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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.

Short info about participatory budgeting in Slovenia

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On participatory budgeting, we have started small in Slovenia a few year ago, but we have come pretty far in less than 5 years. There is a substantial interest among local communities and the Parliament has helped with legislation promoting participation.

The idea of participatory budgeting is not completely new in Slovenia. It has been around for some years. First »experiments« in this field started in city of Maribor in 2014 and 2015. Unfortunately, the project ended since there was not enough political will for full implementation.

A similar initiative started in local community of Ajdovščina in 2016 and it has been a success ever since. The same case is observed with the neighboring municipality of Komen.

In May 2017, the GIFT network and Court of Audit of the Republic of Slovenia organized a regional seminar on participatory budgeting which gave a new push to the movement. Addressing the GIFT public participation principles and having access to international experts and experiences, combined with discussions on the Slovenian mechanisms to engage communities in budgeting,  big organizations of local communities (i. e. SOS Skupnost občin Slovenije – Association of Municipalities and Towns of Slovenia) took part and started to promote the idea strongly.

By 2018, such promising idea had reached the high politics. The Government had prepared additional articles for the Law on Local Communities and among them was also the article on participatory budgeting.

In March and April 2018, the articles were already on the desks of the member of the parliament. The whole procedure in the Parliament is to be found here.

A Bill was signed into Law on the 25th of April 2018 and published a day later (https://www.uradni-list.si/_pdf/2018/Ur/u2018030.pdf Page 4491). The new article 48.b states:

»In the process of preparing the draft budget, the municipality may determine the amount of funds intended for financing projects proposed by citizens. On the proposed projects, the municipality conducts consultations with citizens no later than the submission of the budget to the municipal council for reception.«

In October 2018, local elections took place in Slovenia. The debate about participatory budgeting went on high gears. Many candidates for mayors and many politicians campaigning for the local councils stated participatory budgeting as one of their priorities in their political programs. »Danes je nov dan« reports, that 57 candidates, that have promised to support participatory budgeting have entered local councils (https://danesjenovdan.si/participativni-proracun/).

In 2019, we are starting to see the first results. Nova Gorica, Ankaran, Renče Vogrsko, Hrpelje Kozina, Šentilj and Razkrižje have already started with the participatory budgeting. And it looks like that Krško, Benedikt, Koper and Divača are going to start the procedures of participatory budgeting for the budget year 2020.

As such, and with the little help from the GIFT network and other international experts, and the decisive support from the Court of Audit and the National Parliament, some Slovenians are starting to be more engaged in the decisions and implementation about their budgets. The process in which community members directly decide how to spend part of the budget, enabling taxpayers to work with local governments to make the budget decisions that affect their lives, is taking place in Slovenia, which is a very meaningful happening for our democratic live.

Local communities

Maribor, 2014.     Ajdovščina, 2016.     Komen, 2016.     Logatec, 2018.     Nova Gorica, 2019.     Ankaran, 2019.     Renče Vogrsko, 2019.     Hrpelje Kozina, 2019.     Šentilj, 2019.     Razkrižje, 2019.     Krško, for budget of 2020.     Benedikt, for budget of 2020.     Koper, for budget of 2020.     Divača, for budget of 2020.     Kranjska Gora (just for young peple), 2018: https://obcina.kranjska-gora.si/dogodek/165559 & http://www.sodeluj.es/

 

Seminars

September 2015.     May 2017.     April 2018.     October 2018.

 

Literature

2015 and 2016.

 

Articles in newspapers

Delo, 2013.     Dolenski list, 2016.     Dnevnik, 2018.     Večer, 2018.     Primorske novice, 2018.     Novice, 2018.     Delo, 2018.     Mladina, 2018.     EKoper, 2018.

The 2017 Open Budget Survey: What the results for public participation mean

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The latest round of the Open Budget Survey (OBS 2017) includes a new set of measures of public participation based on an emerging international consensus about what participation in the budget process should look like. The participation questions were fundamentally redesigned for the 2017 survey, so it is not possible to assess changes since the 2015 survey.

Budget participation scores are low overall, with the global average score being 12 (out of 100). This average masks considerable variation across countries and across stages of the budget cycle.

First, the survey finds that public engagement takes place more during the budget preparation stage than during budget implementation; more when the budget is approved by the legislature than when the legislature considers the Audit Report; and in a significant number of countries the Supreme Audit Institution engages publicly on the setting of its audit program.

