Alors que la pandémie de la COVID-19 continue de bouleverser la vie quotidienne dans le monde entier, les gouvernements se sont empressés d’utiliser tous les outils fiscaux possibles pour protéger la santé et les moyens de subsistance de leurs citoyens. Il est important de veiller à ce que leur réponse soit « ouverte » — c’est-à-dire transparente, inclusive et responsable — et nous sommes motivés par les résultats récents de l’Enquête sur le budget ouvert (EBO) qui montrent que certains gouvernements sont prêts à respecter ces principes même en ces temps de crise. Parmi ce groupe de pays géographiquement et économiquement diversifiés qui ont fait preuve d’un engagement constant en faveur de pratiques budgétaires ouvertes figure le Bénin, qui est désormais considéré comme le pays le plus transparent d’Afrique francophone selon l’Indice du budget ouvert (IBO).
Un engagement du gouvernement à améliorer les performances en matière de transparence
Sous la direction du ministre de l’économie et des finances, Romuald Wadagni, le Bénin a introduit des réformes ces dernières années pour améliorer la transparence dans la formulation et l’exécution de son budget central, dans le but d’intégrer les meilleures pratiques promues par des organismes tels que l’OCDE et le FMI. En conséquence, grâce aux efforts de mise en œuvre de la Direction Générale du Budget du ministère, à l’adhésion au réseau GIFT (Initiative mondiale pour la transparence budgétaire) depuis 2018, ainsi qu’au plaidoyer soutenu d’organisations de la société civile telles que Social Watch, l’EBO 2019 a montré que les Béninois avaient accès à plus d’informations budgétaires que jamais auparavant. De nouveaux détails ont été inclus dans le Projet de budget de l’exécutif (EBP), offrant une image plus complète des plans et des priorités du gouvernement aux législateurs et à tous les Béninois. En particulier, beaucoup plus d’informations ont été fournies sur les sources individuelles de recettes prévues, les estimations pluriannuelles des recettes par catégorie, les résultats réels des exercices précédents en ce qui concerne les dépenses, les recettes et la dette, et les données non financières sur les résultats de l’exercice budgétaire. En outre, une Revue de milieu d’année a de nouveau été mis à la disposition du public.
Les récentes réformes menées par le ministère de l’économie et des finances, telles que la mise en œuvre de la budgétisation par programme et la création d’un nouveau Système d’informations financières de l’État (SIGFIP), sont également remarquables et devraient rationaliser la collecte et l’analyse des données sur l’exécution du budget.
Toutefois, à la différence de l’EBO 2017, ni les rapports en cours d’exercice ni un rapport d’audit n’ont été rendus publics, ce qui atténue l’impact de ces améliorations et met en évidence le risque de volatilité si les pratiques améliorées de budgétisation ouverte ne sont pas suffisamment institutionnalisées. À court terme, le Bénin peut continuer à renforcer la transparence de son processus budgétaire en rendant à nouveau ces deux documents importants accessibles, tout en offrant un accès en temps opportun à tous les documents produits dans le cadre de son Projet de budget de l’exécutif, qui contiennent des informations supplémentaires sur les dépenses prévues par classification fonctionnelle, ainsi que les dépenses globales avant et après l’exercice en cours.
Prise des mesures pour améliorer les possibilités de participation du public
Parallèlement aux récentes avancées en matière de transparence, le Bénin a fait des progrès notables en élargissant les possibilités pour les citoyens de participer au processus budgétaire national. Bien que leur score de participation à l’EBO (24 sur 100) ne reflète pas les opportunités de participation adéquates selon les normes établies par l’enquête, il dépasse la triste moyenne mondiale (14 sur 100), et sur la base de plans récents, le gouvernement béninois a démontré sa volonté et sa capacité de continuer à apporter des améliorations. Il est à noter qu’entre 2017 et 2019, le score de participation du pays a augmenté de 15 points, soit la 7ème amélioration la plus importante parmi les 115 pays inclus dans ces deux derniers cycles de l’enquête. Cet objectif a été atteint grâce à la mise en place de réunions délibératives avec des acteurs non étatiques lors de la formulation du budget, à l’incorporation de mécanismes de participation spécifiques dans le calendrier du budget public, et à l’examen de l’exécution du budget de plusieurs ministères de tutelle par des organisations de la société civile.
