One area that holds potential for additional revenues is rationalization of tax expenditures—the many tax breaks, exemptions, and incentives that governments provide to various actors.
While tax expenditures can be an important tool for fiscal policy to pursue different policy goals such as creating employment, attracting foreign investment, or greening the economy, they are often opaque, costly, and ineffective as well as politically motivated.
Against this backdrop, reforming and rationalizing inefficient and obsolete tax expenditures can be highly beneficial for developing economies and could have a significant impact on countries’ capacity to mobilize domestic resources and finance governments’ development strategies. Tax expenditures represent a large revenue loss for governments across the world. During the 1990-2020 period covered by the Global Tax Expenditures Database (GTED), the average revenue forgone through tax expenditures for the 13 low-income countries in the database stood at around 2.8 percent of GDP and 27.1 percent of tax revenue, while for the 26 lower-middle-income countries in the database it stood at 2.6 percent of GDP and 18.2 percent of tax revenue. Identifying and reforming (or simply eliminating) those tax expenditures that do not provide value for money, or that trigger significant negative socioeconomic externalities, could help generate resources necessary to help countries in the post-pandemic recovery phase, and ultimately in the pursuit of long-term development objectives such as those included in the Sustainable Development Goals (SDGs).
Rationalization of tax expenditures, however, requires understanding the considerations that lie behind their governance, and the reforms that might be necessary for a more careful and rational approach towards proposing, adopting, and monitoring them. Unfortunately, these aspects of public policy have been mostly neglected, and there is limited evidence on how governments manage tax expenditures in practice.
Two recent papers shed some light on these issues, providing new evidence on how tax expenditures—and investment incentives in particular—are used and governed across developing countries.
The OECD recently published a paper that presents initial insights from an investment tax incentives database covering 36 developing countries across Eurasia, the Middle East, North Africa, Southeast Asia, and Sub-Saharan Africa. The paper shows that the design of tax incentives is often specific to a certain sector, region, or investor within a country. Lack of transparency through complex targeting may inhibit the analysis of tax incentives, including whether they reach their stated objectives and at what costs, and can provide opportunities for abuse. The study also provides detailed insights on the governance of investment tax incentives, which it finds to be overly complex in most cases. Many countries scatter incentive provisions across several laws and only 40 percent of countries provide investment tax incentives through one legislative piece. Similarly, multiple authorities share responsibility to govern tax incentives in the majority of countries. Such complexities and overlapping responsibilities can further limit transparency and accountability of governments, which risks reducing the effectiveness of the policy and can increase discretionary behavior.
The International Budget Partnership published a study based on research in nine Latin American countries, assessing current arrangements to manage tax expenditures against some good practice principles that have been promoted by the IMF, OECD, World Bank, and UN. The study documents a clear legislative and regulatory gap, as no country has a comprehensive, organic law that regulates how tax expenditures should be created, managed, and evaluated. Instead, as found in the OECD study, tax expenditure provisions are usually scattered among numerous laws of different types, with clear limitations in the provisions included. Moreover, and again echoing the OECD study, the role that different actors play in the introduction and implementation of tax expenditures generates dysfunctional systems where nobody holds overall responsibility for the effective management of tax expenditures as fiscal policy instruments, and where governments are not held accountable for the impact of tax expenditures.
The evidence from these two recent publications provides useful insights to guide tax expenditure reform and help turn tax expenditures into more effective fiscal policy instruments that can contribute to increasing—instead of limiting—revenue collection. Some of the main takeaways include:
• There’s a need to improve the legislative and regulatory framework surrounding the management of tax expenditures, ideally introducing legislation that sets the basic rules for tax expenditure governance, or ensuring that all tax expenditures are captured in the relevant tax laws and not in secondary legislation.
• Governments should address the fragmentation of responsibilities for the management of tax expenditures, and concentrate the key powers of appraisal, approval, and monitoring within the ministry responsible for overall fiscal policy. Encouragingly, the Addis Tax Initiative (ATI) has included a similar provision in its post-2020 monitoring framework.
