Are governments implementing their budgets?
The Sustainable Development Goal (SDG) Indicator 16.6.1 reports actual primary government expenditures as a share of the originally approved annual budget. In order words: Are budgets of national governments being implemented as approved?
The national budget is the primary document through which governments present their overall expenditure and revenue plans and allocation of spending between programs and organizations, functions and economic types.
The degree of implementation of the national budget is an indicator of government’s ability to deliver public services and achieve development objectives. The deviation between approved and actual spending is measured over a 12-month period (the budget year) and may have important implications for macroeconomic stability, public service delivery, and social welfare.
If expenditure is under-executed, beneficiaries may not receive expected services. Over-executed budgets may result in budget deficits and increased public debt levels and can influence macroeconomic stability. In both cases, lack of budget credibility undermines the usefulness of the budget process for policy making and implementation and erodes public trust in government.
SDG indicator 16.6.1 recognizes that achievement of development objectives requires government budgets to be comprehensive, transparent, and realistic. While the indicator appropriately focuses on only one aspect of sound public financial management, the indicator draws attention to the importance of public financial management institutions in general for achieving the SDGs.
How credible are government budgets?
This SDG indicator is based on the Public Expenditure and Financial Accountability (PEFA) Assessment framework. PEFA is a widely used framework for measuring public financial management performance at national and subnational levels of government. One of the indicators in the PEFA framework assesses the difference between planned and actual budget expenditure in countries across the world.
What can we learn from PEFA about budget credibility? Since 2005, the PEFA methodology has been applied over 600 times in 150 countries at both national and subnational levels. Nearly two thirds of countries that have had a PEFA assessment at the national level are within +/- ten percent of their original budgets, and around half of those were within five percent. However, more than one out of ten countries deviated by more than 15 percent.
At the subnational level, governments have found it more challenging to implement their budgets compared to the national level. Almost half of all subnational entities that have had a PEFA assessment undertaken deviated by more than 15 percentage points. Only around one third of governments at the subnational level managed to implement the budget in accordance with planned expenditures and out of those, less than half were within five percentage points.
More than half of high-income countries are within +/-5% of the budget spending, while almost half of low-income economies show more than +/-10% deviation in budget execution.
The International Budget Partnership is ringing the alarm bells
The International Budget Partnership (IBP) has initiated the “Assessing Budget Credibility” project to examine the extent and nature of deviations from planned budgets, and to establish causes and consequences. Results are reported on the Open Budgets Blog.
Throughout a two-year period, the IBP convenes and coordinates a global community of practice to discuss research findings and work with governments and civil society for improvement in budget credibility at country and sector level.
In the recently posted article by IBP: “Ring The Alarm; Governments Unlikely To Meet SDGs Without Renewed Commitments to Spend Allocated Funds” Jason Lakin and Chloe Cho from the IBP are considering the government underspending of budgets as a global challenge that may affect the realization of the SDGs.
Analyzing the PEFA Data for 109 countries provided to UN and the World Bank Boost Data, the IBP suggests that
What is PEFA?
The PEFA Program is a partnership between the World Bank, the European Commission, the UK Department of International Development, the Ministry of Finance of the Slovak Republic, the Swiss State Secretariat for Economic Affairs, the French Ministry of Foreign Affairs, the Norwegian Ministry of Foreign Affairs and the International Monetary Fund.
The PEFA Framework assesses the strengths and weaknesses of government management of the public finances using 31 performance indicators that are further disaggregated into 94 dimensions. The PEFA Framework is available in seven languages: English, French, Spanish, Portuguese, Arabic, Russian and Chinese.
Countries, development partners, and other PEFA users from around the world regularly share stories how they are using PEFA Assessment processes.
The PEFA Secretariat, housed at the World Bank in Washington DC, engages with researchers to understand the relationship between public financial management, as measured by PEFA, and other governance initiatives and the research findings can be found on the PEFA website: Research and Impact Publications