Budgeting in uncertain times: making every penny count

Governments everywhere are facing significant fiscal challenges due to rising debt, ageing populations trend in some parts of the world such as Asia, Europe and Northern America, climate shocks, and heightened geopolitical tensions. As citizens expect more from their governments—better healthcare, stronger safety nets, faster disaster response—available budget resources are shrinking. Ministries of finance must now focus on deploying funds more efficiently to meet these growing expectations.

A Storm of Demand for Resources

The following figures provide a snapshot of current fiscal conditions: Global military expenditure reached $2718 billion in 2024, an increase of 9.4 per cent in real terms compared to 2023. At the same time, more than 60% of low-income countries are at high risk of debt distress. Across various regions, climate-related disasters are occurring with greater frequency and cost, while ageing populations are increasing pressure on pension and health systems. For instance, in the European Union,  public expenditure on long-term care is projected to rise from 1.7 % of GDP in 2019 to 2.5 % of GDP by 2050.

Ministries of finance are facing increased demand for public resources, and traditional practice of incremental budgeting—where allocations are based on prior year figures —is no longer considered an effective way to allocate budgetary resources among competing priorities.

Expenditure Reviews: A Tool to Reprioritize

• More governments are looking for better ways to raise more revenue and spend efficiently. Expenditure reviews—systematic assessments of existing programs—are emerging as a key tool to identify what’s working, what’s not, and where money can be redirected. In France, spending reviews are integrated into the budget cycle.  The 2024 expenditure review analyzed €64 billion in budgetary and tax support provided by the State to businesses in 2022. According to the review, the measures identified could generate savings of up to €3 billion by 2027.
• In Colombia, expenditure reviews are used as a tool in budget reform. A series of reviews conducted between 2016 and 2020 led to efficiency gains across education, transport, and justice sectors. After examining performance indicators and cost drivers, the Ministry of Finance reallocated funding from underperforming programs and reduced duplication in public investment projects.
• Kenya’s 2025 Public Finance Review highlights three possible paths—business as usual, severe austerity, or a more balanced consolidation strategy. The latter could, if implemented fully, reduce debt to 44% of GDP by 2035, raise real wages and consumption by 4%, and boost GDP growth and labor productivity by 7.1% and 6.4% respectively. Reforms to broaden the narrow tax base—such as rationalizing exemptions (up to 2.2% of GDP in revenue gains) and improving property, excise, and carbon taxation (up to 1% of GDP)—are essential, alongside efficiency gains in spending and governance to rebuild trust and make fiscal consolidation both sustainable and inclusive.

Expenditure reviews aren’t just technical exercises to reduce spending. They’re about allocating resources for emerging priorities—such as climate adaptation, digitalization, or protecting vulnerable households—while maintaining budgetary targets. 

Trade-Offs Require Better Prioritization

When everything feels urgent, prioritization becomes essential. Countries often face decisions between immediate needs and long-term priorities. In the short term, global polarization has resulted in increased defense spending. As a result, rising defense budgets absorb fiscal space that might otherwise be allocated to long-term investments in health, education, climate or infrastructure. Similarly, emergency spending on floods, fires, and droughts is reallocating funds that could be used for disaster risk prevention and resilience efforts over the long term.

Subsidies are a good example of how short- and long-term priorities must be balanced. Subsidies may cushion economic shocks, but many are fiscally unsustainable, poorly targeted, or counterproductive—diverting funds from priority investments. For example, subsidies for fossil fuels, agriculture, and fisheries exceed US $7 trillion  annually, which amounts to 8% of global GDP.

One solution to address this dilemma is to improve the alignment between resources and results. This means adopting medium-term expenditure frameworks, establishing clearer links between national planning and annual budgets, and more using performance data to inform resource allocations. Prioritization entails making decisions such as discontinuing costly and regressive subsidy schemes, or sunsetting programs that no longer deliver measurable results. Redesigning programs can be politically complex but is essential for creating fiscal space. These choices require not only evidence, but also political commitment, transparency, and inclusive public dialogue to secure broad acceptance.

What Needs to Change

In today’s environment, the role of ministries of finance goes beyond managing resources—it’s about ensuring that every dollar supports outcomes that matter to citizens.

To do that, governments need to:

• Institutionalize expenditure reviews as part of standard budget management;
• Strengthen prioritization frameworks to address medium and long-term goals rather than immediate concerns;
• Reform subsidies by phasing out costly and regressive schemes and targeting support for vulnerable households and green transitions, freeing fiscal space for priority investment;
• Upgrade data systems and digital tools that enable better planning and monitoring.

The fiscal storm isn’t passing anytime soon. But with the right reforms, governments can stay focused on what matters the most—delivering results, protecting the vulnerable, and investing in a sustainable future.

Source : World Bank