• It is important to improve the scope and quality of tax expenditure information provided by governments. According to the recently published GTED Progress Report 2022, among the 82 low- and low-middle income economies covered, 43 have never released any official information on the revenue forgone due to tax expenditures. Equally worrisome, the quality of existing reports is often strikingly poor, with 31 out of 39 reporting countries not providing data disaggregated at the provision level and 36 not disclosing the policy goal that each tax expenditure provision is supposed to pursue.
• Governments should also improve the evaluation framework for tax expenditures. Cost-benefit analyses and impact evaluations are vital to drive evidence-based reforms, and are strikingly rare. Even in the rare cases where these evaluations do exist, their results are often ignored, and ineffective measures are kept in place.
• Finally, overall accountability arrangements around tax expenditures should be enhanced by improving performance monitoring, introducing mandatory sunset clauses, publishing information on beneficiaries and promoting a broader and more inclusive debate for all tax expenditures.
Luisa Dressler* is an Economist at the Centre for Tax Policy and Administration, Organisation for Economic Co-operation and Development
Sanjeev Gupta is a Senior Policy Fellow at the Center for Global Development
Agustin Redonda is a Senior Fellow at the Council on Economic Policies
Paolo de Renzio is the 2021/22 Policy Fellow at the Center for Advanced Study in the Behavioral Sciences, Stanford University
*The opinions and arguments expressed herein are those of the authors and do not necessarily reflect the official views of the OECD or its member countries.
Join us for a virtual event on 20 April 2022 at 12 noon EST to discuss steps to better manage tax expenditures. Click here for more information and to register.
By Abel Akeni, Vahyala Kwaga, and Iniobong Usen, BudgIT, Nigeria
Every year, anticipation accompanies the Federal Government’s annual budget presentation to Nigeria’s National Assembly. The budget outlines the government’s promises and spending plans to improve citizens’ quality of life. There is much to be done. With a Human Development Index score of 0.539 in 2019, Nigeria is positioned in the low human development category, ranking 161 out of 189 countries. According to Nigeria’s National Development Plan (2021-2025), universal health coverage is only 5%, life expectancy is 53.4 years, about 10.5m children do not attend school, and 61% of Nigerians do not have access to basic sanitation services. In addition, an estimated 88.4m people live in extreme poverty.
In the 2021 budget, proposed as the country began to recover from economic shocks related to the COVID-19 pandemic, the Federal Government promised to invest N13.6trn in the “Budget of Economic Recovery”. This built on the N10.8trn investment promised in 2020 in the “Budget of Economic Resilience”, which included a N500bn spending plan for COVID-19 interventions.
The budget preparation and presentation is an annual ritual required by Nigeria’s constitution. However, to what extent do the appropriated funds positively impact the life of the average Nigerian? Have the successive annual budgets improved service delivery in critical social sectors like health, education, and WASH (water, sanitation, and hygiene)?
For example, what happened to the N56.6bn budgetary allocations for the government’s famous “Jobs and Food for All” program launched in 2020? What about the N75bn Survival Fund for micro, small, and medium-scale enterprises launched in the same year to help entrepreneurs survive the COVID-19 crisis?
Source: BudgIT, 2022
Many Nigerians assume that the funds allocated in the annual budget will be spent; but this is not necessarily true. There is often a sizable gap between what the government’s annual budget promises on paper and the actual funds made available for spending; larger gaps mean weaker credibility and reliability of the budget.
Figure 1: Five-year budget expenditure trend
Source: BudgIT, 2022
The public discussion about government budgets in Nigeria focuses on corruption, for example the risks of embezzlement of public funds by civil and public servants, unscrupulous contractors, and other vested interests. These are valid concerns, and yet, weak budget credibility can also undermine service delivery. Underspending or overestimating budgets starves critical projects of much-needed funds, resulting in abandoned public projects, poor service delivery, and inadequate social infrastructure.
