Opacity in the attire of transparency!!!

The story of fiscal disclosure in Egypt

This post was written by Lobna Abdel Latif, Professor of Economics (Cairo University), on her research “Are improvements in fiscal transparency in Egypt endogenous to fiscal outcomes?

Three successive waves of fiscal disclosure have taken place in Egypt starting from the late 1970s till 2007. Consequently, a lot of data were gradually included in budget reports. Data disclosed covered details on budget deficit and its main attributes such as energy subsidies and cost of fully funded pension system. Our hypothesis is that this gradual data disclosure was not aiming at injecting further transparency into the system but rather represented government-initiated reforms taken in response to other motives. How do we go around to prove this? Basically by arguing that for disclosure to be described as aiming at transparency, it has to be responsive, visible and cover the type of data demanded by Members of Parliament (MPs). Our analysis however shows that in the case of Egypt, disclosure has been nothing but responsive to budget deficit.

Content analysis – transparency did not increase accountability:

We have conducted in-depth analysis of the MPs’ interventions in the floor discussion of fiscal affairs for two successive parliamentary terms over ten years (2000-2010). We obtained data on over 900 parliamentarians regarding type of preferred information and reaction to availed information. Our analysis indicated that the data disclosed were not the type demanded by parliamentarians; while MPs preferred data on targeted public goods, they received data about pure public goods on deficit and its attributes. In addition, data were not utilized to hold government accountable to its fiscal actions. How could this mismatch between disclosure and effective accountability be explained? Our analysis pointed out that data were revealed by government to justify future actions that may be taken by government to control deficit and public debt and hence it was never provided in the format or type that generates greater fiscal accountability.

Why didn’t MPs demand greater transparency – explaining the puzzle?

The puzzling issue is that MPs did not request the government to share the right information that affects distributive decisions in parliament. Moreover, as of our econometric model, they went into reducing the number of interventions on deficit and its attributes after they got data on those. Our guess: parliamentarians realized that any reduction in deficit would have a distributional impact that might hurt their re-election chances as subsidies are the biggest attribute to deficit. Disclosure, thus, led to curbing the little discussion on deficit that was already there before the reforms were introduced.

We also have another institutional explanation. The majoritarian electoral system applied in Egypt during the study period (2000-10) made the government deal with the whole country as one big constituency and to apply a ‘head count funding formula’ for allocating public resources with complete -disregard to the economic geography of public spending. Also, this electoral system encouraged MPs to make use of the common pool problem and manipulate fiscal illusion when there is no true transparency on the parameters of territorial allocations. In short, MPs preferred opacity when they found that it facilitated capturing more resources for their individual constituencies without raising questions about comparative justice. For them, transparency was viewed as costly and electorally harmful as it may end up bringing them fewer constituency-targeted benefits compared with what the prevailing opaque system offered. It might be just about time to reform such transparency-crippling structures.

Read the paper here

The paper will be presented at the Economic Research Forum (ERF) workshop “The political economy of transformation in the ERF region“, which will take place in Tunis, Tunisia, on October 28-29th.

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Download Political Economy of Tranfomation Agenda

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