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September 2020

September 24, 2020

From Hurricanes to COVID-19: PFM Tools in the Caribbean

Covid
Posted by Jean Luc Helis, Bruce Stacey and Bill Rafuse[1]

As part of the UK Government’s Climate Change Support, the IMF’s Caribbean Regional Technical Assistance Centre (CARTAC) reviewed how governments prepared their PFM processes for natural disasters and how successful these measures were in mitigating the effects of Hurricanes Irma and Maria in September 2017.  Four of the six countries affected were reviewed: Anguilla, the British Virgin Islands, Dominica and the Turks and Caicos Islands. The reviews of Antigua and Barbuda and Saint Maarten had to be delayed until after the COVID-19 pandemic.

Important lessons learned include the following.

Lesson 1:   All governments maintained a contingency reserve that could be used for emergency relief.  Given the widespread destruction and loss of revenue, however, other sources of immediate and longer-term finance played a critical role. These sources include budget reallocations and virements, prioritizing spending to create space for emergency spending, insurance, lines of credit and overdrafts from banks. The Caribbean Catastrophe Risk Insurance Facility (CCRIF) and emergency relief from donor institutions and parent governments were critical as pay outs were rapid, often within two weeks of the event occurring (the CCRIF of course does not apply to pandemics such as COVID-19).

Lesson 2: The continuation of Treasury operations was essential to provide relief to employees, pensioners, and suppliers/contractors during the disaster and pandemic. Examples included:

  • Payroll, rerunning the previous month’s file and making corrections later;
  • Establishing a physical location for the Treasury using local area networks where departments can enter data into SmartStream/IFMIS. In the case of the pandemic, secure, high speed internet connections have been essential for key personnel to access budget, customs and tax systems without having to return to the office; and
  • Identifying stand-by people with the expertise to restore systems or data post-disaster/pandemic when the IT experts concerned are not available due to injury or sickness.

Lesson 3:  Most countries had clauses imbedded in their legislation for flexibility in contracting and spending rules during an emergency. Following normal procedures can significantly slow the initial response. However, any emergency clause must ensure related spending is transparent. Those governments that negotiated standing contracts before the hurricane season for contractors or equipment at prearranged prices were of great benefit. These types of standing arrangements were also used in response to the pandemic in cases where the use of heavy equipment was required.

Lesson 4: Countries like Grenada and Barbados have been successful in introducing ‘hurricane clauses’ that provide for a deferral of principal and interest payments after a major natural disaster. Similar clauses have been used by the government defining the pandemic as a state of emergency.

Lesson 5:  The Inland Revenue and Customs offered waivers and concessions to ease the financial pressure on taxpayers and businesses in both the hurricane and pandemic episodes. These waivers or concessions may complicate the calculation of tax revenue losses until deferment dates are reached:

  • The hurricanes led to a boom in repair and construction activity which may partly or wholly offset the cost of the waivers/concessions provided by the government.
  • An increase in tax arrears after both the hurricanes and the pandemic will require a greater effort to audit and collect the revenue.

Lesson 6: Transparency and accountability—timely disclosure of the results of emergency measures to Parliament and the public are critical to earning public support for the actions taken. Changes to the coding of the Chart of Accounts have been made to capture all revenues and expenditures related to the hurricanes or pandemic.

Lesson 7:  Governments need disaster and pandemic management legislation, policies, and plans that are up-to-date, adequately resourced, and complied with:

  • Training, simulations, drills, and exercises are needed, especially for budget officers, government accountants and procurement specialists, to prepare for emergency responses;
  • Government departments need business continuity and disaster recovery plans that are up-to-date and tested;
  • Governments need to report annually to Parliament and the public on actions taken, their impact, and response readiness.

Lesson 8:  Better models and data are needed to forecast the financial impact of major natural disasters or pandemics on the budget and the economy, drawing on the experience of the forecasts made at the time of the hurricanes of 2017 and the COVID-19 pandemic. 