Why does a budget credibility chasm exist in Nigeria? When these challenges persist year after year, does this risk turning the annual budget into an empty promise on paper? Some of the reasons for why we see continued weak credibility can be found in what happens between the time the budget is approved, and funds are made available for project implementation. Prior to starting any project, the implementing ministries, departments, and agencies (MDAs) make requests for cash to be released in line with the budget approval. After approving the “cash release” for each project, the government provides funds in cash or an authority to incur expenditure (AIE) to embark on the project. Once an implementing agency has either the cash or AIE for a project, this starts the procurement process and, eventually, results in “utilization” or actual disbursed cash. Administrative, political, and technical bottlenecks during the stages of cash release and utilization can reduce the amount of funding that projects receive and, ultimately, lead to service delivery failures.
Budget data from 2021 for six sectors affected by the COVID-19 pandemic (see figure 2 below) shows that halfway through the year, the government was already falling behind on cash release and utilization.
Figure 2: Q2 2021 capital budget implementation, as a percentage of total capital budget allocation for 2021
A well-researched cause for low cash releases to MDAs is that the government does not collect enough revenue each year to finance planned expenditures. Revenue targets are regularly missed because of over-ambitious and unrealistic revenue projections. Low revenues lead to low cash releases, undermining project and program implementation. As with previous years, the Federal Government is projecting to raise N10.7trn in revenues in 2022, despite never collecting more than N6trn in years past.
Figure 3: Five-year budget revenue trend
Source: BudgIT, 2022
Even when funds are available, government agencies, including subnational governments, still cannot fully implement their budgets. For example, despite exceeding its 2020 revenue target by 0.07%, Anambra State underspent its budget to the tune of N4.64bn (4% of the budget) in the same year. Less is known about the causes of these bottlenecks at the federal and sub-national levels, and more work needs to be done to identify and address the causes of these deviations.
One step the Federal Government can take is to improve budget data availability and explain the low utilization of released public funds. Disaggregated information on the spending from the N500bn COVID-19 Intervention Fund is neither available on the Budget Office’s website nor in reports from the Office of the Accountant General or Open Treasury websites. Furthermore, the Open Treasury portal, which houses data on government expenditures, has experienced persistent downtime since November 2020 to date.
Audit institutions can also investigate and report on budget credibility issues. However, the COVID-19 Audit Report, promised as a condition for the $3.4bn loan from the IMF, has not been made public. An interim report on COVID-19 expenditure presented to the National Assembly in January 2021 has not been made public. Available information suggests that N288bn, representing 57.6% of the N500bn COVID-19 Intervention fund, was released.
To ensure value for money, the government needs to enforce existing laws on fiscal responsibility and discipline. Likewise, accountability actors, including citizens, civil society, and the media must continue to demand improved transparency and accountability from the government on the deployment of scarce public resources.
Each month, we shine a spotlight on partners who are using budget advocacy to bring transformational change to their communities. This month, we talked with Romulo Emmanuel Miral, Jr. PhD, Director General of the Philippines Congressional Policy and Budget Research Department.
Q: What is the role of the Congressional Policy and Budget Research Department (CPBRD) in strengthening accountability in public spending, and who have been its key allies in these efforts?
A: All legislation on appropriations emanates from the House of Representatives, as it holds the purse strings. That said, ultimately, the House and the Senate jointly enact all such legislation. In addition to legislation, Congress is also vested with the oversight function over the implementation of legislation, the national budget included.
As the socioeconomic think tank of the House, CPBRD provides technical assistance to the legislation and oversight processes involved in the national budget and other appropriations through research and information support. The department’s main budget-related outputs are Budget Briefs; Agency Budget Notes; the Legislative Agenda, which is formulated for each Regular Session and with the support of the Committee Affairs Bureau; and occasional research monographs, such as the Legislator’s Guide in Analyzing the National Budget. Underlying all research and information support are the principles of transparency and accountability in public spending.
