Public interest in policies promoting racial equity is growing worldwide, especially in Latin America and the Caribbean (LAC), a region known for large income and racial inequalities.
Afro descendants are one of the largest population groups in LAC, representing between 20 and 30 percent of the population and approximately half of the region’s poor. They earn wages that are on average 17 percent lower than the rest of the population, and are more likely to live in chronic poverty. Poverty also affects 43 percent of the indigenous population in the region, a figure that is more than double the proportion of non-indigenous people in the same situation, with the adjusted wage gap for indigenous people is 27 percent.
Through well-designed taxation and public spending, governments in the region can reduce ethnic and racial inequalities. Currently, direct taxes and transfers in LAC are predominantly color-blind, and they have little redistributive power to reduce the ethno-racial disparities pervasive in the region. The same challenge happens on the spending side. The budgetary process does not take into consideration the impacts of government spending on racial equality, preventing governments from prioritizing policies that could make a positive contribution to reduce inequality among different racial groups in society.
This was the topic of the event Racial Equity Budgeting: Lessons from the United States and Brazil, which was organized by the Inter-American Development Bank and took place in September 2023. We discussed how racial equity budgeting works and how cities and states are applying this instrument to reduce racial inequality. In the event, we discussed the experiences from the United State Federal Government, the cities of Philadelphia and Washington DC in the United States and the Brazilian state of Ceará.
In this blog we provide a summary of the key takeaways of the event.
What is Racial Equity Budgeting?
Racial equity budgeting is the integration of a racial equity perspective into fiscal policies and the processes of public financial management (PFM).
Recognizing that budgets and policies are never neutral, racial equity budgeting aims to help governments design and implement policies more intelligently, minimizing unintended negative impacts on specific segments of the population. For example, in many LAC countries, public expenditure on scholarships and tertiary education, even though useful to promote human capital accumulation among the population, has been observed to disproportionately benefit the white and non-indigenous population, contributing to perpetuating inequities.
Mainstreaming race into the budget process involves establishing specific rules and practices to ensure that racial equity is consistently considered in decision-making and management. Given that the budgetary process is at the core of allocating and executing public resources, racial budgeting can play a critical role in the mainstreaming of race in fiscal policy.
To see how race could be mainstreamed throughout the budgetary process, it is important to remember how the budget cycle works. It begins with budget planning and continues through formulation, discussion, implementation, and evaluation. At each stage, various tools can be incorporated to ensure that public policies and programs are sensitive to racial equity (see Figure 1). It is important to adapt these strategies to the local context, as there is no one-size-fits-all approach.
Figure 1. Institutionalization of the Racial Perspective in the Budgetary Process
Why is it Important?
First, investing in racial equity makes economic sense. It is not just the right thing to do from an equity perspective, but also in terms of economic growth. Racial inequality prevents people from making the most of their economic potential, systemic racism carries significant economic costs. A society with lower racial inequalities is an economically stronger one. When marginalized communities have access to education, healthcare, and economic opportunities, it can lead to increased economic productivity and growth, benefiting society. In the United States for example, the wealth gap between whites and blacks is expected to cost a projected GDP penalty of 4 to 6 percent in 2028 from lost consumption and investment (Noel and others 2019).
Second, knowledge is power. Racial disparities exist across various sectors, including education, healthcare, criminal justice, housing, and employment. By prioritizing racial equity in budgeting decisions, governments and organizations can work to reduce these disparities and create a more equitable playing field. Correctly done, racial equity budgeting can make existing inequalities visible and help governments understand the impact of their choices on racial equity outcomes and drive more informed decisions.
Third, it is not about spending more, but spending better. Racial equity budgeting is not about increasing spending on racial equity programs across the board. Instead, it is about the quality of spending and analyzing fiscal policies and budgetary decisions to understand their impact. It is important that we target public funds effectively and ensure that they are contributing to the country’s overall racial equality and empowerment goals.
Fourth, racial equity budgeting promotes fairness, addresses historical injustices, and enhances community well-being. It is a critical step toward building a more equitable and prosperous society for all.
Some Recent Examples of Racial Budgeting
During the event, we reviewed several actions implemented by governments to introduce racial budgeting in different government agencies, ranging from issuing executive orders, creating new units with a special mandate, designing and implementing action plans, creating tools, and engaging with civil society.
Federal Mandates
The U.S. government has released several executive orders directing federal agencies to support the implementation of a comprehensive equity strategy and to collaborate with the Office of Management and Budget (OMB) in the federal budget process to identify investments that produce equitable outcomes for all Americans, adequately resource Agency Equity Teams, facilitate equitable data initiatives and practices, and include specific equity and customer experience activities and capacity needs in agency budget requests.
