The financial sustainability of many governments and their public services are at risk from growing indebtedness manifesting in reduction of the services due to limitations on operating budgets and constant underinvestment in public infrastructure, at catastrophic levels in many rapidly urbanizing countries.
Meanwhile, government non-financial assets (NFAs), such as land, buildings, and infrastructure, have been increasingly recognized as a major source of public finance challenges - and a potential part of resolving them. Indeed, constructing, operating, and maintaining buildings and infrastructure constitute major expenses for governments. On the positive side, NFAs are a major part of public wealth: NFAs value is typically higher than that of financial assets and often substantially higher than GDP (1, 2).
A sheer size/value of NFAs and their revenue-generating potential have triggered the idea that better-managed NFAs can generate resources for needed investments and debt reduction, with the main approach being proactive, strategic management of NFAs on the government balance sheet (3 - 5). For example, the government in the U.K. has been trying this in practice (6). Improvements of NFA management in some countries have entailed elements of integration of NFAs into PFM (e.g. incorporating lifecycle costing and management of NFAs into government expenses forecasts and budgeting).
However, despite repeated calls for reform, progress has been limited. For example, among OECD countries, only 24 percent require asset management (AM) plans (7). In many places, the basics are still missing.
Moreover, even advanced AM practices typically center on the needs of NFAs, service delivery, and social goals, but not on NFAs’ ability to improve public finances. The opposite cases – i.e., an excessive pressure on NFAs holders to reach targeted revenues or savings, especially short-term, can jeopardize holders’ mission (e.g. country’s defense capability as happened in the U.K.) or lead to long-term financial losses (the case of Australian office properties privatization).
Further, there are jarring mismatches between potential benefits from better AM and insufficient attention to NFAs within PFM. For example:
- A review of PFM instruments by the PEFA Secretariate identified 64 diagnostic tools for assessing different aspects of PFM developed by 23 “custodians,” such as OECD, IMF, World Bank, etc. (8). Only five of these tools address some aspects of AM, covering both financial assets and NFAs. At close examination, three out of these five are not relevant for NFAs. So, in the end, only two out of 64 tools deal with NFAs.
- Higher attention is paid to public investment management (PIM) than to post-investment operations and maintenance (O&M) - the imbalance epitomized in a joke “build, neglect, rebuild”- while in the reality the NFAs total lifecycle costs are skewed the other way (i.e. typically the lifecycle O&M costs are several times higher than the capital cost). Indeed, while virtually all OECD countries now have standard frameworks for PIM, only 36 percent of the countries incorporate the lifecycle costs in appraisal and selection of all capital investment projects (7).
Such mismatches and imbalances have several causes: An umbrella nature of the PFM notion, with its contents depending on the users’ purposes; historic inertia; AM, with its the multi-disciplinary nature, not fifing into typical PFM settings; a focus of PFM developments on specific issues (e.g., paying for climate adaptation), not on systemic integration.
However, we think that, above all, the mismatches are caused by inherent fragmentation within governments that penetrates everything: policies, regulations, institutional settings, data management, etc. For example, we investigated the relationship between AM and accrual accounting (AA) as a part of PFM and identified typical disconnects: AA not adjusted for AM needs; NFAs not subordinated to financial entities, etc. (9). Informal feedback from government NFAs managers from Australia, Canada, Indonesia, and Lithuania supports our findings: AA and AM are not sufficiently aligned.
This all indicates that AM cannot remain in its technical silo and short-term links with PFM. Both AM and PFM must transform into a better integrated, strategic system that maintains a fine balance between NFAs own goals (i.e., service delivery, risk management) and PFM addressing government efficiency, financial controls and sustainability, and providing yet-to-be-introduced care for assets long-term value.
A way forward needs a champion among international institutional heavy-weights and requires:
- Conceptualizing what integration of AM into PFM should imply to represent and balance the interests of both. Currently, this is not articulated, and such a “composite image” of the balanced integration doesn’t exist.
- Converting this concept into a framework and assessment tool for examining the integration at governments.
- Identifying, based on this assessment, key gaps and weaknesses at particular governments and design roadmaps for improvements considering the use of digital advancements and technologies and providing alternative organizational options for AM.
With AM better embedded in PFM, the public can benefit from better services today and stronger public finances tomorrow. That is why AM should become the next frontier of PFM.
REFERENCES
- Managing Public Wealth. (2018). - IMF Fiscal Monitor. https://www.imf.org/en/Publications/FM/Issues/2018/10/04/fiscal-monitor-october-2018
- Bova, E., Dippelsman, R., Rideout, K., and Schaechter, A. (2013), Another look at governments’ balance sheets: the role of nonfinancial assets. – International Monetary Fund., doi: 10.5089/9781484315453.001.
- Peterson, G., Kaganova, O. (2010). Integrating Land Financing in Subnational Fiscal Management. – World Bank, Policy Research Working Paper # 5409. https://openknowledge.worldbank.org/entities/publication/aa8b2754-0549-529e-8c5c-fce0dac6a399
- Ball, J., Buiter, W., Crompton, J., Detter, D., & Soll, J. (2024). Public net worth: Accounting – government – democracy. Palgrave Macmillan. DOI: 10.1007/978-3-031-44343-5
- Detter, D., & Fölster, S. (2015). The public wealth of nations: how management of public assets can boost or bust economic growth. Palgrave Macmillan. DOI: 10.1057/9781137519863
- HM Treasury. (2020). The Balance Sheet Review Report: Improving public sector balance sheet management.https://assets.publishing.service.gov.uk/media/5fbd02dfe90e077ee6d17a26/The_Balance_Sheet_Review_report____.pdf
- OECD. Government at a Glance. – Report, 19 June 2025. https://www.oecd.org/en/publications/2025/06/government-at-a-glance-2025_70e14c6c/full-report/management-of-asset-performance-throughout-the-life-cycle_77aa88af.html#figure-d1e18149-f2412c1a93
- PEFA. (2023). 2022 Stocktaking of Public Financial Management Diagnostic Tools. https://www.pefa.org/resources/stocktaking-public-financial-management-diagnostic-tools-global-trends-and-insights-2022
- Kaganova, O., Salah, M. (2025). New development: Do accounting and asset management at governments evolve together? – Public Money and Management, DOI: 10.1080/09540962.2025.2473908
