Government budgets responding to crisis: what we can learn from the Ebola emergency

Government budgets responding to crisis: what we can learn from the Ebola emergency

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.
Our money, our responsibility: how civil society can follow the COVID-19 money trail

Our money, our responsibility: how civil society can follow the COVID-19 money trail

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.

2. Tools for following the money:

IBP publication “Our Money, Our Responsibility: A Citizens’ Guide to Monitoring Government Expenditures,” describes 10 methodologies CSOs have used effectively to evaluate and monitor government spending. Below, we highlight four of these tools that CSOs can use now to track COVID-19 relief expenditures.

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;
  • Corruption;
  • 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.

Making trillion-dollar stimulus and safety nets work for all: essential steps we can take now

Making trillion-dollar stimulus and safety nets work for all: essential steps we can take now

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.

Komari Komari | Shutterstock

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.

 

 

Overpromising and underperforming budgets during COVID-19: possible solutions

Overpromising and underperforming budgets during COVID-19: possible solutions

This blog was originally posted on the IMF’s Public Financial Management Blog.

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.

Notable findings

  1. 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.
  2. 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

hairul_nizam | Shutterstock

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.

Police reforms require budget reforms

Police reforms require budget reforms

The video of the brutal and senseless killing of George Floyd, an African American, by a white police officer in the United States  has captured the attention of the public around the world. Floyd was the most recent in a series of killings of unarmed black people by security personnel. Thus, what we see is a cumulative, collective wave of frustration and rage, pushing people into the streets to demand racial justice.

A key demand of the protestors is to “defund” police budgets. They argue that police forces are increasingly militarized and using disproportionate force to engage with people, especially people of color, with inevitably bloody outcomes. The protestors also argue that the police have increasingly taken on functions in communities for which they are unprepared and that are best handled by mental health professionals and social workers.

While most media reports focus on police budgets in the U.S., we decided to look at government spending on policing from a global perspective. Data on budgets are not easy to access in many countries—as our latest Open Budget Survey painfully concludes—and even when budget documents are published, they often lack sufficient details to enable meaningful analysis of a government’s priorities. But we were able to use data from the World Bank’s BOOST database to compare budgets and actual expenditures incurred for policing functions in 19 countries* over a multi-year period. (On average, for each country, we were able to obtain budget and expenditure data for the most recent four to nine years).

The most striking finding from the data is that in the 19 countries we analyzed, overall budgets were underspent by 10% on average (in other words, spending was less than what was allocated in the approved national budget). To put this in perspective: The degree of underspending is equivalent to what would be needed for an entire health or education budget in many of these countries. In contrast, the actual expenditures on police functions were slightly overspent by approximately 2%.

As the chart below shows, in every region of the world for which data were available, police budgets are either significantly overspent or are underspent by much less than the overall national budgets.

In individual countries, the problem is even more striking. For example:

  • Uganda overspent its police budget by 16% between 2010 and 2016 but failed to spend 1 out of every 4 budgeted dollars. Shockingly, Uganda underspent its immunization budget by more than 75% even as the government declared vaccine shortages on five occasions.
  • In Mexico, the budget for police services was overspent by $2.3 billion between 2009 and 2016.
  • In the Solomon Islands, the government exceeded the police budget by an average of 3% between 2009 and 2015, while the total budget was underspent by approximately 30%.

These examples suggest that police budgets in many countries tend to be protected from in-year reductions—even as other government functions and investments suffer from under-execution.

There are also other critical issues surrounding the equitable use of police budgets that must be analyzed and discussed with a country’s people. For example, our South African partner, the Social Justice Coalition, analyzed the assignment of police personnel to different jurisdictions and found that more police were assigned to neighborhoods with lower rates of violent crime (largely white and rich communities) than to neighborhoods with higher rates (largely black and poor).

Although police perform the vital functions of maintaining law and order and protecting society from violence, in some cases, police abuse their authority and engage in corrupt practices, use excessive force, target people unjustly (as with racial profiling), and fail to protect the most marginalized segments of society. The police are often seen as partisan government enforcers who silence dissenting voices, including those of journalists, human rights activists and peaceful protestors. Last year, the U.S. Treasury imposed sanctions on the former head of the Ugandan police force for human rights abuses and his involvement in corruption. More recently, the Ugandan police have been accused of using excessive force, including beating fruit sellers and arresting lesbian, gay, bisexual and transgender (LGBT) youths under the guise of enforcing COVID-19 related shutdowns.

While much attention has been focused on specific demands for police reform, justice is like all government functions: It has a significant fiscal dimension. Questions of police reform ultimately boil down to government budget decisions and the values they embody. Fiscal justice cannot be achieved without the participation of impacted communities in budget decisions. For this to happen, people must be empowered with information on government budgets and obtain access to formal mechanisms for engaging with governments during budget decision-making.

There can be no justice without open budgets.

*Afghanistan, Albania, Armenia, Benin, Brazil, Burkina Faso, Dominican Republic, Guatemala, Haiti, Kenya, Mexico, Moldova, Paraguay, Peru, Poland, Solomon Islands, Uganda, Ukraine and Uruguay

Governments that budget transparently are more likely to spend as they promise

Governments that budget transparently are more likely to spend as they promise

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.