Three contested issues
Three larger issues related to the budget process are still under scrutiny. Research is going on, evaluations and studies are being done, and action is undertaken, but it is still unclear under what circumstances these three action points will have the desired effect in curbing corruption. Are PFM reforms with specific components on the budget process reducing corruption? Do direct budget support, civil society and citizen involvement in state budget formulation and scrutiny reduce corruption?
Public financial management and budget transparency
Budget process reform is usually part of a broader Public Financial Management (PFM) reform. Generally, such reforms have had disappointing results when political will is missing (eg see PFM Reform: Burkina Faso, Ghana, and Malawi – Sida evaluation brief 2014).
When political will exists and politicians push for it, budget process reforms can be implemented in the stages of planning, formulation, and parliamentary approval.
When political will is lacking or less than required to accomplish reforms, a bottom-up approach is probably required: promoting transparency, accountability, and citizen involvement. Budget process transparency is an old principle that still stands strong: when citizens have access to detailed information about how governments use public resources, they will demand accountability.
There are several guides and manuals on what should be transparent, when, and how. The IMF has first published a fiscal transparency code in 1998, with later updates. The OECD made its best practices for budget transparency in 2002, also with later updates. In 2006, the International Budget Partnership started publishing its Open Budget Surveys – scoring and ranking countries based on how open their public finances are. Unfortunately, roughly three-quarters of the assessed countries publish insufficient budget information, and the 2017 survey shows a decline in average global transparency scores. This means that governments made less information available about how they raise and spend public funds than in 2015.
Besides, transparency and information alone is insufficient. To have impact, the information must be deemed relevant, and individuals must have both the power and incentives to act on in (see Can information improve rural governance and service delivery? (Kosec and Wantchekon 2018)).
Direct budget support
Direct budget support can be in the form of general budget support and sector budget support. It is a way to deliver aid directly from donor countries to a partner country’s national budget. This modality is a contested issue. Some academics, observers, and donors believe direct and general budget support is an efficient mechanism to create budgetary transparency, ownership, discipline, capacity, and accountability. Others believe the opposite, that it boosts the wrong incentives – rent-seeking and elite capture – and that it increases discretion, misappropriation, corruption, and mismanagement. One problem is that direct budget support moves the recipient government’s accountability away from the country’s citizens, towards donors.
Corruption levels matter: budget support is not advisable in highly corrupt countries. The type of corruption also matters: high levels of political and systemic corruption speak against giving budget support. Direct budget support tends to work best where it is needed the least.
For an overview, see the 2005 U4 Issue Direct budget support and corruption. For an assessment of whether direct budget support works to curb corruption, see U4’s 2012 Corruption indicators in performance assessment frameworks for budget support, and the EU Directorate-General for International Cooperation and Development report Budget support. Trends and results 2019. See also the DEVAL and EBA reports listed below under Reform evaluations.
More and more donors are holding back on direct budget support, reducing and even terminating it. This has partly come as a response to corruption scandals and a demonstrated lack of will to tackle the problem, and partly as a response to the lack of positive results.
Donors started to exit from general budget support around 2010 due to scandals in the recipient countries Malawi, Rwanda, Uganda, and Zambia, and due to accountability pressures at home. In Malawi, a massive theft of public funds, known as the Cashgate scandal, led to the exit of all donors. Donors suspended their budget support in Rwanda after a United Nations report exposed the country's support of a Tutsi rebel movement in the Democratic Republic of Congo. In Uganda, a corruption scandal in the Office of the Prime Minister triggered the exit of all donors. In Zambia, the exit was a gradual process that occurred in response to declining performance in the PAF indicators and corruption scandals (DEVAL 2018).
Many promote citizen involvement in the budget cycle and claim it is a success. It is also called participatory processes and participatory budgeting (PB). For example, municipalities in Brazil with participatory programmes were found to have improved the lives of their citizens (see Brazil let its citizens make decisions about city budgets. Here’s what happened).
Since around 2000, more and more actors actively promote transparency in public financial management. Efforts involve international organisations, civil society groups, private foundations, sector-specific initiatives, and more.
Social accountability mechanisms are intended to enable citizens to hold public institutions accountable in ways other than the traditional vertical channels (eg elections) and horizontal channels (eg legislatures, courts, and institutional checks and balances). It includes a broad range of mechanisms, among others:
- Participatory budgeting
- Public expenditure tracking (PETS)
- Citizen monitoring of service delivery
- Information dissemination
- Public complaints mechanisms
Data on corruption in the budget process
It is unclear how to best find data on corruption in the budget process. How big is the problem? Where in the process is it more damaging? On what should strategic action be focused?
The best methods to collect data and identify problem areas in the budget processes are the Public Expenditure and Financial Accountability (PEFA) programme by the World Bank and others, and OECD’s Budget Transparency Toolkit (BTT).
PEFA provides a framework for assessing and reporting on the strengths and weaknesses of public financial management, including the budget process. It uses quantitative indicators to measure performance.
BTT brings together standards and guidelines on budget transparency. It provides guidance on how best to use this information to achieve more open, transparent, inclusive, and accountable budget processes.
Many PFM reforms with budget process components have been implemented – with and without donor support. Despite this, there is remarkably scarce evidence on the resulting effects on the budget process.
However, there is clear evidence that budget tracking (also called public expenditure tracking) reduces leakage and corruption. See for example Public Expenditure Tracking Surveys (PETS) and documentation in DFID’s 2015 evidence paper – Why corruption matters. However, this is more about public expenditure than budgeting.
According to the DFID paper, only a small body of mainly observational studies suggests positive effects on reducing corruption through reforms for strengthening budget planning and management in central public administrations. However, according the DFID paper, some cross-country studies show that countries with strong budget management systems and greater external stakeholder participation in public spending have better scores on TI’s Corruption Perceptions Index (CPI). (The mentioned studies are often based on quasi-experimental designs and using regression analysis methods).
Public budget process reforms have mostly been rolled out as part of broader PFM or procurement system reforms, and lessons learned from specific budget reforms can therefore be difficult to extract. However, there are some relevant evaluations of budget process reforms available:
Budget Support. Trends and results 2019
European Commission, Directorate-General for International Cooperation and Development, September 2019
What we know about the effectiveness of budget support. Evaluation synthesis
DEVAL/German Institute for Development Evaluation, 2017.
The future of integrated policy-based development cooperation. Lessons from the exit from general budget support in Malawi, Rwanda, Uganda, and Zambia
DEVAL/German Institute for Development Evaluation, 2018.
Budget support, poverty and corruption: a review of the evidence
Geske Dijkstra, EBA/Swedish expert group for Aid Studies, 2018.
Joint evaluation of budget support to Tanzania: lessons learned and recommendations for the future
Consortium of ADE, ITAD and COWI, jointly managed by the European Commission, the Ministry of Foreign Affairs of Denmark, Irish Aid, the Ministry of Foreign Affairs of the Netherlands and the Ministry of Finance of Tanzania, 2013.
Tanzania: Open government and PFM development credit
Independent Evaluation Group (IEG), March 12, 2019.
Dominican Republic: Strengthening PFM development policy loan
Independent Evaluation Group (IEG), November 2018.