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October 22, 2020

The Impact of COVID-19 on the Austrian PFM System

Covid
Posted by Johann Seiwald and Tobias Polzer[1]

Like many other countries, the Austrian economy was substantially affected by the COVID-19 pandemic. A lockdown was put into effect in March 2020 and gradually relaxed at the end of April. To mitigate the negative consequences of the pandemic the government announced a “protective shield” of support measures costing some €38 billion (about 10% of GDP), including government guarantees and deferral of tax payments for businesses. In mid-June, the government announced another stimulus package to be implemented over the next few years, increasing the total support to €50 billion.

Crises like the current pandemic constitute stress tests for government, with public financial management (PFM) systems having to respond to emergency needs. A recent study analyses what elements of the Austrian PFM system were affected by the COVID-19 budgetary emergency measures and how identified gaps in the system were closed. It also considers how the measures were approved and implemented, and their impact on the PFM system.

Overall, the paper concludes that the Austrian PFM system coped quite well with the crisis, but a number of important challenges had to be faced and adjustments made to existing practices:

  1. Lump-sum emergency authorizations. Instead of allocating budgets for individual emergency measures in the respective budget chapters, the government initially proposed a lump sum support package of €28 billion (around a third of the total federal budget). It authorized the Minister of Finance to distribute this budget to line ministries according to their emergency needs. The Parliament raised objections that the allocations were unconstitutional as they had not gone through a full budget authorization process and were insufficiently transparent. The controversy makes it unlikely that a process giving such large discretion to the Minister of Finance will be used in any future emergency.
  1. Reporting issues at the core of the parliamentary debate. The Austrian organic budget law requires a comprehensive set of financial reports to be prepared during the fiscal year. Concerned about the degree of freedom granted to the Minister of Finance for emergency financing, the Parliament requested the government to supply detailed monthly reports of COVID-19 related expenditure and to implement tracking of crisis spending. The level of granularity required in these reports is still under discussion in Parliament.
  1. Changes to the medium-term expenditure framework (MTEF). To accommodate the crisis needs, the MTEF for the period 2020-2023 was updated. In parallel, a debate was relaunched on how to improve the MTEF as a strategic planning tool in future budgets, and to integrate it with the annual budget process, but no decisions have yet been taken.
  1. Anchoring risk management. Fiscal risk disclosure and management are not yet a core element of the Austrian PFM system, but the crisis has heightened their relevance and sparked a debate within government on how risk management techniques can be better incorporated in fiscal policy and budgeting.
  1. Accounting and audit. While the focus at the policy level was on budgeting, financial accounting issues (e.g., how to accrue crisis-related transactions, such as pre-payments for emergency funds, or how to estimate provisions for guarantees) have so far been neglected in the debate. An active discussion of technical accounting issues and practical solutions (e.g., supplementary reporting) is to be expected when the government presents financial statements for audit. The Court of Audit plans to include an audit of crisis spending into its regular audit of the 2020 financial statements. It remains open at this stage whether accounting for COVID-related transactions will be done in line with (international) good practices on accounting.

Taken together, the study suggests that the Austrian PFM system accommodated the shock created by the pandemic without any serious challenges. Some modifications were made to existing practices on a pragmatic basis. The government’s general response has been reactive rather than proactive, but further changes in PFM processes can be expected in the future.

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] Johann Seiwald is a Senior Budget Expert at the Austrian Parliamentary Budget Office and a consultant for the IMF and World Bank. Tobias Polzer is an Associate Professor at the University of Sussex, UK. His research interests include public financial management and public governance.

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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