We, in the Fiscal Affairs Department of the IMF, are delighted to host this ICGFM conference. FAD has hosted these Winter Conferences for a number of years. We are proud to be associated with these important events. Over the next three days, we will be hearing a variety of perspectives on how public financial management institutions can play a key role in advancing the sustainable development agenda.
Sustainable development relies on sound macroeconomic and development policies, a supportive climate for private investment, and good governance. In my remarks, I would like to briefly talk about my department’s work in three areas that are critical to ensure effective use of public resources to achieve sustainable development goals.
The first area I would like to highlight is public investment. Public investment plays an important role as countries pursue their development agenda. This is realized through the provision of both social and economic infrastructure. However, the economic and social impact of investment critically depends on its efficiency. A recent study prepared by the IMF Fiscal Affairs Department finds that the average country loses one-third of the potential benefits from public investment because of inefficiencies in the way they are managed. Indeed, improvements in public investment management practices can help countries close up to two-thirds of this efficiency gap.
For this reason, the IMF together with the World Bank have developed a new Public Investment Management Assessment, or PIMA for short. PIMA is designed to help countries identify their strengths and weaknesses in planning, allocation, and implementation of public investments. We will be piloting this new assessment over the next 12 months. We hope that it will help countries prioritize institutional reforms so as to get a bigger bang for their public investment buck.
The second area that I would like to emphasize is the need to support fragile states. If we are to achieve the sustainable development goals, the public finance community must do more to help those living in fragile states. Half of those living on less than $1.25 per day live in fragile states. Building state capacity is critical to improving the living standards of the most vulnerable citizens of the global community. Building capacity to mobilize and efficiently manage public resources is imperative. In the coming year, FAD will be preparing a paper on the lessons from experience in building fiscal management capacity in fragile states. We are therefore very much looking forward to hearing at this conference about how colleagues in Liberia, Somalia, and Afghanistan have tackled the challenges of fiscal statecraft in their countries. We are particularly interested in hearing how they used public financial management reforms to promote political, social, and economic stability and development.
The third and last area that I would like to underscore is accountability. This is an issue to which I attribute fundamental importance. The first example of accountability that I am aware of is provided by ancient Athens. The transactions carried out by officials, in their public functions were carved in stone. Those records were displayed in public places so that they could be examined by all Athenian citizens. The conduct of public finance operations was accompanied by solid accountability.
But I think that the story that Jacob Soll presents at the beginning of his book The Reckoning constitutes a true morality play.1 This is the story: Colbert, the finance minister of Louis XIV, ordered that, twice a year, starting in 1661, a miniature gold calligraphy book would be produced, so that the King could carry it at all times. The little book recorded systematically the Crown’s expenditures, revenues and also its assets and liabilities. As soon as Colbert died, Louis XIV discontinued the practice. Probably because he came to see it as a constraint on his exercise of absolute power. After the King died in 1715 the dire state of French finances became obvious. Public debt was sizeable, the state was on the verge of bankruptcy, and taxes were high. The time was ripe for reckless financial schemes promoted by a Scottish innovator: John Law. As you will recall, the episode is an early example of financial crises. It became famous with the name Mississipi Bubble. The collapse was in 1720.
Double entry accounting became practice among Italian international merchants around 1300.2 In 1340, the Republic of Genoa kept a double entry register of its finances. The practice later extended to Venice and Florence. The tradition of accountability of northern Italian cities did not resonate with centralizing monarchs. On the contrary, transparency and accountability were seen as threats to the free exercise of political power. As a consequence double-entry accounting endured in the private but not in the public sector.
The historical examples illustrate how important – and difficult – it is to ensure that legislatures, citizens, and markets have the information they need to hold governments accountable for the use public resources. The IMF’s new Fiscal Transparency Code sets out up-to-date standards for disclosure of information about public finances. The new Code replaces its 2007 version. Fiscal transparency allows for a better informed debate among policymakers and the public about the design and results of fiscal policy underpinning the development agenda. Fiscal transparency also helps establish accountability for its implementation. So I am glad that this year’s conference will include several sessions looking at how to strengthen transparency and governance around the world. For our part, the IMF will continue to champion the cause of fiscal openness and accountability, both through the Fiscal Transparency Code and our new Fiscal Transparency Evaluations, which have now been conducted in 15 countries.
Achieving sustainable development goals requires lasting improvements in fiscal institutions across these three areas. They will promote cost effectiveness. They will also make governments accountable for the implementation of their development agenda. Success requires greater efforts by all stakeholders. Many of these stakeholders are participating in the ICGFM conference, so I am sure we will have a fruitful exchange.
Thank you again for participating in this Winter Conference. You have a full agenda with an excellent roster of speakers and panelists. I look forward to learning about your findings.
Thank You!
1 Soll, Jacob, 2014, The Reckoning: Financial Accountability and the Making and Breaking of Nations, New York: Basic Books.
2 Gleeson-White, Jane, 2013, Double Entry: How the Merchants of Venice Created Modern Finance, New York: W. W. Norton & Company
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