Micro Vulnerabilities; Macro Risks: Risk, resilience and reform at ministries of finance
The combination of a new generation of risks and rapidly evolving capabilities is taking the work of ministries of finance in new directions. Health scares, entrenched pockets of poverty and social marginalization, and climate-change exposures are all putting pressure on budgets and amplifying the focus on fiscal risk. As a variety of digital technology disruptions ripple through the economy, are ministries of finance equipped with fit for purpose intelligence, or paper tigers themselves vulnerable to risk and disruption. Within a few years, two thirds of the world’s public sectors will be on accrual accounting, according to the International Federation of Accountants. Technologies are allowing MOFs to isolate sources of risk to intertemporal budget management. While the standard method for dealing with public sector balance sheet risk is from a central portfolio management perspective, the new tools are allowing MOFs to focus down on individual citizens and individual events as specific sources of risk. How are the world’s leading ministries of finance responding; will new technologies and new approaches lead to transformative change in the management of public resources?
Using three illustrative examples – the global COVID-19 virus, poverty and mental health in NZ, and climate change Vietnam’s Mekong Delta region – we will seek to bring fresh perspectives and debates to the challenges for a new generation of ministries of finance. This session will support the following:
- Consider key “technologies” (associated with modern financial management involving balance sheets, accrual accounting, medium term expenditure frameworks, fiscal risk management and disruptive technologies) that are framing the way finance ministries approach emerging intertemporal budget risks
- Highlight the pathway for countries with limited capabilities to adopt more sophisticated approaches, while reinforcing important principles around public financial management
Accounting innovations have been at the heart of informing the management and regulation of corporations. How prepared are governments with regards to illustrative risks? Three kick-off presentations will draw on approaches that are already in place. These will be followed by a shark tank to stress test if ministries are indeed on top of macro and micro risk management for a new era.
Taking each of these three key challenges:
Managing the virus: Singapore
COVID19 is attacking at its core the ability of the state to
provide its part of the social contract. The shock of a highly contagious virus
is putting into play concern about public safety. It is sowing doubt on the
state’s ability to deliver a sound response and through the trauma and
uncertainty, probably leading to reduced economic prospects. Each day companies
are announcing downward revisions to their 2020 forecasts. The state is dealing
with this by attempting to isolate individual cases, and wherever possible,
determining the link between cases. The entire workforce is having its
temperature monitored to manage the risk.
Big data shines light on multi-faceted fiscal costs of individuals’ mental illness: New Zealand
People with recent welfare benefit claims, contact with welfare housing, or with a criminal conviction also tend to have low mental health wellbeing and low life satisfaction, and high rates related to various forms of deprivation (low material wellbeing, low housing quality, low job wellbeing). This indicates that there is a relationship between mental health wellbeing and contact with a wide range of government services across different sectors. Managing down rates of mental illness will provide fiscal dividends.
Big data is allowing a more attenuated view of the interaction between individuals and the state, thus allowing ministries of finance to consider the fiscal risks associated with the conditions of individuals. This approach is consistent with the idea that we know where the poor live; we know their names, and that we know where the potholes are; we know how to fill them. The approach, applied in New Zealand, suggests we know who are likely to commit crimes, and what may help them take a different course. But has the mode of government delivery adapted sufficiently to take heed of the ability to inform small actions on a large scale; has accrual accounting made a difference? What are the financial implications of making much heavier use of personal or micro data to inform policy and delivery?
Environmental risk and the Mekong Delta: Vietnam
The thirteen provinces of the low-lying Vietnam Mekong Delta region are increasingly vulnerable to climate change. Rising sea-levels, ground-water salinity, extreme weather hazards, and sprawling urbanization are all leading to increased growing uncertainty in Vietnam’s agricultural rice basket of Vietnam. Towards this end, the national and sub-national authorities are looking to strengthen the prioritization of public investments to tackle adaptation and resilience from a regional perspective. Can finance authorities tell if proposed investments in resilience are worth the costs?
Organizer: World Bank