Supporting International Standards

COVID-19: Urgent Government Finance Reforms Essential for a Sustainable Future

Ian Carruthers | September 30, 2020

The COVID-19 pandemic is proving to be one of the greatest challenges that many governments have ever faced. Managing both the resulting public health and economic crises poses major short, medium and long-term challenges. As World Health Organization Director-General Tedros Adhanom Ghebreyesus commented, the effects will be felt for decades to come.

Firstly, of course, the pandemic is a human crisis. It is costing lives. Most governments have found themselves ill-equipped to deal with the ongoing demands placed on the healthcare system.

Compounding the all too real healthcare delivery issues are the economic repercussions, with the IMF estimating global growth of –4.9% for 2020. In the early stages of the pandemic, the priority for governments was to get money into the hands of those who needed it urgently – namely citizens and businesses.

Unfortunately, it is now clear that COVID-19 is here to stay – and so are its impacts. So the pressure is on, not only to address the ongoing public service delivery issues, but also to work out how, on top of all the existing social problems, the new post COVID-19 ‘normal’ is to be funded sustainably.

I recently had the opportunity to discuss the public sector impacts of COVID-19, and how governments can forge sustainable forward fiscal paths, with Alan Johnson, IFAC Deputy President and Jens Kristensen, World Bank Governance Global Practice MENA Manager.

In the course of our conversation, which you can access in its entirety on the IPSASB website, three themes stood out:

Understanding the full extent of COVID-19 impacts on public finances

With more than $9 trillion spent by governments globally on fiscal interventions in the past three months, the effect of the pandemic on public finances will be both immediate and long-lasting. In view of the unprecedented scale of these interventions, there is an urgent need to understand the full impacts they have already had, and will continue to have, on governments’ finances. This requires accrual accounting.

Why? Without a full understanding of a government’s current and forward finances, planning will be based on faulty or incomplete information. This can only serve to worsen and extend the impacts of the pandemic.

Understanding the impact of the fiscal interventions already made does not provide the full financial picture, but it is a good place to start. For countries who do not already use accrual accounting, a new tool from IFAC, ZHAW and IPSASB can help think through the impacts of both existing and potential COVID-19-related fiscal intervention programs.

Committing to government finance reforms

Politicians and other decision-makers need access to high-quality financial information to make the tough decisions that are now required in order to support citizen well-being sustainably over the long term.

The International Public Sector Accountability Index, developed by IFAC and CIPFA, showed that only 25% of governments globally were utilizing accrual accounting in 2018. While this percentage is expected to grow substantially over the coming years, it shows major current gaps in the availability of high-quality information to the public sector decision-makers who need it most during this uniquely difficult time.

The pandemic has exposed the weaknesses in many government programs and infrastructure that will have to be addressed somehow in the post-COVID-19 world. We have an opportunity to learn from the crisis – and improving financial reporting must be part of the package of reforms implemented in order to mitigate the pandemic’s effects sustainably.

Planning for a sustainable future

Unfortunately, COVID-19 is not the only pressing systemic challenge we face. The climate emergency must be among the challenges at the top of the reform agenda.

With discussions beginning around what it will take to facilitate a sustainable economic and financial recovery, governments need to take climate change into account, along with the long-term COVID-19 impacts, as they start to allocate their already-strained resources.

However, what isn’t measured can’t be managed. There is an urgent need for high-quality financial information that provides a clear, forward-looking, long-term view of governments’ finances and their sustainability.

Public sector entities can already use existing IPSAS literature to help to address this gap, by reporting on the financial impacts of sustainability issues, including climate change risks, and to communicate progress towards achieving goals such as the SDGs. To help stakeholders understand how to apply the IPSASB’s current guidance to provide clear, comparable, and relevant information on climate change, please access our Staff Q&A on Climate Change.

Final thoughts

The current pandemic is not the first time that public sector finances have come under great stress as a result of a major economic shock – but the current pandemic stands out due to its magnitude and global impact.

Securing future public health and wealth has rarely been more challenging than it is now. In the midst of these challenges, we can’t afford to base decisions on inadequate information. In order to fulfill their mandates to their citizens, governments urgently need high-quality financial information to support politicians in making the tough decisions required to deliver sustainable outcomes for citizens in the post-COVID-19 world. If the necessary reforms aren’t made now, then when?

View the full video conversation on the IPSASB website

 

 

Ian Carruthers

Chair

Ian Carruthers became Chair of the International Public Sector Accounting Standards Board (IPSASB) in 2016, having been a Board Member since 2010. As a Board Member he led IPSASB’s work on Long Term Financial Sustainability and alignment between IPSASs and Government Finance Statistics. After joining HM Treasury from PricewaterhouseCoopers in 1999, Mr. Carruthers played a key role in the UK Government’s transition from cash to accrual budgeting and reporting, in particular leading its Whole of Government Accounts programme. He joined CIPFA in 2006. CIPFA promotes and supports improvements in public financial management and governance across the public services globally. As part-time Chair, CIPFA Standards, Mr. Carruthers has been involved in all these aspects of the Institute’s activities, including leading its work on the role of the public services CFO, and the development of the International Framework for Good Governance in the Public Sector in partnership with IFAC. His Technical Advisors is David Watkins.

  

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