In 2013, Kenya began an ambitious experiment in devolution, decentralizing considerable power to 47 newly created counties which would take over responsibility for key services like health care. As is often the case, this devolution was premised on the notion that it would bring services closer to the people, and lead to improved access and a fairer distribution of services. Accordingly, counties were given the authority to formulate their own budgets, independent of national government.
While it is too early to assess the success of these reforms, for the theory of devolution to hold, counties must clearly access and spend funds on services. This is not a sufficient condition for improvements in access or quality, but it is a necessary one.
As part of the International Budget Partnership’s (IBP) Addressing Budget Credibility (ABC) initiative, we undertook the first systematic assessment of sub-national budget credibility in Kenya, looking at the degree to which counties collect revenue and spend as budgeted. Our analysis is based on data from all 47 counties over a four-year period (2014-2018), drawn primarily from reports produced by Kenya’s Controller of Budget. We complemented this data with county budget implementation reports and audit information from the Office of the Auditor General.
Rates of recurrent versus development spending were quite different. While overall counties spent 80 percent of their approved budgets during the four-year period, they were able to spend, on average, 96 percent of their approved recurrent budgets, but only 61 percent of their approved development budgets. In 2017/18, development expenditure against budget fell to only 42 percent. On the other hand, recurrent budget execution has continuously improved, growing from 92 percent in 2014 to 99 percent in 2017.
Trends are very similar to those at the national level. In the same four-year period, the national government’s line ministries (MDAs) spent 82 percent of the approved budget. While recurrent expenditure absorption was reasonably high, just as at county level, development absorption was much lower (an average of 67 percent over the period). From this, we can conclude that there is nothing particularly remarkable about low credibility at county level, but also that decentralization has not (yet) led to any improvement in budget execution.
Challenges at the county level are especially notable in sectors with high development spending –roads, water, and agriculture – although health budgets are also consistently underspent, achieving only an average of 86 percent budget execution over the four-year period we investigate. This is driven mainly by low execution of the health sector development budget, which averaged less than 60 percent for the period.
Re-prioritization of spending occurs during budget execution and may undermine service delivery over time. The shares of expenditure on executive and legislative administration (i.e., operational costs) tends to rise relative to their share of the original budget, while the share for agriculture and water tends to fall. In other words, as the budget is implemented, those costs needed to run the executive but not linked to specific services take a larger share of spending than budgeted, while the share of the budget going to some key services like agriculture and water is less than what was originally budgeted.
Counties rely heavily on national transfers and receive them too late in the year to spend down before the books are closed. Less than half of the intergovernmental transfers are received by the middle of the year, and 65 percent or less by the end of the third quarter. This pattern was particularly severe in 2017. Receiving roughly 29 percent of total revenue in the last quarter is likely to undermine counties’ ability to spend.
Counties also exhibit poor budget formulation and management practices. Kenya’s counties over-budget for expenditure and are too optimistic about revenues. Furthermore, counties exhibit inappropriate usage of supplementary budgets. While these budgets should be used to make corrective adjustments that facilitate budget execution, we find that county-level supplementary budgets sometimes worsen budget credibility, rather than improve it.
Hope for improvement?
While the overall data do not show strong signs of improvement in budget credibility over time, roughly one in five counties did improve their budget performance over the period. These improving counties come from across Kenya and suggest that there is wide potential for addressing low credibility over time.
A starting point for measuring budget credibility is the Public Expenditure and Financial Accountability (PEFA) framework. In looking for signs of change in county performance, we started by using the PEFA scoring approach to measuring budget credibility. In this approach, a county that executes anything less than 85 percent of its budget earns the lowest grade of “D”.
Given generally low execution rates in Kenya, this scoring approach obscures the wide variation among poor performers and we therefore introduced a complementary approach. Our alternative ranks counties by quartiles across the full range of budget execution rates. Using this method, we identified nine counties that improved their performance by two quartiles over the period, more than double what we found looking at counties that improved by two PEFA grades (from say a D to a B). In other low credibility environments, such as Nigeria or Philippines, it is important to complement the PEFA approach with other measures.
