“How a ‘Citizens’ Guide to the Budget’ can strengthen fiscal transparency and increase public participation”

Jon Shields

International Monetary Fund 

ICGFM Conference Florida May 18, 2011

Outline 

• What is special about a CGB?

• The context for a CGB: Fiscal transparency

• Distinguishing characteristics of a CGB: Information contentStyle, format and qualityDissemination

What is a CGB?

About 30 countries in recent years have produced at least one CGB, of varying contents and quality.

Typically:

• Self-contained document written in clear and non-technical language.

• Published by the Finance Ministry.• Produced at same time as budget is presented to

legislature.• Explains budget proposals and economic context.

Why do governments publish CGBs?

• Ensure budget message is understood; broaden informed electorate.

• Explain countries’ economic problems.

• Enhance accountability.

• Counter hostile assessments.

• Increase buy-in for unpopular policies.

What do CGBs add?

• Accessibility.

• Snapshot of fiscal position and decisions.

• Supplement to technical information required for legislatures.

• Insight into specific economic, spending or revenue decisions.

Timing of a CGB: the annual budget cycle

• Critical point is when budget is presented to legislature.• Allows public to participate in budget debate.• Also - follow-up if budget is greatly amended.• Also - outturns should be monitored and compared.• Other citizen’s guides can cover :

Pre-Budget framework Final Budget Outturns/end-of-year financial statements

Context for a CGB – fiscal transparency

A CGB is one instrument to help assure fiscal transparency, viz.:

Being open to the public about the structure and functions of government, fiscal policy intentions, and public sector accounts and projections (Kopits and Craig).

Public right to know.

Promotes accountability; market discipline; lower corruption; good institutions; time-consistent behavior and sustainable policy; macro and micro efficiency; trust; fairness.

 Fosters better governance, internal decision-making, reform in public financial

management, public expenditure, tax administration, and tax policy, macro-fiscal.

Strengthens access to international financial markets.

IMF Code of Good Practices in Fiscal Transparency – Four Pillars

1. Clarity of roles and responsibilities: Structure and functions of government, responsibilities within government, relations between government and the rest of the economy

2. Open budget processes: Budget preparation, execution, and monitoring; timetable for legislature; realism of estimates and medium-term framework; fiscal sustainability.

3. Public availability of information: Specification of the coverage, detail, and timing of fiscal information to be provided to the public.

4. Assurance of integrity: Quality of fiscal data, internal oversight, and external scrutiny.

FT Code: (1) Clarity of Roles and Responsibilities:

1.1 Scope of government. The government sector should be distinguished from the rest of the public sector and from the rest of the economy, and policy and management roles within the public sector should be clear and publicly disclosed.

Show all ramifications of central government; QFAs, EBFs, local government relations

1.2 Framework for fiscal management. There should be a clear and open legal, regulatory, and administrative framework for fiscal management.

FT Code: (2) Open Budget Preparation, Execution, Monitoring and Reporting

2.1 Predictable and technically sound budget preparation. Budget preparation should follow an established timetable and be guided by well-defined macroeconomic and fiscal policy objectives.

Realistic annual budget set in comprehensive economic policy framework, with measures and sensitivities assessed.

2.2 Clear procedures. There should be clear procedures for budget execution, monitoring, and reporting.

FT Code: (3) Public Availability of Information

3.1 Comprehensive information. The public should be provided with comprehensive information on past, current, and projected fiscal activity and on major fiscal risks.

Full disclosure, as for legislature, coverage, comparability, significance, long-term outlook.

3.2 Relevance. Fiscal information should be presented in a way that facilitates policy analysis and promotes accountability.

Citizens’ Guide, minimum aggregate data requirements, results

3.3. Timeliness. A commitment should be made to the timely publication of fiscal information.

FT Code: (4) Assurances of Integrity

4.1 Quality. Fiscal data should meet accepted data quality standards.

4.2 Oversight. Fiscal activities should be subject to effective internal oversight and safeguards.

4.3 Auditing. Fiscal information should be externally scrutinized.

A Citizens’ Guide – Overall Contents

• Common core of information on the budget proposals and economic context.

• Relative emphasis of the topics, and the level of detail, should reflect country circumstances and capacity,particularly: pre-existing general level of understanding level and quality of media coverage

A Citizen’s Guide – Why the budget matters

•Explain role of budget in public financial management (and requirements in constitution or budget law).

