovered, prosecutions should be made. Where nefarious political influence is suspected, the media should be free to report.
Participation & monitoring by citizens, civil society & businesses. Beyond formal oversight mechanisms, government, civil society and business associations need to shape and monitor packages to ensure that they have the desired impact. This means grassroots groups monitoring infrastructure projects, checking that those vulnerable households eligible for safety nets and cash transfers get their support (while respecting right to privacy), and informal sector businesses who may not be on the government’s radar receive targeted MSME support. A particularly important imperative is to empower civil society groups representing the marginalized and vulnerable groups to amplify their voice in shaping and monitoring COVID-19 safety net programs. In Africa, the Follow the Money network of civil society organizations is tracking COVID-19 related spending, including aid flows, to ensure it is reaching those it is intended to help. These youth civil society organizations are also leveraging social media and digital technology to solicit beneficiary feedback.
Where civil society uncovers corruption, waste or poor implementation government must commit to address those deficiencies quickly to close the feedback loop. Only then will governments be able to earn or sustain citizens’ trust.
Civic space & media freedoms. For corruption and waste to be uncovered, the protection of civil liberties, basic freedoms of the press, and access to information must be sacrosanct. Unfortunately, many countries have gone in the opposite direction by shutting down civic space, and restricting freedom of information. It is imperative to roll these back for effective design, implementation and monitoring of COVID-19 programs.
A call to action: the essential steps
For all of these measures to happen, we need a campaign in every country to monitor trillions or billions of dollars for millions of people, to ensure stimulus and safety net packages achieve their tremendous promise and imperative of saving lives and livelihoods. This requires complementary and mutually reinforcing actions by governments, civil society, business associations, accountability institutions, and international donors. Our call to action for each stakeholder group is summarized in this graphic. As citizens all over the world have been mobilized around curbing COVID-19 contagion, there is an unprecedented opportunity to now channel that attention and mobilize citizens and citizen groups to shape and oversee packages that will directly impact their lives. Indeed, with so many lives and livelihoods and such massive resources at stake, we need collective, collaborative leadership – a coalition of stakeholder groups to join forces and ensure that stimulus and safety nets flow through open governments, open budgets and open contracts through to the “last mile” of service delivery. If we do this, we won’t just ensure an effective COVID-19 response – we will build back a better governance system that will institutionalize openness and citizen oversight, sustain citizen trust by putting citizens at the heart of governance, and produce a more fair and just society for better times to come.
Large discrepancies between what a government budgets for and what it actually spends, and between the revenue it forecasts and the revenue it ultimately collects, can be unsettling and potentially dangerous – especially during a global crisis. Clues on how to address this widespread phenomenon were presented in our recent study, “Exploring the determinants of budget credibility.” This report examined national government budget data in 94 countries from detailed reports issued by the Public Expenditure and Financial Accountability (PEFA) program.
When revenue collections are lower than projected, governments tend to ‘underspend’ – or spend less than the allocations in the approved budget. While this result might be expected and obvious, the underspending is typically unevenly distributed among different sectors and can have harsh consequences on people’s lives, especially for those who rely on public services.
Governments that are more transparent have higher levels of budget credibility. Our study points to the primacy of transparency for improving budget credibility. It also identifies other important factors—such as clear rules for amending budgets, strong procurement systems, and good accounting practices—that enable more real-time control over how public resources are being expended.
Underspending in government budgets was a problem even before COVID-19
In an earlier multi-country study of budget credibility conducted prior to the pandemic, we found that levels of annual underspending in government budgets averaged nearly 10% across 35 countries. For perspective, this proportion of the budget amounts to more than the health and education budgets in many countries. And in low-income countries, nearly one out of every seven budgeted dollars was left unspent.
A more detailed report on immunization programs across 22 countries revealed a shocking 30% underspend of budgets for the purchase of vaccines over several years even as governments declared vaccine shortages on 96 occasions.
On the flip side, and not surprisingly, we also found ‘overspending’ to be an issue on some items and in some countries. Recently, we published a blog article that describes how police budgets across 19 countries were overspent, and by large margins in countries such as Uganda and Mexico.
What does this mean for budgeting during COVID-19?
Many governments have responded to the COVID-19 pandemic by committing to do whatever it takes to support their people and economies. But as they rush to commit large sums toward relief and recovery, the pressure for unrealistic revenue forecasts has increased—setting up a scenario in which governments are likely to overpromise and then underperform.
Understandably, the pandemic makes it very challenging for governments to accurately forecast economic growth, which impedes their ability to establish reliable revenue targets. In January 2020 (before COVID-19 became a household name), the IMF projected a global growth rate for 2020 of more than 3%. By April, the IMF was projecting a decline of 3%. And, last month, the IMF revised down its projection again to a decline of 5%. In many countries, growth projections have fluctuated even more drastically.
It could be catastrophic if governments continue the behavior identified in our new report and reduce their spending as they lower their revenue projections – especially for essential services, such as health, education, and social safety nets. At a time when the public is more reliant than ever on the provision of essential services, we think governments should make every effort to fully spend their budgets for these services.
Key takeaways for governments and civil society organizations
Governments: At this time, citizens need to be reassured that the policies announced to alleviate the pandemic’s suffering will, in fact, be implemented. It is expected that governments will have to revise their revenue projections and may even have to modify spending targets, but now more than ever, transparency is essential. Accordingly, governments could consider giving priority to the following steps:
Disclose all changes to budgets in response to the pandemic, including how COVID-19-related policies will be translated into budget allocations, assumptions for revenue projections, and sources of financing.
Release regular updates on the implementation of COVID-related measures in the budget, changes in the forecasts of revenue and spending, a comparison of spending projections and outcomes, and the reasons for any deviations.
Commit for audit all spending incurred during the pandemic, ideally more than once during the fiscal year, so that auditors can closely examine budget credibility issues and report publicly with their findings.
Civil society organizations (CSOs): CSOs should not assume that large budget allocations for essential services represent “victories.” They should follow the budget cycle and track government spending patterns during the year—particularly in 2020, when governments are confronting unprecedented challenges. And they should be vigilant when governments cut spending below the levels planned in the budget, raising the alarm when such cuts are unjustified.