Preparing Public Financial Management Systems to Meet Covid-19 Challenges

Sandeep Saxena, Michelle Stone

March 13, 2020

Covid
Posted by Sandeep Saxena and Michelle Stone [1]

The outbreak of Covid-19 will test public financial management (PFM) systems in many ways, as did previous health emergencies related to Ebola and SARS. The challenges are likely to come mainly from: (i) estimating and finding additional budgetary and financial resources; (ii) ensuring availability of funds to service delivery units and disbursing them efficiently with due regard to controls; (iii) tracking and accounting for resources deployed in emergency response and reporting it transparently; and (iv) ensuring business continuity when faced with large-scale absence of staff. This note outlines steps that governments can take to prepare and strengthen the capacity of their PFM systems to respond to these challenges.   

 

I.   PFM objectives in responding to a pandemic 

PFM systems are critical to support the efficacy of the government’s emergency response. Governments around the world are facing the challenges posed by the Covid‑19 outbreak. Unprecedented pressures are likely on healthcare systems—both public and private—and governments may be required to provide fiscal stimulus in response to the crisis. Governments need to ensure that their PFM system is equipped to meet the additional requirements and new challenges in terms of:

PFM systems should also be capable of supporting fiscal objectives¾whether that is finding offsetting savings for increased Covid‑19 related spending, or the preparation and delivery of fiscal stimulus packages to support economic activity where appropriate.

II.   Immediate considerations: Identify legal framework for additional budget funding

Finance ministries should identify what emergency response mechanisms are at their disposal to meet unforeseen demands. Typically, the main PFM tools to cope with emergency spending are:

It would be prudent to determine whether there are any legal or parliamentary constraints on seeking additional funds or reallocating spending that warrant pre-emptive action. This protects against a scenario where it may not be possible to reconvene parliament, or for parliament to meet, when an approval is later needed.

III.   Set up institutional PFM mechanisms to meet emergency response

A.   Reprioritize spending

Given the additional need to support health and essential services during an outbreak, finance ministries should estimate resource requirements for emergency response, and identify low priority spending that could be reduced to create room for priority spending.

B.   Ensure liquidity, recalibrate debt and cash requirements

Liquidity management will be critical to enable the government to meet its extended obligations and provide relief to affected population. Even where offsetting savings are available within the budget, a pandemic response will likely require higher disbursement of cash in the near term. Government debt and cash managers should start planning for increased financing and liquidity needs at the earliest opportunity.

C.   Ensure timely fund disbursement

Robust budget execution processes will ensure that resources are made available to service delivery units in a timely and efficient manner to meet their (additional) obligations. Clearly articulated and well understood procedures for priority disbursements would ensure timely budget releases and processing of claims. The idea will be not to bypass established controls but create a stream for handling priority items and fast track expenditure authorizations. There could always be tension between controls and efficiency, and a balanced approach should be taken.

D.   Track and report emergency response expenditure

Tracking, accounting and reporting of expenditure incurred on emergency response is important for ensuring that timely information is available to policymakers for informed decision-making and to the public in general. Good recording will also make it easier to cease temporary spending arrangements once the need is over.

E.   Ensure business continuity

Governments should be ready with their business continuity plans to deal with large scale absence of staff, as more and more people report sick or are required to refrain from attending offices. While proper business continuity plans may take time to develop and implement, simple measures undertaken on urgent basis can make a big difference.

F.   Establish effective coordination with lower levels of government

Coordination with subnational governments/entities will be important in understanding the needs at the grassroot level, to provide the necessary funding to enable them to meet the enhanced service delivery requirements, and to improve the quality of response.

IV.   Prepare additional policy flexibility

PFM managers should also prepare for the potential need for fiscal stimulus measures to support economic activity. This gives decision makers the policy flexibility to respond quickly to developments. Early work could, for example, include exploring potential for accelerating expenditure plans and reviewing the infrastructure pipeline to identify ‘shovel ready’ projects or projects in delivery that can be accelerated.

 This article is part of a series related to the Coronavirus Crisis. All of our articles covering the topic can be found on our PFM Blog Coronavirus Articles page.

 

[1] Sandeep Saxena and Michelle Stone are Senior Economists in IMF’s Fiscal Affairs Department.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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