As governments continue to implement COVID-19 response and recovery programs, many civil society groups are asking how the crisis will impact governments’ ability to spend money effectively and deliver essential services. For civil society groups that are following the COVID-19 money trail, there are critical questions about budget credibility, or whether governments will actually spend the money allocated in their budget during their fiscal year.
The unpredictable impact of the COVID-19 crisis on government revenues and expenditures could create understandable reasons why governments may deviate from their planned or adjusted budgets in the coming months and years. At the same time, a lack of budget credibility can increase the risk that shifts in spending priorities may also result in cuts to essential funding for non-emergency services that people need—such as for education and routine health services.
One way of identifying potential risks for budget implementation in the current context is to look at the impact of previous health emergencies, such as the Ebola crisis that impacted several West African countries in 2014 and 2015. Reviewing lessons from two of the most impacted countries—Sierra Leone and Liberia—can help understand how government budgets change in response to a crisis and how these changes can impact budget credibility. Drawing on available budget documents and PEFA assessments that cover the Ebola crisis years, here are three key lessons about what we see—or do not see—in terms of government budget credibility during that crisis.
1. Transparency is needed to understand budget credibility during a health emergency.
During the Ebola emergency, governments were making critical decisions about where to spend and where to cut. But what were those decisions and how did they impact government services?
These questions should be answered in government budget documents that provide an official account of how public resources were raised, allocated and spent, along with explanations of changes and deviations in the budget during the year. Unfortunately, good practices on budget transparency were not in place for the countries impacted by the Ebola crisis. The Open Budget Survey (OBS) assessment covering this period in Liberia and Sierra Leone found that both countries’ transparency scores declined as compared to the previous assessment. Moreover, critical budget execution documents were not published online or were published late. In Liberia, the government was producing these documents but released them only years later, far too late to be of use to civil society organizations (CSOs) that were monitoring the government response.
Availability of budget execution documents assessed in OBS 2017
Even published budget documents had significant gaps in information, such that they did not allow comparisons between actual spending and budgeted allocations. For example, Sierra Leone’s In-Year Reports, the monthly Statement of Fiscal Operations, showed expenditures by overall sectors (functional classification) and type of spending (economic classification), neither of which is comparable to the initial budget, which is approved by each ministry (administrative classification).
One area with stronger accountability during the Ebola crisis was the rapid auditing of emergency spending. The supreme audit institutions (SAIs) in both Sierra Leone and Liberia conducted and published rigorous audits of emergency funds, which uncovered waste and mismanagement of spending during the crisis and led to governments addressing some of the problems identified. In contrast, regular audits of government spending did not fully investigate impact of the crisis. Neither of the audit reports for government financial statements in Sierra Leone or Liberia explained changes made to budgets, in part because the SAIs did not receive this information from the government. In Liberia’s case, the regular audit report for 2014/2015 was also delayed in publication, undermining transparency for the rest of government spending – released only four years later.
2. Credibility is an ongoing issue during a crisis.
As governments responded to the Ebola health emergency, they adjusted their budgets in similar ways to what we see in recent months in response to COVID-19, prioritizing the emergency response and economic stimulus efforts. Even with these revised priorities, budget implementation practices followed similar trends as in earlier years.
Budget execution data for the years of the Ebola crisis can be found in in the PEFA reports for Sierra Leone (2018) and Liberia (2016). PEFA assessments examine budget credibility in terms of aggregate expenditures and the composition of the budget (spending by ministries) from the central government: in Liberia, this included on-budget donor expenditures, while in Sierra Leone donor expenditure data was not available.
The PEFA report shows that the government in Liberia struggled with accurate revenue forecasts before the crisis that led to underspending, but budget credibility trends varied by sector. In spite of more pronounced underspending in the health ministry when compared to education or defense, the overall execution rate in Liberia actually improved during this period.
For Sierra Leone, the PEFA report shows that overspending was the norm before the crisis, and this continued to a lesser degree during the Ebola response years. Like Liberia, deviations varied by sector – for example, despite overspending in health and defense sectors in Sierra Leone, the budget for the education ministry was underspent.
