Is Fiscal Transparency Really Relevant to Improve Public Spending?

by GIFT Team

As members of the Public Financial Management community, we are frequently confronted with the question: is fiscal transparency really relevant for improving public spending? There is no easy answer it, as there is no easy or unique path transforming fiscal transparency into a public good. For many years, governments have published information about their finances without it being used. And we know that most of the success stories on fiscal transparency are related to transforming disclosed information into something relevant for the public. We do know that fiscal transparency is not a solitary requirement or sufficient condition that leads to improved social, economic and environmental outcomes (for examples read de Renzio and Wehner 2015). However, it is a steppingstone that helps improving the quality of spending and in some cases, accountability. The following diagram displays GIFT theory of change which links fiscal transparency linked with direct and informed public participation can lead to more accountability, improved budget outcomes and impact in people’s lives.

In few words, fiscal transparency can result in better use of public resources, when the data is actually used by its citizens. Dialogue and participation in the budget are necessary to help ensure that the disclosed information responds to the public needs. To date, one of GIFT’s contributions has been to encourage this dialogue between ministries of finance and civil society organizations, resulting in the disclosure of more meaningful information in more friendly and accessible formats.

The following stories do not intend to be an exhaustive compendium on how GIFT members and partners have used fiscal transparency to have an impact and achieve better results, but they provide elements that describe and illustrate the above change relation in different contexts and topics. 

Gender violence based spending in Argentina

How many governments promote their policy choices by means of discourse to satisfy public claims, but do not back-up such promises with the funds needed? It is a common political practice that affect all subjects, from environmental protection and poverty alleviation to gender issues. The publication of budget and spending data and informed public debates on the matter can limit this possibility throughout the budget cycle.

The Asociación Civil para la Igualdad y la Justicia (ACIJ), an organization with a specialized track record of analyzing public policies to guarantee human rights, joined the GIFT network in 2017. Meanwhile, another GIFT steward, the Ministry of Finance (MoF) of Argentina, opened a significant  amount of disaggregated data in a new user-centered fiscal transparency portal called “Presupuesto Abierto”, which discloses on a daily bases information about the execution of the budget. In the next video, Renzo Lavin, Co-Director of ACIJ, explains how the accessibility to this data has facilitated their work and enabled them to hold an informed discussion with the MoF. Among other benefits it has led to corrections in the proposed allocations for gender-based violence policies by identifying and exposing publicly the mismatch between the political promise to invest in programs to help address gender violence and its consequences, and the actual budget allocations.

ACIJ hosted a Better Budget Dataquest with GIFT in February 2019, an open event for civil society data experts to link fiscal open data with government programs and policies information. The Argentinian MoF participated in the event with presentation of how to use the open data and providing technical assistance to the participants. A few months later, ACIJ started a budget and data literacy effort directed to organizations focused on gender aspects, which includes a guide and videos on how to analyze budget with a gender perspective, expanding the abilities of the CSO community to use the open spending data published by the government for incidence. Budget and data literacy efforts are some of the most popular actions to be implemented among Stewards in 2019. As a result, SCOs came up with the claims that more fiscal resources were needed to back up the political claim of a government supporting anti violence gender programs.

 

Budget Allocations for HIV in Indonesia

The Ministry of Finance of Indonesia was among the first countries to introduce a budget open data portal as part of their fiscal transparency efforts. The GIFT Network was part of this important step, back in 2016, which included a workshop with GIFT Stewards from around the world hosted in Jakarta by the MoF. With more accessible budget information, CSOs such as Seknas-Fitra (GIFT Steward), have been able to engage in constructive conversations with the MoF and local governments as well on budget issues.

With new and relevant information, Seknas-Fitra has also been able to act as intermediary with grass-roots organizations to facilitate their understanding of the published information and how it can be used to better focus their agenda. A specific result of these actions has been changes in the allocation of budget directed to HIV in different regions of the country. In the next video Yenti

Nurhidayat explains this chain of events that have led to better protection of vulnerable groups.

The dialogue between the MoF, Seknas-Fitra and other CSO has also derived in budget and data literacy efforts. As such, together they organized the GIFT Better Budget Dataquest in early 2019 in two Indonesian universities, expanding the capacity to use the budget open data to analyze public policies. This has already triggered a better informed debate on budget allocations and ways to engaged the public in fiscal policies.