À l’avenir, ces mécanismes participatifs peuvent être davantage soutenus par l’introduction de possibilités pour le grand public d’apporter sa contribution à l’exécution du budget au Ministère de l’économie et des finances, en veillant à ce que des contributions soient sollicitées des parties vulnérables et sous-représentées de la population, et en fournissant des informations spécifiques aux citoyens sur la manière dont leurs contributions ont été utilisées dans le processus budgétaire. A cette fin, les autorités béninoises ont déjà manifesté leur engagement à entreprendre ce type d’efforts; le 27 mai 2020, le Conseil des ministres a signé un protocole d’accord avec l’IBO et GIFT pour formaliser la participation du pays à un nouveau Projet d’accélération de l’ouverture budgétaire (FOA) . Cette initiative vise à renforcer la participation du public aux politiques budgétaires par l’expérimentation de nouveaux mécanismes à différents stades du processus budgétaire, tout en renforçant les mesures complémentaires de transparence fiscale. Tout au long de ce projet de deux ans, les succès et les leçons apprises seront mis en évidence et partagés entre les cinq pays participants : l’Afrique du Sud, le Bénin, le Libéria, le Nigeria et le Sénégal. Le modèle de coopération appliqué dans le cadre du projet FOA génère une pression par les pairs, mais en même temps, il encourage et incite à continuer d’avancer, ce qui permet à tous les participants à trouver des moyens innovants pour améliorer la fourniture de services publics et d’utiliser des méthodes testées par les pairs pour répondre aux besoins des communautés sur le terrain.
En somme, avec sa quatrième apparition dans l’enquête sur le budget ouvert, le Bénin a consolidé ses progrès en matière de transparence budgétaire, et est l’un des pays de sa région les mieux placés pour offrir un niveau suffisant d’information fiscale à ses citoyens dans un avenir proche. En ce qui concerne la participation du public, elle a jeté les bases d’une plus grande implication de la société civile et des Béninois ordinaires dans le cycle budgétaire. Cependant, comme dans la plupart des pays du monde, il reste encore beaucoup à faire pour s’assurer que des mécanismes suffisants sont en place pour collecter et exploiter les contributions des citoyens, de sorte qu’une plus grande disponibilité de la documentation budgétaire s’accompagne d’une implication plus profonde du public. Dans une nouvelle ère de perturbations et d’incertitudes liées aux effets de la pandémie de la COVID-19, il sera plus important que jamais d’atteindre ces objectifs, mais ils restent essentiels à l’élaboration et au maintien d’un processus budgétaire ouvert et réactif et qui requiert la contribution de tous.
Fiscal transparency is critical as business and government look to rebuild economies across the globe.
The case made for ‘open’ government budget systems often emphasizes the benefits to citizens and society, but open budgets are good for business, too. Greater fiscal transparency leads to improved debt management, better overall public financial management, and more accurate revenue projections – all of which help support macroeconomic stability and help create a stronger environment for the private sector.
Budget transparency also matters to financial markets. More transparent countries are less of an investment risk and have higher credit ratings and lower credit spreads, which in turn help to attract investment and reduce interest rates on sovereign debt.
Cross-country evidence also indicates that more transparent countries have lower perceived levels of corruption – and that opening up budget systems even further reduces risk of corruption. Evidence from Uganda, Indonesia, and Brazil, for example, demonstrates how the disclosure of budget information can not only help reduce corruption, but instill accountability – by motivating citizens to monitor governments and public officials to act with integrity.
The results of the latest edition of the Open Budget Survey (OBS), released at the end of April 2020, present a sobering reminder that most governments still lack the systems and policies to enable open budgets. The average global transparency score in the OBS 2019 is 45 out of 100, indicating that across the world levels of budget transparency are still far below the level (61) that is considered a minimum threshold to support informed public debate on fiscal policies. According to the survey results, the public has little opportunity to participate in the budgeting process, and there are critical gaps in budget oversight by legislatures and supreme audit institutions.
