Public Finance is never neutral

Introduction

In discussing agricultural spending in Malawi, I asked why the country invests more in maize than in livestock. While maize is vital to food security and widely consumed, its prominence is influenced by a range of complex factors. These include electoral motivations, financial incentives, donor preferences, and institutional biases.

This highlights a deeper issue in political economy: public finance isn’t neutral. Budget allocations reflect power dynamics, interests, and strategic decisions rather than merely addressing needs. The disparity in funding between maize and livestock illustrates how public finance operates in reality.

To fully understand development outcomes, we must explore not only what is funded but also why, who benefits, and what drives those choices. This perspective asserts that budgets are expressions of power, and recognising this is crucial for properly interpreting public finance and development.

The illusion of neutrality

Public finance is often presented as a technical discipline.

Budgets are framed as neutral instruments, tools designed to allocate scarce resources efficiently, respond to societal needs, and promote development outcomes. The language surrounding them is filled with terms like prioritization, optimization, fiscal discipline, and resource allocation.

But this framing obscures a deeper reality.

Public finance is never neutral.

Budgets do not simply reflect needs. They reflect choices. And those choices are shaped by power, incentives, institutions, and interests. To understand development outcomes, we must move beyond the numbers and interrogate the forces behind them.

Budgets as political documents

At its core, a national budget is not just an economic plan; it is a political document. It answers fundamental questions: Who gets what? When do they get it? How much do they receive? And who decides?  These are not purely technical questions. They are inherently political. In Malawi, the budget reflects: the priorities of political leadership, the influence of interest groups, the strength or weakness of institutions and the bargaining power of different sectors. What appears as a line item in a budget is often the end result of negotiation, compromise, and contestation.

The myth of needs-based allocation

A common assumption in development discourse is that public resources are allocated on the basis of need. In theory, sectors with the greatest social returns should receive the most funding, vulnerable populations should be prioritised, and long-term investments should outweigh short-term gains. But in practice, this rarely holds. Why? Because needs do not allocate resources, people do. And people operate within incentive structures. For example, a sector may be underfunded not because it lacks importance, but because it lacks political visibility, a program may receive significant funding not because it is efficient, but because it is politically rewarding, and a reform may be deprioritised not because it is ineffective, but because it threatens entrenched interests. Understanding this gap between need and allocation is central to political economy analysis.

Power Shapes Allocation

Power determines who influences budget outcomes. Different actors bring different forms of power into the budgeting process:

1. Political power

Elected officials shape budgets to secure electoral support, maintain coalitions and respond to political pressures. This often leads to prioritising visible projects and geographically targeted spending (e.g. the decision to construct the Zomba-Jali-Phalombe road in the southern region rather than the Rumphi-Nyika-Chitipa roads is influenced by where these roads are located). The former has the potential to secure more votes for the incumbent than the latter, where the population is smaller, and short-term interventions have an immediate impact.

2. Bureaucratic power

Technocrats and controlling officers design budgets, manage execution and interpret policy. Their influence depends on institutional strength, autonomy and technical capacity. In some cases, they can steer resources toward efficiency. In others, they are constrained by political directives. These are appointed by elected politicians. Positions from Deputy Director to Principal Secretary are within the prerogative of the state president.

3. Economic power

Private sector actors, contractors, and suppliers influence procurement decisions, sectoral investments and policy priorities. Where large financial flows exist, so do incentives for influence. This power may align a government investment project with clear and sound development objectives, and, as is often the case in African states, this has resulted in state capture. Examples are replete with stories about state capture by the Guptas in the Republic of South Africa, culminating in the near collapse of institutions such as Eskom

4. Social Power

Civil society, voters, and communities exert pressure through advocacy, voting behaviour, and public discourse. However, their influence is often uneven and fragmented.

Incentives Drive Decisions

Public finance decisions are shaped more by incentives than by intentions. Political actors respond to electoral cycles, the visibility of outcomes, their ability to claim credit, and the risks of political backlash. This creates predictable patterns, such as a preference for short-term, visible spending, underinvestment in long-term systems (e.g., institutions, maintenance, prevention), and the concentration of resources in politically strategic sectors. Technocrats, meanwhile, respond to compliance requirements, reporting frameworks and institutional constraints. Donors respond to measurable outputs, project timelines, and accountability to external stakeholders. Each actor behaves rationally within their incentive structure. The resulting budget is the aggregation of these rational behaviours, not necessarily an optimal allocation.

Institutions structure outcomes

Institutions define the rules of the game. Public Financial Management (PFM) systems determine how budgets are formulated, how funds are allocated, how spending is controlled and how accountability is enforced. Strong institutions constrain arbitrary decision-making, improve transparency and align spending with policy objectives. Weak institutions, on the other hand, allow discretionary allocation, enable leakages and inefficiencies and reinforce existing power imbalances. Most importantly, institutions themselves are products of political processes. They are not neutral either.

Malawi as a Case Study

Malawi provides a clear illustration of how public finance reflects power and incentives. Patterns observed include: sustained prioritisation of politically visible sectors such as maize; underfunding of less visible but economically critical sectors such as livestock; dependence on donor financing shaping national priorities; and budget fragmentation across ministries and programs. These patterns are not accidental. They are consistent with a system in which electoral incentives matter, institutional capacity is uneven, and external actors influence resource flows. Understanding Malawi’s budget requires understanding Malawi’s political economy.

Why this matters for development

The idea that public finance is neutral is not just incorrect; it is harmful. It leads to overly technical solutions to fundamentally political problems, reform efforts that ignore incentive structures, and frustration when “good policies” fail to deliver results. If we assume neutrality, we misdiagnose the problem. But if we recognise that budgets reflect power and incentives, we can design more realistic reforms, anticipate resistance, align interventions with political feasibility, and improve the chances of implementation.

Reframing Public Finance

To engage effectively with development, we must reframe how we think about public finance. Instead of asking: What does the budget say? We should ask: Who influenced this allocation? What incentives shaped these decisions? Which interests are being served? And what institutional constraints are at play? Only then can we move from description to explanation.

Conclusion: Beyond the numbers

Budgets are often presented as spreadsheets. But they are, in reality, expressions of power. They tell us what governments prioritise, what they are willing to invest in and what they are willing to neglect. Most importantly, they reveal the underlying logic of decision-making within a political system.

Closing reflection

Public finance is not just about numbers. It is about choices, trade-offs, and the distribution of power. And until we understand that, we will continue to misunderstand development itself.