Secondly, a small number of countries are engaging the public across the whole budget cycle and exhibit many good practices (Australia, New Zealand, the Philippines, and the United Kingdom). A much more diverse group of countries achieved the top score for public engagement by the executive branch on at least one of the ten questions in the survey, including Afghanistan, Bangladesh, Botswana, Bulgaria, Canada, Democratic Republic of Congo, Egypt, Fiji, Ghana, Guatemala, India, Kyrgyzstan, Kenya, Madagascar, Malawi, Malaysia, Mexico, Poland, South Africa, and Ukraine. More than 80% of the countries surveyed (94 out of 115) have some form of participatory mechanism in place.

Open Budget Survey 2017 results for public participation: countries scoring 20 and above
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Source:   https://www.internationalbudget.org/open-budget-survey/

It is clear, however, that all countries need to enhance the inclusiveness, openness, and depth of existing public engagement mechanisms and implement similar mechanisms in other stages of the budget cycle.

What are the low average scores telling us?

First, direct public participation in the budget process is, in general, a very recent element in fiscal transparency. Budgeting has traditionally been conducted within government institutions, and the first generation of international fiscal transparency initiatives was essentially confined to the disclosure of fiscal information. While there is a clear move towards more openness in budgeting – reflected for example in the formation of the Open Government Partnership – this trend is from a low base and, as noted, is uneven across different stages of the budget cycle.

Secondly, although based on experiences around the world, one needs to recognize that some of the GIFT Principles of Public Participation are aspirational. They flow from the assertion, in the 2011  GIFT High Level Principles of Fiscal Transparency, Participation and Accountabilityendorsed by the UN General Assembly – that direct public engagement in the design and implementation of fiscal policies is a right of citizens and taxpayers. This view goes back at least as far as the French Declaration of the Rights of Man and Citizen, 1789, which stated: ‘All citizens have the right to ascertain, personally or through their representatives, the necessity of the public tax, to consent to it freely, to know how it is spent, and to determine its amount, basis, mode of collection, and duration.’ (Article 14).

Reflecting an emerging consensus, International fiscal transparency standards have very recently started to incorporate a few elements of direct pubic participation e.g. in the IMF’s Fiscal Transparency Code[1], and OECD instruments.

There are, however, few specific standards yet on what constitutes a recognized practice in engaging the public in central government budget management. The OBS is playing a pioneering role in helping to define the sorts of practices that reflect sound principles. The OBS is also now collecting invaluable information on what is taking place on the ground in 115 countries. This will prove a valuable resource for practitioners and researchers in government, legislatures, Supreme Audit Institutions, civil society, international institutions, and indeed standard setters, to draw on in strengthening public engagement.

Thirdly, some of the main reasons the participation scores are generally so low is that most countries are not making the effort to engage with even a minimally diverse set of citizens and interests, and are not providing feedback to the public on how their inputs were considered or used. The GIFT Participation Principles stress inclusiveness and respect for self-expression for a very good reason: to try to avoid public participation being dominated by the ‘usual voices’, the best connected, lobbyists, the wealthy, or narrow elites. Warren Krafchik, director of the International Budget Partnership, has described budgets as sitting ‘at the nexus of democracy and inequality.’ Governments can easily go through the motions and claim to be listening to the public when their intention is the reverse. In a change from the 2015 Survey, the 2017 OBS therefore measures efforts to engage widely and with the marginalized and vulnerable. One effect of this change is that countries such as South Korea that rely more on expert-based participation rather than broad public participation, score considerably lower in the 2017 Survey. While open external expert scrutiny, input and deliberation is a valuable form of public participation, it is not a substitute for wide engagement across society.

If more governments do not become more inclusive in how they design and implement taxation and public spending, we are much less likely to counter the negative trends with respect to inequality, willingness to pay taxes, and trust in government. One challenge from OBS 2017 is to work much harder on inclusive public engagement in the management of public finances. As GIFT’s founders recognized in 2011, direct public engagement has the potential to transform the disclosure of fiscal information into more effective accountability and better development outcomes. And the ICT revolution has given it a major shot in the arm, by dramatically cutting the cost of direct interactions between governments and citizens, as well as by making possible entirely new forms of public participation.

It also needs to be recognized that, like any survey, the OBS has to contain its scope to be manageable. With respect to public engagement by the executive branch of government, the 2017 Survey for the most part measures direct interactions between central finance ministries and the public. We know that a lot of direct public engagement is implemented by line ministries and agencies that actually deliver public services or make payments to citizens (as revealed by the findings for the question in the OBS that applies to line ministries). There is again limited practical guidance on what constitutes good practice in this area. GIFT is compiling examples of public participation across the whole budget cycle in a Guide to Public Participation. GIFT’s strategy for 2018-2020 is to ‘put the citizen at the centre of fiscal transparency’, by focusing, for instance, on the availability and accessibility of budget information at the individual service delivery unit level (e.g. school or health center), to foster citizen monitoring, on-going direct interactions with service recipients and local communities, and more effective accountability.