These findings are especially concerning at a time when governments around the world have launched new spending measures to address the COVID-19 pandemic. How will we ensure that pandemic stimulus – more than EU 800 billion in Europe, for instance – reaches those who most need it? In the current crisis, where the very survival of businesses large and small depends on the ability of governments to adapt fiscal policies, all stakeholders benefit if public funds are appropriately targeted and public spending delivers results.
Business has a role to play to help governments in this effort. We’ve seen some corporate leaders speaking out to ensure funds are spent appropriately, proactively returning funds when they’re not needed and calling on businesses to be transparent in how they contribute their fair share. It’s time for more businesses to join them.
The private sector can encourage governments to advance access to budget information—creating opportunities for public input on budgets and establishing more effective oversight of budget implementation. This not only improves the economic climate, but also restores trust, which is an increasingly important imperative as we develop a new social contract for citizens, business and government moving forward.
With COVID-19 as a backdrop to a massive economic downturn, governments are stepping up in unprecedented ways to deliver health services, support workers and sustain business. Yet governments also need to show that they are serious about their fiscal responsibilities. Open budgets are a good investment, for business and society, to build sustainable and accountable public finance for the future.
This is a first in a series of articles and webinars about how to follow the money, which highlights the work of organizations and activists around the world.
“Follow the money” became popular after its use in the 1976 Hollywood blockbuster All the President’s Men. In development circles, the phrase is widely used by international agencies and civil society organizations (CSOs) to demand transparency and accountability in government spending. Never before has this been more necessary.
In the past few months, governments have announced billions of dollars in emergency spending to mitigate the health and economic impacts of the COVID-19 crisis. The International Monetary Fund (IMF) has called on governments to “do whatever it takes but keep your receipts” and encouraged CSOs to be involved in monitoring government spending. Many international and national CSOs are looking to do just that.
How can CSOs follow the money?
While there is undoubtedly a need for enhanced oversight to ensure that emergency spending measures are serving their objectives and reaching their intended beneficiaries, it is not an easy task for CSOs to conduct such oversight. As our Open Budget Survey 2019 shows, three out of every four of the 117 countries surveyed failed to reach the minimum threshold for adequate budget transparency. CSOs will find it challenging to follow the money expended to respond to the effects of COVID-19 because budget and spending data are either not published or are not even produced. The challenge is exacerbated during emergencies such as the current one as several governments are channeling their relief efforts through special funds that are managed outside of the routine budget process, and these off-budget funds are typically even more opaque than the routine budget.
The good news is that organizations do not have to start from scratch. Over the past two decades, CSOs have developed a suite of innovative ways to follow the money.
1. Understand the budget implementation process and its place within national budget cycles.
The budget implementation process begins with monies being released by the national treasury (or finance ministry) to spending ministries (like health or education) in line with the budgets authorized by national legislatures. These ministries incur expenditures directly through their payrolls (on teachers, doctors, etc.) or by procuring goods and services (such as school supplies and medicines).
Procurement systems followed by governments typically begin with the solicitation of bids and then the award of contracts to vendors who ideally offer the best value for money. Later, payments are made to the vendors to pay for the goods and services they have provided. The actual expenditures incurred are recorded in national accounting books and budget reports. These records are audited for accuracy by supreme audit institutions (SAIs), who submit their audit reports to national legislatures. Legislatures then use audit reports to demand remedial measures and accountability from officials responsible for spending decisions.
Off-budget funds processes differ from country to country. IBP has created a useful resource on issues surrounding the governance and transparency of public spending that occurs outside of the regular budget. The IMF is also in the process of issuing a special note on special funds established by countries to channel COVID-19-related funds and the risks that can be associated with such funds.