At a more detailed level, budget variances can become extreme. For example, official data indicates that an administrative unit known as “Miscellaneous Services,” which includes contingency expenditures, was significantly overspent during the crisis, but no explanations were provided to explain why this happened or how the money was spent.
Sierra Leone PEFA: Actual spending in key sector ministries as a share of the initial approved budget
Liberia PEFA: Actual spending in key sector ministries as a share of the initial approved budget
Thus, on an aggregate level, the Ebola crisis for Sierra Leone and Liberia resulted in slight improvements in budget execution rates, rather than increased fluctuations, as might be expected.
However, these aggregate values can mask large shifts within budgets that potentially can undermine credibility. For example, In Sierra Leone, official data indicates that an administrative unit known as “Miscellaneous Services,” which includes contingency expenditures, was significantly overspent during the crisis, but no explanations were provided to explain why this happened or how the money was spent.
Contingency expenditure in Sierra Leone (in millions, PEFA)
In the same time period, Sierra Leone also increased their accumulation of payment arrears from one percent of expenditures before the crisis to 17 percent of expenditures in 2016. These arrears, which are obligations where the government is late or delayed on payment, are often not reported in budgets and can potentially hide overspending practices. Such changes make it hard to track in government reports where the money goes and how it is being used and can mask credibility problems in the overall budget or specific programs.
3. Altered systems for emergency spending make it harder to track budget credibility.
The need for a rapid response in the Ebola crisis led governments to use different public financial management arrangements during their response. In both countries, the PEFA reports document shifts that governments made in their budgets during the emergency response, but with varying degrees of accountability and transparency. In the case of Liberia, these shifts were discussed with the legislature before being implemented and were not large enough to warrant a formal supplemental budget. In Sierra Leone, overspending was large enough to require a supplemental budget from the legislature, but after 2014 no supplemental budgets were submitted or approved.
In addition to revising public spending, governments were also setting up extra-budgetary funds to manage emergency spending. Extra-budgetary funds promised rapid delivery of services that could circumvent the slower machinery of government systems, including normal oversight practices. In many cases, new extra-budgetary funds were created due to the demand of donors. However, such funds also obscure the total amount of public resources directed to the crisis. By the end of the crisis, only 23 percent of donor financing was disbursed directly to all affected countries public finance systems, with the majority channeled either in extra-budgetary funds or implemented directly through development partners. Off-budget donor funding also has the additional challenge that government auditors in Sierra Leone and Liberia either did not have the mandate or access to donor accounts to audit where and how donor funding was spent.
How should lessons from the Ebola emergency inform the COVID-19 response?
As governments begin implementing their COVID-19 response efforts, often using similar tactics to those used during the Ebola response, we should watch out for similar pitfalls. These include:
- Lesson 1: Transparency can regress. Lack of transparency makes it very challenging for CSOs and other stakeholders to conduct timely analysis of emergency spending practices and thereby seek remedial actions from the government during the period of the crisis. CSOs and other stakeholders must insist that governments prioritize transparency and the timely publication of data—transparency and accountability build the trust that is needed to combat the virus.
- Lesson 2: Governments tend to use new instruments and PFM arrangements during a crisis. These include supplemental budgets, extra-budgetary funds, contingency reserves or funds and increases in expenditure arrears. Civil society should track these changes and monitor potential risks in these new systems. A special series of notes on COVID-19 from the IMF is a good resource for learning about how PFM systems are changing and what good practices should be adopted.
- Lesson 3: Prioritized audits of emergency spending measures can come at the cost of routine audits of government spending. Auditors should formulate audit plans that ensure that all public funds are assessed. Routine audits of government financial statements—which will still account for most government spending—should look at spending deviations during the crisis. Additional support and funding to SAIs will allow them to take on this expanded mandate. CSOs and other stakeholders that are demanding that SAIs conduct expedited audits should also insist that regular audits continue, especially for programs at risk of mismanagement.
- Lesson 4: Trends in deviations can continue during times of crises. Importantly, these trends hold true not just for aggregate budgets but also for the budgets of individual ministries and sectors. CSOs can use evidence of previous spending patterns to push back against unjustified claims made by government that budget deviations are only due to the crisis.