Finally, looking ahead, it is interesting to note that, while OBS results suggest that progress on increasing the disclosure of budget information has stalled for the first time since the launch of the Open Budget Index (OBI) in 2006, this is less true for countries that are members of the Open Government Partnership (OGP). For the 102 countries that were in both the 2015 and 2017 surveys, the average change in OBI scores was -2% – although this decline in part reflects the fact that the 2017 survey introduced a more demanding requirement that all documents be available on government web sites rather than in hard copy[2]. Leaving that aside, for the 52 OGP member countries covered by the OBS the average change in score was -0.7, while for non-OGP members the average change was – 3.1.[3] The relative difference across the two groups remains largely the same even if OECD countries are removed from both groups.

 

The significance of this with respect to public participation is that the OGP is built on a co-creation model in which governments and civil society work together. Around a third of all the commitments made by OGP member governments are fiscal transparency commitments, many of which involve direct public engagement in one form or another. The OGP recognizes that fiscal transparency resides at the very core of open government.  GIFT and the OGP Support Unit have been working together since 2012 through peer to peer technical collaboration workshops (Fiscal Openness Working Group), bringing ministry of finance officials and in-country CSOs together to encourage the adoption of more ambitious commitments to fiscal openness, and to support them in implementing their commitments. In a world where there has been some shrinking of civic space, expanding membership of the OGP, and providing more support for OGP members, offers an important way forward.

Murray Petrie, GIFT Lead Technical Advisor

 

[1] See Principle 2.3.3 in the IMF Code, and the section on Openness and Civic Engagement in the OECD Budget Transparency Toolkit.

[2] To the extent that countries have shifted from hard copy publication of budget documents and fiscal reports to web-based publication, there has been an unmeasured increase in the accessibility of budget information. Some countries also published hard copy documents for the first time that would previously have been recognized by the OBS. In addition, some countries have improved the accessibility and ease of understanding of fiscal information on web sites through setting up Fiscal Data Portals (See: Materials used during the Fiscal Transparency Portals Workshop, Jakarta 2016).

[3] This analysis excludes the three countries that have withdrawn from the OGP.

How public institutions and CSOs are changing the game: the GIFT Public Participation in Fiscal Policy and Budget Making Award

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GIFT is honored to announce the results of the Public Participation in Fiscal Policy and Budget Making Award. The network ‘s Coordination Team received 16 submissions documenting quite varied and amazing experiences coming from all range of actors in the fiscal transparency and accountability ecosystem, from 13 countries (Brazil, Chile, Georgia, Germany, Guatemala, Kenya, Mexico, Nepal, Nigeria, Paraguay, Papua New Guinea, Philippines, and Portugal). We were very pleased to have received proposals coming from both government and civil society organizations, and that winners came from both types. This reflects the interest in public participation from all actors. Of these 16 cases:

  • 11 were implemented by state institutions (MoF, local governments and Supreme Audit Institutions), and 5 by civil society organizations;
  • 6 are subnational level only (4 of which are participatory budgeting);
  • 3 are participation with respect to public services
  • 3 involve Supreme Audit Institutions

We are very happy to announce that the top considered mechanisms were proposed by a local government in Portugal, the Court of Audit of Georgia, and a CSO in Mexico. Congratulations!

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Taking home the top prizes were the Cascais Participatory Budgeting, implemented by the Municipality of Cascais, Portugal; the Farm Subsidies: Public participation to improve the situation of small farmers in Mexico, executed by the CSO Fundar, Center for Analysis and Research; and Georgia’s Budget Monitor, implemented by the State Audit Office. These cases are invited to attend the Open Government Partnership Regional Meeting in Argentina (Buenos Aires, November 20-22) to present their experience. We will see you there!

The GIFT Selection Committee had a very hard task selecting the best 3 cases. A Special Mention Award from the Jury went to the Citizen Participatory Audit case of the Commission on Audit of the Republic of the Philippines, another case presented by a Supreme Audit Institution, that has already been documented in GIFT’s Guide on Public Participation Principles and Mechanisms (see http://guide.fiscaltransparency.net/case-study/citizen-participatory-audit/) and published as part of a case study produced as the GIFT effort to share with practitioners, success experience on public participation in fiscal policies.

