Category Archives: Open Budget Survey 2010

State Capitalism makes government budgets less transparent

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Last week’s Economist tries to take down ‘state capitalism’, which it describes as an economic growth model where enterprises are ‘backed by the state but behaving like a private-sector multinational.’ This ‘backing’ takes many forms, from state-owned enterprises to significant government share-holding in private firms, to aggressive industrial policy measures such as tax breaks and loan guarantees.

The Economist claims a number of weaknesses in the state capitalism model, such as slower growth and inefficient use of capital and human resources. In addition to these economic orthodoxies, this model poses another set of problems: it makes government finances less transparent. Continue reading →

How we will promote aid and budget transparency in Busan

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prepared by Paolo de Renzio, Senior Research Fellow at the International Budget Partnership

Open Budget Surveys have repeatedly found that countries that are heavily dependent on foreign aid to finance their budgets tend to have less transparent budget processes, . This might be due to various country characteristics, such as low incomes or weak democratic institutions. But donor behaviour also plays a part, as argued in a recent IBP Briefing Note. The brief highlights the importance of the relationship between donors’ provision of information on aid flows and recipient country governments’ disclosure of budget information to their citizens. In fact, aid transparency and budget transparency are inextricably linked. Budgets in partner countries cannot be made fully transparent without improved aid transparency. Only if donors provide partner countries with sufficient information, compatible with partner country budget systems and schedules, can timely, accurate and comprehensive budget information be made available to citizens of countries receiving aid. This point is also highlighted in the the Dar es Salaam Declaration on Budget Transparency, Accountability and Participation, signed last week by nearly 100 civil society groups.

At the Fourth High-Level Forum on Aid Effectiveness, which will take place in a few days in Busan, South Korea, the transparency theme will have a prominent place. The latest draft of the Busan Outcome Document (the declaration that participating governments will sign at the end of the Forum) covers transparency issues in a number of ways. First, transparency and accountability are recognized as ‘shared principles’ that form the foundation of development cooperation, alongside ownership, results and inclusive partnerships. Second, a whole paragraph (para 22) is devoted to aid transparency commitments, in which donor agencies undertake to make publicly available more information on aid flows, and to implement a common standard for its publication, building among other things on the efforts of the International Aid Transparency Initiative. Third, donors and recipient countries commit to building more transparent public financial management systems and to improving fiscal transparency.

All of these commitments were the outcome of some difficult negotiations, facing resistance from a number of donor governments, including China, Japan and France. Provided they make it through the final discussions, they are very welcome, and represent a significant step forward in recognizing the importance of transparency and accountability as key ingredients of both aid and development effectiveness. The explicit link between aid transparency and budget transparency, however, is not recognized. Luckily, this link will be the focus of a plenary session, which IBP has helped organize and which is supported by a smaller number of like-minded actors, including the governments of Sweden, the US, Rwanda and South Africa, the Collaborative Africa Budget Reform Initiative (CABRI), the World Bank and CSOs like Transparency International and Publish What You Fund. In this session, more ambitious targets and commitments around aid and budget transparency will be discussed, and hopefully agreed.

One of the most important aspects of the discussions at Busan will be to agree on the future international architecture for development cooperation, with a view to overcome the limitations of the OECD/DAC Working Party on Aid Effectiveness, which for too long has been seen as too exclusive a body that does not reflect the role of emerging donors and the need for a more equal partnership between donor and recipient governments. The current draft of the Busan Outcome Document talks about the establishment of a Global Partnership for Effective Development Cooperation. Ideally, this body should include a specific mechanism for ensuring the transparency-related commitments are monitored and enforced. Such mechanism would also gain from a multi-stakeholder nature, following the example of the Global Initiative for Fiscal Transparency (GIFT), which brings together governments, international organizations and civil society groups in a joint effort to promote fiscal transparency across the world.

The International Budget Partnership will be represented at the Busan Forum, and will report back on what happened.

Watch this space!

Easterly’s utopian solution to the wastage of development aid

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The wastage of  health funding

William Easterly argues that donors should not give more development aid while so much of it is being wasted. The most recent example is the WHO report that tells us that 20-40% of health funding is wasted. Easterly questions the WHO’s calls for more health donations, asking “How do you make an impassioned plea for spending more money when we’re wasting so much?” To be sure this is not just through the sort of corruption that corpulent white businessmen moan about over drinks in Washington, London and Paris. The WHO reports that some countries pay almost double what they should for drugs and that at much of the medical equipment donated to developing countries is useless. But I digress. The point that Easterly and many others make is that donors should not send more money through the system until the leaks are fixed. And it makes good common sense. My Mom or any other non-economist would agree. Continue reading →

Does budget transparency flatter to deceive? Evidence from Brazil

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Does budget transparency flatter to deceive?

