How can progress toward achieving the Sustainable Development Goals (SDGs) be maintained at a time when countries around the world face massive fiscal challenges? Governments are already facing tough choices with domestic resources constrained from the impacts of COVID-19, the war in Ukraine, and climate shocks. At the same time, they are encouraged to integrate the SDGs, social inclusion and climate adaptation and mitigation into budgeting and planning processes through mechanisms such as SDG budgeting and Integrated National Financing Frameworks.
There is considerable attention on supporting countries’ efforts to mobilize financing and prioritize budget allocations to address the SDGs. However, it is also essential to look at how approved budgets are translated into practical action – whether government budgets are credible - in order to maximize the impact of SDG financing, particularly given fiscal constraints.
What is budget credibility and why is it important?
Budget credibility is the ability of governments to meet the expenditure and revenue targets set out in their budgets accurately and consistently. If budgets are not implemented as intended, this directly impacts when and how essential social services are delivered and can undermine progress in addressing poverty and inequality. The importance of budget credibility is explicitly recognized in SDG indicator 16.6.1, which tracks governments’ actual expenditure as a proportion of the original approved annual budget.
Recent research has found that budget credibility challenges are widespread, and can adversely affect the delivery of the SDGs, with greater challenges in low income and fragile contexts where the need for effective investment is greatest. Budget credibility challenges are also more prevalent in some areas of critical social sector spending that are integral to reducing child poverty, and inequality and for sustaining and advancing child rights and human development.
A recent study of budget credibility across seven key sectors and ten related SDGs in 13 countries between 2018 and 2020 showed deviations between total planned budgets and total realized expenditures ranging on average from overspending of 24 percent in Argentina to underspending of 32 percent in Nigeria. In Ghana, underspending in agriculture was around 28 percent, compared to around 2 percent across the total budget, impacting programs that support smallholder farmers to purchase fertilizer and seeds.
The importance of budget credibility for the SDGs was also demonstrated in Mexico, with underspending in programs related to environmental protection, agriculture and nutrition, and SDG indicators related to these sectors reporting the lowest performance level on the SDG index. Ensuring budgets for key sectors and programs are fully implemented each year can remove an important barrier to SDG progress.
As shown in these examples, it is critical to have disaggregated budget execution data to understand the impact of budget credibility on critical social spending and the SDGs, and to accurately identify bottlenecks and inform potential reforms.
Strengthening budget credibility
Different stakeholders can engage in several ways to improve budget credibility.
First, governments should prioritize ensuring available resources are delivered as planned, and continue to strengthen systems for systematic monitoring, reviewing, and reporting of the implementation and results of spending programs.
At national level, this could include strengthening analysis and reporting, with disaggregation of data by program, sector, and SDG. Mechanisms such as tagging spending for SDGs, gender, climate, or children in financial information systems show the potential for this. Countries developing Integrated National Financing Frameworks may be able to leverage existing monitoring and review mechanisms.
Second, for global reporting, governments may be able to present their performance on SDG 16.6.1 at a sectoral level as part of Voluntary National Reviews on progress on the 2030 Agenda for Sustainable Development. This would allow for more granular analysis of spending related to specific SDGs or sectors, and provide insights on progress toward achieving SDG targets.
Third, Supreme Audit Institutions (SAIs) can contribute to strengthening budget credibility through external audits. SAIs, the Division for Public Institutions and Digital Government of the United Nations Department of Economic and Social Affairs and the International Budget Partnership (IBP) are developing a handbook to support SAIs in assessing and addressing budget credibility issues.
Fourth, civil society organizations and community groups should continue to actively engage in monitoring how budgets are delivered, incorporating budget credibility in existing mechanisms for budget participation and social accountability to identify bottlenecks and practical solutions.
Finally, development partners can consider budget credibility implications in programs and partnerships related to financing, system strengthening, service delivery and transparency and accountability, and use budget credibility as a lens to identify and address potential bottlenecks constraining program or service delivery. Development partners can also support improved global and national monitoring and reporting.
The IBP and UNICEF will continue to work with government ministries, SAIs, civil society, development partners and other stakeholders to explore and address the underlying causes and impact of budget credibility challenges. Further information and country examples are available on the IBP website.