Table 1: Kenyan counties that showed improved budget performance from 2014-2018 under differing scoring approaches: PEFA vs IBP
Toward greater transparency and credibility
Counties are not transparent about budget implementation. In addition to our overall review of all 47 counties, we looked at eight in more detail. We tried to collect data on credibility from county budget documents and to seek out explanations for low credibility directly from county officers. This was challenging. Only one of the eight counties (Baringo) regularly produces a quarterly budget implementation report, and just over half publish the County Budget Review and Outlook Paper, which reviews annual performance. Both these documents are legally mandated and should provide insight into the reasons for poor credibility.
We found that counties had trouble explaining their performance, although we did learn more about the causes of poor credibility: challenges with contractor capacity, at least partly related to the requirement to fill demographic quotas (for women, youth, local contractors, etc.); poorly designed public participation processes that yield infeasible projects due to lack of technical guidance to inform public views; and lack of or delay in approving policies to guide the use of special public funds (such as bursary or business development funds) where such funds cannot be spent without local legislation.
The low rate of overall budget execution is almost certainly driven in part by delayed release of funds to counties from their share of intergovernmental transfers. Nevertheless, this cannot be the whole story. In general, there is also a fairly high degree of volatility within counties over time, meaning that fixed characteristics of counties, such as their size or level of development, cannot explain the variation.
Are there factors which might vary from year to year and which could have more explanatory value? One possibility is that there are variations in legislative amendments over time, and that sectors where legislators amend the budget to add more projects tend to have lower credibility. This would be consistent with research from other contexts, such as Nigeria or Philippines.
A related hypothesis is that poorly constructed participatory processes could be the culprit. Where the public is not properly guided with technical support, they may insert unrealistic projects into the budget that then cannot be implemented, and these proposals might also vary from year to year.
Our data also hint at the fact that executives and legislatures tend to claw back some budgetary funds for their administrative budgets, or at least budgets controlled by them directly, and understanding what exactly happens to these funds and how and why they are moved is also an area for further investigation
When I was in Kenya in 2012, I remember a sense of excitement about the government’s plan to introduce program budgeting. This is not the kind of thing that elicits heart flutters outside of the public finance community, but it can certainly quicken the pulse of some of our PFM colleagues.
To be honest, I was not sure that program budgeting was going to work in Kenya, but I thought that it would be a step toward achieving two things the country’s budget process badly needed.
First, it would force the government to explain itself. A program budget implies at least a narrative around the budget that tries to justify the allocation of funds to specific areas. It is hard for citizens (and even legislators) to engage in reasoned debates with government about a bunch of tables without a clear sense of what the government is trying to do with the money represented by the figures in those tables.
Secondly, it could prompt a more rigorous attempt to define “what the government is actually trying to do” in terms of concrete outputs. Program budgeting demands at least some attempt to measure, with indicators and targets, what government is producing with the money it receives. While imperfect, such performance information is also essential to any good conversation about budget priorities.
Although program budgeting in Kenya did amount to a step forward in both these ways, it was also riddled with inconsistencies. Programs were constantly in flux, outputs and objectives were hard to understand or track, and performance indicators lacked baselines and seemed to change in random ways from one budget year to the next. I left Kenya at the start of 2018, but these challenges continue, as documented in analysis carried out as part of our budget credibility initiative by the Institute of Public Finance (IPF-Kenya).
Program budgeting, and more broadly the inclusion of performance information in budgets, is not unique to Kenya. Versions of these reforms have been tried around the globe, from the rich countries of the OECD, to a wide array of middle and lower-income countries in Latin America, Africa and Asia. Recent estimates suggest as many as 80 percent of African countries are in some stage of program budgeting reform.
In a paper prepared with the World Health Organization last year, we demonstrated a number of challenges facing countries that have tried to implement program budgeting with a focus on the health sector. This work raises concerns about the quality and consistency of the performance information, and particularly performance indicators, that are included in government health budgets. We highlighted this issue in our four country case studies from Brazil, Indonesia, Mexico and the Philippines.
But the more I have looked at the quality of performance information around the world, across different sectors and countries, the more depressed I become. It is simply impossible in many countries to make any sense of the performance information in the budget, which regularly contradicts information in other sources, or cannot be linked to spending information due to inconsistencies in names, indicators, targets, baselines, and so on.
Our recent assessment of irrigation budgets in five countries confirmed these findings in Kenya and Brazil, but also in Albania, the Dominican Republic and Mozambique. To take just one example from the Dominican Republic, a target for water flow varied across four different documents from 716.76 m3/s in the 2013-2017 sector agency’s strategic plan, to 207.75 m3/s in the original version of the national multi-year plan, to 277.25 m3/s in the sector agency’s accountability report, and 407.75 m3/s in the 2018 update to the national multi-year plan. What is one to do with such numbers?