A. Social Audits: These are participatory processes through which local communities directly scrutinize public programs and projects and hold governments to account in public hearings attended by officials responsible for overseeing the programs and projects that are the subjects of the audits. Social audits are widely used by both governments and CSOs. In India, state governments use the tool to monitor the implementation of a wide range of social sector programs, including the multi-billion-dollar rural employment guarantee program. Social audits have also been widely used by CSOs in South Africa, Kenya, and Indonesia. The tool is most appropriate for grassroots organizations or networks that have deep roots in local communities. Read this story on how Beatrice, a resident of a poor township in South Africa, used social audits to improve sanitation services in her community.
B. Open Contracting: CSOs have developed multiple tools to monitor government procurements. One such tool developed in the Philippines is the Differential Expenditure Efficiency Measurement (DEEM) tool. Using this tool, Procurement Watch Inc. uncovered inconsistencies in records produced at different stages of the procurement process (such as between the purchase request form, purchase order, and the payment disbursement order), which in turn highlighted mismanagement and corrupt practices being followed by government agencies. However, the use of tools like DEEM require CSOs to possess a degree of expertise on complex government procurement processes. More recently, the Open Contracting Data Standard developed by the Open Contracting Partnership offers governments and CSOs opportunities to more easily analyze government contracts.
C. Citizen Report Cards: This tool is used to obtain public feedback regarding the quality and adequacy of essential services. The report cards evaluate user satisfaction in such areas as staff behavior, the number of visits required to complete a task, and the ease with which problems are resolved. Citizen report cards have been widely used around the world, including in India, Philippines, Ukraine, and Vietnam. Read this story on how CSO use of citizen report cards led to improving public services in Bangalore, India. CSOs that conduct a citizen report card exercise may need specialization on survey techniques and survey fieldwork. Universities and private companies can be good places to find people with skills in these technical areas.
D. Audit Scorecards: CSOs use this tool to evaluate and publicize key findings contained in audit reports issued by SAIs. Scorecards typically focus on revenues and expenditures flagged by auditors as being in some way improper or irregular, or for which there is insufficient documentation. View these short videos produced by IBP’s civil society partner in Sierra Leone—the Budget Advocacy Network—that highlight the amounts of funds in different national ministries that have been questioned by the national SAI due to improper management. CSOs do not need to be financial or accounting specialists in order to use this tool although they would benefit from some experience in government audits. Fortunately, SAIs are increasingly receptive to collaborating with CSOs on holding governments to account on public spending and could be strong resources for CSOs in implementing this tool.
3. Analyze and research your results carefully
Governments’ actual expenditures often deviate from planned or budgeted expenditure. For this reason, in a recent blog article, we cautioned CSOs about prematurely celebrating government spending announcements as these plans may not be fully implemented. But planned and actual expenditures can diverge for many reasons, some of which are legitimate while others are improper or even downright illegal. Through our pilot project on addressing budget credibility, we identified many reasons for deviations in government budgets across dozens of countries that were studied, including the following:
Flawed financial management systems;
Diversion of funds to other programs;
Poor revenue collections;
Unpredictable donor aid flows; and
Inefficient procurement systems.
Identifying expenditure deviations in a project to follow the money is insufficient. The reasons underlying these problems can be complex, and the solutions even more so. The most difficult part of the project is often to understand this complexity and propose appropriate solutions.
Governments deserve much credit for channeling unprecedented levels of funding to combat the COVID-19 crisis. But taking a longer view, public spending on social support programs needs to continue well into the future—even after the immediate threats posed by the COVID-19 pandemic fade. For this to happen, policy makers and the broader public need to be assured that scarce resources will not be mismanaged or line the pockets of corrupt officials. By serving as watchdogs of public expenditures during the COVID-19 pandemic, CSOs can provide a valuable service that can help improve government accountability surrounding the delivery of critical services. They can also help bolster the case for a fiscal future in which governments commit additional resources their populations will need to recover from the profound social and economic consequences of the COVID-19 pandemic.
This blog post is co-published with the Open Government Partnership here.