GIFT was so pleased with other cases that we will try to document, in the coming months, many more. We will be in touch with other fantastic proposals, aiming at publishing soon at least 3 additional cases, besides the 3 finalists.

The Municipality of Cascais, with a population of 206.000, has ran the Participatory Budget for 6 years, involving more than 150.000 citizens, implementing 88 projects (works) worth 15.820.000€ and has strengthened people’s confidence in their governors.  Moreover, their methodology has been replicated in more than 10 cities and observed by different continents. Farm Subsidies (Subsidios al Campo) is a public participation case led by a public interest group, a peasant organization, and a group of academics and technical experts that uses Mexico‘s Freedom of information laws to obtain official data on the recipients of agricultural subsidies, which is analyzed and disseminated widely through a user-friendly website (www.subsidiosalcampo.org.mx).  Through this online public database, Subsidios al Campo improved the transparency of government farm subsidies, and identified a disproportionate, and inequitable, concentration of subsidy recipients in the wealthiest 10 percent of farmers. The analyses helped explain how this happened, and the advocacy supported by this evidence contributed to reforms in the subsidy programs. Georgia´s Budget Monitor is a recent initiative that offers a unique analytical web-platform with comprehensive information about public finances, designed from an auditor’s perspective via different data visualization tools, such as interactive and user-friendly diagrams, info-graphics and tables. Further, to engage the public constructively throughout the audit cycle, through the Budget Monitor platform, citizens can send audit requests, suggestions, and proposals, inform the SAOG about the deficiencies in the PFM system, and suggest the priority spheres for future audit(s). Additionally, the Jury awarded a special mention to the Citizen Participatory Audit of the Commission on Audit of the Republic of the Philippines, a practice that involves citizens as member of the Commission audit teams in conducting audits.

Public Expenditure and Financial Accountability – PEFA: Past, Present and Future

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On April 26-29, the Public Expenditure and Financial Accountability (PEFA) Program convened an important conference and training on the new PEFA Framework 2016 and public financial management (PFM). The meeting, held in Budapest, focused on key priorities and challenges in PFM and the impact of PEFA in the next 5-10 years.

 

The new PEFA 2016 framework is a substantial upgrade from the previous 2011 version, which was largely the same as the one introduced in 2005. PEFA 2016 acknowledges the changing landscape of PFM reforms and the evolution of good practices over the last decade. The new version derives from the analysis of more than 500 PEFA assessment reports from 149 countries, introducing clarification and refinement. The upgrade also benefited from significant feedback from partners, users, beneficiaries, and observers of PEFA during a global public consultation process carried out in 2014, followed by extensive testing during 2015.

 

As part of the conference, GIFT recognized that PEFA is aware of the continuously changing challenges facing the institutions that support sustainable development, including public finance management systems. It is clear that the new PEFA framework could not possibly include everything related to PFM. However, the approach taken by PEFA reflects the awareness of an environment with an increasing number of institutions and networks that are pushing the agenda of good governance, related to PFM.

 

The new PEFA framework clearly addresses in many of its indicators the questions of public access to public finance information and, in some of them, the issue of the quality of information. This means that the new PEFA framework will provide a very valuable source of information related to PFM.

 

The issue of Fiscal Transparency

GIFT commented on the new PEFA framework from the fiscal transparency and public participation stand point. The new PEFA framework clearly addresses in many of its indicators the questions of public access to public finance information and, in a some of them, the issue of the quality of information.

 

In at least 14 of the 31 indicators, the question of the publication of PFM documents is introduced and consistently, the transparency question is related to better scores. This means that the new PEFA framework will provide a very valuable source of information related to fiscal transparency.  What happens with all the documents that contain very important information about the PFM system for which PEFA does not require proactive disclosure?[1]

 

There are two ways to access government information: governments can proactively disclose it, or they can provide access in response to an official information request. For the future, GIFT’s suggestion is that, for these documents an additional analysis could be made: to find out if they are available upon request, it must be considered that a good number of countries now regulate access to information, which can strengthen the very important element of fiscal transparency in the PEFA framework. A new dimension regarding public accessibility to this information upon request, or a parallel analysis to find this out should not be too time consuming or expensive. In any case, PEFA should also look at other instruments that measure fiscal transparency, like the Fiscal Transparency Evaluations of the IMF and the Open Budget Survey of the International Budget Partnership. In few words: complementary diagnosis tools, or a relatively easy to undertake supplementary analysis, could compensate the weak points from a fiscal transparency perspective.

 

The issue of Public Participation

Strategic allocation of resources and efficient service delivery are two of the main goals of PFM systems. Can we address these goals without public engagement, that is, without the inputs and feedback of those affected by the policies?

