Role of Public Financial Management for Risk Management in Developing Country Governments
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Role of Public Financial Management for Risk Management in Developing Country Governments

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Describes how good budget planning and execution practices can help with risk management for developing countries

Describes how good budget planning and execution practices can help with risk management for developing countries

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Role of Public Financial Management for Risk Management in Developing Country Governments Presentation Transcript

  • 1. Version 7 section • brief discussion Role of Public Financial Management in Government Risk Management Doug Hadden
  • 2. Version 7 section • brief discussion Risk Management is complex, requiring the coordination of many government entities, but is rarely coordinated in developing country governments
  • 3. Version 7 section • brief discussion National budgets are typically coordinated, involve all government entities and designed to follow policy and …
  • 4. Version 7 section • brief discussion …goals – including risk management goals
  • 5. Version 7 section • brief discussion Public Financial Management (PFM) refers to legislation, practices and technology to support the budget cycle of planning, and execution (revenue & expenditures) 55 Government Budget Cycle
  • 6. Version 7 section • brief discussion Effective PFM can reduce government risks, act as early warning
  • 7. Version 7 section • brief discussion 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
  • 8. Version 7 section • brief discussion THE ROLE OF BUDGET PLANNING IN RISK MANAGEMENT
  • 9. Version 7 section • brief discussion Budget planning is about the future and should include risk mitigation and monitoring mechanisms
  • 10. Version 7 section • brief discussion Scenario planning can run expenditure and revenue models based on risks such as natural disasters, financial crisis, pandemics Scenario Planning
  • 11. Version 7 section • brief discussion 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
  • 12. Version 7 section • brief discussion 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
  • 13. Version 7 section • brief discussion Counter-cyclical mechanisms can be triggered in budget planning that creates appropriate budget controls in execution Counter-cyclical and pro-cyclical
  • 14. Version 7 section • brief discussion Sustainability has increasingly become mainstream in government budgeting to reduce likelihood & impact of environmental crises Uganda and environmental budgeting
  • 15. Version 7 section • brief discussion Effective incentives for public servants and the private sector to better manage risk can be funded through the budget
  • 16. Version 7 section • brief discussion ROLE OF BUDGET EXECUTION IN RISK MANAGEMENT
  • 17. Version 7 section • brief discussion Automated internal controls reduces corruption and fiduciary risks while ensuring compliance to fiscal rules Controls and automating governance
  • 18. Version 7 section • brief discussion 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 1818 Accrual accounting in government
  • 19. Version 7 section • brief discussion The move to accrual accounting by governments provides a better method to determine long-term value for risk investments Accrual accounting in government
  • 20. Version 7 section • brief discussion 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
  • 21. Version 7 section • brief discussion Financial information from revenue and expenditures provides early warning for decision-makers to make adjustments…
  • 22. Version 7 section • brief discussion … for example, monitoring public finances enables predicting crisis related to revenue reductions well in advance
  • 23. Version 7 section • brief discussion Physical execution of infrastructure and other critical risk mitigation investments can be tracked
  • 24. Version 7 section • brief discussion Internal and external audit can include financial risk assessment to enable improving financial resilience 2424
  • 25. Version 7 section • brief discussion CONCLUSION: ROLE OF PUBLIC FINANCIAL MANAGEMENT IN RISK MANAGEMENT FOR DEVELOPING COUNTRY GOVERNMENTS
  • 26. Version 7 section • brief discussion Risk: it comes down the money properly invested
  • 27. Version 7 section • brief discussion Budget planning and execution enables governments to invest in innovation and track results
  • 28. Version 7 section • brief discussion 2828 Planning and monitoring reduces risk and enables investing in risk mitigation mechanisms
  • 29. Version 7 section • brief discussion Good PFM overcomes donor risks of using country systems – increasing development assistance effectiveness, increasing the fiscal space Fiscal Space
  • 30. Version 7 section • brief discussion 3030 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
  • 31. Version 7 section • brief discussion Therefore, PFM has a critical risk management role for developing country governments Government Risk Management Return on Investment