 

Budget for sustainable urban mobility in Mexico

Mexico has been one of the early adopters of mainstreaming fiscal transparency reforms in different topics though digital tools, including open data and digital platforms. The MoF has been part of GIFT since its initial phase back in 2013, and became a Lead Stewards in 2017. As such, it has been a key actor to showcase how user-centered fiscal transparency efforts can benefit organizations with a variety of backgrounds and interests, such as regional development, maternal health, inclusion or human rights. Linking relevant budget data with the government information which they are familiar with, these organizations have led to several stories to improved efficiency, efficacy and impact of the public resources.

In the blog post that can be consulted here, Lorena Rivero, a former Director General for Transparency and Evaluation at the Mexican Federal MoF, describes how fiscal transparency led to a simpler analysis of the implications of budget distribution in sustainable urban mobility by the Institute for Transportation and Development Policy, which urged the way of transforming the whole approval process of investment projects of a specific fund from amount orientation to quality of investment and sustainability considerations.

The case reflects the fact that a discussion cannot be really balanced, productive and constructive if the government officials and public representatives do not have access to equivalent amounts of quality of information. The provision of the relevant data in the correct formats can help an informed discussion and open for real opportunities in the way public resources are allocated and executed.

 

Some conclusions to be drawn from these examples

There are still multiple complexities in the numbers of relations that go from the publication of fiscal data, to its conversion into a public good as a result of its utilization, to social impact. Among other conditions, relevant data should be available in the right formats and at the right time. Other necessary conditions must be present, such as having, on the demand side, specific interested organizations willing and capable to analyze it and understand the implications for their sectors. Furthermore, a propitious public space where the analysis can be heard and discussed by public officials is also needed to close the feedback loop, which in many cases will become an iterative process.

Organizations working with GIFT are helping amplifying the community based organizations and thematic focus organization that can benefit from fiscal transparency. This is important, as it is not always budget and public finance organizations that have exert influence in Public Financial Management in a broad sense. The opportunities opened by transparency and public utilization of relevant fiscal information can go deep into public policy performance considerations that can have repercussions in many people’s lives. A better allocation and use of public resources will be crucial when addressing the Sustainable Development Goals and having data available for different expert organizations to analyze is a first step to allow a more profound discussion to take place.

From Fiscal Transparency to More Sustainable Cities: Case in Mexico

Some public programs are designed as the result of the political realm, besides any possible  technical propositions and considerations. Pork barrel funds are a reality, in developing countries, as well as in developed ones. This was the case of the Metropolitan Development Fund in Mexico.

The fund started before 2011 changing forms and structure but, continued growing throughout  the years during the approval phase of the budget cycle. In Mexico, a presidential system, each year the executive power, through the Ministry of Finance and Public Credit (MoF), presents to Congress the budget proposal for the next fiscal year, which is then analyzed, amended and finally approved. Year after year, this program returned from the legislative in the approval phase of the budget process with significantly more resources than proposed by the executive branch, as a result of political negotiations, to the point of being implemented during the fiscal year in projects unlinked to the development and sectoral priorities. Organizations and researchers started noting the lack of a clear objective and inefficient allocation of these resources, resulting in the financing of projects that encouraged the use of private transport, rather than more sustainable cities (see for example the The Institute for Transportation and Development Policy (ITDP) of Mexico report “Diagnosis of federal funds for transportation and urban accessibility: How we spend our resources in Mexico in 2011 by Javier Garduño”). Furthermore, organizations trying to engage and study the effects of such resources encountered significant problems in following the money. In 2013-2014, the legislative management of this fund, finally led to a big scandal involving congress members engaging in corruption to include and approve projects in such fund.

Before public opinion, it is usually hard to separate different levels  of government when such scandals arise, as the public condemn politicians as a whole. Therefore, the MoF decided to take action through fiscal transparency, so the public could distinguish the process and its outcomes. While it might not be the most obvious solution, it was a form of clarifying that although the MoF managed the delivery of the funds, it was not taking part of the corruption and was taking actions to expose it, as a way to tackle it. With such goals, in 2014 the MoF presented a platform publishing the details of the approved projects expecting the public to be able to monitor approval and implementation. As the Mexican MoF was a member of GIFT, the network was part of the public launch of these changes,  highlighting the importance of such actions to lead to public participation and social impact.

Conversation shifted to discuss in depth the approval of the projects and what needed to be changed in the design of the fund to achieve sustainable cities. With the data available, civil society organizations such as the Urban Cycling Network (BICIRED) and ITDP were able to engage in the approval process of the budget cycle with an informed social media campaign (money for the humane city- a catchy phrase in Spanish “Lana para la Ciudad Humana”) and lobbying actions for the 2015 budget. That year, the approved Budget Decree included a new clause, stating that the Metropolitan Development Fund should consider non-motorized mobility to finally include in subsequent years that at least 15% of resources should be directed to public transport and non-motorized mobility.

