Local budgets have extremely limited resources. This fact greatly increases the importance of the efficiency of resource allocation taking into account the priority needs of the population. The transparency of the budget and its conformity to the needs of citizens is not possible without a broad public debate. A few decades ago, the issue of transparency in the state budget was not discussed. Citizens did not have an opportunity to participate in the budget process, and information about public finances was kept in secret. With the development of democracy and strengthening of citizens’ participation in decision-making along with the emergence of a large number of non-governmental organizations representing civil society in the United States, the question of transparency of public finances and the effectiveness of their management has been the society’s subject of attention.
Non-governmental organizations and organized civil society continue to make a significant contribution to the development of democracy and respect for human rights. In a democratic society, decision-making rights are provided to the elected representatives, who enforce their decisions through the state executive bodies at national or local levels. If the powers, responsibilities, and resources are transferred to the level of the local government for policy making and allocation of resources, it is important to make decisions based on correct political principles and effective planning processes. The experience of many countries shows that the provision of citizens’ rights to participate in decision-making not only through elected representatives but also through various mechanisms allows considering the opinions and interests of citizens in policy-making process and getting people involved in the process of establishing democracy. In particular, non-governmental organizations enrich the decision-making process with knowledge and independent experience. They are created when the society has diverse interests. They reflect the interests of the citizens and can act as the main channel of involvement and participation of citizens.
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The problem of transparency of the budget process and fiscal policy has recently been realized. For private corporations, transparency problem was solved both at the top level that is under the influence of changes in legislation and government decisions, which were the result of a series of failures and associated economic and social costs, and at the bottom level by using information transparency of the corporation to attract investment and enhance public recognition. For the state, transparency was not considered a pressing problem. In a properly functioning system of representative democracy, limitation of powers imposed by the system on the separation of powers and political risks had to automatically exceed the potential benefits of politicians and officials compared to abuse and adoption of populist or ill-considered decisions. However, it is far from it. The ineffectiveness of economic assistance provided to the developing countries, the recipients of which are mostly government agencies, and the financial crisis in Southeast Asia have forced the IMF to turn the problem of the transparency of fiscal policy from the theoretical to the international practical problem.
On April 15, 1998, at its fiftieth meeting in Washington DC, the Interim Committee of the Board of Governors of the IMF adopted a Code of Good Practices on Transparency in Monetary and Financial Policies. It was a response to reaching a consensus regarding what essential meaning in achieving macroeconomic stability and quality growth has good governance. A key aspect of good governance is to ensure transparency in the fiscal area. In addition to IMF, such organizations as the Organization for Economic Cooperation and Development, World Bank, United Nations Development Program and regional development banks tend to pay much attention to the problem of increasing transparency in the fiscal area (Box, 2015).
Transparency in the fiscal area means openness of information to the public about the functions and structure of the government, purposes of the fiscal policy, public sector accounts and fiscal projections. The public consists of all individuals and organizations interested in the realization and development of fiscal policy. Transparency in the fiscal area strengthens accountability and increases the political risk of realization of the irrational policy. Therefore, transparency promotes the growth of confidence. It leads to greater support of the authorities’ actions from the perspective of the public. Transparency reduces borrowing costs, provides economic and political stability, and increases the investment attractiveness. It is believed that greater transparency is a necessary part of the conditions established for the implementation this policy, the success of which requires public support. Transparency does not guarantee quick results in terms of improving the quality of the budget process and the state of public finances, as well as finding solutions to economic and social problems. However, it is a necessary condition for a successful long-term strategy of economic and social development.
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For transparency of the budgetary sphere to be successful, the authorities should have clear roles and responsibilities. It involves not only the distribution of functions, but also the presence of the mechanisms for coordination of activities among authorities in the fiscal area, the clarity of the division of public and private sectors, and coordination of the state’s plans and expectations of the private sector. Information should be accessible. It stands for the commitment on the part of the country to ensure the completeness, availability, and comparability of all the published fiscal information and data on the state of public finances. Preparation and execution of the budget and budgetary reporting should be open. Existence of an external audit, independence of statistical authorities, readiness of the authorities for independent audits, and the availability of audit results are also a necessary condition for ensuring the transparency of the budgetary sphere of the state.
Nowadays, participatory budgeting is extremely popular in many countries. Participatory budgeting is the distribution of a part of the city budget with the help of a commission composed of citizens. In the past twenty years, this procedure has been used successfully in Europe, Latin America, and the United States. “A typical structure of participatory budgeting process indicates that citizen participants are the main budget decisions makers” (Ryu, 2014, p. 265). According to experts of the World Bank, it helps initiate a new public discussion of urban problems and increase the level of the citizens’ activity. In other words, citizens have an opportunity not only to express their opinion on the city budget but also to decide how to allocate some part of it, as well as get acquainted with the intricacies and difficulties associated with this work. In fact, it is an alternative form of citizen participation in the process of discussion and adoption of the municipal budget, in which citizens are able to determine independently the cost of the budget for the next year (Ryu, 2014).
Nowadays, in many countries, the impact of citizens on the budget process is limited to public hearings of the budget. However, frequently, they do not provide opportunities for interaction of citizens and representatives of the city administration. Primarily, it is due to the lack of accessible and understandable information about the budget process and the belief of the citizens in the impossibility to influence fiscal policy. It is clear that without the participation of the two interested parties, which are citizens and the government, this problem will not be solved (Ryu, 2014).
Many countries implement projects concerning the interaction of citizens and the government in the composition of the budget. It is a way of solving the problem of the fiscal policy. “Citizens do not have a clear understanding of how much they actually pay to governments, including the costs of governmental services, or the impacts of varying financial methods” (Box, 2015, p. 103). The purpose of these projects is to gather people, independent experts, and representatives of the administration of the municipality, giving citizens the opportunity to understand how to operate the city’s budget, suggesting initiatives, and participating directly in the distribution of the budget. The objectives of these projects are focused on the means of influencing directly the policy of the local government. They give citizens the opportunity to understand how to make and distribute the municipal budget, providing more information on the activities of local government bodies and creating a new mechanism of interaction between citizens and municipal authorities on addressing the local issues. They provide transparency, openness, and accountability of government and local self-government and improve the quality of financial management of organizations of the general government. They also solve the problem of elimination of budget illiteracy (Box, 2015).
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About ten years ago, the governments of the United Kingdom, the United States, France, Germany, South Africa, Australia, New Zealand, India, and Canada took part in the project Open Budget. These countries provide in real-time the most comprehensive information on the state budget. It allows getting a feedback from citizens in the form of amendments, revised data, expertise, and initiatives concerning new possible sources of revenue of the state treasury (Box, 2015).
International experience shows that the involvement of civil society can considerably improve the quality of the budget process, decisions and results achieved, thereby transforming people’s lives and the state’s activities on the whole for the better. The underlying principle is the participation of everyone in decision-making in the sphere of the state budget. It is a fundamental right and duty of all citizens.
