Yesterday's two thousand page spending bill in the United States keeps the government open for a few more months. This is seen as a sign of success in a Congress that seems to go from day-to-day in its governing of the economy. But it is no success. And it would be seen as unacceptable in developing countries tries beholden to the IMF, World Bank and ratings agencies. Let me tell you why:
- First, the bill continues a trend of deficit spending without any clear argument why this is needed or how it will be repaid. A few years ago deficit spending was explained as a vital counter-cyclical measure to balance the economy, given the slow recovery after the 2008 crisis. But now the economy is recovering (and has been for months). Why is more deficit spending needed? And why is spending rising at a time when Congress has also just announced a series of major tax cuts. Basic math tells me this is not a good situation. Imagine if Liberia announced such a budget? The international community would call the government all sorts of names--populist, fiscally irresponsible, and worse. I think ratings agencies would act swiftly to punish the country as well. Actually, we saw this last year when Fitch noted that the South African medium term budget forecast indicated a shift towards deficit spending.
- Second (and related to the South African situation), we should note that this new spending bill is also short-term in nature. South Africa was penalized because its multi-year budget framework showed growing deficits. At least it has a multi-year budget framework! The USA is budgeting quarter by quarter at the moment, with no sense of where the spending plan is intended to go in the future. This kind of budgeting behavior is not considered acceptable in the development area, where prominent indicators (particularly the PEFA indicators) of 'good budget regimes' penalize countries who lack medium term budget regimes (covering multiple years in the future). It is true that these multi year frameworks are seldom binding, but they provide an intended roadmap for spending that charts out the vision (and policy) about where money will be spent, why, and with what implications for deficits, debt, inflation etc. If a developing country was just budgeting quarter to quarter, they would get a 'D' on at least one dimension of the PEFA indicators.
- Third, no one has read the budget document. Let that sink in for a second, please. It is not my claim, but the statement of many prominent legislators and the President himself. Imagine that! In the PEFA indicators used to assess the quality of budget processes in developing countries, questions ask about the budget preparation calendar to ensure there is sufficient time to prepare the budget technically, to send the budget for political review, to allow political discussion (with technocrats) about the budget, and to allow the public access to important elements in the budget proposal. The South African example above (in which ratings agencies were downgrading the country because of a proposed increase in deficit spending) reflected on a pre-budget announcement by government (where it is required to announce basic proposals to the public months before the budget is actually passed). This is considered vital to ensure that the budget is well developed, subjected to debate, conducive to accountability, and transparent before citizens. In the United States right now the budget proposal--thousands of pages--is prepared one day, with no public engagement and limited sharing even with Congress, and signed into law the next. Imagine if this was being done in Nigeria or in Pakistan or in Colombia? Commentators in the USA would claim this was corrupt and opaque.
I could certainly raise other concerns about the substance of the omnibus budget, but such comments will have to wait since I have not seen this document yet (as have no citizens). That would not be considered acceptable in developing countries and should not be accepted in the USA. Democracy is poorly served if Congress can vote a budget through without reading it or sharing it or having it vetted in some way by independent experts or the public.