In 2017 a complete redesign of the program was possible with some milestones achieved by different ministries and with the findings of an external evaluation to the program. For the 2018 fiscal year the operating rules of the program changed completely, creating a collegiate body to approve the projects, conformed by the MoF, the Ministry of Territory and Urban Development and the Ministry of Environment. The approval of the projects would now require better pre-investment studies, depending on the cost of the project a cost-benefit evaluation or others, and an opinion sheet filled out by the collegiate body, highly focused on awarding points to sustainability, urban mobility and resilience projects.

Cutting with inertia of how projects are presented is not easy and therefore a more paused approval of spending happened, but slowly more of the expected projects started to flow from the local governments to the MoF.

This case reflects how opening spending data can lead to changing relations among different powers in government (executive, legislative, audit and national-local governments); it can improve the quality of the discussion between civil society and government (when the government is open to listen and act!), highlighting that it is not always organizations expert in public finances that can induce results from fiscal transparency; and finally it can lead to more effective public spending. As such, fiscal transparency and public participation triggered policy changes that replaced the previous pork barrel system in favor of better public spending through policies for sustainable development.

Coupling AI and Sustainable Development Goals through Public Expenditure Data: Why Fiscal Transparency is Crucial to Achieve the 2030 Agenda

Since their establishment in 2015, the Sustainable Development Goals (SDGs) have become the leading international agenda to promote social, economic and environmental development. The 2030 Agenda has encouraged the construction of numerous development indicators through which governments can track and evaluate their progress towards the SDGs. For example, the United Nations provides open access to the official SDG database; alternatively, the World Bank has collected enough indicators to build an ‘unofficial’ SDG database; and countries like Mexico are producing comprehensive indicators at the subnational level (agenda2030.mx). Indicators, however, are only one side of the development equation: they constitute the output. However, realistic strategies to reach specific goals of a government cannot be properly designed without information about the input side: public expenditure.

To a reasonable degree, a government’s development strategy can be captured by its allocation of resources across different policy issues. The aim of such strategies is transforming the relevant indicators to, eventually, reach the government’s goals. Ironically, while we have plenty development-indicator data, there is scant information on public expenditure. However, in recent years, the Global Initiative for Fiscal Transparency (GIFT) has been trying to change this shortfall. But, even if fiscal data would become available, the complexity of the policymaking process obfuscates our understanding on how public expenditure translates into development outcomes. This is so because, for example, government agencies may have different goals from those of the central authority (misalignment of incentives), there may be inefficiencies due to corruption or lack of capacity and, on top of that, there are spillover effects between public policies (synergies and trade-offs). Fortunately, cutting-edge Artificial Intelligence (AI) research is trying to cope with this challenge. In this post, we argue that these technological advances in conjunction with open fiscal data can enable governments to fully exploit SDG indicators in the pursuit of worldwide development. For this reason, it is crucial that governments focus their efforts in two fundamental tasks: (1) producing granular open fiscal data and (2) linking it to development indicators.

 

AI for Sustainable Development

At The Alan Turing Institute, we are developing the computational framework of Policy Priority Inference (PPI). PPI builds on a behavioral model of the policymaking process. Among the most relevant aspects considered, we can find the learning process of public officials, coordination problems, incomplete information, and imperfect monitoring mechanisms. PPI simulates the complex and uncertain dynamics observed in development-indicator data. In parallel, it takes into account the network of interdependencies between development indicators, which describes positive and negative policy spillover effects. The method can be used with datasets that have more indicators than observations; such as those built by most governments. Likewise, it does not require an insurmountable collection of information, so it is scalable to big or small data.

The innovation of using an AI tool such as PPI is that, by explicitly modeling the policymaking process that generates development indicators, we can simulate data that is not observable in the real world. One such data is precisely public expenditure on SDGs. In addition, PPI can also estimate, at the level of each indicator, how efficiently are the resources being used. In a recent paper (arxiv.org/abs/1902.00430), we use this technology to measure policy coherence, a topic that has not been properly quantified and yet, is central to multilateral organizations such as the OECD (oecd.org/gov/pcsd). PPI reproduces empirical development indicators and, as a byproduct of its behavioral model, it simulates the distribution of resources that gives place to the observed indicator dynamics. We use these distributions to construct a policy coherence index that can be used to compare how consistent are the policy priorities of a government in relation to its development goals. Our index can be extremely valuable to assess how committed are governments towards the 2030 Agenda –or any other– and to identify those policy issues that should be prioritized.

