Contributing to the Global Economy

Emerging Role of Government Balance Sheets for Sustainable Public Finances in the Post- COVID-19 World

Srinivas Gurazada, Dmitri Gourfinkel, Juan Carlos Serrano | January 25, 2021

IFAC & MOSAIC Initiative Building Resilient and Sustainable Economies Forum presented diverse global perspectives on supporting and strengthen transparency, accountability and good governance in the public sector. Over 400 representatives from donor organizations, governments, professional accountancy organizations (PAOs) and the accountancy profession discussed key themes, including sound public financial management (PFM) in an emergency, which focused heavily upon the current and future actions that governments may take as they navigate the COVID-19 crisis.

As policy makers globally take swift fiscal and monetary policy actions toward a sustainable recovery preparing for the post-pandemic world, it is imperative that the decisions are based on reliable financial information that faithfully reflects the financial position of the governments. Government financial statements prepared on a timely basis using credible accounting standards are best placed in providing such information.

The World Bank recently released the paper Government Financial Reporting in Times of the COVID-19 Pandemic, which reflects on how governments could use existing financial reporting systems during the pandemic while identifying opportunities for their improvement for the post-pandemic stage. It also shares insights into the possible impact of the pandemic on government financial performance, position, and cash flows. This paper complements and could be used in conjunction with the COVID-19 Intervention Assessment Tool developed by IFAC and the Zurich University of Applied Sciences, in partnership with the International Public Sector Accounting Standards Board, to assess the COVID-19 impact.

Taking a balance sheet approach enables a comprehensive view of fiscal-policy making from the perspective of government financial statements. The degree to which a country can use the balance sheet approach largely depends on the reliability of its accounting and financial reporting system as well as the inclination of key decision makers in using information generated by the financial statements.

Those few countries with strong accrual basis financial reporting, like New Zealand, are in a better position to use the balance sheet approach and clearly establish the impact of COVID-19. Nevertheless, given the urgency during the recovery phase of COVID-19 pandemic, governments should endeavor to provide more useful, timely and reliable financial information for decision making, using the existing accounting system, either cash or accrual basis. Concurrently, governments need to accelerate their public sector accounting reforms toward the implementation of accrual-based accounting systems aligned with the International Public Sector Accounting Standards.

The fiscal impact of the COVID-19 crisis on the government’s financial performance, position, and cash flows depends on the country context. The table below provide an overview of the possible fiscal impact from a conceptual standpoint:

Statement of Financial Performance
  • Overall decrease in tax revenues, including value added, profit, and wage taxes.
  • Overall increase of public expenditures, including public health, unemployment benefits, social security, subsidies and grants, disaster relief packages, and lending to public enterprises and lower levels of government.
  • A higher deficit could be reported at the end of the reporting period.
Statement of Financial Position
  • Lower revenues and higher expenditures, caused by the pandemic, could lead to a decrease in the overall level of assets, particularly of current assets, including cash and cash equivalents;
  • The overall level of liabilities, particularly public debt, provisions, and pension liabilities could be higher.  
  • Net assets/equity could be lower, leading to decreasing Net Worth to Gross Domestic Product ratios
Cash Flow Statement
  • Operating activities could generate large cash outflows, given the decrease in tax revenues and increase in expenditures.
  • Investing activities could also generate large cash outflows, mainly because of lower spending on capital expenditure in infrastructure and other government fixed assets.
  • Financing activities may show large cash inflows in several countries, reflecting an increase in borrowing.
  • A net decrease in cash and cash equivalents is expected.


The notes to financial statements are an opportunity to make the financial information more understandable to users by explaining materially large figures and significant changes caused by the COVID-19 pandemic. Some of the items that may need to be disclosed given their direct link with governments’ response to extraordinary circumstances are: (i) arrears; (ii) extraordinary items; (iii) contingent liabilities and guarantees; (iv) public debt; (v) indrawn borrowing facilities; and (vi) sovereign wealth funds.