We also provide context for budget and appropriation legislation and oversight. In the area of the national budget and other appropriations, CPBRD articulates this context in its research outputs by:
Elaborating on the goals of public spending, namely, macroeconomic stability; redistribution; sustainable and inclusive development; and efficient, effective and predictable allocation of limited public funds through correspondence between national priorities and long-term spending plans; and alignment with strategic national and sectoral priorities, and
Discussing and illustrating the underlying principles of transparency, accountability, fiscal discipline, and evidence-based decision making.
CPBRD works with the Committee on Appropriations and other House Committees in providing support for the legislation of the national budget and other appropriations. It is also tapped by the Speaker’s Office for information support. Externally, CPBRD worked with the Commission on Audit and Social Watch Philippines, a civil society organization working towards the creation of the House Committee on Public Accounts. For purposes of knowledge sharing, policy dialogue, and capacity building, occasional collaborations have been pursued with multilateral institutions, such as the United Nations Children’s Fund (UNICEF) and the World Bank; other government institutions, such as the Philippine Institute for Development Studies; and civil society organizations, such as the Institute for Autonomy and Governance.
Of late, CPBRD has explored the institutionalization of public participation in the preparation of the national budget, which will allow the public more avenues to strengthen transparency, accountability, and efficiency in the use of public funds.
We also support the state’s oversight function, which increases the probability of success of the legislation of the national budget and other appropriations. It ensures that laws are implemented as they are intended and that outputs and outcomes in public spending are achieved. Our support is articulated in three ways: First, attempting to put forward the policies, parameters, and standards involved in budget implementation by the executive. Second, defining policies on the use of unutilized funds. And third, emphasizing the importance of the executive’s submission of periodic execution reports to Congress.
Recently CPBRD introduced legislative evaluations as an integral component in the implementation of laws.
Q: What are the main PFM challenges you have seen and are trying to address, as far as your role is concerned?
A: CPBRD sees the following as the main problems in public financial management in the country: A lack of efficiency in the allocation and utilization of limited public funds; a lack of fiscal transparency and accountability on the part of government agencies for their outputs and outcomes; and inadequate systems for monitoring budget execution and budget accountability.
Two of the more specific and notable problems include the wide discretion of the executive in budget execution and unavailability of complete and timely monitoring and evaluation information to guide budget legislation and oversight functions.
CPBRD has proposed the following solutions to these challenges:
The establishment of a Government Integrated Financial Management Information System that will generate real-time information on budget execution and results.
Greater access by Congress of the executive’s budget monitoring systems.
Strengthening the institutional capacity of Congress to monitor and evaluate the fiscal performance of national government agencies, such as through the creation of a public accounts committee, enactment of the Budget Reform Act, and the establishment of an independent congressional budget office similar to that of the US Congressional Budget Office that serves both houses of Congress.
Q: Has your agency benefitted from IBP and what we do? How has IBP influenced your work?
A: CPBRD monitors the Open Budget Survey because it provides an independent assessment of the extent that the country exercises transparency and accountability at each stage of the budget cycle. Through the OBS, we are able to monitor whether the Philippines has made improvements over the years in comparison with other countries. Highlights of the survey are featured in CPBRD’s Facts in Figures.
The OBS also provides assessments of Congress’ exercise of its oversight function. Where oversight is perceived to be low, CPBRD is prompted to produce outputs that underscore the importance of mainstreaming oversight in the work of the legislative and to provide our principals with the basis to initiate reviews of executive agency or program performance.
CPBRD also produces and distributes the Agency Budget Notes annually during the budget season. The Notes present analyses of the budget utilization performance or absorptive capacities of agencies. Indicators on the achievement of targets and relevant findings by the Commission on Audit are also given. We intend to improve on these outputs because they are widely used even outside the House of Representatives.
