A secondary result of the fiscal crises now spooling out in the United States and Europe will be greater scrutiny of the efficacy of public expenditures. Nowhere is this likely to have greater impact than in foreign aid and development assistance, as countries demand greater accountability for each dollar or euro spent. At the same time, citizens in many countries receiving assistance are also pressuring their governments for accountability.

Critical to both of these developments is the focus on public budgets. Whatever elected leaders say, when the last votes are cast and counted the critical question is how governments actually manage their funds to address problems of poverty, provide essential services such as education and health care, and make public investments to secure their future. The flip side of the question is how and in whose interest countries raise funds to fulfill their commitments. Do they use revenues raised from oil, gas, mining and other natural resource extractions for high national priorities? Or are these funds siphoned off for private enrichment? Do they make prudent use of development assistance from abroad?

Historically the purview of accountants and numbers-crunchers, public officials in the past showed little interest in making budgets more accessible. Nonetheless, citizen groups around the world have increasingly demanded access to budget information.

In a report issued on January 5, the U.K. House of Commons’ International Development Select Committee called for making aid to conflict ridden countries dependent on improved governance. The report highlighted the need to tie increased British aid to real commitments from recipients to greater transparency and accountability.

This is just the latest in a wave of government-led initiatives and people-led activism that is shifting the discussion about the openness and accountability of decisions that determine a country’s social and economic trajectory. The Arab Spring, the Occupy protests, and calls like that in the House of Commons to use foreign aid to increase the openness of other governments all point to a seismic shift in the democracy and governance paradigm.

The commitments and aspirations of many of these groups were on display in November when representatives of 58 countries came together in Dar es Salaam, Tanzania to affirm the importance of opening budgets to public scrutiny. Their Declaration on Budget Transparency, Accountability and Participation holds that “participation in the decisions related to public budgets is a fundamental right… of all citizens.” The Dar Declaration calls on all governments to recognize the rights of citizens to know their governments’ spending and revenue-raising policies, and to have regular opportunities to comment on the priorities reflected in them.

But the Dar Declaration is not so much the start of a movement as a milestone. In the last 15 or 20 years, in country after country civil society groups have been organizing to hold their governments to account.

In India, the MKSS uses local knowledge and government budget commitments to take advantage of the country’s 2005 Right to Information law. The organization’s “social audit” enables villagers to verify official claims and hold government to account. Official budget reports may indicate that a school or a road was built, but local residents may have information, literally “before their eyes,” that such projects were never undertaken.

Similarly, the Uganda Debt Network has trained local monitors to insure that inputs in construction and other projects, as promised in budget documents, are actually delivered.

In over 40 U.S. states, groups like the California Budget Project and the Center for Public Policy Priorities in Texas regularly scrutinize budget and tax policies for their impact on low- and moderate-income people.

Twenty years ago hardly any organizations focused on budget transparency as a key to improving democratic accountability and improving outcomes for poor. Now, over 200 groups in at least 119 countries engage in such work, according to the International Budget Partnership, a global research and advocacy organization that collaborates with budget groups around the world.

The interest of civic organizations in public budgeting at national and subnational levels has been matched in recent years by “top down” efforts of international organizations and foundations. Every two years, the IBP’s Open Budget Index (OBI) evaluates countries’ budget processes by engaging independent local researchers to assess whether their country makes timely and useful budget information available to the public and provides opportunities for participation. Over the three rounds of the OBI, a dozen or so countries have made real strides toward greater openness — perhaps because their leaders now know that their budget practices are being scrutinized by leaders in other countries.

What about funds that don’t always show up in budgets — like those from natural resources? Revenue Watch, an international organization started in 2002 as a project of the Open Society Institute, seeks good governance by working with industry and civil society groups in countries rich in oil, gas and mineral reserves to ensure that funds from these resources are monitored and used productively.

For civic organizations and governments seeking to reform other governments, it seems that fiscal transparency’s time has come. The open budget movement and the energy behind it promise to shift, if ever so slightly at first, the grounds on which the nations interact with their citizens and their civic organizations, and with each other.

This post was first published in the Huffington Post.

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.

