Addressing Budget Credibility
What do we mean by ‘budget credibility’?
Whether a government meets its revenue and expenditure targets during the fiscal year. When actual spending deviates from the approved budget, we describe it as either underspent (if spending is less than what was allocated) or overspent (if spending is greater than the allocation). The national budget may be underspent or overspent in aggregate and / or within a specific area of the budget.
Why is budget credibility important?
Normally, when the government enacts a budget, we expect it to function as a comprehensive roadmap that guides funds toward effective delivery of public services and progress on sustainable development. However, governments do not always collect or spend money according to their budgets. Consider that:
- In Argentina, only a third of children had access to early childhood services. However, a program designed to close this gap has consistently spent less than its approved budget by as much as 70 percent.
- In Nigeria, despite high occurrences of out-of-school children, the Ministry of Education consistently underspent its budget by 12% to 37% between 2013 and 2017.
- In Sri Lanka, the agricultural sector employs 26% of the country’s labor force but suffers from declining productivity. Regardless, the government budget for agriculture and irrigation was underspent from 10 to 40% annually from 2011 to 2017, except in 2015, an election year.
If the budget veers off course, it raises concerns around the causes and the consequences. Moreover, repeated deviations from this roadmap can diminish public confidence in the government and create mistrust around its commitments.
What are we learning?
In 2018, we began an initiative to deepen knowledge and address issues around budget credibility. So far, we have learned that:
- Governments often deviate from their budget, particularly by spending less than planned. On average, national budgets in aggregate are underspent by almost 10 percent, according to our study of 35 countries. Moreover, this problem was worse among low-income countries, which underspent by 14 percent.
- Multiple factors drive poor credibility. The major ones we have identified include:
- Lower revenue collections than planned, which can result from political motivations, faulty forecasting models or unpredictable revenue flows.
- Weaknesses in public finance management systems, an absence of transparent budgets, and poor accounting and reporting systems can limit control of how public resources are being used.
- Governments do a poor job of explaining deviations. Changes in spending or budget deviations are sometimes unavoidable but governments often do an inadequate job of providing detailed explanations for deviations. This makes it difficult to assess whether deviations are justified and what the root causes are. It also makes robust dialogues between government and civil society difficult.
Download the Budget Credibility fact sheet.
Our work in this area
In addition to research, IBP has collaborated with and convened diverse stakeholders to reduce deviations from budget and enhance transparency on budget execution. For instance, in 2019, IBP and UNICEF co-hosted two panel discussions during the UN General Assembly on the importance of budget credibility to achieving the Sustainable Development Goals (SDGs). In Nigeria, IBP and the Budget Office of the Federation held a joint forum on the country’s budget credibility issues.
IBP has also supported multiple CSOs in researching and campaigning for solutions budget credibility challenges in their countries, including:
- In Ukraine, IBP’s civil society partner, Centre Eidos, advocated to reform the procurement appeals process as it was being abused by some firms that were filing numerous bogus or trivial complaints to delay the procedure and prevent other bids from winning. These efforts led to the government including a provision in a recent package of reforms to the procurement law that would dissuade companies from misusing the right to appeal. Closing this bottleneck should improve the credibility of road infrastructure budgets in the country, which have been underspent.
- In Serbia, IBP’s partner Transparency Serbia examined the ad hoc transfers of contingency funds from the national budget – widely believed to be used for political patronage to mayors in various municipalities. Transparency Serbia presented its analysis to the national audit office and the national fiscal council that oversees budgets and requested an investigation and stricter rules to guide the use of the contingency funds. The issue generated substantial media interest and engagement from the fiscal council that committed to examining the issue.
Read about our new three-year initiative, Strengthening Budget Credibility for Service Delivery, which will be implemented in partnership with UNICEF
Read our concept note on a forthcoming handbook – in collaboration with United Nations Department of Economic and Social Affairs – to support supreme audit institutions in conducting analyses of the credibility of government budgets through external audits. Also available in Spanish and French.
Learn how budget credibility affects communities “on the ground” in our latest impact story on the issue of potholes in Ukraine
Learn more about the start of IBP’s budget credibility work from our fact sheet
Events and Meetings
Technical meeting for the development of a handbook on supreme audit institutions’ contribution to strengthening budget credibility through external audits
From May 26 – 28, 2021, the United Nations Department of Economic and Social Affairs (UNDESA) and IBP convened an expert group meeting as part of the ongoing collaboration to develop a handbook on the contribution of Supreme Audit Institutions (SAIs) to strengthening budget credibility through external audits. The handbook is part of a three-year initiative on “Strengthening Budget Credibility for Service Delivery” launched by IBP in 2020. Read the report.
How can external audits promote budget credibility? Leveraging the role of supreme audit institutions
On March 25, 2021, IBP and the United Nations Department of Economic and Social Affairs (UNDESA) co-hosted an interactive session discussing how external audits may contribute to understanding and enhancing budget credibility. The session presented a policy brief developed by UNDESA on the value of external audits to promote budget credibility, and provided an opportunity to identify and discuss relevant issues to inform how supreme audit institutions can analyze and address budget credibility through their work. A recording of the event is available here.
- Vivek Ramkumar, Senior director of policy, International Budget Partnership
- Aránzazu Guillán Montero, Senior governance and public administration officer, Division for Public Institutions and Digital Government, UNDESA
- Dr. Agus Joko Pramono, Vice Chairman of the Audit Board of the Republic of Indonesia
- Lasha Kelikhashvili, Head of the State Budget Analysis Division, State Audit Office, Democratic Republic of Georgia
- Cora Lea A. Dela Cruz, Assistant Commissioner, Commission on Audit, Republic of the Philippines
- Gail Lue Lim, Chief Economist and Deputy Auditor General, Auditor General’s Department of Jamaica
- Community of Practice: In 2019, IBP twice convened a Community of Practice including government, civil society, and international organizations to share knowledge and identify solutions to budget credibility challenges. These meetings culminated in the development of four priorities to mutually work towards: (1) strengthening public financial management systems, (2) empowering citizens, (3) including oversight actors, and (4) building powerful narratives on credibility. Summaries on these meetings can be found here: February 2019 and December 2019.
- Making, Keeping, and Breaking Promises: a global review of government budget credibility. In May 2019, Jason Lakin delivered a lecture at Strathmore University in Kenya on government budget credibility. The presentation provided an overview of why credible budgets matter and shared the results from a global study on budget credibility.
Learn more: Download the Lecture| Download the Presentation
From the Open Budgets Blog:
- SDG Action Begins with Credible Budgets
- Police reforms require budget reforms
- Governments that budget transparently are more likely to spend as they promise
- Sub-national budget credibility: Kenya’s experience
- Just What The Doctor Ordered? A Dose Of “Fiscal Realism” In Nigeria
Read more budget credibility blog posts.