Q: How crucial was CPBRD’s role in providing oversight functions for COVID funds? Can you share about specific steps your office took to ensure accountability of COVID spending by the government?
A: As a research and information support unit, CPBRD provided House Members with a total of 40 weekly monitoring reports on the Republic Act No. 11469, which declared COVID a national emergency and gave the president the powers necessary to carry out the declared national policy. The reports were organized along the four areas covered in the law, namely, social amelioration, economic stimulus, health and COVID-19, and peace and order.
After the expiration of said law, CPBRD published ‘A Results-based Assessment of the Bayanihan to Heal as One Act’. The report summarized the results of the implementation of the law, identified factors that affected implementation results, and offered recommendations for improving the design and implementation of COVID-19 measures.
With the extraordinary budgetary powers given to the president under RA 11469, it was important that Congress was apprised with the extent to which agencies/departments and their respective programs were affected by discontinuances and reallocations for COVID-19 Initiatives. During the deliberations of the national budget in 2020 and 2021, CPBRD incorporated in the Agency Budget Notes updates on discontinuances and the status of COVID-19 releases, thereby highlighting the utilization performance of COVID-19 releases by the recipient agency.
Lastly, Special Issues of CPBRD Budget Briefs analyzed executive issuances affecting the agency budgets and the implementation of COVID-19 measures. Financial reports by the executive were examined and in a more simplified manner, fund releases were reported by expenditure purpose and recipient agency. Other fund sources were also covered, such as pooled savings from discontinued agency programs and unprogrammed appropriations, particularly from loan proceeds for foreign-assisted projects and Treasury-certified additional revenues. The budget briefs identified challenges to budget accountability, such as downscaled, postponed, or abandoned projects authorized in the General Appropriations Act, weak compliance by agencies to the reportorial requirements on utilization of COVID-19 releases, and proper accounting and audit of donations for COVID-19.
Q: What specific impact has your office achieved in the last two years?
A: During the pandemic, CPBRD temporarily stopped the production of our publications in hard copy and made considerable improvements to our website for online publications. Notably, there was increased demand for the Agency Budget Notes from House Members. CPBRD will resume printing of limited hard copies because of requests from the staff of House Members.
Congressional review of the budget has taken up more issues relating to operational efficiency of agencies and the overall efficiency in allocating limited public resources. It was observed that during recent budget deliberations, House Members asked executive agencies about their budget utilization performance or absorptive capacities. Also, budget proposals for the creation of new positions were also reviewed against unfilled positions of the agencies.
Online fora on the formulation of a national evaluation policy conducted by CPBRD in partnership with the Senate Economic Planning Office and the United Nations Children Fund UNICEF were well attended. The need for a culture of evaluation is now better appreciated.
The results achieved by many countries were disappointing, but the overall accountability gap the report found was not entirely surprising. Rather than simply lamenting the dismal state of accountability systems, however, we can shine a spotlight on what good procedures look like in practice. To take a more in-depth look at these practices, IBP drafted briefs that delve into government objectives in implementing them, the impacts achieved, and lessons that can be drawn for their replication in other countries. The main goal was to provide more detailed descriptions to governments and other stakeholders who work with governments of how they can “close the gap” and strengthen national accountability systems during emergencies.
Each experience provides a detailed description of the response taken in that country as well as the benefits they reaped. For example, in Jamaica, the real-time audit of the government’s COVID-19 stimulus package saved an estimated JMD 245 million in payments that would have been made to ineligible applicants. In Nepal and Sierra Leone, early engagement by the countries’ fiscal oversight institutions led to investigations of corruption and mismanagement.