Partner work on budget credibility in some of the countries already mentioned, but also Argentina and Ukraine, found gaps in linking spending to performance data, even when both kinds of information were available. We find that nonfinancial targets are met when budgets are not spent, that targets are not met when budgets are spent, and that at times targets are exceeded or underdelivered by very substantial margins even when spending is not radically different from the budget. What should we make of all of this? At a minimum, my sense is that performance data alone without narrative justification from government that explains why targets are met or not is simply not that useful.
I should clarify that not all countries that have performance information have program budgets; that is really beside the point. All countries that include performance information in their budgets are supposedly including it to improve the discussion about budget priorities and implementation between executives, legislatures and the public. There is no other reason to include such information in the budget, whatever form of budget it is.
Yes, performance information is also used for internal management purposes in government, but internal management demands a wider and somewhat different set of performance information that need not all be published. Published information is public information, and that is who it is for.
So, what should we make of this? Scores of countries introduce new information that holds the promise of shifting the budget conversation toward outputs and outcomes, better linking money to services – and most of it is incomprehensible, inconsistent, or totally useless.
One interpretation is that the introduction of performance information in budgets is driven by international technical assistance, and takes the form of “isomorphic mimicry”: the fancy name for copying other people so you look good, while imitating principally the form and not the function of seemingly successful innovations. Whether this is so or not, there is no question that these reforms are almost entirely technical in nature, driven from the top by budget offices with little public input. There is therefore a fundamental mismatch between the supply and the demand for reform, which leads to bells and whistles with no one to ring or blow them, a point I made about cutting edge public finance reforms in Kenya some years ago.
If we think about the performance information in the budget as primarily speaking to the public, then it should be the case that this information actually addresses public concerns. Otherwise, there is unlikely to be all that much interest in it. And if there is no interest in it, how does it serve the purpose of improving the conversation about the budget? No one owns the indicators, no one is accountable for meeting the targets…and no one cares.
It follows that if performance information is going to make any difference, it should be selected and decided upon through a public process. If what this performance information measures actually matters to the public, there is likely to be more ownership all around, including from legislative representatives who should be reviewing this data whenever they are deliberating about the budget, and from the media, that should be reporting on it.
Is seeking public input into the programs and performance indicators that government agencies use pie in the sky? The Mexican government did not think so. In 2016, the Mexican finance ministry led a government-wide public consultation on existing indicators. Citizens were encouraged to submit comments on the current performance framework. The government received over 200 submissions which informed discussions with agencies about revising their indicators.
If performance information in budgets is going to be more than a shiny gewgaw, we will need much more of this kind of citizen input around the world. Otherwise, the practice of incorporation of such information into the budget will be viewed as a cynical ploy to appear transparent and accountable, while avoiding both. And that will likely lead governments to trash the whole experiment. Garbage in, garbage out, indeed.
At the end of October 2019, the International Budget Partnership (IBP) held a joint forum with the Nigerian Budget Office of the Federation (BOF) to discuss “fiscal realism,” which is how many Nigerians refer to what we at IBP call budget credibility. The meeting was attended by members of the executive, the National Assembly, Nigerian civil society, the organized private sector, and international agencies, including the World Bank and the IMF.
From the start, the conversation was very candid. BOF set the tone by acknowledging the scale and nature of the fiscal realism challenge and exploring in depth many of the difficulties that they face in producing a credible budget. The rest of the meeting allowed people to test, challenge and deepen these ideas.
Another encouraging aspect of the meeting was the high degree of willingness from across government, including members of the National Assembly, to work with citizens and civil society to address public finance challenges. Few IBP national-level meetings simultaneously achieve such a broad level of participation, frank discussion, and openness to collaboration that we experienced in this event.
What did we learn?
Budgets: realistic vs strategic – First, an important part of the discussion was around how we understand a budget. While IBP’s emphasis on the budget as a kind of promise is consistent with a demand for credibility or realism, there is also an important alternative view of the budget as more of a strategic tool designed to impact behavior. In this alternative view, aggressive revenue targets become part of a strategy to push agencies to collect and remit more revenue; with less aggressive targets, there would be less revenue (and, also less spending).
