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.