In addition, OMB is required to support agency equity-related plans and activities to promote equitable investment and outcomes through the President’s Budget and update internal processes, directives, and Government-wide guidance to support equitable decision-making, equitable deployment of financial and technical assistance, and assist agencies in promoting equity.
Action Plans
The City of Philadelphia created the Racial Equity Strategy, which requires all city departments to develop Racial Equity Action Plans, and in 2020 announced plans to integrate racial equity into the budget process. It includes racial equity questionnaires from all departments as part of the annual budget submission to guide resource allocation. These questionnaires include evaluations of existing programs and policies, as well as an assessment of how new expenditures could potentially impact racial equity.
New Unit and Tools
Washington DC created in 2021 the Office of Racial Equity (ORE), under the Office of the City Manager, and has developed the Racial Equity Budget Tool, a set of questions that agencies should ask themselves at the budget formulation stage when reprogramming, requesting capital, awarding grants, or using federal funds. This tool helps agencies assess how their budget might benefit and/or burden local communities, particularly Black, Indigenous and People of Color communities, and identify programs and services with the greatest capacity to move the needle on closing racial equity gaps.
Guidelines with Community Participation
The State of Ceará is at the forefront of the adoption of a race-sensitive budget among Brazilian states. The Multi-Year Plan[1] 2024-2027 has brought a comprehensive approach in favor of ethnic and racial equality, among other cross-cutting issues, to the definition of guidelines and priorities that will guide public programs and policies in all sectors for the next four years. This was achieved through a meaningful process of community participation, including in-person meetings in various regions of the state and the opportunity for virtual participation.
Lessons Learned from These Experiences
Based on the experiences discussed in the meeting, participants discussed some key lessons learned:
- Set clear goals and establish an overarching strategy. Racial equity budgeting practices need to be guided by a strategy on racial issues that sets out clear goals and commitments – countries need to know what they are trying to achieve and have measurable targets! To achieve these goals, it is important to develop a sequencing plan that integrates racial equity budgeting into fiscal policies and PFM processes, within a reasonable timeframe, in a manner that is consistent with the racial strategy.
- Leadership support is critical. Commitment from the highest levels of government is essential to the successful implementation of racial equity action plans. Clear messages and standardized language about racial equity facilitate understanding and support.
- Engage with the local community. Prioritize community input and engagement throughout the budget formulation process, while adhering to strict timelines and cycles. This approach can be institutionalized through focus groups and meetings led by the budget office to educate residents about the process and gather their input.
- Data quality and availability are key. Generate disaggregated data to enable racial equity assessments, conduct monitoring and evaluation, and generate evidence to strengthen decision-making. Racial equity budgeting tools allow governments to identify gaps and analyze the impact of spending on different racial groups. Good availability of disaggregated data for racial equity indicators is essential for conducting impact assessments and monitoring progress.[2]
- Invest in capacity building. Invest in training and capacity building for staff, not just in the unit responsible for racial equity budgeting, but across government agencies. Ensure that there is a dedicated equity team to lead the process and provide guidance and technical assistance to the rest of the government.
- Persistence and discipline are essential. Understand that addressing racial equity takes time, is complex, is a responsibility of all sectors and agencies, and requires a cultural shift for agencies and budget staff.
You can watch the digital recording of the event to learn more about current practices and challenges.
We thank Samuel Ceccon for his assistance with this blog.
Subscribe to our newsletter to keep yourself updated about our latest publications, blogs and events. Make sure to select newsletters option, after choosing the fiscal policy and management topic.
Further reading:
- Splitting the Bill: Taxing and Spending to Close Ethnic and Racial Gaps in Latin America
- The Economic Cost of Racism – IMF F&D
- The Racial Equity Budgeting Framework | UMD School of Public Policy
- Sustainable Tourism in Salvador de Bahia – ¿Y si hablamos de igualdad? (iadb.org)
- A New Push for Gender, Diversity, Equity and Inclusion at the Boards of IDB and IDB Invest – ¿Y si hablamos de igualdad? (iadb.org)
- Resilience and inclusive equitable recovery – ¿Y si hablamos de igualdad? (iadb.org)
[1] The PPA (Multi-Year Plan), LDO (Budgetary Guidelines Law) and LOA (Annual Budget Law) provide the framework for government planning and resource allocation in the Brazilian budget process. The PPA outlines the government’s priorities, goals and objectives for a four-year period, the LDO establishes budgetary guidelines, and the LOA details the annual budget.
[2] The presentation by Shaibya Dalal Senior Advisor, White House Office of Management and Budget, noted that a first step in promoting racial equity in government action is to collect the data necessary to inform that effort.
Leave a Reply