The impact of COVID19 on fiscal transparency and public participation

In the book titled Open Budgets: The political economy of fiscal transparency, participation, and accountability around the world, (S. Khagram, P. De Renzio, A. Fung), the authors analyse how and why improvements in fiscal transparency and participation have transpired. They conclude that four main factors contribute to improvements in fiscal transparency and public participation in fiscal policies across countries:

  1. Political transitions, from an autocratic rule to systems where political contestation and alternation are allowed, and oversight bodies have greater powers;
  2. Fiscal and economic crises that force governments to tighten controls over public funds and put in place mechanisms and incentives for fiscal discipline and independent scrutiny;
  3. Widely publicized cases of corruption that compel governments to enhance the public’s access to fiscal information; and
  4. External influences that promote global norms and thereby empower domestic reformers and civil society actors, improving both the public’s right to access information and fiscal transparency.

With the emergence of the COVID-19 crisis, the last three of these factors have become even more dominant. Fiscal and economic crises are widespread, with their depth and duration still largely unknown. Risks of corruption, with many cases already confirmed, are huge in every corner of the world, for example in the procurement of hospital supplies, and have been widely denounced by investigative media and civil society organizations (CSOs). External influences are also prevalent in many developing countries, as countries are heavily dependent on external aid to provide emergency relief and funding. The case for increasing fiscal transparency is unarguable.

The role of these factors can be demonstrated by considering the significant increases in budget transparency, over the years, in some of the countries analysed by the IBP’s Open Budget Survey (OBS). South Africa, Mexico, Georgia and Brazil have managed to become top OBS performers by disclosing extensive budget information to the public. Key factors explain their good results: a political transition to a democratic government, corruption scandals, and teams of government reformers that have led budget transparency improvements in a constructive and sustained dialogue with civil society organizations, in line with globally publicized norms and standards.

Similarly, Guatemala, Indonesia, the Kyrgyz Republic, Ukraine and Croatia, all rapidly improved their fiscal transparency levels within relatively short periods (reaching sufficient levels of budget transparency with scores above 61 out of 100 in the OBS 2019). Corruption scandals, economic crises, external pressure or incentives (such as those provided by open government agendas and bolstered access to financial markets) are also present in these examples.

Returning to the COVID-19 crises, it needs to be stated upfront that the first responses to the health emergency have generally not been as transparent as desired. Exceptional responses to the pandemic have challenged the traditional processes used to ensure fiscal transparency and maintain accountability. For instance, there are examples where national legislatures were by-passed in a rush to reallocate budget, at least in respect of the initial responses to the emergency; the public’s opinion has also rarely been sought and/or thoroughly considered. More than 40 countries have established special extra-budgetary funds for crisis response, often neglecting however to install sound governance arrangements and without appropriate checks and balances being put in place to ensure that the funds reach their intended beneficiaries and are transparently reported. Consequently, COVID-19 related emergency fiscal measures will also likely prove hard to track as countries tend to be less transparent regarding budget execution than they are regarding their budget plans. Even in cases where finance’s ministries have detailed information on the fiscal measures announced and implemented, they may struggle to track the use of emergency funds given that they are spent in chaotic environments often to get funds out the door quickly without necessarily having all the checks and balances to ensure they reach their intended beneficiaries and ultimately achieve the aims of the relief efforts.

That said, there are good examples of fiscal transparency during the COVID-19 crises. In some cases, civil society organizations and citizen engagements have played key roles in the design and implementation of support packages. These examples are, however, scarce.

To assist in this, the GIFT network has produced a guide to help governments clearly identify the datasets and data fields that should be integrated and disclosed to ensure that transparency is embedded in their COVID-19 policy responses. The goal of the Guide is to ensure that emergency responses, economic recovery packages and financial rescue plans include, from the outset, transparency requirements and that the datasets of such measures set in place, are open by design. It is, however, acknowledged that overall, fiscal transparency will inevitably suffer in 2020 as governments scramble to shift priorities and realign tax and spending policies to preserve the health of their populations and economies.

The COVID-19 pandemic has caused an unprecedented global recession, forcing governments to respond with enormous fiscal packages and budgetary measures not seen in a generation. Fiscal rules have been put on hold: deficits, debt, adjustments, reallocations are beyond any realm that would have been deemed acceptable before March 2020. Overwhelming and painful social and economic costs has been paid and will continue to be paid for many years to come. Given these high fiscal costs, many of the current measures should actually be embedded in medium-term fiscal frameworks, while measures that are not included in revenue or expense, such as government guarantees of business loans, should be transparently managed and recorded to mitigate potential fiscal risks. Crises, however, also open up opportunities, including the chance to reassess the true essence of current goals and to consequently review and realign priorities, especially in those areas in which the impact has been more salient and adverse.

After the emergency, the incentives for governments to enhance transparency are going to be related to the need to tighten controls over expenditure, and to put in place mechanisms for budget efficiency and independent scrutiny. External influences will press for more transparency as preconditions for investment and support. In such scenarios, the need for: efficient and effective spending avoiding misallocations and waste; to access financial markets; and to discuss significant tax reforms will undoubtedly favour fiscal transparency.

As such, and despite the drastic and painful costs of COVID-19, there will likely be opportunities for fiscal transparency in its aftermath. If this push towards enhanced fiscal transparency transpires, the conditions will also be set for enhancing accountability and participation from non-governmental organizations and other stakeholders. Given that the pandemic so negatively affects inclusiveness, poverty, health and education, to name but a few areas, the scene might also be propitious for advocating for political debates and increased accountability, a key pre-requisite for budgets to start systematically including the Sustainable Development Goals. CSOs can be expected to engage in public debates on how to better follow the money, and communities will want to participate in the execution of public resources that directly affect their lives.

The challenges are immense, though. According to World Bank calculations, the pandemic could push close to 50 million people into extreme poverty in 2020. COVID-19 will have dramatic implications on the pursuit of the 2030 development agenda, and the need to re-engage all stakeholders in this effort. According to the Paper prepared by the Committee of Experts on Public Administration for the Sustainable Development Goals (SDGs), to enable SDG budgeting, a country must align the SDG framework with its national context and priorities. It must actively involve the Ministry of Finance as the lead of an SDG-based negotiation on resource allocations and coherence within the overall national budget. It is also essential that the tools and processes developed to integrate the SDGs into national budgets are adopted by stakeholders, such as non-government organizations, parliamentarians and supreme audit institutions, as these actors are crucial in holding governments to account regarding their commitments to the 2030 Agenda.

For many countries, the emergency has marked a forced adjustment with unimaginable reconsiderations and reallocations in the budget process. Post-crisis, countries may therefore have an opportunity to realign their priorities towards the SDG objectives, especially in those areas in which the impact has been more salient or negative. In such context, engaging in a more open dialogue with civil society partners and invite public participation for achieving the development goals will be indispensable for success. Of course, high-level political support will be an important condition for success, since ultimately the entire process of SDG budgeting is political.