Incredible Budgets - budget credibility in theory and practice

Working and discussion papers
July 2014
Rebecca Simson, Bryn Welham

In many countries, particularly low-income and/or fragile states, national budgets are often poor predictors of revenue and expenditure. This paper draws on rational choice theory to set out a framework for explaining what drives budget non-credibility. This framework is applied to a stylised budget execution chain and examples of non-credibility are illustrated with real-world cases from the budgets of Uganda, Tanzania and Liberia. The paper also discusses how effectively the PEFA framework considers budget credibility issues and the common responses that are put in place to try and reduce budget non-credibility. The challenges of appropriately diagnosing budget non-credibility problems and of accessing accurate budget data for further analysis are noted.