Public finance and development: nine things to read in June

28 June 2019
Loans and repayment schedules, Mumbai, India. Photo: Simone D. McCourtie/World Bank CC BY-NC-ND 2.0

How can PFM reforms support improved health services?

A new World Health Organisation report on public financial management (PFM) and health in sub-Saharan Africa is a useful addition to growing literature on this topic. The authors do a nice job of teasing out common issues that constrain delivery of services. These include difficulties in linking financial allocations to policy priorities, under-execution of budgets, limited autonomy and accountability at ‘front-line’ facilities. (This new Asian Development Bank report on Papua New Guinea provides a more detailed country case of similar issues.)

I do not agree with all the specific recommendations (especially the strong push for programme budgeting), but the main point that the health ministry should be more engaged in reform processes touches on a really important issue.

Many of the PFM reforms introduced in sub-Saharan Africa (and elsewhere) have tended to promote a centralised, top-down framework that treats all types of financial transactions as the same. But a multi-year contractual commitment for new buildings requires very different processes to a small clinic buying soap.

If a ‘PFM and service-delivery agenda’ helps to usher in a new wave of reforms that allows for greater flexibility (albeit within some common standards) – then this is a positive development.

Reviewing progress on open contracting

Procurement is often described as the ‘black box’ of public financial management – even though globally each year it is estimated that governments procure goods and services equivalent to 15% of global GDP.

This blog summarises the work that has been done by the Open Contracting Partnership through its open contracting data standard to better understand government procurement.

One of the things I like about this standard is that this isn’t something that is just being imposed on poorer countries. The standard is being implemented by a range of national and sub-national governments including Australia, Colombia, Chile, France, the UK, Ukraine, Zambia, Scotland, and Buenos Aires (Argentina).

As contract information becomes more freely available, it is also offering opportunities for research to understand how efficiencies in procurement might be achieved.

A new CGD paper aims to evaluate the impact of Ukraine’s reforms to open up contracting. The authors are commendably guarded about what they can conclude about the reforms’ impacts because – unsurprisingly – there isn’t great information on procurement prior to the reforms.

But at a very minimum, as procurement data becomes more freely available, it’s becoming easier to peer in to and understand this ‘black box’.

Debt dynamics in Africa

A new working paper from Brookings provides sobering reflections on debt dynamics in sub-Saharan Africa. Two things stand out for me: first, the suggestion that the IMF is providing markets with ‘systematically bad numbers’ – namely over-optimistic growth projections in countries where the IMF has macroeconomic programmes in place.

Countries with these programmes are projected to grow at 5.2% relative to those without at 3.7%. The actual growth rate of both these groups from 2010-2015 was 4%. The fear is that forecasts are being set to make the sums add up rather than based on the underlying health of the economies. As such, they argue risks of debt distress are currently understated by observers in these markets.

Second, when you look at countries in Southern Africa who are already classified as being in debt distress, the main source of rising external debt has been large currency depreciations (and not increased borrowing from China as is sometimes implied).

A balance sheet approach to fiscal analysis

The IMF has published a series of blogs, papers and a new dataset to inform a balance sheet approach to fiscal policy analysis. The work highlights how fiscal policy debates often neglect to consider what is happening to the stock of assets and liabilities that governments own.

Fiscal reports which focus only on financial flows to government can be misleading: selling state enterprises does not bring free money, governments are foregoing future revenue streams. A public-private partnership is not free borrowing, it just creates a different kind of liability. Similarly, where governments invest in infrastructure, they are also accumulating new assets that can generate additional revenues in future.

So, should all governments be investing further in undertaking detailed balance sheet analysis of fiscal policy? I’m not sure. There are some really important underlying insights here. But the actual exercise of valuing all assets can be a time-intensive exercise. The information at the end is also not that reliable as it involves lots of assumptions about future revenue streams.

Digital payments and PFM

Digital technologies have the potential to change the way in which governments both make and receive payments from businesses and citizens. This blog and report look at cases from Ghana, India, Mexico and Estonia to point to some of the potential benefits of digital payments. These include reducing the costs of making payments to officials and citizens, improving information flows on payments made and promoting financial inclusion.

The authors are right to temper over-optimism by pointing to past investments in information and communication technologies. Digital payments are not going to stop public money ever being used for private gain. But given the potential costs savings, governments are likely to make more and more use of the technology in future.

Paying traffic fines and state capacity

In the UK political debate around international development and taxation, you sometimes get a sense that people think that governments in poorer countries just aren’t trying hard enough when it comes to collecting taxes.

This blog uses an example of paying a traffic fine in Kenya versus in the US and provides a nice, accessible illustration of the importance of state capacity for tax collecting. It’s a useful reminder of the complex institutional technologies (often taken for granted) that states have developed over time to undertake seemingly simple tasks.

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This is an output of the following project: Public finance and development: monthly round-up blogs