In South Africa, public feedback through the Asivikelane initiative enabled the government to improve access to water, sanitation, and waste removal services affecting more than one million people living in informal settlements. Similarly, in Senegal, the government was able to better target its emergency response to people living with disabilities. This happened thanks to the work of the monitoring committee the government established to solicit public feedback on its emergency measures. In countries that developed COVID-19-related open data portals, like Ecuador and Paraguay, increased transparency in public procurement has led to greater public scrutiny of government contracts.
Many of the briefs were written by civil society organizations that engaged with government during the implementation of the fiscal measures adopted to tackle the impact of COVID. The authors interviewed people within and outside government who had knowledge and experiences of the practices documented in the briefs. A synthesis brief that summarizes the main lessons from the experiences of countries in implementing the good practices that were documented is now available online.
IBP and the World Bank recently organized a two-day workshop that brought together finance ministries, legislative staff, auditors, donor agencies, and civil society organizations to discuss the lessons from the experiences of countries in instituting accountable systems to manage their emergency funds.
Two main lessons emerged from the workshop:
One, country leadership plays a critical role in setting the tone for accountability and undertaking course corrections based on feedback. When governments are explicit about their intention to prioritize accountability, it can become a guiding post that informs actions. These include clarifying the governance of emergency responses through rules, regulations, legal frameworks, processes, and agencies. The actions can also take the form of new investments – including human and financial capital, and technical solutions – or leveraging existing skills and competencies in advancing an open and inclusive emergency process. In some cases, existing transparency, inclusion, and accountability approaches can be better targeted to address the emergency.
Two, a system-wide and multi-stakeholder response involving executives, legislatures, auditors, and civil society actors can overcome resistance to accountability. Emergencies require an all-hands-on-deck approach as a single agency or institution may not have the ability to change the accountability culture in the country. Further, early engagement by oversight bodies and external stakeholders is critical. Several of the good practice briefs found that these actors had, by engaging early, ensured that government standards were upheld.
Our work over the past year has clearly shown that governments can achieve speedy policy responses to an emergency like COVID-19 without undermining accountability. Strong public finance management systems measured by improved scores in the Open Budget Survey and Public Expenditure and Financial Accountability assessment can facilitate the process. When speed and accountability are pursued together, the public receives better services. That, in turn, builds confidence that the government can deliver. The overall message for governments, donors, and civil society organizations is to not wait for a crisis to invest in building transparent, inclusive, and accountable public finance management systems.
Vivek Ramkumar is the Senior Director of Policy at the International Budget Partnership. Edward Olowo Okere is the Global Director for Governance Global Practice at the World Bank Group.
By Claire Schouten, Senior Program Officer, International Budget Partnership and Joe Powell, Deputy Chief Executive Officer, Open Government Partnership
Restoring the notion of government of, for and by the people will be essential as we seek to renew societies and build resilience in the post-pandemic global recovery. This crisis exacerbated and exposed inequality and injustice around the world, hitting the most vulnerable hardest. Now is the time for governments to make more robust investments in rebuilding societies.
These investments are too important to be made opaquely and without public input, especially when inequality and perceived corruption have already undermined public trust in many governments. In recent years, governments globally have made commitments to be open about what they’re doing with the public’s money.
Fiscal openness is a mainstay of the open government movement. In the last decade of the Open Government Partnership (OGP), over 90 percent of OGP members have made a total of 671 fiscal openness commitments – more than nearly any other policy area. Fiscal openness is not just a consistently popular policy area in OGP, it’s also one of the four core eligibility criteria for membership, based on data from the Open Budget Survey. Redoubling those commitments, and most essentially, making sure they translate into accountability – so that communities have a say in public spending and can ensure governments use scarce resources for the public good– has never been more important to our democratic future.
The good news is that these efforts are paying off. As per the Open Budget Survey, we’re at the highest level of transparency since the International Budget Partnership started assessing open budget practices more than fifteen years ago. In the 77 countries assessed in every round between 2008 and 2019, the average global score on budget transparency increased by 20 percent. The latest OGP Vital Signs research also shows that OGP countries that have made open budgeting commitments – especially if they are ambitious and over multiple action plans – have improved their scores more than other countries.