A societal imperative
The magnitudes are staggering. To tackle the unprecedented healthcare emergency and lockdowns necessitated by COVID-19, governments are mobilizing the biggest stimulus and safety net packages we have seen since World War II. Governments and international institutions have announced at least $20 trillion in spending thus far in response to COVID-19. In the G20 countries, $6.3 trillion has been provided in fiscal support so far, representing 9.3 percent of G20 GDP. Germany’s fiscal and monetary stimulus is in excess of 40 percent of GDP! South Africa’s first round fiscal stimulus package is 10 percent of GDP. In Africa, over $114 billion in aid is needed to finance governments’ COVID-19 stimulus packages, of which half has been mobilized. These efforts dwarf the response to the 2008 global financial crisis.
Millions of lives and livelihoods are at stake. Rescue packages in each country have a different mix of fiscal, monetary and regulatory measures. Across countries they include massive procurements of life-saving medical supplies and medicines that touch the lives of all citizens; safety nets for millions of vulnerable people; subsidies and credits to protect jobs for thousands of micro, small and medium enterprises (MSME); and major infrastructure investments, tax and regulatory incentives to provide employment for millions. For instance, Nigeria’s $6 billion package aims to provide a safety net for 30-60 million vulnerable households, job protection for half a million in 50,000 MSMEs, and employment for over a million through rural roads projects. Effectiveness of these surpluses is not just of profound economic and social significance – it is a moral imperative. It is also a vital opportunity for governments to build back and sustain citizen trust, which had plummeted to historic lows prior to the pandemic.
But history also tells us that when money moves as fast as in the COVID-19 response there is a risk of corruption, capture, and failure to reach those who need help the most. And we have already seen early signs of these with COVID-19 funds in developed and developing countries alike. In Brazil, federal prosecutors have launched more than 400 investigations into suspected cases involving COVID-19 funds. In Colombia, 14 of the country’s 32 governors are suspected of corruption involving emergency COVID-19 funds. In the U.S., the incredibly wealthy L.A. Lakers franchise valued at $4.4 billion received $4.6 million from the payroll protection program targeted to small businesses.
Even prior to the pandemic, the track record of many countries is that public spending does not reach many of the intended beneficiaries; the funds “leak”. For instance, 70 percent of the recipients of Sri Lanka’s Samurdhi program for the poor were in fact not poor. Simply scaling up existing safety net programs may not ensure that vulnerable groups receive vital COVID-19 assistance.
The open government approach
To mitigate these risks and achieve their vital goals, an open governance of these massive stimulus and safety nets is essential. Openness, which enables citizens, civil society, businesses to shape programs and “follow the money.” This offers a unique approach by combining government transparency with the active participation of citizens, civil society and oversight institutions to ensure that funds achieve their intended purposes.
This is a central thrust of what government reformers and civil society activists have sought to accomplish through the Open Government Partnership (OGP) over the past decade. The reforms they have co-created and implemented provide excellent innovations and learning which can be applied to COVID-19 stimulus and safety net packages. For instance:
Through Italy’s Open Coesione Platform, the government disclosed details of one million projects supported by 100 billion euro of EU financing and then launched a massive public information campaign to empower citizens, including high-school students, to be on-the-ground monitors of projects.
Through the Philippines’ Open Roads Initiative in 2014, the government disclosed details of road expenditures, often geo-coded. Citizens and civil society carried out social audits on the existence and condition of roads, and the formal audit institution used the citizens’ social audits to mandate a government response, saving $300,000 per ghost road identified.
Through the Citizen Eyes and Ears mobile app in Kaduna, Nigeria, the government discloses the geo-location of publicly funded projects and citizens upload photos and feedback on these projects which go directly to the Governor’s office and State Legislature for corrective action.
Stages of design and implementation of stimulus & safety nets
These open government approaches can be applied to different stages of design and implementation of COVID-19 stimulus and safety nets packages. They offer an unprecedented opportunity to start to rectify societal inequities that have been laid bare by the pandemic and build a more just recovery. This can’t happen without a transparent and inclusive process.
