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Government Risk Management

Doug Hadden

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Risk Management is complex, requiring the coordination of many government entities, but is rarely coordinated in developing country governments

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National budgets are typically coordinated, involve all government entities and designed to follow policy and …

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…goals – including risk management goals

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Public Financial Management (PFM) refers to legislation, practices and technology to support the budget cycle of planning, and execution (revenue & expenditures)

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Government Budget Cycle

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Effective PFM can reduce government risks, act as early warning

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Paris Declaration and the Accra Agenda for Action has goals of increased use of country systems by donors to reduce transaction costs and increase country-led reform

Paris Declaration and Accra Agenda for Action

Foreign Aid Transaction Costs

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THE ROLE OF BUDGET PLANNING IN RISK MANAGEMENT

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Budget planning is about the future and should include risk mitigation and monitoring mechanisms

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Scenario planning can run expenditure and revenue models based on risks such as natural disasters, financial crisis, pandemics

Scenario Planning

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The classification of risks and objectives within the chart of accounts shows spending on risks linked to macroeconomic analysis and probabilities

Government Chart of Accounts

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Multiple year public investment planning tied to critical infrastructure is supported through the Medium Term Expenditure Frameworks (MTEF) practice in PFM

Medium-Term Expenditure Frameworks

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Counter-cyclical mechanisms can be triggered in budget planning that creates appropriate budget controls in execution

Counter-cyclical and pro-cyclical

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Sustainability has increasingly become mainstream in government budgeting to reduce likelihood & impact of environmental crises

Uganda and environmental budgeting

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Effective incentives for public servants and the private sector to better manage risk can be funded through the budget

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ROLE OF BUDGET EXECUTION IN RISK MANAGEMENT

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Automated internal controls reduces corruption and fiduciary risks while ensuring compliance to fiscal rules

Controls and automating governance

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The use of PFM standards like Government Financial Statistics (GFS) provides governments with critical risk-related information that can be compared with other countries to help decision-making

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Accrual accounting in government

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The move to accrual accounting by governments provides a better method to determine long-term value for risk investments

Accrual accounting in government

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Debt and liquidity management and the use of the Treasury Single Account (TSA) enables reducing debt and taking advantage of reserves to increase fiscal space to respond to crises

Treasury Single Account

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Financial information from revenue and expenditures provides early warning for decision-makers to make adjustments…

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… for example, monitoring public finances enables predicting crisis related to revenue reductions well in advance

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Physical execution of infrastructure and other critical risk mitigation investments can be tracked

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Internal and external audit can include financial risk assessment to enable improving financial resilience

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CONCLUSION: ROLE OF PUBLIC FINANCIAL MANAGEMENT IN RISK MANAGEMENT FOR DEVELOPING COUNTRY GOVERNMENTS

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Risk: it comes down the money properly invested

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Budget planning and execution enables governments to invest in innovation and track results

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Planning and monitoring reduces risk and enables investing in risk mitigation mechanisms

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Good PFM overcomes donor risks of using country systems – increasing development assistance effectiveness, increasing the fiscal space

Fiscal Space

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PFM systems are used to increase transparency of government plans, procurement, execution and audit - to reduce the perception of risk by businesses and credit agencies

Fiscal transparency in Timor-Leste

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Therefore, PFM has a critical risk management role for developing country governments

Government Risk Management Return on Investment