COVID-19: Public Financial Management Solutions for the Immediate and Longer Term

Any effective government response to crises such as COVID-19 will rely on good public financial management (PFM). As the International Monetary Fund makes clear, PFM systems will play an important role in tackling the immediate challenges posed by the pandemic, which include estimating and finding the financial resources needed to confront the disease, disbursing funds to the appropriate delivery units, accounting for and reporting on the resources deployed, and ensuring continuity of operations even as most government staff are absent or working from home.

Governments, accordingly, are adopting rapid remedial measures such as reprogramming expenditures, earmarking additional funds, developing expedited execution mechanisms, and planning for liquidity needs. In making these quick-fire adjustments, agility is the order of the day. But they will need to balance the virtues of flexibility against the demands of fiscal discipline—both to avoid misuse of funds and preserve macroeconomic stability into the future. As Srinivas Gurazada and his colleagues at the World Bank point out, recent health crises such as Ebola and SARS showed that PFM principles, controls, and safeguards should certainly be modified an emergency, “but should be not done away with.”

So how should governments mount an immediate response to the coronavirus while ensuring efficient and transparent PFM to meet longer-term development needs?

Efficient PFM for Hard Times

Taking this question first at a high level: the COVID-19 crisis has reaffirmed the value that PFM practitioners can bring to fiscal risk management. Here are some key insights that we see emerging:

  • Provide flexibility, while retaining accountability. As noted above, wherever expenditure authorisation procedures and procurement processes need to be simplified or accelerated, reporting and accountability mechanisms—including ex-post controls—should be maintained.
  • Elaborate a clear medium-term spending framework, including reinforced cash transfer schemes, which are essential to respond to the immediate effects of a crisis. Governments should identify medium-term investments to boost economic growth while leaving no-one behind.
  • Prioritize macroeconomic analysis and scenario planning. National governments should develop country scenarios with various underlying assumptions and key macroeconomic forecasts that take into account the impact of coronavirus on the national economy.
  • Regularly review business continuity and recovery plans. Ministries of finance need to respond to critical situations where employees must work remotely for an extended period. The business continuity plans should identify: (i) key business processes to maintain core functions and (ii) critical staff, including their backups, to run them. It is important to ensure that government structures are able to pivot to seize opportunities such as green growth and digital transformation.
  • Build institutional resilience to future challenges. It is vital to develop strategic, operational, and individual resilience to get through the ongoing pandemic as well as future shocks. For instance, helping staff adapt to novel ways of working and new technologies can limit large-scale disruption.
  • Develop a country-owned disaster risk financing strategy. Designed to mitigate the financial, economic, and social impacts of exogenous shocks, such strategies encompass risk and vulnerability assessment, risk awareness and education, risk management, and disaster response and resilient recovery. The IMF and World Bank are already piloting this approach in the Caribbean to prepare for climate-related disasters.
  • Manage public investment to help restart the economy. Although public investments may be cut or postponed at the beginning of a crisis, they are also essential to relaunch the economy. For this reason, it is important that the economic viability of infrastructure investments is carefully assessed, and only measures of true importance are selected. The post-crisis phase may also provide important opportunities for a green recovery.
  • Collaborate across institutions. Resources should be quickly injected into the “theatre of operations,” which will require effective collaboration between the executive and the legislature. Countries should consolidate internal and external resources to secure a rapid response and establish a comprehensive socioeconomic recovery plan. Civil society participation is essential to ensure an accountable and transparent response.
  • Digitalise public finances to reduce the impact of exogenous shocks over time. An integrated and transparent PFM information system can be crucial to ensure expedited responses to future emergencies. The pandemic is clearly accelerating the digitalisation process in many societies, but this process itself carries risks: governments must be wary of cyber criminals and malicious state actors.

Immediate and Medium-Term PFM Measures for Recovery

Building on lessons learned from projects dealing with previous pandemics and other emergencies, DAI has developed an approach to crisis mitigation that pays special attention to sequencing. We suggest an initial emphasis on PFM measures that limit the spread of the virus and support those affected by it—such as measures linked to health and social protection policies. Thereafter, the focus could shift to fiscal, monetary, and financial measures that also mitigate the economic impact of COVID-19.