Open decision-making. To begin with there must be total transparency in the decision-making process. Government needs to be open about who gets the money (including tax and regulatory exemptions), how that was decided and where the funds are coming from. It is vital to ensure that the stimulus policy-making process is evidence-based and inclusive, particularly to amplify the voice of historically marginalized groups and others facing added vulnerabilities due to COVID-19. Any interested member of the public should be able to inform those decisions directly, and the lobbying that accompanies policy and budgetary processes should be made open for all to see through transparent registers like those Chile and Ireland have instituted. Transparency in company ownership can provide oversight over whether bailouts, public contracts or regulatory exemptions are getting captured by the politically connected. Any company registered offshore, not paying their taxes, or undermining other social obligations should not receive support, as Denmark and Canada have instituted.
Open aid. The terms of the billions of dollars in grants and loans to finance COVID-19 response and recovery from International Financial Institutions such as the World Bank and IMF, and other incurred debt, should be made open. All financial flows should be disclosed according to aid transparency best practices, along with specific targets of what they are intended to accomplish and who they seek to reach. This will start to balance the necessary focus thus far on mobilizing international aid with now an equally concerted attention on how well the money raised is being used to achieve its intended purposes.
Open budgets. Following an open decision-making process on who the target for support is and where the money is coming from, ministries of finance need to disclose their expenditures, including emergency COVID-19 spending, in regularly updated open data, as the U.S. did for the $800 billion Recovery and Reinvestment Act of 2009. This already poses a challenge because the Open Budget Survey (OBS) for 2020 highlights that three-quarters of the 117 surveyed countries do not have sufficient levels of budget transparency according to the basic minimum standards set in accordance with international norms.
Transparency and oversight of safety nets and MSME support. Beyond overall budget transparency, transparency in safety nets and engagement and oversight by groups representing the least resilient and those hardest hit by the pandemic can ensure that these funds actually reach the intended beneficiaries. For instance, the Philippines government has released a $4 billion “social amelioration package” for COVID-19. But ensuring these precious resources are not siphoned by corruption and actually reach the targeted 18 million vulnerable — senior citizens, people with disabilities, pregnant women, indigent indigenous people, and the unemployed — will require transparency, participation and oversight on who is eligible and a citizens’ grievance redressal mechanism, mediated by the vigilant Filipino civil society and overseen by formal accountability institutions. Similarly, transparency and monitoring by business associations is needed to ensure that support in stimulus packages reach targeted MSMEs. This is a key emerging focus in the design and monitoring of South Africa’s package where smaller MSMEs in distress could not access the initial credit guarantee scheme.
Open contracts. Governments also need to ensure that all procurement processes are open and competitive – from the tender to execution. Yet less than one-third of countries have taken steps to publish contracting data. This poses a particular risk of price gouging and corruption in times of COVID-19, even jeopardizing lives. As New York desperately struggled to acquire ventilators, it paid – through an opaque contract – a whopping $69 million for 1,500 ventilators at triple the retail price; tragically, none were even delivered. Open contracting and open spending empowers citizens, journalists and civil society to follow the money and become the government’s eyes and ears on the ground. For instance, in Paraguay and Colombia, the government publishes emergency contracts as open data that civil society monitors, including by tracking price differences for COVID-19 supplies. For public contracts in stimulus packages more broadly (e.g., for infrastructure projects), open contracting can save money, fight corruption and spur economic activity. Through Ukraine’s open contracting platform over two years, citizens flagged 14,000 violations, the government saved $1 billion, 82% of entrepreneurs reported reduced corruption, and there was a 50% increase in contract bids, including from MSMEs.
Formal oversight institutions. At the heart of an open government approach is a partnership of government with citizens, civil society and accountability institutions. Formal oversight, audit functions and whistleblower protections are essential. All stimulus spending should be audited by independent institutions, and regular reports made to parliament. In this regard, there are important opportunities for audit institutions to collaborate with civil society in value-for-money audits or following the money, such as the Philippines’ Commission of Audit using citizens’ social audits under the Open Roads Initiative. Where corruption is uncovered, prosecutions should be made. Where nefarious political influence is suspected, the media should be free to report.
