Opening up Budgets in MENA

Government budgets are at the core of development. It is the government’s most powerful economic tool to meet the needs of its people, especially those who are poor and marginalized. Whether you are interested in health, education, the environment, or pensions, the most well-meaning public policy has little impact on poverty until it is matched with sufficient public resources to ensure its effective implementation.

There is a growing body of evidence showing that, when ordinary people have access to budget information, coupled with the skills and opportunities to participate in the budget process, the resulting engagement between government and citizens can lead to substantive improvements in governance and service delivery.

This is the motivation (in a nutshell) driving the work of the International Budget Partnership (IBP). To put words in action, the IBP has developed various projects amongst which is the Open Budget Survey Tracker (OBS Tracker). The latter monitors developments in several MENA countries. We at Open MENA also believe in the transformational and empowering ability of budgets, and have drawn attention to opening up budgets in Egypt before. This is why we dived into the data and information the OBS Tracker makes available, and here is what we found.

A timeline of budget data availability

The OBS Tracker publishes monthly updates on what information has been released by governments whose work it follows. The available monthly updates debuted in August 2014, with the first mention of a MENA country occurring in October 2014. NB: Countries have made budget documents available at an earlier date; in this post, we focused on the OBS Tracker data for shortness and to avoid an overwhelming amount of information (would reduce attention given to critical examination of budget data relevance).

We have used this information along with extra sources to create the below timeline. The data is available as well (see end of post for download information).

A few definitions:

  • Pre‐Budget Statement (PBS): The purpose of the PBS is to disclose the parameters of the Executive’s Budget Proposal. The OBS Tracker highlights that the PBS “outlines the government’s macroeconomic assumptions, as well as anticipated total revenue and expenditures, and sets out the debt that will be incurred during the upcoming budget year”. The PBS should be available a month before the introduction of the Executive’s Budget Proposal to the legislature for approval.
  • Executive’s Budget Proposal (EBP): Although the EBP varies from country to country, the bottom line is that it is a document (set of documents) that the executive submits to the legislature for its approval. The EBP contains expected government revenue, its sources and the allocations it intends to make to the ministries and subministries, if any. The EBP should be available to anyone before it is adopted by the legislature.
  • Enacted Budget (EP): this is the budget which has been accepted by the legislature and passed into law. Generally, the Parliament has the data although the Ministry of Finances may as well be given a copy. It should be made publicly available no later than three months after the approval.
  • Citizens Budget (CB): A version of the EBP or the EP that is simpler, shorter and less technical than the full (reference) document. Its specific aim is to convey the key information about enacted government budget to the general public. It should be released alongside the reference document (the EP itself).

The full OBS Tracker methodology is available here as a PDF. It also surveys timeliness and availability of the above documents. More on this below.

‘How much’ is not ‘why’

Publishing data and information on budgets is a low-hanging fruit for some but definitely not so for (many) MENA countries (use the Open Data Barometer country explorer to gain specific insights). But there is more to opening up budgets: how does the publication of such information and data positively impact a country’s welfare and development?

This is a one-billion [insert your currency here] question. While it is true that releasing budget data is a crucial building block of the development process, doing so is by far not enough. Even more so in countries in conflict or post-conflict where achieving social justice is hurdled by plethora of factors. We need the data and the numbers, but we also need to be critical of their reach and capability. In other words, we need to be conscious about what numbers can and cannot explain and do.

‘Writing about a data revolution: between rhetoric and practical action’ gives a few insights about the challenges of the ‘data revolution’ in general:

Conflating statistics with data; lacking a theory for how better data leads to better decisions; assuming non proven synergies between official record and big data; equating data demand with data supply; ignoring the costs of data. Finally, I warn against the belief that only what is counted counts.