The Open Budget Index (OBI) scores the overall transparency of government budgets. The table below presents the overall OBI scores for five champions of state capitalism. It also presents the answers to a number of questions that deal with the interactions between the state and private and state owned companies. The table then provides an average score for these state capitalism related issues in each of these five countries.

The table shows that Brazil, China, South Africa, Malaysia and Russia are less transparent in their ‘state capitalism’ transactions than they are with their public finances in general. These countries tell us very little about:

• financial transfers to public corporations;
• tax expenditures that benefit the private sector through exceptions or preferences for specified entities, individuals, or activities in the tax code;
• quasi fiscal activities such as when governments require that a public financial institution provides an indirect subsidy through loans at below-market rates for particular activities, or that an enterprise provide goods or services at prices below commercial rates to certain individuals or groups;
• contingent liabilities such as loan guarantees;
• government’s financial assets; and
• extra budgetary funds; that is government transactions with separate banking and institutional arrangements that are not included in the annual budget law.

Emerging evidence suggests that budget transparency can reduce corruption, improve efficiency and align public spending with policy priorities. The examples of Greece and Portugal also show that markets could eventually punish governments for such a lack of transparency.

Of course there is nothing about the state capitalism model that is inherently less transparent than its competitors. Most of these five governments have all the relevant information available. All that they need to do is to share it with the rest of us.

 * Scores of  100 means that the country publicly releases comprehensive, timely and regular information. Lower scores indicate that no such information is released or that there is some lack of comprehensiveness, timeliness or regularity in its release.

*More information on the Open Budget Index is available at www.openbudgetindex.org

After a gruelling 35-hour flight, it took me a few days to recover and digest all that had happened in Busan last week, where more than 2,000 delegates gathered for the 4^th High-Level Forum on Aid Effectiveness. Overall, I thought that the outcome was fairly disappointing. The outcome document, called the Busan Partnership for Effective Development Cooperation, is long on principles and short of commitments. It was endorsed by the emerging donors like Brazil, Russia, India, China on condition that it is not binding. Specific and time-bound targets for improving donor performance, such as those agreed in Paris in 2005, are absent. And all details about the new and more inclusive body expected to oversee the implementation of the document’s commitments are lacking, though a deadline of June 2012 for its establishment was set.

But not all is bleak. The document contains strong language on the need to promote democratic ownership of development policies and processes, and recognizes the vital role played by Civil Society Organizations (CSOs) in “enabling people to claim their rights, in promoting rights-based approaches, in shaping development policies and partnerships, and in overseeing their implementation”. It also retained the commitments related to improving aid transparency, including a deadline of December 2015 for implementing a common open standard for the publication of comprehensive information on aid flows. In fact, the International Aid Transparency Initiative, which was undermined by reluctant donors in the run-up to Busan, got a strong boost with the US Government joining it, alongside other large donors such as the Asian and Inter-American Development Banks. This means that more than  75% of information of total aid flows will soon be compliant with strong transparency standards. This will allow CSOs in both donor and recipient countries to track more closely how aid money is spent.

Donors also committed to using country systems as a default approach for development cooperation, something that could strongly enhance the link between aid and budget transparency, and to further untie their aid. Finally, the document talks about the importance of fiscal transparency in combating corruption, and about the need to “establish transparent public financial management and aid information management systems, and strengthen the capacities of all relevant stakeholders to make better use of this information in decision-making and to promote accountability”.

The results of the Busan HLF4 therefore create a reasonable framework to push forward issues that are of core interest to CSOs working on transparency and accountability. Yet, much remains to be done. In order to fully exploit the opportunities opened at Busan, the International Budget Partnership will work with others to:

1. Monitor and influence negotiations on the establishment of the Global Partnership for Effective Development Cooperation, ensuring that it adequately includes and addresses transparency and accountability issues (focusing particularly on aid and budget transparency, and use of country systems), with monitorable indicators and time-bound commitments.
2. Work with the IATI Secretariat to ensure that aid information is increasingly compatible with recipient country budget systems and processes.
3. Continue discussions on enhancing the linkages between aid and fiscal transparency with the smaller set of actors who were part of the Transparency Building Block at Busan, and who are committed to further and faster progress in this area.

If you are interested in joining, let us know!

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!

Read more here: www.r2k.org.za