Budget systems and post-pandemic economic resilience in developing countries

Abstract

PurposeOver the years, public sector reforms in emerging economies have focused on improving national budget systems and financial management practices to promote sustainable development. In the context of the COVID-19 crisis, this article examines whether the strength or effectiveness of national budget systems and related financial management practices moderates the impact of fiscal policy measures on economic recovery and resilience.Design/methodology/approachThe article uses bivariate correlations and difference-in-difference analyses to examine the relationship between budget system effectiveness, government stimulus measures and forecasts of economic recovery and resilience. The analysis uses data from the Public Expenditure and Financial Accountability (PEFA) program, International Monetary Fund (IMF) and World Bank.FindingsThe article finds that estimates of economic recovery and resilience are higher in countries with more reliable budget processes and more transparent public finances. Also, the strength or effectiveness of the budget system before the pandemic appears to moderate the impact of government stimulus measures on economic recovery and resilience over a medium-term forecast horizon.Research limitations/implicationsThis is a prospective analysis based on economic forecasts from the IMF, which are subject to change in the coming years. In addition, the analysis uses subjective budget system indicators, which present measurement challenges that often influence this area of research. Better comparative data in the future, for example, large administrative datasets, will enable researchers to explore these issues with less estimation bias.Practical implicationsThe findings are relevant for policymakers and budget officials in developing countries in Africa who are engaged in plans to improve national budget systems and enhance resilience to crises, such as the COVID-19-induced economic crisis. The findings also have implications for developing countries beyond Africa with similar economic and fiscal conditions.Social implicationsThe findings have implications for economic and budgetary planning for the social sector as well as the efficient delivery of public services in developing countries. Public managers have a critical role to play in adapting national budget systems and financial management reforms within complex and evolving economic circumstances even after the coronavirus pandemic.Originality/valueThe authors use novel and latest data on country responses to the COVID-19 pandemic as well as medium-term economic forecasts to examine the relationship between national budget systems and post-pandemic economic recovery and resilience in the African context. Previous research has only addressed these issues in the context of industrialized countries, and a limited number of empirical studies examine these relationships. The findings also have significant value for policymakers outside Africa who are facing similar challenges related to the coronavirus pandemic.