National budgets are an important tool for development but don’t always deliver what they say they will. How they are presented to the world can bear little resemblance to the way money gets spent on the ground.

National budgets in many developing countries are like a satisfying adventure story. The Minister of Finance will set out the numerous villains standing in the way of national economic development – often suspicious foreigners or the incompetent previous government. He will then outline the steps being taken by his government to overcome them – a narrative of national resilience, government vision and the personal wisdom of the President. In conclusion, resources will be allocated where they are most needed, national development will advance, and there will be peace, bread and land for all. Donors may even be (un)lucky enough to be invited to a post-budget reception to congratulate the government on their decisions. After warm white wine and small talk, donors can then (instruct their driver to) pick up several massive budget books full of numbers, tables and calculations showing in precise detail government’s spending plans and carry them back to the 4x4. Safely returned to their office, staff can review the figures and conduct their own analysis of whether they think government is ‘doing the right thing’ this year in terms of meeting its agreed commitments, and inform HQ accordingly.

So what’s wrong with this happy system?

National budgets are one of the most important tools for development. But in reality they don’t always deliver what they say they will, particularly in developing countries. Without understanding the budget process – and the politics that surrounds it – there is a great risk of missing the wood for the trees when it comes to improving how public resources are used. This is one of the themes of this year’s CAPE Conference, which will see a number of global leaders and thinkers meet at ODI in London to explore ‘Budgeting in the real world’.

The opening section of Wildavsky and Caiden’s seminal book Planning and budgeting in poor countries from 1974 is a good starting point for understanding some of these issues:

Imagine a wholly unlikely event: a frank speech on planning and budgeting by the head of a low income country:

‘The worst thing about the budget was that it kept disappearing on me… It looked ample enough at first. Then I found that 10 per cent went to pay off foreign loans from the past, and 80 per cent went for ordinary expenses that recurred every year. Most of it went on salaries, and it was all I could do to keep them from getting higher... Some 35 per cent of our total revenue is controlled by organisations that are called autonomous because I can’t get hold of their money… At best there was 10 per cent over which I had some sort of discretion …It’s hard for me to turn down salary increases for teachers and civil servants… I find it even harder to say no to the desire of the armed forces higher pay and better equipment…

I can’t produce [miracles] but I certainly can produce a plan…The parliamentary budget was beautiful. Everyone had a place in it. Why shouldn’t they?... The real budget, of course, I kept in my pocket. It was a list of who really gets what little we have. Even so, I had to revise it every two or three months because it was hard to find out how much was available. Our financial past was almost a great a mystery to me as my uncertain future…’

Not all of the speech applies to all countries, but the essence of it still rings true today. What is presented as the ‘budget’ may in fact obscure more than it illuminates. The political realities of managing limited resources in a context of weak institutions and significant uncertainty mean that the budgets presented to the world may bear little resemblance to how money gets spent on the ground.

Government officials in poor countries are well aware of this limitation (‘no funding this quarter’). However, the politics of the budgetary process is not always a popular topic in donor circles. Economists like to focus on the fiscal big picture of overall spending, debt and growth, not the micro issues of public expenditure management. Social sector leads have an understandably limited interest in the wider budget system beyond ensuring that cash somehow reaches ‘their’ area – be it education, health or water. Governance leads often have such a range of issues (gender, security, human rights, democracy, legal reform) that public expenditure can fall off the radar. Even those officials that focus specifically on public financial management often view the world through their various textbooks, handbooks and manuals setting out what ‘the ideal’ system should look like, rather than incentivising an understanding of the political drivers behind budgeting and expenditure management.

This subject deserves more attention from development agencies who work with and through government systems.  Donors relying on recipient governments to make their programmes work not only need to understand how spending works in detail, but also the politics behind it. There are some fascinating case studies of budgeting in practice in developing countries that link power, money and control into a series of startling conclusions regarding the realities of public financial management.

Knowing what types of expenditure and what sectors are more likely to receive their funding, and why, will build more realistic – and therefore more effective – donor engagement with recipient government agencies. An understanding of how funds move through the system, of how they can be assured or diverted, would help governments and donors alike to design better strategies for ensuring they reach where they are meant to.

These issues are not just of academic interest to budget junkies. How these systems work in the real world matter to everyone with a stake in how public services are delivered.

Bryn Welham is a research fellow at ODI’s Centre for Aid and Public Expenditure. His work focuses on the politics of the budget process and how donor programmes and government spending processes interact.  Prior to joining ODI he was a governance adviser working in Sierra Leone. Before this, he was an adviser to the director of the Budget in the Ministry of Finance in Malawi, and also worked for several years on public spending issues at the UK Treasury.

The 2013 CAPE Conference: budgeting in the real world will be streamed live online on 13 & 14 November 2013. Sign-up to participate online and tweet your questions and comments to #CAPE2013