 

It is the position of GIFT that we cannot do so.

 

The new PEFA framework actually agrees: with respect to some indicators, PEFA also gives a crucial role to public engagement. The new PEFA Indicators contain three pillars that require direct public participation in fiscal policy implementation[2].

 

Indeed, it would be impossible to assess the performance of the procurement systems, without taking into consideration the mechanisms for handling complaints by the losing bidders. By the same token, the performance analysis of a tax extractive system would be incomplete without considering the defense mechanisms for tax payers. Finally, the public is also an important component of the transparency of legislative scrutiny of audit reports (PI-31-4).

 

However, public engagement as a strategic component of government performance is absent in other indicators, such as the performance plans and evaluation for service delivery (PI-8 1 & 4), public investment management (PI-11), budget preparation (i.e. public feedback for some strategic programs, PI-17) and internal (PI-26) and external audits (PI-30).

 

It is true that the range of experience of public participation in fiscal policies is still quite narrow. The members of the GIFT network are working on this. But we can find examples of ways to engage the public in these sectors in some countries.

 

At the same time, how can one assess the quality of the information provided without taking into consideration the opinion of the user/analyst of this information?

 

While public participation received limited attention in the first generation of fiscal transparency standards, it is increasingly accepted that public participation in both the development and implementation of fiscal policies can strengthen accountability for public financial management.[3] In fact, this is a notion in which GIFT strongly believes. Moreover, public participation also helps to improve the performance and outcomes of PFM systems by increasing their efficiency, equity, effectiveness, predictability, legitimacy and sustainability.

 

Pilot supplementary stand-alone PEFA indicator on public participation

In the case of PEFA, the issue of measuring public participation has also been addressed in an imaginative way. GIFT submitted a module designed as an additional indicator, addressing this issue by measuring public participation practices in PFM systems. Although PEFA did not incorporate GIFT’s recommendation as a formal additional program indicator, it agreed to use the participation indicator as part of the country assessments, for country governments willing to participate.

 

The indicator was tested in the field in the Philippines thanks to the government’s willingness to test it and a desk use of the indicator will be applied for South Africa to review the indicator.

 

The basic components of the draft indicator of public participation in fiscal policy throughout the annual budget cycle are the following four dimensions:

  • Budget preparation and legislative approval
  • The design and delivery of public services (that is, in two of the largest sectors)
  • The appraisal and implementation of public investment projects (via a sample of the largest projects)
  • Oversight processes (legislative review and supreme audit institution)

 

Finally, PEFA could also take advantage of other diagnosis that are focusing more directly on the issue of public participation, like the OBS developed by the IBP. Here again, the questions about public participation have been recently revised in order to make sure that the outcomes reflect good practice.[4]

[1] Some examples include the indicator about public asset management (PI-12), the medium-term perspective in expenditure budgeting (PI-16), or the procurement contract databases or records (PI-24), and the results of internal (PI-26) and external audits (PI-30). The same question refers to Pillar 5, predictability and control in budget execution. In these cases, the PEFA framework refers to records, documentation and data bases to be produced and exchanged within government institutions, but does not elaborate about their disclosure.

[2] The first one is PI-18 (2), which requires direct participation in the legislative scrutiny of the annual budget in order to score an ‘A.’ The second, PI-24 (4) relates to a procurement complaints mechanism. The third element relating to public participation (PI-19) is a new indicator about revenue administration and the treatment of taxpayers: the dimensions of this indicator cover the existence of a right of redress for taxpayers.

[3] This is reflected in the increasing recognition of public participation in international fiscal transparency standards and norms, which, in addition to Principle 10 of the GIFT High Level Principles, includes:

  • The revised Fiscal Transparency Code released by the International Monetary Fund in August 2014, which incorporates direct public participation in budget preparation (Principle 2.3.3).
  • The incorporation of citizen engagement and their ability to influence discussions on budget policy options in Principle 5 of the OECD Principles of Budgetary Governance 2014.
  • Expanded coverage of public participation in the Open Budget Survey implemented by the International Budget Partnership from 2012 (Section 5 of the OBS).

[4] Revised Open Budget Survey Public Participation Indicators (IBP)

a) Public engagement by the executive

  • Formulation and Implementation phases
  • Principles of inclusiveness, timeliness, sustainability, complementarity and transparency are particularly checked

b) Public engagement by the legislature

  • Pre-budget, approval and monitoring phases
  • Principles of inclusiveness, transparency and complementarity

c) Public engagement by the supreme audit institution

  • Audit program design and investigations