Sri Lanka’s crisis highlights the importance of budget transparency

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By Anjali Garg

For many countries reeling from the twin shocks of the pandemic and war in Ukraine, Sri Lanka’s falling house of cards should be a wake-up call.

With many emerging markets facing record high levels of debt and inflation, it is vital that governments start meaningful discussions with their people about fiscal decisions. Only then will they be able to stabilize their economies and gain support for the hard trade-offs they face.

The crisis in Sri Lanka underlines the importance of transparency and public engagement in how governments collect, spend and manage taxpayers’ money, including when countries first decide to take on new debt. According to the International Monetary Fund (IMF), a high degree of debt transparency can reduce the risk of default.

However, according to the Open Budget Survey (OBS), only about half of the 120 countries surveyed provide data on their total debt burden at the end of the fiscal year in their budget proposals. Even fewer supply figures point to the possible fragility of the country’s debt position, while only a quarter provide information on the long-term sustainability of public finances. Meanwhile, OBS and IMF data show that countries with a higher risk of debt are most likely to have less budget transparency.

When economic constraints arise, many governments respond by centralizing decision-making and ending public dialogue.

We saw this happen in Sri Lanka and with its neighbours in South Asia, which has the dubious distinction of being the only region in the world to have consistently lowered its levels of transparency in fiscal practices. Sri Lanka, in particular, has ties to Bangladesh for the lowest fiscal transparency in the region. The country has also seen its most dramatic decline in transparency in the past two years. It is this erroneous preference for opacity that made the country economically and politically vulnerable.

States cannot afford to ignore the outrage many people feel as they struggle to make ends meet while public funds are mismanaged or wasted. Governments should learn from Sri Lanka’s experience and create space for their citizens to have a say in the management of scarce public resources.

Public involvement in budgetary decisions builds confidence in governments. And a positive cycle ensues as governments are better able to deliver the social services people need when they are inside discussions with recipients on how best to provide and control those services. Involvement also increases the likelihood that people will pay their taxes and that corruption will be exposed. These benefits can further lead to higher revenues and lower borrowing costs.

More countries need to understand the value of involving citizens and strengthening accountability in public finance management. From Ghana to Pakistan, many countries are staring over a fiscal cliff. Going forward, governments should make national and international efforts to unite around a common agenda to ensure full transparency on public debt.

Supervisory actors, including civil society, legislators and supreme audit institutions, should call on their governments to improve disclosure practices and engage with the public. International organizations providing emergency loans, debt relief and technical assistance for debt management should support governments in strengthening reporting in national budgets. Third-party creditors must commit to disclose all loans in a public register of loan and debt information, as proposed by the Debt Judge.

If countries want to take one major measure to avoid the fate of Sri Lanka, they must act quickly and open budget procedures. Public scrutiny and more oversight are needed more than ever.

-Anjali Garg is interim director of policy at the International Budget Partnership and this article was originally featured on whatsnew2day.com

 

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