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Achieving the Goals of the 2030 Agenda for Sustainable Development is impossible without realizing substantive investments aimed at increasing human well-being and leaving no one behind. Today, in the era of polycrisis, most governments have to cope with decreasing public revenues, while at the same time experiencing rising needs for public expenditures and increasing debt. The question, therefore, remains as to how to find the right balance while promoting fiscal responsibility. There is no single response to this question and no one-size-fits-all solution. However, evidence and experience provide conclusive lessons, with the need to accelerate public financial management (PFM) reforms being one of the primary lessons learned. This blog proposes selected, critical recommendations addressing the expenditure side of PFM.
As a general rule, in times of crisis, governments should build on reserves formed during better times and borrowing, if required, should be sustainable. However, most governments face challenges in this regard due to political and implementation capacity issues, and many grapple with critical deficits and debt burdens, among others, due to large spending during better times, where prudent behavior is oftentimes forsaken.
Harnessing the best value for money needs to guide public procurement reforms. Public procurement can serve as a strategic policy instrument through which spending entities can meet policy objectives and realize progress on implementing the 2030 Agenda. So called “green public procurement” has the potential to save and protect the environment, and this potential can still be enhanced in most countries.
Emergency procurement is another area to tackle. Lessons from the COVID-19 pandemic showed that a “crisis mode of operation” offered fertile ground for using public funds for private gain, cronyism, bribes, fraud, and counterfeit. Although necessary at the time, such “crisis mode of operation” persisted in many countries even after the COVID-19 emergency had faded. Urgency should not be used as a reason to bypass established governance procedures indefinitely. Rather, if a crisis occurs, efforts must be made to record transactions and revert to normal procedures as soon as the situation subsides. The International Monetary Fund recommends that recipients of emergency financing commit to publishing online procurement contracts, beneficial ownership information of companies receiving contracts, expenditure reports and independent audits of crisis-mitigation spending. The access of citizens to information could also help provide powerful levers for oversight and governance.
There are other important areas where the efficiency of existing and planned public expenditures can be improved. For example, non-targeted grants may not serve to leave no one behind, as they might deliver benefits solely to middle- and higher-income classes. In the context of emergencies, existing public expenditure programs should be systematically evaluated, including ex-ante and ex-post, in terms of costs and outcomes. Newly proposed expenditures should not be approved without comprehensive evaluation. Oversight institutions, like fiscal councils, Supreme Audit institutions (SAIs), parliamentary budget offices and civil society organizations should play an active role in promoting an environment that fosters fiscal responsibility, transparency, accountability, and integrity.
In times of crisis, budget credibility and transparency are both critical and possible. Efforts to achieve them should be augmented. In some situations, it might be inevitable to divert from planned and approved revenue and expenditure targets. For example, to cope with the COVID-19 pandemic, some governments had to increase their social welfare budget by hundred per cent or more. In such exceptional cases, where budgetary deviations are inevitable, governments should provide timely, comprehensive, and detailed reports on how public funds were spent at all levels of government, including justifications for budgetary deviations. Governments should also refrain from classifying commitments as “emergencies” when these are in fact expected as this distorts both budget forecasts and oversight.
Program-based budgeting remains one of the best tools for linking policy objectives with spending targets, including economic and social priorities, thus enabling proper evaluation of value for money of existing or planned spending. The United Nations, through its integrated national financing frameworks (INFFs), offers countries the tools needed for more effectively financing their national sustainable development priorities and achieving meaningful progress on the Sustainable Development Goals.
The digitalization of government services and the acceleration of digital innovation in PFM is an important opportunity. The IMF Digital Solutions Guidelines for PFM and an accompanying Implementation Tool (DiGIT) provide a comprehensive framework for the digital transformation of PFM. This framework allows a graduated approach allowing the development of tailored strategies that reflect country-specific context and capacities. Digitalization also offers avenues for recalibrating and streamlining public services provision, with various potential benefits, such as data-informed governance, corruption mitigation, and improvement of public services. The recent COVID-19 pandemic helped accelerate this transition and governments should continue to seize the opportunity to engage in change management towards a more effective public sector.
Even when governments are committed to the 2030 Agenda and to leaving no one behind, the diversity of levels of government and stakeholders involved in the various stages of decision-making makes it hard for all actors to have aligned incentives. This is why the inter- and intra-governmental fiscal relationships must improve and be highly coordinated.
By Juraj Nemec, Lamia Moubayed Bissat, Katarina Ott, Linda Bilmes and Ronald Mendoza, Members of the Committee of Experts on Public Administration