This critical look at data and its impact in development is what we need to keep in mind when looking at budgets. Data and numbers are not a guarantee for objectivity. They do not always make us wiser or better informed either. Understanding how public money is spent is rarely understood through numbers alone. We need to ask ‘why’ alongside of ‘how much’ if we want to improve our (collective) understanding of the world.

Take Egypt’s budget for FY 2015-2016. One important development is the expected increase (by 15.8 percent) of tax revenues. The influx would be achieved through fighting tax evasion and complete application of VAT. These are interesting directions as the Egyptian government had acted in the opposite direction so far: thus, the government lowered the tax on income from 30 percent to 22.5 percent. Lastly, the government also suspended capital gains distribution tax on profits for two years. Even the International Monetary Fund (IMF) criticised the postponement of tax on gains for two years, especially given the government’s aim to significantly reduce the country’s deficit. With regards to VAT, it is so far only partially applied in Egypt. Some fear that applying VAT will significantly contribute to straining already impoverished households:

[…] the social effects of the rise of inflation and decline of the consumer’s purchasing power will be huge, especially with regards to food products, which represent 40% of provate consumption.

Private consumption is the main factor for Egyptian economic growth, with an average of 2.1% in the last three years, and it represents more than 80% of the Egyptian economy. On the other hand, food and drinking products prices increased by 58% since January 2011.

The story behind the numbers (or lack thereof)

And then, sometimes, the lack of data makes us wiser. Let’s go back to our timeline and focus on Egypt’s enacted budget for fiscal year 2015-2016. Albeit late, the budget was finally released and approved. There was a notable bit missing there though:

The government announced its budget for the current FY last Thursday [June 18]. However, it did not mention the petroleum products subsidies, and announced only the indicators of deficit, debt, growth, and social protection programmes, in addition to other indicators.

Fuel subsidies are a big thing in MENA and in Egypt. The IMF has estimated that “[…] for the region as a whole, pre-tax energy subsidies—that is subsidies measured as the difference between the value of consumption at world and domestic prices—cost about $237 billion in 2011”. This amount is equial to 8.6 percent of regional GDP — a mind-boggling amount when you compare with food subsidies (estimated to 0.7 percent of GDP in 2011 in the region).

So, what happened when in 2014, the Egyptian government reduced fuel subsidies? Some cheered that this is “first step to climate change solution”. We beg to disagree: despite such cuts, the Egyptian government continues to provide hefty subsidies for fuel and electricity. In April 2014 for ex., the government approved the use of coal as energy source for cement factories which would pay one third more for fuel after the 2014 subsidies cuts. Not exactly a ‘climate change solution’.

For others, the subsidies cuts disadvantage them. Just like cement factories, different companies have complained that increased fuel and electricity bills erode their competitiveness. Looking at the people and the small entreprises, the cuts had a substantial adverse impact on the real income of the population. In a country where 26 percent of the population lives in poverty, cutting fuel subsidies is a huge challenge to sustaining livelihood — as one could expect when fuel prices jumped by up to 78 percent.

Indeed, cutting subsidies has a positive effect on curbing public spending against the backdrop of huge public deficit. But this has other macroeconomic consequences, such as turning Egypt from a net energy exporter into a net importer in the past few years. Increasing domestic energy prices also negatively impact inflation. The good news is that the amounts spared from subsidising fuel can be channelled into health and education, two sectors having been earmarked with significant increases in the budget for FY 2015-2016 (22 percent and 8.3 percent, respectively).

Opening up budgets is a required first step to greater citizen participation to public life and to ultimately improving people’s lives. Along the way, we just need to keep in mind that getting to know and becoming wiser is not restricted to releasing data.

Data and information used for the timeline: Google Spreadsheet, LibreOffice Spreadsheet (.ods), plain text with tab-separated values (.csv). Anything in these files that does not bear strict copyright by the original producer is licensed under CC-by-SA 4.0 International.

A special ‘thank you’ goes to Mohamed El Dahshan for insights and comments.

Posted on: June 30, 2015, by : rayna