The notion that the budget may be used strategically raises several important questions. First, does it work? Some in Nigeria believe that the budget can effectively motivate greater revenue (and spending) effort, while others are less certain. Theoretically, one could research which view is best aligned with reality, but it is difficult to directly measure the impact of strategic budgeting. In our view, there may be other factors that are more important in determining fiscal effort, and we doubt that strategic use of targets (what some characterize as a budget “based on hope”) is an adequate strategy on its own.
While we may not like it, the budget may be used strategically in other ways as well, and we need to think carefully about the conditions under which this way of budgeting is second-best. For example, it is clear to us that legislators use budget amendments to signal that they are responsive to constituents by inserting “constituency projects” that may never be implemented. From the legislator’s perspective, there is a political benefit to getting a project in the budget. If it is not implemented, the executive can be blamed. Such behavior is annoying, but if that is what citizens expect from legislators, it is not something that can be addressed overnight. If legislators were to refrain from such amendments, leading to even lower confidence in the National Assembly and further apathy, is that a better outcome? Educating citizens and legislators about the budget and the proper role of institutions is surely the first best alternative, but it is not available in the short term.
In any case, we should recognize that both realism and strategic budgets are important ideas. While moving toward a more realistic budget is a worthy goal, we need to be aware of the reasons why budgets may be used strategically as well.
Managing government-owned enterprises – A second important area of discussion was around the role and management of government-owned enterprises (GOEs) in Nigeria. Nigeria is incredibly lenient with these institutions, which can generate their own revenue, execute expenditure, and remit the balance (if any) to the treasury with very little oversight. Most of these agencies do not use the central electronic financial management system (GIFMIS) and very little is known about their true cost structure. Because it believes that these agencies are generating more than they report, the government uses the budget strategically to push them to remit more. Around the room there was a clear consensus that the rules on the management of GOE budgets need to change but also an awareness that reforming these agencies will be difficult as they represent powerful interests.
Delayed budget approval and other factors – Perennial lateness in approval and signing-into-law of the annual budget was widely recognized as a contributory factor to poor fiscal realism in the country. On paper, Nigeria runs a January – December budget calendar (financial year), but in reality the budget is normally approved between May and June of the year in which the budget is to be executed. This means that ministries, departments and agencies (MDAs) of government have a much shorter time to execute the budget.
Apparently, the human development sectors (including health and education) are significantly affected by the shortfall in budgetary spending caused by the combination of late budget approval and weak procurement practices. This challenge is further exacerbated by weak institutional capacity for proactive procurement planning, and political/systemic impediments, that inhibit the procurement process. For example, it appears that there are incentives for “deliberately” delaying the procurement process until the last quarter of the financial year. The time constraint is then used as an excuse to rush through the procurement process, “justifying” the relaxing of some internal controls and other checks and balances that had been established to ensure prudent use of scarce public resources. This may explain the “fund releases” that seem to spike in the last few months of the year – according to budget implementation reports produced by BOF.
Measuring budget credibility vs performance – Interestingly, Nigeria’s government is increasingly investing in performance monitoring. However, there are two agencies with overlapping responsibility in this regard: (1) the Budget Monitoring and Evaluation Department (within BOF) and (2) the Monitoring and Evaluation Department (situated within the Planning section of the Ministry of Finance, Budget and National Planning). One area of contention, which has implications for the broader budget credibility agenda, is around what these units focus on. More attention appears to be given to budgeted versus actual revenue/expenditure, and much less to the effectiveness and efficiency of spending (that is, on the impact the budget is having on public services and quality of lives). Clearly, however, what we all ultimately care about is the latter, and too much focus on credibility per se does not achieve this, since money can be spent without delivering anything of value.
Capacity – Inevitably, as it does in all such meetings, the issue of insufficient capacity came up. There is no doubt that capacity is lacking: we saw evidence of poor accounting on the executive side undermining budget projections, and inability to fully scrutinize the draft budget on the part of the National Assembly. However, it is often difficult to disentangle a true capacity gap from situations where capacity exists but is underutilized due to political constraints. Although we had a frank meeting, this topic was not discussed as fully as it could have been.
Communicating choices – Finally, the need for better communication and coordination between the executive and the legislature was brought to the table. There is a considerable amount of blame-shifting between these parties which is rooted at least in part in the fact that neither party adequately communicates the reasons for the choices it makes. Both parties feel somewhat aggrieved by the accusations made by the other which presents an opportunity for greater civil society engagement to help coordinate the budget process. Although here, of course, (as everywhere in the world), blame-shifting is part of a political strategy on both sides as well.
