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MANAMA: Governments must take a balance sheet approach to managing their finances through the Covid-19 crisis, according to a new report.
In ‘Sustainable public finances through Covid-19’, the Association of Chartered Certified Accountants (ACCA), the World Bank and International Federation of Accountants (IFAC) are calling for governments to use public sector balance sheets to properly manage their finances through the pandemic, paying attention to their public sector net worth.
The Covid-19 pandemic means government spending has increased immensely, with the IMF calculating it to be a staggering $9 trillion.
For ACCA, the World Bank and IFAC, the concern is that public sector fiscal commitment and interventions are not being captured accurately by governments due to the way they account for this.
For some, this means a change in accounting methods from cash to accrual accounting.
Alex Metcalfe, author of the report and head of public sector policy at ACCA, says, “This global pandemic crisis could be a catalyst for more governments to adopt this approach, which can improve decision-making, act as the benchmark for new fiscal targets, and support governments to rebuild economies for a more inclusive and greener future.”
The report asserts that governments need to avoid poor-value privatisations, which provide immediate cash but reduce public sector net worth.
Governments also can minimise reliance on tax increases or austerity by taking a balance sheet approach to foster sustainable public finances.
Ed Olowo-Okere, director of Governance Global Practice at the World Bank Group, says: “The pandemic requires that governments strike a balance between the standard fiscal discipline and control on the one hand, and speed and flexibility in public financial management on the other. To build back better, ministries of finance need a variety of tools for better management of public money to sustain the well-being of citizens.”
Other recommendations for governments include the need to either reference or use full-accrual International Public Sector Accounting Standards (IPSAS), the only globally accepted accounting standards for the public sector, in the production of their general purpose financial reports.
Authorities must also direct independent fiscal policy institutions to begin fiscal sustainability reporting or to increase its frequency. Central finance departments should also be required to respond publicly to these reports in a timely manner.
Finally, governments need to provide supreme audit institutions with the independence and necessary resources to conduct performance audits, which may identify cases where public money was not used effectively, efficiently or economically in combating the Covid-19 crisis. One of the countries studied in the report is Turkey, where the economy is forecast to contract by 5 per cent in 2020.
Even before the Covid-19 crisis, the IMF projected that Turkey was on course to run significant budget deficits in the coming years.
By 2022, the Turkish government’s net worth isset to fall to -15.3pc of GDP, under the simplified forecast assumptions laid out in the report.
avinash@gdn.com.bh
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