Participation & monitoring by citizens, civil society & businesses. Beyond formal oversight mechanisms, government, civil society and business associations need to shape and monitor packages to ensure that they have the desired impact. This means grassroots groups monitoring infrastructure projects, checking that those vulnerable households eligible for safety nets and cash transfers get their support (while respecting right to privacy), and informal sector businesses who may not be on the government’s radar receive targeted MSME support. A particularly important imperative is to empower civil society groups representing the marginalized and vulnerable groups to amplify their voice in shaping and monitoring COVID-19 safety net programs. In Africa, the Follow the Money network of civil society organizations is tracking COVID-19 related spending, including aid flows, to ensure it is reaching those it is intended to help. These youth civil society organizations are also leveraging social media and digital technology to solicit beneficiary feedback.
Where civil society uncovers corruption, waste or poor implementation government must commit to address those deficiencies quickly to close the feedback loop. Only then will governments be able to earn or sustain citizens’ trust.
Civic space & media freedoms. For corruption and waste to be uncovered, the protection of civil liberties, basic freedoms of the press, and access to information must be sacrosanct. Unfortunately, many countries have gone in the opposite direction by shutting down civic space, and restricting freedom of information. It is imperative to roll these back for effective design, implementation and monitoring of COVID-19 programs.
A call to action: the essential steps
For all of these measures to happen, we need a campaign in every country to monitor trillions or billions of dollars for millions of people, to ensure stimulus and safety net packages achieve their tremendous promise and imperative of saving lives and livelihoods. This requires complementary and mutually reinforcing actions by governments, civil society, business associations, accountability institutions, and international donors. Our call to action for each stakeholder group is summarized in this graphic. As citizens all over the world have been mobilized around curbing COVID-19 contagion, there is an unprecedented opportunity to now channel that attention and mobilize citizens and citizen groups to shape and oversee packages that will directly impact their lives. Indeed, with so many lives and livelihoods and such massive resources at stake, we need collective, collaborative leadership – a coalition of stakeholder groups to join forces and ensure that stimulus and safety nets flow through open governments, open budgets and open contracts through to the “last mile” of service delivery. If we do this, we won’t just ensure an effective COVID-19 response – we will build back a better governance system that will institutionalize openness and citizen oversight, sustain citizen trust by putting citizens at the heart of governance, and produce a more fair and just society for better times to come.
Large discrepancies between what a government budgets for and what it actually spends, and between the revenue it forecasts and the revenue it ultimately collects, can be unsettling and potentially dangerous – especially during a global crisis. Clues on how to address this widespread phenomenon were presented in our recent study, “Exploring the determinants of budget credibility.” This report examined national government budget data in 94 countries from detailed reports issued by the Public Expenditure and Financial Accountability (PEFA) program.
When revenue collections are lower than projected, governments tend to ‘underspend’ – or spend less than the allocations in the approved budget. While this result might be expected and obvious, the underspending is typically unevenly distributed among different sectors and can have harsh consequences on people’s lives, especially for those who rely on public services.
Governments that are more transparent have higher levels of budget credibility. Our study points to the primacy of transparency for improving budget credibility. It also identifies other important factors—such as clear rules for amending budgets, strong procurement systems, and good accounting practices—that enable more real-time control over how public resources are being expended.
Underspending in government budgets was a problem even before COVID-19
In an earlier multi-country study of budget credibility conducted prior to the pandemic, we found that levels of annual underspending in government budgets averaged nearly 10% across 35 countries. For perspective, this proportion of the budget amounts to more than the health and education budgets in many countries. And in low-income countries, nearly one out of every seven budgeted dollars was left unspent.
A more detailed report on immunization programs across 22 countries revealed a shocking 30% underspend of budgets for the purchase of vaccines over several years even as governments declared vaccine shortages on 96 occasions.
On the flip side, and not surprisingly, we also found ‘overspending’ to be an issue on some items and in some countries. Recently, we published a blog article that describes how police budgets across 19 countries were overspent, and by large margins in countries such as Uganda and Mexico.