Short-Term Measures

  • Map the socioeconomic effects of the pandemic and how they are interconnected. This overall framework can inform decisions on how to support public institutions in transitioning to the COVID-affected world. This means helping governments to: (i) account for new economic and fiscal constraints, and (ii) adapt fiscal policies to assist those most affected by COVID-19, including social protection schemes and economic stimulus packages.
  • Revise state budget and related medium-term fiscal frameworks to reprioritise expenditures and secure additional resources for the COVID-19 response. It is crucial to thoroughly assess the country’s assets and capabilities available to tackle the virus. In Egypt, for example, DAI is working through USAID’s Macro-Economic Stabilization and Reform Project to help relevant ministries assess the outbreak’s effect on key sectors, forecasting revenue and expenditure to estimate the repercussions of COVID-19 under different scenarios, and refining the government’s fiscal risk management plan.
  • Understand the budgetary and legal framework for emergency response mechanisms and set up fast-track expenditure authorization procedures (such as authority delegated to subnational governments). Support activities could include: (i) helping issue additional guidance for procurement direct awards, (ii) assisting the national procurement officers with monitoring international and domestic markets for price comparisons, and (iii) ensuring that all procurement information related to COVID-19 on government portals is public in order to enhance transparency and trust. The European Union-funded Public Finance Management Reforms (Chuma Cha Dziko) programme in Malawi has adopted this approach, by assisting in the drafting of emergency procurement procedures and ensuring that ex-post checks are fully integrated to properly direct goods and services.
  • Help ministries of finance prepare for high liquidity demands. Managing cash flow during a crisis is crucial, especially in the health sector and in countries with low cash reserves. Ministries of finance might need support developing a treasury plan for cash management as part of their overall business risk and continuity preparation.
  • Secure reporting and accountability mechanisms to track COVID-19 expenditures, inform policy makers, and mitigate corruption. This assistance could include support to introduce appropriate budgeting and accounting codes within existing structures, thus capturing COVID-19 allocations and expenditures. Supporting inclusive policy dialogue and citizen engagement in policy planning processes to ensure accountability is also critical here. The U.K. Department for International Development’s Accountable, Responsive and Capable Government (ARC) pillar of the Partnership to Engage, Reform and Learn Programme in Nigeria strengthens government capabilities to improve accountability and responsiveness. The ARC team worked with government to facilitate virtual meetings and national dialogues on a wide range of topics, such as debt sustainability, economic stability programmes, and budgetary adjustments. Importantly, it has maintained policy dialogue and citizen participation in key policy planning processes, ensuring accountability and government responsiveness in the crisis.

ARC workshop in Nigeria. Photo: FCDO ARC.

Medium-Term Measures

In the longer term, donors and implementing partners could:

  • Assist with the upgrade and implementation of the business continuity and recovery plans;
  • Help develop, update, and implement country-owned disaster risk financing strategies;
  • Facilitate COVID-19 coordination among internal stakeholders such as ministries and subnational governments, and external stakeholders such as regional development banks and bilateral development partners; and
  • Organize peer exchanges and knowledge transfers about the fiscal implications of coronavirus and related remedial measures. Bodies such as the Collaborative Africa Budget Reform Initiative are already doing effective work in this regard, introducing, for example, the COVID-19 Public Finance Response Monitor to track how African ministries of finance are responding to the crisis.

Ultimately, our objective is to work closely with our partners through the recovery and reform planning needed to deal with this crisis and its aftermath. This means ensuring that our development assistance is tailored to local needs and informed by in-depth political economy analysis as well as lessons learnt from previous experience. We intend to support our counterparts not only in dealing with the present, but also to think about the path forward; where possible, turning the immediate crisis into opportunity to uphold and strengthen PFM processes, and create conditions more conducive to growth and prosperity for all.

Debora Marignani is a Principal Consultant with our UK Governance Team.