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At a time of crisis budget credibility becomes a very complex issue, especially as acute crisis normally has non-predictable impacts on government revenues and spending, which significantly influences the realization of planned figures. Changes in budgets are inevitable but should be realized via evidence-based and transparent processes.
Reality
In our current world, impacted by multiple crises, such as the hopefully soon ending COVID-19 pandemic and the war in Ukraine, almost all governments do not have the capacity or are not willing to respect that there are some general “good practice” rules for making necessary budgetary changes and operations.
Lack of transparency is, for example, very visible in relation to the war in Ukraine. In 2023, Bilmes and Stiglitz stated that in the US “Accounting for the cost of the weapons and munitions being supplied to Ukraine is hazy. There is no clear budgetary provision for the hugely increased replacement cost”. The same is true for European countries, which also supply weapons and munitions to Ukraine. As an example, the budgetary (and also legal) consequences of the decision of the Slovak government to supply MiG-29 fighters to Ukraine are not known. The fact is that the Slovak Army for several technical and other reasons can no longer use these fighters and keeping them in the country would not be cost-effective. However, whether the temporary government has the right for this decision and what the budgetary consequences are remain two unanswered questions.
Lack of evidence-based budgetary decisions was also very visible during the COVID-19 crisis, especially during earlier phases. Many governments, especially in Europe, did not know what to do and how to act given that it was their first pandemic experience. As it was politically necessary to show political and react to the pandemic, many governments established huge expenditure programs to support the national economy, achieve social equality and prevent the spread of the virus. Most, if not all, of these expenditures were decided “from evening to morning” - without any systemic ex-ante analysis- and were passed via parliaments through extraordinary procedures. The ex-post analysis of most of such “sewn with a hot needle” decisions shows that public money was wasted just to gain “political points”.
The question arises – what kind of mechanisms might help to prevent similar situations and to motivate governments to adhere to budget transparency and credibility standards?
By Juraj Nemec, Member of the UN Committee of Experts on Public Administration (CEPA) and Professor of Public Finance and Public Management, Masaryk University