In the mid-2020s, governments worldwide faced heightened fiscal pressures and uncertainties. Recent data published by UNCTAD show global public debt has surged to unprecedented levels – over US$100 trillion in 2024 – as spending needs for recovery and development continue to outpace revenues. High interest costs exacerbate the strain: developing countries alone paid a record US$921 billion in net interest in 2024 (a 10% jump), with many dedicating over 10% of revenue to debt servicing. According to IMF, amid slowing growth (projected ~3.0% in 2025) and market volatility, robust public financial management is critical. Policymakers must balance the immediate task of fiscal consolidation with long-term investments, “rebuilding fiscal buffers in a growth-friendly manner” to ensure budgets remain sustainable.
Harnessing Data and Technology
Data-driven processes and digital tools are transforming public budgets. New AI systems can translate complex fiscal data into actionable insights and significantly improve forecasting accuracy. For instance, the IMF now employs AI to enhance revenue forecasts, while the World Bank uses it to analyze procurement data and detect fraud. Innovations like blockchain and integrated financial-management platforms further boost transparency: Guinea-Bissau’s new blockchain-based payroll system enables near-real-time monitoring of salaries and pensions, ensuring high data integrity and providing timely fiscal reports for policymakers. When combined with cloud-based accounting systems and open data portals, these technologies help finance ministries detect anomalies faster and align spending with changing conditions.
Aligning Budgets with Strategic Priorities
In this context, strategic budgeting is vital. Governments should align spending with clear policy goals and establish robust multi-year frameworks. IMF-led workshops on “Budgeting for Priorities” stress four principles – Prioritize, Map, Analyze, Report – to guide reforms. In practice, this means defining strategic goals (in national or sector plans), mapping programs to those goals, and using tools like budget tagging and spending reviews to assess impact. A credible national medium-term fiscal framework is essential for planning across election cycles and determining available fiscal space. Such planning allows authorities to reallocate resources toward high-impact programs (infrastructure, education, green investment) while curbing unsustainable subsidies or debt-driven spending.
Integrating Climate and Sustainability
PFM must also evolve to support climate and sustainability objectives. Simply tagging “green” projects is not enough – the budget systems need reorientation to deliver better outcomes. Countries are beginning to adapt: for example, Pakistan has embedded climate-budget tagging across its financial systems. Strong leadership and collaboration led in 2023–24 to a new IFMIS module for tracking climate-related expenditures. Early results show that federal climate spending is still modest but growing: adaptation projects (mostly disaster preparedness) now dominate, while mitigation (clean energy investments) accounts for roughly one-third of tagged expenditure. Integrating climate finance on budget – rather than in fragmented, off-budget funds – will be key. As experts note, central finance agencies must have strategic oversight over climate funds to maintain fiscal space and direct resources to national priorities. In short, mainstreaming climate into PFM requires new diagnostic tools and capacity (like PEFA-Climate assessments and IMF’s Climate-PIMA), not just one-off fixes.
Empowering Institutions and People
These technical innovations will only succeed if backed by strong institutions and capable people. As one tax administration expert puts it, reform is “not just technical work – it is human work”. Effective leaders set a vision, empower teams, and build ownership rather than micromanaging every detail. Real change rests on three pillars: good governance structures, clear accountability for outcomes, and broad ownership of reforms. Staff must be trained, motivated, and trusted. Without decent working conditions, transparent promotion paths, and supportive leadership, even the best software and rules can fail. In practice, this means pairing PFM modernization with capacity-building: hiring diverse talent, developing data and analytics skills, and fostering a culture of integrity and problem-solving.
Conclusion: A Balanced Path Forward
How should policymakers respond to these challenges?
Maintain fiscal discipline and transparency. Continue gradual consolidation and fiscal adjustment within credible frameworks. IMF analysts emphasize that rebuilding buffers and strengthening governance now is less costly than delaying reforms.
Embrace digital innovation. Invest in AI, blockchain, e-payments, and data analytics to improve revenue projections, detect waste, and accelerate transactions.
Align every budget decision with national goals. Use strategic planning and tools like budget classification, tagging, and performance audits to steer funds into health, education, infrastructure, and climate resilience.
Strengthen institutions and leadership. Build capable Ministries of Finance and empower public servants. Clear mandates, accountability mechanisms, and ownership of reforms are as important as any technology.
By utilizing technical tools with a big-picture vision, governments can craft budgets that are both efficient and equitable. The way forward is a balanced approach – not a choice of technology over strategy, or short-term cuts over long-term investment, but a program that blends each. In doing so, public resources can be managed more transparently and effectively, laying a foundation for resilient, inclusive growth in an uncertain world.