It would be helpful to also report on long-term fiscal sustainability of the government to analyze the fiscal risks associated to the financial performance and financial position of the government. This type of reporting is particularly relevant because of the long-term impact of the large-scale policy measures taken by governments to lessen the economic impact of the pandemic. Sustainability reporting can be drawn from and/or accompany the government financial reports, and it also represents a valuable source of information for all stakeholders.

COVID-19 heralds the dawn of a new era of opportunities to strengthen the role of accountants and auditors in promoting more sustainable public finances. Closer collaboration between governments, professional accounting organizations, and development partners play a catalyst role in strengthening a balance sheet approach in governments while increasing the quality of their financial information.

For more information, please visit the following Public Expenditure and Financial Accountability, World Bank and IFAC resources:

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Srinivas Gurazada

Srinivas Gurazada (Srini), an Indian national with three decades of experience working on governance and public financial management around the world, is the Head of PEFA Secretariat and the Global Lead Public Financial Management. Public Expenditure and Financial Accountability (www.pefa.org) initiative, a partnership of nine development partners, is housed in the World Bank. PEFA is regarded as a gold standard for Public Financial Management and is being used in over 150 countries. Srini works on governance issues, ranging from government budget reforms, public financial management, domestic resource mobilization, public sector financial reporting (IPSAS), Governance in Sectors (specifically health & education) etc , to anti-corruption policies, control & oversight (Internal Audit, Supreme Auditing Institutions etc) and use of information technology for modernizing public sector. Srini held various positions in the World Bank, as Governance Lead in Sub-Saharan Africa region responsible of Zambia, Zimbabwe & Malawi, Task Team Leader, Program Manager, Global Lead Governance in Sectors, Chair of Accountability & Oversight Institutions etc. Before joining Bank, as a career civil servant, Srini held key positions in Government of India as Accountant General, Director, etc and was deputed as Advisor to Government of Oman.  He started his professional career as a partner in a firm of Chartered Accountants before his passion for development work motivated him to move to the public sector. Srini can be reached at sgurazada@pefa.org. You can also connect with him on his social media channels (Twitter: srinivasiaas; Linkedin: Srinivas Gurazada).

Dmitri Gourfinkel

Dmitri Gourfinkel is a Senior Financial Management Specialist at the World Bank’s Governance Global Practice and has 17 years of professional experience in public financial management and fiduciary compliance in a number of countries. Before joining the Bank in 2007, he held several posts in both national and sub-national governments in Mexico, including Adviser to the Minister of Finance, Chief Adviser to the Deputy Treasurer of the Federation, and Chief Adviser to the Auditor General of Mexico City. Dmitri is a Certified Public Accountant by Mexican Institute of Charter Accountants and holds a master’s degree in Public Administration from the Maxwell School of Citizenship and Public Affairs at Syracuse University. Dmitri is also the Task Team Leader of the Financial Reporting Community of Practice (FinCoP) of the Public Sector Accounting and Reporting (PULSAR) Program.

Juan Carlos Serrano

Juan Carlos Serrano is currently Financial Management Coordinator for Andean Countries in the Governance Global Practice of the World Bank, and liaison with the Forum of Government Accountants of Latin America (FOCAL). His experience covers a wide range of areas on Public Financial Management reform, with a focus on governance, fiduciary oversight, provision of capacity building to governments, and strategic country-level engagement initiatives.  During his tenure at the World Bank, Mr. Serrano has led multiple initiatives across the Latin America region involving a wide range of accountability and oversight institutions, aimed at improving the governance, and implementing transparency and accountability reforms. Before joining the World Bank, Mr. Serrano worked extensively in the Mexican public and financial sectors, working at the Advisory Unit of the Ministry of Finance, the Mexican Banking and Securities Commission, and other international banking institutions. Mr. Serrano is a Certified Public Accountant and holds a master’s degree in finance from Mexican Autonomous Technological Institute (ITAM). He is an active member of the accounting and auditing profession including active membership in organizations such as the American Institute of Certified Public Accountants (AICPA) and the Institute of Internal Auditors (IIA). He also holds a Certificate in International Financial Reporting from the Association of Chartered Certified Accountants (ACCA) in UK.

 
 

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