Support Public Financial Management Resilience Across the Budget Cycle
The bad news for government is that the health and social stresses caused by the COVID-19 pandemic are compounded by Public Financial Management weaknesses in many countries.
- With more rather than fewer government fiscal shocks expected in the future, according to the World Economic Forum 2020 Global Risks Report.
- Short-Term: economic confrontations, domestic political polarization, extreme heat waves, destruction of natural ecosystems, cyberattacks
The good news: governments can learn from the crisis.
- Never waste a perfectly good crisis.
Context for public finances: in addition to health spending needs, this pandemic reduces government revenue mobilization to fund the response.
- Tax revenue drops as firms reduce economic activities, and employees are laid off
- Permits, licenses, utility billing, and other forms of non-tax revenue suffer as citizens and businesses cut down on consumption
- Fiscal space for borrowing is contracted because of spending and increased risk perception
Reality Check: social spending needs to increase beyond health spending.
- Businesses need financial aid
- Citizens need financial aid
- And, remittances dry up, migrant workers come home
Methods to improve PFM resilience in budget formulation includes:
- build contingency funds that can be tapped into during crisis
- develop multiple year scenario plans (not just multiple year expenditure frameworks) based country risk likelihood to accelerate financial reallocations
- leverage program budgeting to better track spending across Ministries, Departments, and Agencies
- integrate expenditure, revenue, and debt planning with the view to build fiscal space
- set aggregate commitment controls to facilitate future reallocations including eliminating timely line-item budget transfers
Of course, these budget formulation practices won’t help immediately, if not already implemented.
Resilience in budget execution can be achieved through:
- set up new elements in the Chart of Accounts including fund source and Valid Code Combinations to ensure that only authorized MDAs are spending against programs
- use of the Treasury Single Account (TSA) to leverage unused cash
- budget reallocation driven by new priorities
- adjust expenditure workflow temporarily to facilitate COVID-19 spending
- develop special COVID-19 e-procurement to reduce the overall spend
Fiscal transparency is a critical tool for PFM resilience:
- provide planning and execution transparency across the commitment cycle to increase citizen and business trust
- enable internal audit and alerts from financial systems
- support learning through external compliance and performance auditing
The good news is that FreeBalance has developed a set of tools to help government evaluate resilience including:
- Short-term actions based on current systems used, regardless of whether FreeBalance or other systems
- Medium-term actions that can be implemented by the next fiscal year
- Longer-term actions that supports resilience for many years