4CarlosAlexandre

Budget Transparency and Fiscal Performance - A Cross-Country Comparison -

Chevening Forum 2010 Bath, 30 April

Chevening Scholar Carlos Alexandre Leite Nascimento

Hi, my name is Carlos Nascimento!

I am a scholar from Brazil;

 I was born and used to live in São Paulo;

 I am studying the Master of Public

Administration (MPA) – Public Policy and Management at the London School of Economics

 Thanks FCO, British Council and Chevening Program for all the opportunities!!!

Congratulations for all organizers and supporters!!!

Agenda Concepts Why Budget Transparency is important?

How to measure it?

Does it matter?

My research Conclusion

Budget or Fiscal Transparency is growing in importance ‘Fiscal Transparency is defined as … openness toward the public at large about government structure and functions, fiscal policy intentions, public sector accounts, and projections. It involves ready access to reliable, comprehensive, timely, understandable, and internationally comparable information on government activities – whether undertaken inside or outside the government sector – so that the electorate and financial markets can accurately assess the government’s financial position and the true costs and benefits of government activities, including their present and future economic and social implications’.

Kopits and Craig (1998:1) ‘Budget transparency is defined as the full disclosure of all relevant fiscal information in a timely and systematic manner’ (OECD, 2002: p.

7).

Agenda Concepts Why Budget Transparency is important?

How to measure it?

Does it matter?

My research Conclusion

Do you know what these five images have in common?

They relate to the Greece debt crisis currently on fire!

Specialists say that one of the main reasons of the crisis is the lack of fiscal transparency in Greece! Actually, they should not even be in the EU!

Budget Transparency is important in many aspects Why we should worry about that?

 Lack of transparency creates confusion and ambiguity on the real state of public finances;  Many governments use techniques that mislead citizens and markets.

Arguments in Favor (I)

 The IMF presents some arguments in favour of Budget Transparency:  Important to achieving macroeconomic stability and high-quality growth;  It fosters the quality of the economic policy decision-making;  Reduces the number and hardness of financial crises;  Gives more power to people to keep their government responsible for its policies and decisions;

 Enhances the possibilities of access by countries to world financial markets.  More transparent governments tend also to be more fiscally disciplined (Hammed 2005);  It can lead to stronger support in implementing sometimes painful fiscal reforms;  It can positively impact the business environment and thus attract investment (Parry 2007).

Budget Transparency is important in many aspects From a Civil Society viewpoint

 According to the International Budget Partnership (IBP 2009: p. 3):  Increasing budget transparency can enhance government accountability because it facilitates effective budget oversight by:

   

Civil society; Journalists; Legislatures; Supreme Audit Institutions.

Arguments against

 Heald (2003) argues that:  Some information should be kept in secret in order to protect public finances against interest groups (effectiveness of public policies);

 If transactional costs are higher than opportunity cost, budget transparency is a problem;  Over-exposure and excessive politicization  De Simone (2009) points out to a possible trade-off between fiscal transparency and democracy; must reflect the preferences of the elected and not be pre-determined.

Agenda Concepts Why Budget Transparency is important?

How to measure it?

Does it matter?

My research Conclusion

Three organizations provide basic frameworks for measurement Institution

Description

 The International Monetary Fund first issued its Code of Good Practices on

IMF

Fiscal Transparency and the Manual on Fiscal Transparency in 1998;

 It produces the Reports on the Observance of Standards and Codes (ROSCs) – which are based on these guidelines (92 assessments until March 2010);

 In 2001, the Organization for Economic Co-Operation and Development OECD

published the OECD Best Practices for Budget Transparency;

 It suggests that countries should produce a set of budget reports, disclosure 

IBP

specific information and ensure reliable processes of control and accountability; The International Budget Partnership released the Open Budget Index (OBI) in 2006 and 2008 (next is in 2010);

 The Open Budget Survey consists of a questionnaire of 123 questions that try to capture budget and accountability practices in a sample of 85 countries;

 In order to conduct their investigation, most of the academic and empirical studies derive indexes from the IMF and OECD assessment frameworks (both rely heavily in on the information provided by government officials and donors; more focused on formal precepts);

 The OBI is a civil society initiative and have a stronger look at the information available in practice;  It appears to be a more effective measure to capture true levels of transparency.

Budget Transparency varies across the globe (OBI 2008) Angola Cameroon Bolivia Vietnam China Nigeria Malawi Lebanon Malaysia Pakistan Bangladesh Egypt Turkey Zambia Ghana Uganda Mexico Argentina Kenya India Botswana Sri Lanka South Korea Peru Poland Slovenia Brazil Sweden US France South Africa UK

Open Budget Index 2008 (selected countries)

0

10

20

Source: Nascimento (2010)

30

40 OBI 2008 50Scores

60

70

80

90

100

Agenda Concepts Why Budget Transparency is important?

How to measure it?

Does it matter?

My research Conclusion

Developing coutries are less fiscal transparents

Source: Wehner (2010)

Budget transparency is also associated with higher acess to capital markets

Source: Hameed (2005)

The more the budget transparency, the more the fiscal discipline

Source: Hameed (2005)

The pre-election deficits are lower in more transparent countries

Source: Alt and Lassen (2003)

They are also less corrupt

Source: Hameed (2005)

Agenda Concepts Why Budget Transparency is important?

How to measure it?

Does it matter?

My research Conclusion

My research tries to innovate on this topic How it is structured

     

It focuses on the Open Budget Index (less explored by the literature); It has a more assessed countries (almost 100); First stage: investigation on fiscal performance; Second stage: it will explore access to credit markets, corruption and inequality; Inequality is a new topic!

I will add control variables in order to find more significant results.

What I have found so far

 There is a weak positive correlation between having more transparent budgets and better fiscal outcomes;

 It was a very positive sign since I haven’t controlled for any additional variables;  I am very optimistic about the final results!

Initial findings of my research are positive

Source: Nascimento (2010)

Final Remarks What can we learn so far

 Budget Transparency is growing in importance around the world and is strongly supported and promoted by multilateral organizations;

   

There is a wide cross-country variation; Fiscal Transparency is associated with many desirable fiscal, economic and political outcomes; The civil society movement towards the topic is growing fast in many countries; Results are already being perceived in many countries (IBP).

What can we do?

 As citizens, Chevening scholars should be alert on budget transparency in order to better understand what our countries’ governments are doing with the public money;

 Support, whenever possible, civil society initiatives aiming the empowerment of people;  As a principle, we should have a compromise with transparency in order to achieve better social results and clear relations in our lives.

THANK YOU!

Q&A

Q&A