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June 21, 2022

The Other Hidden Debt - How power contract transparency can help prevent future debt risk

June 21

Unsplash.com/@viktor-kiryanov

 

 

Posted by Todd Moss and Rushaiya Ibrahim-Tanko[1]

Soon after the reformist businessman Hakainde Hichilema won Zambia's presidency in August 2021, he learned that his country’s finances were far worse than he feared. Though Zambia had once been highly indebted, it had received a fresh start from comprehensive debt relief in 2005. Now, sixteen years later, Hichilema discovered the treasury was “literally empty” and an urgent audit found a total of more than $16 billion in external debt, including billions in underreported obligations. Attention from both the media and Zambia’s creditors has largely focused on the more than $6 billion owed to Chinese lenders, about double the amount reported by the previous government. But there’s another source of concern beyond opaque loans or deceptive bookkeeping: undisclosed electricity contracts. Buried in the new accounting of Zambia’s debt is more than $1 billion in unpaid arrears owed to power companies.

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June 15, 2022

How Budgeting Systems can Prepare Better for National Emergencies - Six Lessons from the COVID-19 Crisis

June 15

iStock.com/MarioGuti

 

Posted by Richard Allen[1]

A recently published paper in the OECD Journal on Budgeting (https://doi.org/10.1787/bdfca328-en) discusses how budgeting systems can be better prepared for national (and global) emergencies such as COVID-19, with special reference to the health sector.[2] What spending modalities and flexibilities were introduced during the pandemic to provide emergency funding for health services? What are the emerging lessons? Which of these mechanisms should be sustained or refined in the future to enhance preparedness and responsiveness in health spending or other areas of budgeting?

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June 13, 2022

Unexpected Help in Fiscal Distress

June 13

Unsplash.com/@shaahshahidh

 

Posted by Ian Ball, John Crompton, and Dag Detter[1]

Many governments are facing fiscal distress and in the more extreme cases a crisis requiring debt restructuring. Their situation is similar to that of a ship out of fuel and adrift on the high seas. Even if it is lucky enough to be offered a rescue, it will not help just to get the ship refuelled if the holes in the hull and fuel tank are not also repaired.

It is not uncommon for companies and individuals to have difficulty meeting their payments.  If the difficulties are serious enough to pose a high risk of default, it may be possible to negotiate with creditors to reduce the debt servicing burden and avoid default. A company or individual in these circumstances is, however, first expected to account for all their assets as a quid pro quo for accessing debt relief. A corporate restructuring would also involve not only optimizing the capital structure and questioning the entire structure of the business, but also a review of operational efficiency, to stop the leakage and improve the cash flow. A key component of this review process would be determining whether better value could be extracted from the firm’s assets.

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June 06, 2022

How Digital Technology will Transform Public Financial Management

 

IStock-1318623693- June 6

iStock.com/iambuff

 

Posted by Khaled Eltokhy[1]

 

The additional investment needed through 2030 to reach the SDGs for roads, electricity, water, and sanitation has been estimated at 2.7 percent of GDP per year (for emerging markets) and 9.8 percent of GDP per year (for low-income countries). These huge demands present both challenges and opportunities for government policymakers, finance officials, and PFM practitioners. On the one hand, there is a need to ensure that adequate resources are available to finance infrastructure development. On the other hand, there is an opportunity to use data and new technology to improve the efficiency and quality of infrastructure projects, as well as many other areas of PFM.

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June 02, 2022

Expenditure Baselines: A Powerful Tool for Budget Practitioners

IStock-927635718 June 2

iStock.com/z_wei

 

Posted by Fazeer Rahim and Claude Wendling[1]

 

Budget practitioners do not always see eye to eye. But they nevertheless can agree on several things. Here are some of them: the budget is the prime instrument for implementing fiscal policy; it is always good to keep a medium term and strategic perspective to budgeting (as opposed to day-to-day, incremental budgeting); incentives for ministries of finance and line ministries should be aligned as much as possible; and knowing more about future trends is always better than knowing less.

Projecting expenditure baselines over the medium-term is a key analytical exercise in budget preparation that can support many of these objectives.  A recent How-To-Note published by the Fiscal Affairs Department (FAD) provides specific guidance on calculating and using baselines. The tool is found in many budget systems even if it is known under different names: spending baselines of course, but also forward estimates, no policy change estimates, or trend scenarios.

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