Lesson 9: Agencies and units responsible for internal and external audit should reassess risks to determine what emergency measures should be audited:

  • Higher risk areas could include Customs concessions, revenue deferral programs, emergency spending, and other programs temporarily operating outside normal budget control frameworks, such as guarantee schemes.
  • Audits of disaster and pandemic aid received could also be considered, as well as audits of the Business Continuity Plans/Disaster Risk Profiles of ministries and agencies to confirm they have been updated and tested.

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] Jean Luc Helis is a senior economist in FAD, Bruce Stacey is a PFM Advisor in CARTAC, and Bill Rafuse is a short-term expert.

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.

September 21, 2020

Tracking COVID-19 Operations in Francophone Africa

Covid
Posted by Jean-Luc Hélis, Jean-Pierre Nguenang, Amina Bambara, Jean-François Dagues, Abdoulaye Touré and Pierre Roumegas[1]

Many governments have developed administrative, fiscal, economic and social measures to contain the spread of the COVID-19 pandemic and alleviate the suffering of their populations. These measures have been financed both from domestic and external resources. A recent technical note by the IMF argues that tools should be developed to track and transparently report on the use of these resources. The note focuses on reporting systems in Francophone Africa. Its recommendations are summarized below.[2]

Continue reading " Tracking COVID-19 Operations in Francophone Africa " »

September 17, 2020

IPSASs Implementation – ‘Walk’ and ‘Talk’

Tobias
Posted by Tobias Polzer, Pawan Adhikari and Levi Gårseth-Nesbakk[1]

Substantial investments have been made by governments worldwide to adopt the International Public Sector Accounting Standards (IPSASs) and translate them into native languages. Does the ‘implementation walk’ (actual implementation) match the ‘talk’ (announcement of a decision to adopt IPSAS)? And, do these efforts eventually deliver value for money, and improved public sector governance and accountability?

A recent study[2] attempts to answer these questions. It finds that there have been three major accrual accounting reform waves in OECD countries: first, Anglo-Saxon countries (late 1980s to the mid-1990s), second, Nordic countries (1990s to the early 2000s), third, some non-Nordic European countries (since the late 2000s). The advanced economies (e.g., Australia, New Zealand, United Kingdom) that introduced accrual accounting reforms before the development of IPSASs in the early 2000s have generally resisted making any subsequent changes to their accounting policies and rules, even where these policies may not be fully consistent with IPSAS.

The situation is less clear for emerging economies and low-income countries. While some of these countries (e.g., in Asia and sub-Saharan Africa) have embarked on reforms to implement the cash basis IPSAS, many Latin American countries have attempted, or are attempting a transition to the full accrual basis IPSASs. Given the political opposition to enhanced transparency and accountability – a fundamental concept of IPSASs – in parts of Latin America, the study argues that these reforms might remain superficial, or even detrimental to development.

In several countries, a decoupling of the reform ‘walk’ and ‘talk’ can be observed. For instance, in Nepal, progress in implementing the cash basis IPSAS adopted in 2009 has been confined to experimentation by a few central ministries. For some countries, IPSASs adoption might be viewed as an exercise in seeking legitimacy. In the Nordic countries, for example, issues such as the usefulness of IPSAS for decision-making and lack of interest among users (politicians and public sector managers) in adopting the standards appear to be common struggles. The research highlights that it can take a long time to persuade critics of the merits of IPSAS and to ensure that the new standards are being implemented effectively.

In countries that have experienced better results, IPSASs have often been introduced as part of a larger public financial management reform program (e.g., in Austria) or where there is a powerful political pressure for change (e.g., in Iceland). The study finds that countries with the greatest difficulties and worst results appear to be those that have been subject to coercive external pressures (such as from donors), most commonly in low-income countries (e.g., Benin). Finally, arguments about the alleged high costs of implementation compared to the perceived benefits are commonly brought forward by countries that have been reluctant to adopt IPSASs.

