« Delivering Effective Public Investment Management and Governance in Africa | Main | The First IMF Training on Fighting Corruption »

December 03, 2020

Public Sector Balance Sheets and the COVID-19 Crisis

Covid picture
Posted by Alex Metcalfe and Sybi Hida[1]

 The Global Financial Crisis of 2008 forced policymakers to expand their macroeconomic analysis toolkit with new tools. These tools helped policymakers apply a macroprudential approach to mitigate risk to the financial system. A recent report from the Association of Chartered Certified Accountants (ACCA) - “Sustainable Public Finances Through COVID-19” - argues that existing PFM tools also need to be expanded.

The report’s key recommendation is that governments must take a public sector balance-sheet (PSBS) approach to better manage their finances. This means moving beyond simple measures of debt and deficits to a comprehensive view that includes public assets and non-debt liabilities for the whole public sector. The IMF October 2018 Fiscal Monitor, “Managing Public Wealth”, shows the potential benefits of PSBS by analyzing the public wealth of 31 countries.

On November 19, 2020, ACCA, in collaboration with the Association of National Accountants of Nigeria (ANAN), organized a conference to discuss the ACCA report, as well as lessons for mitigating the long-term impact of the pandemic on public finances in Nigeria.[2]

The discussion ranged over many topics. Panelists argued that despite the ultimate priority of protecting livelihoods through financial support for households and businesses, governments should use the crisis as an opportunity to build a more resilient and inclusive economy. They should invest in green projects and digital infrastructure and support workers in moving to new jobs, especially women and young people. The accountancy profession and public sector auditors could play a critical role in building policies and mechanisms to combat bribery and corruption. Nigeria has huge human and natural resources, but this potential would not be realized without a proper check on corruption in the public sector.

Participants agreed on the need for comprehensive and reliable information on the economic and fiscal impact of the crisis and improving the ability of public finances to respond. Existing tools provide limited help in this area. Analysis by the IMF has shown that ‘below-the-line’ fiscal interventions dominated government responses to COVID-19, but such interventions are not captured in conventional debt and deficit data. A comprehensive PSBS approach can do a much better job. Applying stress tests to PSBSs reveals the resilience of the public finances to potential shocks, providing useful knowledge for designing responsive policies. Moving to PSBS requires significant time and resources, however. Only a few countries have the necessary financial information to fully adopt it. The IMF has already published a database with 38 countries PSBS and is updating and expanding this information. The ACCA report outlines steps for countries to move to PSBS. This will require governments, international organizations, and professional organizations like ACCA to collaborate closely.

Because most governments do not yet implement accrual accounting, many of them would find it challenging to apply PSBS. Nevertheless, the panelists agreed that even jurisdictions operating on a cash basis could apply some of the key principles of the approach. All organizations maintain some information on assets and liabilities. Strategic decisions, such as whether to privatize a service, can similarly take account of the implications on net worth – even where accrual information does not exist.

Governments transitioning to accrual, or still on a cash basis, should focus on collecting and analyzing essential balance sheet information, such as significant public assets or large investments, in order to maximize the benefits of PSBS during the crisis. Further, governments should invest more in moving to PSBS and adopting accrual accounting. Lack of political support and technical leadership can be barriers to progress. To move forward, governments should seek political consensus across all political parties, engage with a broad range of specialists (including actuaries, auditors and policy experts) to support the transition, and assign key experts to lead the reform. 

The participants and panelists agreed that PFM tools and fiscal policy in Nigeria should be designed to promote fiscal sustainability and fiscal capabilities for future generations. They called for the government to continue its fiscal consolidation policies through revenue mobilization and improvements in government spending efficiency. They raised concerns about the lack of up-to-date audits of public sector financial statements and called for expenditure reviews to guarantee and safeguard employment for citizens. All agreed that PSBS should play a central role in the COVID-19 recovery – with effective and responsive policymaking requiring good financial information at its heart.

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] Alex Metcalfe is the Global Head of Public Sector in the ACCA and Sybi Hida a Senior Economist in the IMF’s Fiscal Affairs Department.

[2] Over 600 experts from different professional associations attended the conference online and physically. The panelists included representatives from the ACCA, ANNA, the International Public Sector Accounting Standards Board, academia, the IMF, and PricewaterhouseCoopers PwC.

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.


Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.


Post a comment

Comments are moderated, and will not appear until the author has approved them.

Back to top of page
©2007 IMF. All Rights Reserved. About Us | Terms of Use
/************* DO NOT ALTER ANYTHING BELOW THIS LINE ! **************/ var s_code=s.t();if(s_code)document.write(s_code)//-->