Public financial management in times of crisis

7 February 2023

ReBUILD for Resilience, along with partners Oxford Policy Management (OPM), recently held a webinar on public financial management and its potential as a tool for resilience. The discussants, chaired by ReBUILD’s Sophie Witter, brought to the table their own extensive experience and real-world examples from Ethiopia, Pakistan and other contexts. What follows is an overview of some of the main points from the session, followed by a video of the webinar below.

 

“Public financial management refers to the laws, institutions, systems and processes by which public resources are planned and managed. It includes the mobilization, management allocation, execution and monitoring of resources. Good public financial management is necessary but not sufficient condition for good health and development outcomes.” Sophie Witter

 

Public financial management in Africa in times of crisis – Danielle Serabro (Development economist at CABRI)

In April 2020, collection of real time data on COVID-19 began in ministries of finance and health in various parts of Africa. The focus was particularly on how ministries were responding to the crisis through prioritization, resource mobilization and social systems tracking that was followed by analytical reports.

Around 50 African countries declared states of emergency which gave unusual spending power to the executive and allowed for rooting back to free, streamlining procurement and dispersing procedures. Often, the legislature was bypassed in these instances. Countries also had emergency provisions in the Public Financial Management Acts (PFMA) areas but they were very high level and how these could be implemented often remained unclear. High level inter-ministerial committees were set up to manage COVID-19 funds and make spending decisions in 28 countries.

Government revenues declined with at least 36 countries enacting more than 148 tax relief measures. Additional resources came in the form of grants, concessional and non-concessional loans, debt relief and some more innovative financing mechanisms. Out of 50 countries, 36 produced a supplementary budget in response to the crisis. About a third of supplementary budgets registered a downward trend, averaging 13 percent of the initial budgets. Supplementary budget procedures were often simplified with less transparency.

In some cases, budget cuts were applied ‘across the board’, hindering the delivery of essential services. Often, reallocations were made by senior officials in ministries of finance with limited consultation. In other instances, committees decided on allocation decisions. Costing additional in-year resource requirements proved difficult. Non-essential services were cut first; with social sectors also getting impacted by severe cuts, starting with education, nutrition and non-COVID health programmes.

Reallocation of health funds went mostly into goods and services, recruitment and sometimes infrastructure but always COVID-19 related. Several countries introduced new programmes, however it is unclear whether this improved accountability and in many cases, the COVID-19 response translated into a neglect of other areas of health. The budgeting of COVID-19 vaccines was completely excluded from the 2020-21 budget much as countries knew that this was coming.

Most countries had no emergency procurement provisions. International organizations were responsible for a significant portion of COVID-19 related procurement. Some of the challenges identified include:

• A lack of a digital procurement systems, unclear procurement needs and poor coordination among procuring entities within countries.
• A lack of stringent transparency measures, despite pledges to this end.
• Corruption and irregular use of direct procurements, procurements without signed contracts, late delivery of goods and payment of goods before receiving.
• Lack of citizen participation in the formulation and execution of budgets and poor parliamentary oversight.

 

Learning from the Building Resilience in Ethiopia programme (BRE) – Stephanie Allan and Fantahun Belew Asfaw (Oxford Policy Management)

Disaster resilience is a key issue for PFM because disasters are a key source of macro fiscal instability. Disasters severely disrupt public finances and can threaten debt sustainability. In times of emergencies, governments are forced to shift money from other planned investments and these emergency budget reallocations crowd out other expenditures. Budgets are a vital source of disaster funding and the budget is the first port of call for funding disaster response. The budget is also sometimes the means for distributing funds from risk transfer instruments.

The BRE is a programme to deliver a more effective, self-financed and accountable response to climate and humanitarian shocks. Ethiopia is a shock-prone context affected by drought, floods, locust invasion and epidemics. The programme aims to understand the fiscal costs of shocks to governments, how to limit these costs, mobilize resources and manage disbursement.

Engaging with budget tagging exercises helps improve the transparency of disaster spending in the health sector. Ministries of finance should be supported to model fiscal risks posed by public health emergencies and health costs of other disasters. Supporting the development of budget contingencies for more predictable emergency financing while avoiding undue budget fragmentation is vital.

 

The COVID-19 experience in two provinces of Pakistan – Mujib Khan (Governance expert at Oxford Policy Management)

The Subnational Governance Programme is a four-year programme focusing on reforms in Punjab and Khyber Pakhtunkwa. The programme aims to improve the provision of basic services and strengthen perception of government performance. It does this through four outputs:

• Plans and budgets that are evidence-based and executed as planned
• Institutions that are better equipped to deliver
• Increased fiscal space with more available resources
• Innovative approaches that are developed and piloted

When COVID-19 struck in Punjab, an emergency package was put together worth $875 million to strengthen the health response, social protection and economic revival. Khyber Pakhtunkwa province put in place budget rationalization with $244 million worth of savings. The province also mounted a robust health response strategy.

The subnational experience from the Khyber Pakhtunkhwa and Punjab provinces of Pakistan demonstrated the flexibility with which the two provinces mobilised funds across budget lines to fight the COVID-19 pandemic while a programme budgeting reform is still outstanding. In terms of budget execution, Punjab made use of the flexibility within the existing regulatory framework, while Khyber Pakhtunkhwa resorted to extraordinary cabinet approvals for major procurement operations. However, financial reporting remained weak in the absence of Integrated Financial Management Information System coding for COVID-19 spending.

 

Further information

A brief outlining the main points taken from the session can be downloaded here.

Watch a recording of the session here. This video has closed captioning.