 

[1] Tobias Polzer is an Associate Professor at the University of Sussex, UK. His research interests include public financial management and public governance. Pawan Adhikari works as Associate Professor at the University of Essex, UK. He is interested in accounting change in emerging and advanced economies. Levi Gårseth-Nesbakk is a Professor at the Nord University. His research centres on how global phenomena are translated into national and local practices.

[2] https://www.emerald.com/insight/content/doi/10.1108/IJPSM-03-2019-0071/full/html

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.

September 14, 2020

Accrual Accounting and the Government’s Intertemporal Budget Constraint

TIM
Posted by Tim Irwin[1]

One of the possible benefits of a government’s adopting accrual accounting is to improve the analysis of fiscal sustainability. For example, it provides better information on the government’s assets, unpaid bills, pension liabilities, and other things that typically don’t get reported in cash-only accounts (see, for example, the Fiscal Monitor of October 2018). Yet when governments have adopted accrual accounting the new information has not always been used for the analysis of fiscal sustainability.

The conclusions of the French Court of Account’s review of the first ten years of experience with the accrual accounts in France probably apply to many countries: “In comparison with central government’s budget accounts and national accounts, the general [accrual-based] accounts are underused. The picture of central government’s financial position provided by the general accounts is not systematically used by Government, sufficiently analysed by Parliament, or fully taken on-board by central government’s creditors and credit rating agencies.”

One reason accrual accounts may not be used to analyze fiscal sustainability is uncertainty about how the main measures of accrual accounts relate to the economic theory of fiscal sustainability. That theory is built around the “intertemporal budget constraint,” which essentially states that in the long run, and in present values, the government cannot spend more than its revenue. When the theory was developed, all governments measured their surpluses and deficits on a cash basis, and they tended to record their debt but no other balance-sheet items. So it was natural that the intertemporal budget constraint was expressed as a relation between debt and cash surpluses: future cash surpluses, not including interest on the government’s debt, need to be big enough to eventually pay off the debt. This formulation seems to leave no room for use of accrual surpluses and deficits or the government’s full balance sheet.

A recently published paper aims to remedy this problem by showing how the constraint can be expressed in terms of accrual surpluses and net worth as shown on the balance sheet. The paper explains the details. In a nutshell, it shows that the present value of the government’s future accrual deficits, not including the return on the government’s assets and liabilities that are recognized on the corresponding balance sheet, cannot be more than the government’s net worth as measured on that balance sheet.

 

[1] Tim Irwin is a consultant and former staff member of the 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.

September 10, 2020

PFM Reform Strategy in the Pacific Island Countries

IStock-508101634
Posted by Richard Allen and Majdeline El Rayess[1]

In 2010 the Economic Ministers of the 16 Pacific Island countries (PICs) published a strategy for PFM reform in the region. The strategy called for countries to carry out regular PEFA assessments to measure the performance of their PFM systems, prepare detailed action plans (“PFM Reform Roadmaps” which have proved a mixed success), and coordinate support by development partners including the IMF’s Regional Technical Assistance Center for the region (PFTAC).

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September 08, 2020

How Strong Infrastructure Governance Can End Waste in Public Investment

IG Book
By Gerd Schwartz, Manal Fouad, Torben Hansen, and Geneviève Verdier

COVID-19 has had a profound impact on people, firms, and economies all over the world. While countries have ramped up public lifelines to individuals and firms, they will face enormous challenges to recover from the pandemic, amidst low economic activity and unprecedented levels of debt.

Continue reading " How Strong Infrastructure Governance Can End Waste in Public Investment " »

September 03, 2020

GIFT Guide on Fiscal Data for Emergency Responses

Covid GIFT logo
Posted by Lorena Rivero and Juan Pablo Guerrero[1]

The COVID-19 pandemic has forced many governments to launch emergency spending and tax policy measures to mitigate the potentially catastrophic impact on the health of their people and economies. The speed of these adjustments has challenged traditional approaches to managing risks, inefficiencies, budgetary allocations and corruption. At the same time, fiscal rules have been put on hold. Budget balances, debt obligations and revenue adjustments in many countries exceed any level that would have been deemed acceptable before March 2020.

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