April 16, 2014Doug Hadden
Doug Hadden, VP Products
Professor Matt Andrews of the Harvard Kennedy School instigated a debate in public financial circles. His observation from analyzing data from the Open Budget Index is that African countries achieve higher scores in budget formulation transparency than in budget execution.
Budget transparency can be more about ‘looking good’ than ‘being good’. In this case, ‘being good’ is about connecting government intentions with results. We know that governments make frequent adjustments to original budgets, add supplementally, overspend and underspend. Beautiful budget plans can be derailed. Andrews sees this phenomenon as about providing signals about reform without executing on reform.
This talk of looking good reminded me of the ‘Fernando’ character created by comedian Billy Crystal, who often opined that it was better to look good than feel good.
Looking good: a universal government phenomenon?
Budget formulation documents whether tabled as budget books or speeches are inherently political. The Canadian government has gone so far as to brand the budget document as Canada’s Economic Action Plan. Budget execution transparency is also political, but in a dangerous way. Audits, for example, have tremendous political fall out for governing parties.
So, we began to wonder whether OBI data supports the idea that looking good is foremost in the budget transparency agenda. Our paper on the subject will be soon published. The conclusion, based on available data, is that the gap between budget formulation and execution transparency is common among countries regardless of development.
Budget transparency weight?
Is the OBI somewhat skewed? Should elements of budget formulation transparency be weighed higher than budget execution? I can’t find a rational argument to support this notion. I agree that some of the underlying documents might be somewhat more important but I think that depends on the context of political systems. My take on this is:
- The usefulness of budget transparency has a network effect. Each government initiative that improves OBI adds value to previous initiatives. There may be a case to consider OBI as an exponential measure rather than arithmetic.
- Budget formulation transparency has very little value without execution transparency. These budgets lack credibility – perhaps we should consider these as ‘incredible budgets’.
- Computer technology is not necessarily a hurdle to transparency. Many developed countries have multiple departmental systems for formulation and execution that introduces integration problems. Developing countries often have single systems for core execution and simple formulation systems. Countries like Timor-Leste, a FreeBalance customer, are able to update budget execution data daily (including budget changes) and show 10 years of history.
- Government legitimacy in today’s hyper connecting social media world is moving from inputs (budget promises about spending and policy results that may never happen) to results (performance in outputs and outcomes). Governments can not hide behind beautiful budget plans.
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