However, progress has also been inconsistent with fluctuating performance in too many countries. Among OGP members, there are now some countries that even risk falling below the core eligibility criteria because they have slipped on their fiscal transparency scores. COVID exacerbated this volatility as many governments have not been as transparent with relief spending as they could be. Despite all of this, there is room for quicker, more sustained progress. If countries around the world simply published budget documents that they already produce for internal use, there would be transparency gains globally of 20 percent. Governments can also focus on proactively providing information that citizens want, such as information on service delivery.
Going beyond transparency
There is also growing recognition that transparency alone is insufficient, that opportunities for public participation and strong oversight are also central to accountable government. Spaces are needed for informed public debate and for those most likely to be adversely affected by inequitable budgets to be involved. Strong oversight by both legislatures, national audit offices and other oversight actors is needed to hold the executive to account throughout the budget process and ensure budgets are fully implemented in line with stated objectives.
As governments launched massive spending measures to address the impacts of the pandemic, some countries have shown that a more transparent, inclusive and accountable way of managing the public purse, even during an emergency, is indeed possible.
In the Philippines, a commitment to hold a series of public consultations called Dagyaw 2020—promoted under the aegis of the Open Government Partnership—was repurposed to ensure continuing public dialogues during the COVID crisis on government response policies.
In South Africa, the civil society-led Asivikelane campaign has highlighted severe public service shortages in South Africa’s informal settlements. Using a simple but effective survey that is implemented via text messages and targeted advocacy, the campaign has already improved access to water, sanitation, and waste removal services from municipal governments affecting more than one million people.
These good practices demonstrate that speedy policy responses do not have to undermine accountability. They provide a useful roadmap for governments to include citizens and critical oversight institutions in deeply consequential spending decisions in emergency times and beyond. By planning and implementing spending in a more open and collaborative way, and keeping citizens informed, governments can ensure public spending is more effective and equitable. Perhaps most importantly, they can strengthen social capital and expand civic space so that all people feel heard and trust that public funds are spent in the public interest. Governments should take heed of these approaches in their ongoing relief efforts. For instance, the EU’s landmark Recovery and Resilience Facility – an essential mechanism to combat the challenges faced by EU member states as they rebuild economies and livelihoods in the wake of the pandemic – should model these good practices. Given the unprecedented size and scale of the funds, it will be crucial to embed enhanced transparency, accountability and civic participation mechanisms to ensure these funds have their intended impact.
We have an opportunity to forge new alliances and strategies that shift politics. It’s an all-hands-on-deck approach to countering authoritarianism and promoting local accountability solutions. It consists of:
Refined political strategy. For public resources to contribute to a more just and equitable society, we need a deeper understanding and response to the political economy of public resource decision-making and implementation. Powerful interests that have built social, political, and economic structures that concentrate wealth and privilege and exclude marginalized groups are at the root causes of deprivation. Further opening up budget processes in meaningful ways requires developing alliances and partnerships that build countervailing power, so that public resources are spent to tackle poverty and inequity. Progress on open spending practices will also generate important information for combating corruption in public contracts and company ownership.
New spaces for impact. New spaces are emerging as opportunities for impact on big political issues of our time. They include meaningful civil society participation in revenue debates and spending monitoring; bridging budget and environmental actors to ensure that recovery funds contribute to a sustainable and green transition and that climate change funds serve vulnerable communities; and strong connections and real gains at the subnational level of government, with a focus on service delivery. Civil society has been a vanguard in carving out new spaces to inform government decisions in a meaningful way– now it is time for national and local governments to scale up and formalize channels for greater public participation on these mission critical issues.
New opportunities for powerful alliances. We can build a robust accountability ecosystem that fosters trust and strengthens democracy. Let’s bring together citizens, social movements, state accountability institutions such as national audit offices and executive ministries to foster a governance system that works for all.