Moving forward, IBP will work with BOF to identify a small, actionable set of recommendations for the executive, the legislature and civil society. As these evolve, we will discuss them further here. Watch this space.
The Sustainable Development Goals are a set of promises to transform our world. They include ending poverty, hunger, and inequality and bringing about peace, justice, and strong public institutions to name a few. These promises cannot be fulfilled without adequate funding, though. Alex Yuster, Director of Social Policy at UNICEF, said it well: “Funding is the lifeline for turning promises into reality.”
And funding must be well managed. Thus, public budgets, the most powerful tool governments have to direct their resources to meet the needs of their people, are critical to achieving the SDGs. Unfortunately, governments often fail to fully implement their budgets according to plan. Revenues or expenditures can exceed or fall below approved amounts, resulting in what we call a budget credibility problem. Credible budgets play an important role in creating fair and sustainable societies. They ensure social investments reach those most in need[i].
In the spirit of seeking joint solutions, IBP and UNICEF co-hosted two panel events in New York during the UN General Assembly to discuss the importance of budget credibility to achieving the SDGs. At an event at the UN’s SDG Action Zone, IBP’s Chloe Cho gave a snapshot of the world’s status in budget credibility:
“Our study of 35 countries finds governments underspend their aggregate budgets by about 9% on average. This may not seem much, but if you think about the size of some governments, it can represent millions and billions of dollars. The average figure also hides some extreme cases where budgets are underspent by more than 50%. In fact, across low-income countries, average underspending is larger at 14%.”
This can translate to serious human impacts.
“What does manual scavenging in India have to do with the credibility of government budgets?” you may ask. Manual scavengers have faced caste discrimination for centuries. Despite laws passed by parliament in 1993 banning manual scavenging, the practice still continues. Bezwada Wilson, a National Convener for Safai Karmachi Andola, made it clear it is vulnerable communities like these being left behind when budgets aren’t implemented as intended. Over the past several years, the Indian government has spent less than 1% of budget allocated for rehabilitation of manual scavengers.
It’s not just manual scavengers—other communities are at risk as well. 30% of immunization budgets in 22 largely low-income countries were unspent over a multi-year period, even as these countries officially reported stock outs or shortages of life saving vaccines on 96 separate occasions during that period. Average underspending is just under 20% for agriculture and housing, and more than 20% for environmental protection – an area that includes public sector investment to address climate change.
However, budget deviations are sometimes necessary, for example when a country experiences unexpected macroeconomic shock (like the 2007/2008 financial crisis). But when deviations occur, government should explain why.
“One step that we think every government can take immediately, though, is to enhance transparency around budget deviations by providing explanations on how and why they happened. Deviations can be inevitable or even necessary at times to respond to crisis, but we can only know this through clear, detailed explanations. This step would not only signal good PFM practices but more importantly would help build trust in government and empower the public with knowledge on how their resources are being spent.” said IBP’s Guillermo Herrera.
Many governments are aware of the problem and efforts to correct it are underway. One example, IBP’s Senior Director of Policy Vivek Ramkumar told audiences, is Afghanistan’s Public Works ministry, which has more than doubled its budget execution rates in the last couple of years through a combination of better hiring practices, improved internal coordination, and cooperation with donors.
Litlhare Molemohi-Phori Senior Budget Officer in Lesotho’s Ministry of Finance, added that governments can hold themselves to higher standards of transparency and accountability, and strengthen their PFM systems. In recent years, her government has managed to increase budget execution by improving coordination, instituting procurement reforms, and enhancing cooperation with donors.
Mulele Maketo Mulele, Zambia’s Director of Development Planning, said they are trying to ensure budgets for crucial sectors are secured from cuts: “When it comes to spending on education, health and so forth, we do try to make sure that those are much more protected.”
More can and should be done to help governments stick to their promises. For example, international donors will need to improve the predictability and reporting of the aid flows and support a variety of capacity building activities. France is one state that is supporting other countries as they work to improve their budget audit and oversight systems.
Aymeric Chuzeville, head of the Department of Development in the French Ministry of Foreign Affairs, implied a ripple effect can occur, and that the larger community, including donor countries, should care: “When government budgets are not credible, it diminishes confidence in government, reduces trust of political institutions, and can disconnect officials from understanding what citizens see as priorities. . . It should also concern the international development community, which has prioritized the expansion of domestic resource mobilization in countries to finance the SDGs.”