Arguing that the public has a right to information about government finances is fairly easy. One can use tax payer status, Bills of Rights etc to do this. But more and more questions are being asked about what budget transparency is good for. Researchers often find it hard to show a convincing link between budget transparency and other desirable outcomes like the Millennium Development Goals, appropriate budget allocations or even active legislatures and citizens. It is proving deceptively hard to show that budget transparency is “good for anything” except informing the public, and even that is not self-evident, as we shall see below.

Budget transparency and elections

To illustrate: In a well-functioning democracy, citizens hold politicians accountable for their performance. One of the preconditions is that voters have access to information that allows them to evaluate politician performance. By enabling citizens to monitor policy makers and hold corrupt politicians accountable, improved information would force governments to act in the best interest of the public.

But information about politicians’ performance seldom comes to all members of the public equally and directly. Instead, it is typically acquired and influenced by voters’ efforts, personal traits, characteristics of the community, or the level of political competition. Even worse, because information is  often politically manipulated, it may be potentially discounted or even ignored by the public.

Hope on the horizon?

A 2008 article by Claudio Ferraz (Instituto de Pesquisa Econômica Aplicada) and Frederico Finan (University of California) provide solid data that the release of audit reports had a significant impact on mayors’  performance in elections. Here are some of their key findings:

  • Voters are sensitive to corruption and the amount of corruption: Municipalities where two audit violations associated with corruption were reported, the distribution of the audit report reduced the mayor’s likelihood of reelection by 7 percentage points  The effect increases to almost 14 percentage points in municipalities with 3 violations.  This shows that the electorate is not just sensitive to corruption, but also to the amount of corruption.
  • The media helps to amplify the effect: In those municipalities with local radio stations, the effect of disclosing corruption on the mayor’s likelihood of reelection was more severe. The distribution of the audit report decreased the likelihood of reelection by 11 percentage points among municipalities with one radio station and where two violations were reported.
  • Non-corrupt mayors were rewarded: Although radio exacerbates the audit effect when corruption is revealed , it also promotes non corrupt mayors. When corruption was not found in a municipality with local radio, the audit actually increased the likelihood that the mayor was reelected by 17 percentage points.

Click here to read the paper.

If it can be shown that budget transparency can get rid of poorly performing elected officials, it should not be a bridge too far to show that it also leads to better service delivery and ultimately better development outcomes.

How can South Africa rank first in a Transparency Survey?

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South Africa the most transparent? Really?

Some may find it hard to understand South Africa’s first place amongst 94 countries in the 2010 Open Budget Survey. This is a country that is drafting draconian secrecy legislation. Or where the President is very coy about declaring his financial assets. Further back this is the same government who did its best to keep the wraps on its controversial arms transactions and feels itself free to protect MPs involved in fraudulent travel claims. How can this country rank first in  a transparency survey?

It’s just the Treasury

The Open Budget Index (OBI) is not an overall measure of government transparency, but simply measures the quality and quantity of budget information released by the National Treasury, by all accounts an island of excellence in a sea of government that tends to be less transparent.

The Treasury’s transparency culture was established under the leadership of legendary Finance Minister Trevor Manuel. Minister Manuel understood early on in his reign that budget transparency would help him get control of the budget deficit by controlling the nine troublesome provinces and attract foreign investment. The details of exactly what budget information got South Africa its first place is available here.

Its budget transparency, not accountability

The OBI measures budget transparency, not accountability. Accountability requires many other things, like effective checks and balances, a robust separation of powers, serious party political competition, many of which are compromised in the case of South Africa.

As an example, the South African Parliament  has the legal mandate to amend the budget. But  South Africa’s party list system and the electoral dominance of the African National Congress is likely to translate any proposed amendment into a challenge of senior party by junior party members. If national cabinet has approved the budget, it is hard to see how lowly MPs will succeed in amending it.

Where does South Africa go from here?

A high level of budget transparency is a key pre-condition for accountability for budget accountability. If we don’t know what government spends on, we wouldn’t even know which questions to ask. But as we indicated above, budget transparency isn’t a sufficient condition for budget accountability.

The South African Parliament seem to be taking its new powers seriously and engaging with the budget process more thoroughly than ever before. It is also displaying greater confidence in confronting senior national ministers over service delivery issues. This vigour may also  be facilitated by growing divisions in the ruling party.

Lets hope that South Africa’s Rolls Royce budget transparency machinery gets the accountability institutions and culture that it deserves.