What does this mean for budgeting during COVID-19?
Many governments have responded to the COVID-19 pandemic by committing to do whatever it takes to support their people and economies. But as they rush to commit large sums toward relief and recovery, the pressure for unrealistic revenue forecasts has increased—setting up a scenario in which governments are likely to overpromise and then underperform.
Understandably, the pandemic makes it very challenging for governments to accurately forecast economic growth, which impedes their ability to establish reliable revenue targets. In January 2020 (before COVID-19 became a household name), the IMF projected a global growth rate for 2020 of more than 3%. By April, the IMF was projecting a decline of 3%. And, last month, the IMF revised down its projection again to a decline of 5%. In many countries, growth projections have fluctuated even more drastically.
It could be catastrophic if governments continue the behavior identified in our new report and reduce their spending as they lower their revenue projections – especially for essential services, such as health, education, and social safety nets. At a time when the public is more reliant than ever on the provision of essential services, we think governments should make every effort to fully spend their budgets for these services.
Key takeaways for governments and civil society organizations
Governments: At this time, citizens need to be reassured that the policies announced to alleviate the pandemic’s suffering will, in fact, be implemented. It is expected that governments will have to revise their revenue projections and may even have to modify spending targets, but now more than ever, transparency is essential. Accordingly, governments could consider giving priority to the following steps:
Disclose all changes to budgets in response to the pandemic, including how COVID-19-related policies will be translated into budget allocations, assumptions for revenue projections, and sources of financing.
Release regular updates on the implementation of COVID-related measures in the budget, changes in the forecasts of revenue and spending, a comparison of spending projections and outcomes, and the reasons for any deviations.
Commit for audit all spending incurred during the pandemic, ideally more than once during the fiscal year, so that auditors can closely examine budget credibility issues and report publicly with their findings.
Civil society organizations (CSOs): CSOs should not assume that large budget allocations for essential services represent “victories.” They should follow the budget cycle and track government spending patterns during the year—particularly in 2020, when governments are confronting unprecedented challenges. And they should be vigilant when governments cut spending below the levels planned in the budget, raising the alarm when such cuts are unjustified.
Together with our colleagues at leading civil society organizations around Latin America, the International Budget Partnership (IBP) has worked on a regional initiative focusing on the impact of tax expenditures on inequality in the continent (Latin America Tax Expenditure Research, Analysis and Learning Project, LATERAL). Today, in the face of the global COVID-19 pandemic, we launch a joint statement asking all Governments and Parliaments across the region to make all existing tax expenditures transparent, to review and eliminate those that provide unjustified and inequitable tax privileges and to redistribute the tax burden onto the wealthiest sectors of the population and those who can afford to pay more.
The public policy measures that are necessary for addressing the COVID-19 crisis pose significant funding challenges in the short, medium and long term. Governments’ limited fiscal capacity is worsened by the indiscriminate concession of tax privileges to individuals and companies. In Latin American countries, tax expenditures as a whole reduce government revenues by between 10 and 20 percent, and this is done without any proper evaluation of their impacts.
Latin America is one of the most unequal regions in the world, a situation that has worsened as a result of the COVID-19 pandemic. The region is currently the epicenter of the disease which, according to ECLAC (2020) estimates, could result in 16 million people falling below the poverty line this year.
Latin American tax systems tend to be regressive, and even so all of them provide many privileges in the form of tax expenditures. In Colombia, Argentina, Mexico, the Dominican Republic, Guatemala, El Salvador and other countries, for example, there are multiple unjustifiable tax privileges offered to companies located in so-called “free trade zones.” In Brazil and in other countries, generous tax exemptions are applied to the production of fossil fuels, sugary drinks and agrochemicals, sectors that negatively affect health and the environment. In Brazil and Argentina, the income of the richest (such as gains from capital income) is not included in personal income taxation. There are also inexplicable tax exemptions for cosmetic plastic surgeries (in Colombia and Ecuador) and for members of Parliament and the Judiciary in Argentina and the Dominican Republic.