The Cost of Future Policy: Intertemporal Public Sector Balance Sheets in the G7

Posted by Yugo Koshima, Jason Harris, Alexander F. Tieman, and Alessandro De Sanctis^[1]

A recent IMF Working Paper on “the Cost of Future Policy: Intertemporal Public Sector Balance Sheet in the G7" delves into a new approach to assessing fiscal sustainability. Going beyond the standard view of deficits and debt, the working paper uses the Intertemporal Net Financial Worth (INFW) of the public sector as a key measure of fiscal sustainability (see the IMF’s October 2018 Fiscal Monitor for more details). INFW is computed as the net financial worth of the public sector (static) balance sheet, comprising all assets and liabilities controlled by the government (including state-owned enterprises), plus the net present value of future primary balances. The former represents consequences of past fiscal policy, while the latter shows the cost of future policy.

Infrastructure Investment and Climate Resilience in the Pacific

Posted by Gemma Preston, Paul Seeds, and Iulai Lavea ^[1]

Increased investment infrastructure investment is critical to driving sustainable development and economic growth in the Pacific. Over the next ten years, annual infrastructure investment needs in the Pacific region are estimated to be US$3.1 billion per year. However, this is against a backdrop of constrained fiscal space and increasing government debt as governments grapple with the response to the COVID-19 pandemic. Other challenges include geographic remoteness and dispersed populations that increase the cost of infrastructure in a region with significant vulnerability to natural disasters and climate change.

A Book Review: Rebellion, Rascals, and Revenue: Tax Follies and Wisdom Through the Ages

Posted by Richard Allen^[1]

The authors of this unusual and stimulating book^[2] note that “tax stories from the past … can be entertaining, sometimes in a weird way, sometimes in a gruesome one, and sometimes simply because they are fascinating in themselves”. The book is long (more than 500 pages), comprehensively researched (over 1000 references) and – a pleasant throwback to the past - devoid of any charts or tables (or equations!). Its anecdotes cover the period from ancient Sumer and Rome through modern times to a look at what the future may bring. Tax policies and design as well as tax administration are covered. The book pays tribute to the path-breaking work of economists such as Malthus, Ricardo (on tax incidence), Pigou (on correcting for externalities), and Frank Ramsey (who pioneered the mathematics of tax design).  

Including Climate Change in Public Sector Financial Statements

Posted by Antonia Ida Grafl^[1]

The World Economic Forum’s Global Risk Report 2020 reveals that climate-related events are the top five global risks – extreme weather, climate action failure, natural disasters, biodiversity loss, and human-made environmental disasters. Climate action failure is the most critical risk. An adequate and urgent policy response is needed to protect the earth's environment and ensure a healthy planet. Governments worldwide are increasingly aware of the gravity of these risks and are taking action to combat climate change, as stipulated by the UN’s Sustainable Development Goals and the Paris Climate Agreement. There is broad consensus among PFM experts that climate change will have a material financial impact on public sector (and private) entities. Linking environmental data with financial management information systems is one way to make transparent the consequences of global warming and help governments make climate-informed decisions.

Fiscal Risk Management Tools for Latin America

Posted by Laura Torrent, Lesley Fisher, and Alvaro Manoel^[1]

As a result of the COVID-19 pandemic, Latin American and Caribbean countries have suffered from reduced fiscal revenues in addition to increased spending, borrowing, called guarantees, and support for state-owned enterprises (SOEs). These trends have increased fiscal risks and deficits.[2] The pandemic has highlighted the need to strengthen fiscal management institutions and infrastructure to mitigate the negative impact on the countries’ growth and fiscal sustainability.

Three Prizes of Digital PFM in Southern Africa

Posted by Moulay El Omari, Felipe Bardella, and Gerardo Uña^[1]

Digital technologies are transforming economies and human behavior around the world. The public sector in general, and public finances especially, have been involved in this revolution but governments need to accelerate their efforts.

Call for Papers: Practitioner's Corner, Governance

Posted by Richard Allen^[1]

Governance is an international journal devoted to the comparative study of executive politics, public policy, administration, and the organization of the state. PFM is one such area of interest. The journal seeks contributions that combine theoretical sophistication with rigorous empirical research. We welcome submissions employing any methodological approach that makes a clear and original intervention in a scholarly literature related to the journal's aims and scope. Peer-reviewed articles have a maximum length of 9,000 words.

The FRAT Brings Order to the Fiscal Risk Party

Posted by Fritz Bachmair, Celeste Kubasta, Lesley Fisher, and Nabil Hamliri^[1]

Fiscal risks can be a rowdy crowd, as the COVID-19 pandemic and the Global Financial Crisis have shown. If left unchecked, overexposed governments may wake up with a persistent headache. Being a good chaperone, the IMF is developing the Fiscal Risk Assessment Tool (FRAT) as part of a suite of tools to assess and manage fiscal risks.[2]

PFM and Service Delivery – What’s New, What’s Missing, What’s Next

Posted by Sierd Hadley, Tom Hart, and Mark Miller[1]

For over a decade there has been growing interest in linking PFM reforms to better service delivery results. A new paper by ODI argues that the discussion of PFM and service delivery has narrowed too far, and that a change in approach is needed to make the most of this growing agenda.

Balancing ‘Maintenance’ and ‘Investment’

Posted by Yasya Babych, Luc Leruth, and Christiane Roehler^[1]

Governments’ investment budgets are under pressure as urbanization, new technologies like broadband, and efforts to “green” economies require new kinds of infrastructure. At the same time, and partly as a result, traditional public infrastructure such as roads and bridges but also sewage systems or storm water drainage tend to be neglected. Infrastructure assets can accommodate a lack of maintenance for some years, and even some concomitant increases in demand, e.g., road traffic and, in the time of COVID, pressure on municipal facilities as people work from home. However, over time, capacity constraints emerge, and the erosion of the stock accelerates. Eventually, this leads to costly rehabilitation or even a need for a total rebuild.