Budget underspending ‘damaging public trust’

19 Mar 19

Governments in low-income countries are spending nearly 10% less than they promised in their budgets, weakening public trust and transparency, public financial management experts have warned.  

The policy head at the International Budget Partnership told PF International that many countries were not transparent about why they are underspending.

Vivek Ramkumar, senior director of policy at the IBP, said governments underspend their budgets by nearly 10%, hitting health, education and nutrition.

This, at a time when public trust in government is at an “all time low”, can “breed cynicism about the public sector”, Ramkumar said. 

“What that potentially signifies is that governments are not even spending the money they said they would spend in these low-income countries, where you have a population that most requires help from governments,” he said.

“It’s not a conversation about adding resources to what governments spend on citizens, but about spending what they said they would spend.”

Jens Kromann Kristensen, the head of the Public Expenditure and Financial Accountability secretariat, added: “When you look at budget credibility – the difference between the budget and the budget execution – one thing you see in many developing countries is an under-execution of the budget for various reasons.

“That can be the result of policy decisions but can also be because the PFM systems don’t support good policy formulation and execution.”

He added that good PFM systems are at “the front and centre of building trust in governments”.

Governments may for a number of reasons, including poor PFM and unforeseen events, such as natural disasters, divert funds to other areas, meaning budgets may not deployed as set out in spending plans.

According to a report this month by the IBP, looking at 32 countries, economic affairs, environment and housing tend to face the biggest budget cuts, while defence and public safety tend to gain.

When revenues are under budget, economic affairs tend to suffer – but when revenues are over budget, the extra funds go to general public services, it said.

Kromann Kristensen added: “Credible budgets that are executed credibly and controlled credibly will contribute to citizens’ better understanding of what is going on.

“A government that has a problem with public trust and has a dysfunctional PFM system could very well start with strengthening credibility, transparency and accountability through the PFM systems – it is almost a no-brainer.”

But governments are not “fully transparent” about spending changes, in many cases hiding reasons for underspending on key services, Jason Lakin, head of research at IBP, told PF International.

This can harm the public’s confidence in the government, which makes it harder to get people to participate in the budget process, he added.

“If we want participation to happen and to be effective, the credibility of the budget is one important factor in ensuring that people feel confident that their participation makes a difference.

“There is a declining confidence in institutions and budget credibility is one aspect of that. When budgets are not executed in the way they were promised, the public generally has less confidence that the government is able to manage public finances effectively.”

Public trust is at an “all time low”, Ramkumar said.

Jakin said there is “some reasonably extent to which the budget will vary”.

“But when it varies significantly from what is approved by the legislator, then we expect the government to provide some explanation or justification for those changes, that will be published,” he said.

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