This represents over a year’s work, and is just the first chapter in a series of ongoing research. Over the next several months, we intend to sustain the momentum through national and global-level discussions. We welcome your perspectives and invite you to raise attention on budget credibility moving forward. Visit our page, or email [email protected] for more information.
Watch the UNGA Side Event and SDG Action Zone Official Event
[i] SDG Indicator 16.6.1 measures budget credibility by assessing whether government spending is in line with the country’s approved budget, showing that the UN has recognizes this issue is critical to achievement of development targets.
UNICEF Headquarters, New York—Governments around the world need to set more realistic and credible spending plans if there is any hope of achieving the ambitious agenda laid out in the Sustainable Development Goals (SDGs).
This conclusion comes from a new study of35 countries, across incomes and geographies, by the International Budget Partnership (IBP). The study’s findings were discussed today at UNICEF headquarters during an event jointly organized by UNICEF, the French and Zambian governments, and IBP.
The study found countries underspend on average by nearly 10% of their promised budget. Among low-income countries studied, the problem is worse, with 14% average underspend. These figures represent a huge amount of resources; for example, many countries’ entire health budgets do not amount to 10% of the total government budget. These and other findings suggest that governments face serious obstacles in sticking to credible budgets, where actual spending matches the approved budget. When the numbers do not add up, delivery of critical public service may be impacted, with ripple effects across society.
In low-income countries, the sectors seeing the greatest underspending tend to be those that are critical to sustainable economic development—health, agriculture, energy, transportation, environmental protection, and housing. In contrast, spending on defense tends to rise during implementation.
IBP also found in a study of 22 countries from the larger sample that roughly 30 percent of the allocated immunization budget was underspent, likely impacting the availability of vaccines. Global data from the World Health Organization and UNICEF suggest that funding or procurement delays can lead to lack of availability of vaccines.
“Lack of credibility in a government’s budget can adversely impact the achievement of the Sustainable Development Goals,” said Warren Krafchik, IBP Executive Director. “UN agencies and member states should be paying attention to this issue and collaborating with civil society to develop joint technical and political solutions.”
As countries increasingly focus on implementing policies in pursuit of the SDGs, attention is often focused on the financing gap governments face in meeting their commitments. Not enough questions are being asked about governments’ capacity to effectively manage and spend the resources that they already have – or say they have.
“Government’s ability to plan, budget and implement their social investments is critical to meeting child related Sustainable Development Goals. It can make the difference between children going to school, accessing medical care, and proper nutrition, or not.” said Alexandra Yuster, UNICEF Associate Director, Social Policy. “To ensure social investments reach those most in need, we must work to achieve budgets that are adequate, effective, equitable, and efficient.”
Aymeric Chuzeville, Head of the Department of Development, French Ministry of Foreign Affairs, added, “When government budgets are not credible, it diminishes confidence in government, reduces trust of political institutions, and can disconnect officials from understanding what citizens see as priorities. This trend should concern governments that rely on taxes paid by their citizens to fund their budgets. It should also concern the international development community, which has prioritized the expansion of domestic resource mobilization in countries to finance the SDGs.”
In low-income countries the challenge is exacerbated by weaker budgeting systems that affect a country’s credibility in planning and executing budgets.
Governments can take specific actions to build and reinforce their country’s budget credibility. Great strides can be made by strengthening the capacity to more accurately forecast future revenues and improving planning processes, especially for capital investment projects, so that these can be more adequately costed, prioritized and linked to the budget over multiple years.
Streamlining procurement processes by identifying and addressing bottlenecks in budget execution and introducing better ways of tracking spending across the public sector are just two examples of how governments can do more to improve on stewarding critical funds entrusted to them.
In some cases, IBP points to benefits from introducing or amending laws and regulations that limit deviations from approved budgets, and ensure that these changes are better justified, while also providing better checks and balances to executive discretion in shifting resources as needed.
To make real, long-term sustainable progress on realizing credible and effective budgets, governments need and should allow for engagement from legislative bodies, audit institutions, and other parts of society. Donors could provide more predictable funding, improve the integration of their reporting systems with governments’ own, and support capacity building initiatives within recipient governments. Civil society and the media could track priority public services and programs to ensure that governments deliver them fully and call for clear, full explanations when they do not.
