The budget process and corruption:

2. Consequences of budgetary corruption

Severe implications for governement efficiency

The most specific consequences of budgetary corruption are closely linked to government efficiency. Budgetary corruption:

• Misallocates scarce resources. Resources are diverted from government coffers into private hands. Important expenditures for development and for social safety nets are reduced. Limited funds for priority social sector spending are reallocated to areas that benefit few people.
  
  
• Renders government planning ineffective. Corruption at the implementation stage of the budget process implies that actual spending differs markedly from original expenditure plans.
  
  
• Reduces public confidence in the rule of law and undermines government legitimacy. The hold and influence of criminal and corrupt elements in society is increased. Public faith in government and public sector integrity is diluted.
  

Budgetary corruption thus produces many of the same consequences as corruption in general, in reducing investment and growth. Moreover, by directly affecting spending on priority sectors such as education and health, budgetary corruption can have a particularly damaging effect on the prospects of the poor.

Corruption has a negative effect on international development efforts. It has become necessary for donor agencies to assure their constituencies that aid resources are not used effectively to promote growth and reduce proverty. Donors increasingly emphasise the need for effective public expenditure management and financial accountability systems, and multilateral and bilateral donor agencies put anti-corruption measures high on their agendas. The World Bank adopted an anti-corruption policy in 1997, and the Asian Development Bank did the same in 1998. In 1999, the OECD countries negotiated an Anti-Bribery Convention, and more recently the IMF has developed Standards and Codes of Fiscal Transparency (IMF Fiscal ROSCs) addressing these issues.

On the African continent, the New Partnership for Africa's Development (NEPAD) has articulated the importance of accountability, describing corruption, ineffective policies, and waste of resources as major causes of the continent's stagnation. African countries will, under NEPAD, have to commit to good governance and collaboration against corruption.

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