 

AI + Open Fiscal Data

So, in absence of open fiscal data, PPI simulates budgetary allocations that generate real-world development indicators. However, we can do much better if we feed this technology with public expenditure data. For example, if governments provide a detailed account of their allocations at the level of each development indicator, PPI can be tuned to match those expenditure patterns. This would represent a major improvement in the estimation of policy priorities. To get a clear picture of why this would be the case, let us provide some context on the tools that are currently being used to advise governments.

Traditionally, development consultants have attempted to approximate the effects of improving specific indicators by measuring their level of association. That is, by looking at metrics such as correlations or regression coefficients, analysts try to disentangle how, for example, improvements in the aquatic environment (SDG 14) relate to changes in GDP growth (SDG 8). These associations, while illustrative, are not informative about how to produce environmental improvements. In other words, by solely focusing on the output side of the problem (indicator data), we can only learn how an indicator in SDG 14 relates to another one in SDG 8, not how a specific budget program translates into effective policy contributions, then into development, and subsequently into spillovers. Ironically, the whole point of providing policy advice is to know the instruments that have dedicated recourses, i.e. the input side. In principle, public expenditure data can ease this problem. This is why AI tools such as PPI are so important to produce reliable policy advice.

Going back to our main discussion, open fiscal data plays a crucial role for the SDG policy prioritization through AI. This shows the importance of making fiscal data publicly available, an endeavor that GIFT has pursued forcefully in the last decade. There is, however, an additional challenge that needs to be tackled: linking expenditure to SDGs. As we have explained, the output side of the development process consists of indicators, not expenditure programs. This translates into a mismatch between inputs and outputs, something that requires the attention of every government. The Mexican government, for example, assembled a team of specialists from the Treasury and from the United Nations Development Program to produce the first fiscal-SDG linked data in the world. This experience should provide guidelines to other countries that are serious in attempting to reach the 2030 Agenda.

 

The Future of Open Fiscal Data

A systematic effort to publish fiscal data and link it to development indicators is necessary if governments want to exploit AI for reliable policy advice. Nevertheless, there will still be other challenges ahead that need to be overcome. One of them is that, even if comprehensive fiscal-SDG linked data becomes available, we need to identify transformative expenditure. That is, just because we observe a substantial amount of resources in a specific policy issue, it does not mean that those resources correspond to transformative policies (those that improve indicators). The best example is the highway infrastructure of the industrialized nations. In these countries, extensive road networks have already been created, so most if the expenditure in this topic is dedicated to maintain them. Thus, indicators such as road coverage will not change as a result of this expense. In contrast, a developing country where new highways are being constructed is effectively devoting resources to produce a transformation, pushing the relevant indicator upwards. In one of our papers, we have found a related –and paradoxical– example in the topic of education. While developing countries have not prioritized this issue (which they urgently need to do), the developed nations keep investing to transform it (e.g., Finland is currently transforming its curricula in profound ways: ind.pn/2wfIgdB).

In conclusion, if governments are serious about meeting the SDGs by 2030, or any other future development agenda, they need to embrace what AI methods have to offer and combine them with development-indicator data. However, these efforts will eventually reach a bottleneck if governments only care about the output side of development. Thus, it is crucial to start building data for the input side, in particular, fiscal-SDG linked data. Only then, governments will be able to take advantage of the current technological revolution when designing and implementing policies.

 

For countries interested in applying for this model, who are committed to opening their public spending data and advance the link between the budget and SDGs, contact GIFT Coordination Team through lorena@fiscaltransparency.net.

 

Bios

Omar A. Guerrero (@guerrero_oa) is a Senior Research Fellow at the Department of Economics in University College London and at The Alan Turing Institute, the UK’s national institute for data science and AI. He has been a fellow at the Oxford Martin School, the Saïd Business School and the Institute of New Economic Thinking at the University of Oxford. Currently, Omar works in the intersection of development economics and sustainability, trying to understand how policy priorities translate into effective development. For this, he employs techniques such as agent-computing models, machine learning and natural language processing.

Gonzalo Castañeda is Professor in Economics at the Center for Research and Teaching in Economics (CIDE), Mexico. He is also a member of the National Research System, level III (i.e., the top rank granted by the National Council of Science and Technology). Gonzalo works on Complex Adaptive System with issues related to economic development, and has a forthcoming book written in Spanish and English with the title “Social Complexity: An Innovative Approach for Understanding Socioeconomic Phenomena”.