“Reforms should start by analyzing problems, not solutions.”
The road to an economic and financial recovery after a pandemic is probably a bumpy one, and during the past year fighting with COVID, we all felt that some form of reforms and better public financial management needed across almost all sectors of economy.
For this edition, we asked Mosi Dorbayani, the Executive Adviser and Economist at Orenda Enterprises Inc – Canada to join us.
What’s the best way to establish an effective reform?
MD: For reforms, Political economy and contextual factors are key. It’s also critical to recognize that to make reforms, informal rules, behavior, and system of beliefs are often far more important than formal laws, and other rules. Particularly so in developing and emerging countries. Having said that, a country’s budgetary institutions cannot be changed or upgraded like software programs; therefore, prioritization, sequential planning, and monitoring systems are essential for establishing reforms. And for that, before we make advanced reforms, we need to focus on basics first. Basic factors such as: Macro-fiscal; Accounting; Cash Management; and Internal Control.
Reforms should start by analyzing problems by looking into those basics first, not solutions. Therefore, a proper Public Financial Management Strategy should be in place – to assure government manages resources and public finances well enough to meet the fiscal policies as required for reforms. A good Public Financial Management institution and strategy keeps eye on laws, procedures, and frameworks, and makes fiscal policy work. It simply exists to ensure that the government manages their finances well.
How public financial strategies can create change?
MD: For example, as part of a reform, a fiscal policy for your country might be to reduce its debt to a much safer level. Here the fiscal policy would say: what the fiscal deficit should to be in order to meet and maintain that safe debt level. Fiscal policy, should also look at ‘whys behind the objectives’ and asks why the debt and deficit need to be reduced. And here is when your country needs Public Financial Management strategy. It supports fiscal policies and provides tools and methodologies to ‘create change’.
let us imagine a country whose objective is to achieve a sustainable, fiscal position to improve their fiscal stands and economy in the world. To achieve that, the country needs to reduce its debt to a sustainable level. Here, the fiscal policy should determine a set target for the desired debt level, and then puts it in action through financial management strategies. For instance, fiscal policy would ask, what is the desired debt level for a sustainable fiscal position? The answer would be: at or below 3% of GDP. Thereon, the Public Financial Management would consider strategies – what need to be implemented including a new set of rules.
How those new rules can be implemented timely?
MD: To implement a rule one may need a ‘medium-term fiscal framework’ or a ‘medium-term budget framework’ that links the rule to the budget process. To that end, there may be various reporting requirements to assure that the data is accurate, and compliance with the new rules are met. This may as well require additional reporting and monitoring tools.
To establish reform and produce favorable results, Public Financial Management has an inter-sectional role across ‘informal rules’, ‘law’, ‘economic policies and decisions’, ‘their implementations’, and ‘political factors’.