As the Open Budget Survey and good practices above illustrate, it is notable that countries across income levels and geographies have been able to chart new directions to manage public funds in a more accountable and inclusive way. Where there is a will, there is a way. A more inclusive approach is not only possible, but desirable if we are to advance more resilient and democratic societies in which public funds advance the public interest. The Open Government Partnership can help by enlisting new allies, building broad coalitions across government and civic actors with legitimacy and power to rise to the challenges we face and are likely to face going forward.
This article also appears on the Open Government Partnership’s website. Read it here.
By Eka Iakobishvili, Program Officer, Open Society Foundations
In August this year, the International Monetary Fund (IMF) agreed to issue the equivalent of $650 billion in Special Drawing Rights (SDRs) to boost global financial liquidity in what IMF president Kristalina Georgieva called “a shot in the arm for the global economy at a time of unprecedented crisis.”
The SDRs are a reserve asset issued by the IMF to each of its 190 member countries, which can be exchanged for hard currency as required, or used as reserves, or swapped or on-lent. For countries suffering fiscal pressures because of the economic impact of the COVID pandemic on exports, or tourism, or increased healthcare costs, new SDRs can help balance the books.
The use of SDRs can be an attractive option for a country, if hard currency is needed. Although a small interest rate applies, it is by far the lowest available to Lower and Middle Income Countries (LMICs) and this is why SDRs are often referred to as free money or a reserve asset that is without conditions.
There is a lack of transparency about how SDRs are used and regrettably, very few governments globally have sought dialogue with the public on SDRs spending. In most countries, particularly in Africa, use of the SDRs resources and consequent accountability have been left solely to the discretion of the central bank and a few technocrats within the finance ministry with limited to no involvement or dialogue with the general population. This raises concerns over the decisions made: central banks might opt to prioritize debt repayment to international creditors, as opposed to using the funds to support recovery efforts.
For poor and middle-income countries, SDRs are going to be vital in the post-pandemic recovery. In this process, civil society has a vital role to play. Civic activists and established civil society organizations (CSOs) have the power and capacity to advocate and push for people-centered economic models that were not possible before, building the capacity for resilience but also playing the oversight role.
Some groups are already taking a lead:
In Africa, some suggestions by Zimbabwe Coalition on Debt and Development (ZIMCODD) already have been made for SDRs use in a multi-year framework that can finance social services and/or infrastructure projects within the country.
CSOs can assist central banks and governments to ensure broader public participation in dialogue with technocrats and high-level policy makers. In Uganda, Southern and Eastern Africa Trade Information and Negotiations Institute (SEATINI) has been pushing for such policy engagement with the government by providing policy recommendations and calling for wider public participation and oversight on debt debates in the country.
CSOs can also support efforts by legislators to strengthen debt management procedures and engage in advocacy around oversight procedures where they exist.
Finally, the CSOs should work in coalition with cross country and cross regional groups to apply pressure on institutions (IMF, or regional banks) and high income countries involved in on-lending, to include transparency and accountability safeguards in SDR-related concessional loans – all in the spirit of democratic ownership, strengthening independent scrutiny, and creating space for participation and accountability to citizens.
It is important that calls for putting such mechanisms in place come from both national groups and international CSOs to ensure governments are held accountable and follow through on these commitments. For CSOs to be effective in holding government to account, they need access to information on the use of SDRs. International organizations, including the IMF, can and should facilitate disclosure of such information and enable public dialogue at the national level.
The international community and national governments can benefit greatly from opening the space for civil society voices and expertise to inform decision making around and oversight of SDRs. Smart partnerships between international organizations, governments and CSOs can ensure these critical funds help fuel more efficient, resilient and inclusive post-COVID recoveries.
For more on this topic, watch the recording of a recent event co-hosted by the International Budget Partnership on Promoting Equity and Accountability in IMF Special Drawing Rights in English and Spanish.