•Describe the budget process, including the roles of the executive branch, in preparing the budget and of the legislature in authorising government taxation, borrowing, and expenditure.

•May be supplemented by a ‘Citizen’s Manual on Budget Process.’

A Citizen’s Guide – What the future holds: the economic and fiscal outlook

•  Prospects for the economy (economic  context, resource availability)

  At least for budget year  Preferably for medium-term

•  Medium-term projections of the fiscal  aggregates (revenues, spending, the  

deficit) •  Use simple tables and charts.

A Citizen’s Guide – How much of the government’s activities does the budget cover?

• Explain different types of accounts or funds, and what agencies are inside or outside the budget.

• Include information on the government’s extra- budgetary activities, and their impact on

consolidated government accounts.

• Summarize and explain “quasi-fiscal activities”.

• Show transfers between different levels of government and any formulae used.

A Citizen’s Guide – What the government intends to spend

Where possible:

• by function (or sector), • by administrative agency,• by economic category (e.g. wages and salaries, interest, capital expenditures).

Where applicable:• by major programme.

Provide references and links to more detailed spending information.

A Citizen’s Guide – Where the money will come from

• Breakdown of the main revenue sources, separately identifying domestic revenues

(by tax) and external grants.• Intended financing sources in the event of a projected deficit (use of domestic assets,

domestic markets, international markets, or concessional assistance) • Any implications for economic stability or fiscal sustainability.

A Citizen’s Guide – Do the numbers add up?

• Demonstrate realism of the budgeted levels of revenues, expenditures and the fiscal balance

by comparing with recent trends

• Evaluate expected out-turn for the current year in comparison to its forecast in the previous

budget.

• List key fiscal risks: Impacts of deviations in key economic variables from

projections

Other specific fiscal risks (e.g. loan guarantees being called)

Explain how government will meet unexpected spending needs

A Citizen’s Guide – Proposed budget measures

• Explain why new measures are being introduced.

• Assess expected impact of new measures on revenues and spending, and how they will

contribute to the government’s priorities.

• Discuss potential impact on take-home pay for different income levels, income support and service provision.

A Citizen’s Guide – How the budget will help the government meet its objectives

• Describe the government’s medium-term economic and social objectives.

• Identify Millennium Development Goals, where relevant.

• Explain role of fiscal policy strategy and any numerical targets.

• Show contribution of budget to fiscal strategy and broader objectives.

• Explore sustainability of the public finances and public debt.

• Describe service delivery objectives and social impacts of spending programmes, including available information on performance and evaluations.  

Suggested chapter outline of a citizens’ guide to the budget

Introduction: Place of the annual budget in public finance legislation; description of the coverage of the budget and the budget process, including opportunities for public participation.The Economic Outlook and Government Objectives: Macroeconomic forecasts, assumptions and sensitivity analysis; national development strategy; medium-term fiscal policy objectives.The Government’s Accounts and Budget Prospects: Aggregate revenues, expenditures, and the fiscal balance over medium-term; broad allocation of spending and sources of revenue, comparative figures for previous year; public debt, fiscal risks, and the sustainability of current policies and trends.New Measures: Summary of the main budget initiatives; estimates of their fiscal effect and impacts on key policy groups; contributions to meeting the government’s stated policy objectives.Improving Delivery of Services: A brief indication of what the government is doing to improve service delivery

A Citizen’s Guide – Style and Format

• Stand-alone document• Ideally, produced by Ministry of Finance• Treat as technical document - avoid political overlay • More than a budget speech• More than an executive summary• Limit jargon• Use layman’s terms • Highlight simple and attractive charts and diagrams • Keep short but provide lots of links

A Citizen’s Guide – Content and Quality

• Focus on substantive budget issues.

• Avoid extraneous or irrelevant material.

• Only include data that is accurate, reliable and credible.

• Explain uncertainties.

A Citizen’s Guide – Dissemination

•Actively disseminate - arrange launches, seek NGO participation, publicize availability, generate media events, go to villages.

•Make available in hard copy and electronic form.

•Produce in alternative formats:Video clips

Radio podcasts,

Posters

Pamphlets

•Use multiple languages where relevant.

Thank you

jshields@imf.org

Main reference:

‘Producing a Citizens’ Guide to the Budget: Why, What and How’by

Murray Petrie and Jon Shields

OECD Journal on Budgeting, Volume 2010/2