“Government budgets are the backbone of the Sustainable Development Goals,” said Krafchik. “Leaders should call for and require full budget transparency and accountability. And countries need to ramp up investment, both foreign and domestic, and ensure this increased funding is spent fully. Only then can we hope to have in place a serious commitment to addressing our world’s most pressing challenges.”
The International Budget Partnership works in collaboration with multiple actors – including civil society, governments, international institutions, and the private sector – to bring about a world in which empowered citizens participate in open, inclusive budgeting processes to shape policies and practices that promote equity and justice on a sustainable basis.
How optimistic should we be about government commitments to invest the funds necessary to realize the Sustainable Development Goals (SDGs)?
According to Public Expenditure and Financial Accountability (PEFA) data recently submitted to the United Nations, we should be worried. Government underspending of budgets is a global challenge that may impede the realization of the SDGs.
SDG indicator 16.6.1 measures whether government spending is in line with the country’s approved budget. This is an important overall measure of government commitment to sustainable development, but it is also critical to the achievement of most of the other SDGs: key goals in health, education, or water and sanitation cannot be achieved if government budgets are not executed. The data on SDG 16.6.1 is thus a leading indicator of whether or not governments are likely to meet their overall SDG commitments.
The new PEFA data show that, globally, countries tend to underspend their budgets. On average, the 108 countries in the dataset underspent their budgets by 2% over the period 2004-2017. That might sound like a modest underspend, but lack of budget credibility is a particular challenge in low income countries, which underspend their budgets by an average of 5%.
One thing that is clearly missing from the data provided to the UN, though, is information about what happens to sector spending. Even if a country’s budget is spent in the aggregate as planned, there may be major shifts between different types of spending. This is known as “compositional credibility.”
Our analysis found that on average, economic affairs budgets tend to be underspent, even as defense spending tends to rise beyond the budget during budget execution. Within economic affairs, one-sixth of agriculture budgets were not spent in our sample, with underspending of irrigation projects being especially prevalent in many countries.
While the data provided to the UN does not assess compositional credibility across countries, we are able to add other existing PEFA data on compositional credibility for 75 of the countries in their sample. When we do this, we can see that several countries with high overall budget credibility have low compositional credibility. Under the 2016 framework, of the 34 countries that would receive an A on overall budget credibility, half of them would receive a C or D on compositional credibility.
For example, Papua New Guinea received an A on indicator PI-1 in its 2015 PEFA report, as the overall budget deviated by less than 5% in all three years. Yet, it received a D on compositional credibility, as its compositional variance was greater than 15%. Relative to the overall budget, several administrative units related to education and health were consistently and often substantially underspent. For example, in 2011, the Department of Health and the National AIDS Council were underspent significantly — by 16% and 44%, respectively — even as the overall budget was spent. The Department of Education was also underspent by 18%. In contrast, the Department of Police was overspent by almost 30%.
Some deviations in planned budgets are inevitable, and when they happen, governments should explain why. However, other IBP research shows that governments typically provide only generic reasons. To enhance budget credibility, governments should instead provide specific reasons for at least the most important deviations in each sector and discuss the impact that they are likely to have on other priorities in the budget.
In addition to providing adequate reasons for budget deviations when they happen, governments should strive to develop more realistic revenue and spending plans in the first place. Governments should empower and hold to account those agencies responsible for collecting revenues and spending on areas that have historically suffered from budget deviations, such as certain health and education programs and infrastructure projects.
Civil society, of course, also plays a role in effecting good practices. Civil society organizations should shine a spotlight on government budget programs that suffer from lack of credibility, and engage formal budget oversight bodies, including legislatures and supreme audit institutions, in demanding that governments act on the budget credibility issues that they have identified.
We all need to focus not just on overall budget credibility, but also the composition of actual spending against the budget. Otherwise, we may find that even governments who appear to have credible budgets have nothing to show when it comes to achieving the other SDGs.
By prioritizing budget credibility, including providing meaningful explanations for budget deviations, leaders and government agencies can build trust among citizens, donors, and the private sector. Now is the time to act, as more and more attention is being paid to this issue, a fact illustrated by budget credibility’s inclusion as an indicator in the SDGs. The UN and its members should draw appropriate lessons from and take corrective actions based on the budget credibility indicator to ensure that budgets for programs that are meant to support the achievement of the SDGs are fully used and thereby achieve their intended objectives.